Section one Flashcards
What is a public limited company (plc)?
A public limited company is a business owned by two or more individuals or companies known as shareholders and which acquires a separate legal identity to its owners. This means that the business can own property, sue and be sued, and that the business’s finances are separate to the owners ie shareholders, who thus enjoy limited liability.
What the Case Study says
The letters ‘plc’ in the name of the business tell us that AS plc is a public limited company.
What is the significance of being a plc in relation to the A293 specification?
From your previous study of the A292 Business and People Unit, you should remember that types of business ownership can influence a number of things including the management and control of the business and sources of finance.
Who run the company (PLC) ?
With regard to management and control, within a plc shareholders must elect / appoint at least two directors to be responsible for making all the key business decisions and managing the business on their (the shareholders’) behalf, within their best interests. Directors normally elect a Chairman and Managing Director but this can be one and the same. Directors can appoint managers to run the day-to-day operations. A plc must also appoint a formally qualified Company Secretary who, along with Directors, is responsible for submitting key legal documents to Companies House.
How is a plc funded
In terms of finance, as with private limited companies (Ltd’s), this comes from the sale of shares in the business and may also come from loans and retained profits. However, plc’s have greater capital raising opportunities than Ltd’s and other types of business ownership, as finance can be raised through selling shares to the public on the Stock Exchange. With regard to this, the case study informs us that AS plc raised the money to buy the Chinese business which makes the body panels for its cars by ‘selling additional shares on the UK and Chinese stock markets’
Food for thought
Sources of finance are also significant in light of AS plc’s plans to build a new factory to produce more fuel-efficient engines, which is also considered later.
A Manufacturing Business
What the Case Study says
The Introduction informs us that AS plc is ‘a manufacturing business producing expensive sports cars’.
This section briefly considers what it means to be involved in manufacturing and how a sports car manufacturer, such as AS plc, can add value.
What is a manufacturing business?
Manufacturing involves transforming natural resources into finished or part-finished goods, or assembling part-finished goods into finished goods. In the case of AS plc, from Section Three of the Case Study we can deduce that it is largely involved in assembling car components, (eg engines, leather seats, body panels, wheels, disc brakes, tyres, headlamps and radiators) which are sourced from companies around the world, into finished sports cars.
However, AS plc is also involved in the manufacturing of individual car components which it uses (and plans to use) in its cars. This is evident from Section Three of the Case Study which tells us that AS plc owns the business in China which makes the body panels for its cars.
It is also likely that AS plc makes all the engines it currently uses in its cars, although this is not made entirely clear in the Case Study. All the case study tells us (in Fig, 4) is that the engines AS plc use come from the UK. Whether or not AS plc does currently make the engines it uses in its cars, Section Four of the Case Study later tells us that, in partnership with a local university engineering department, AS plc has developed and taken out a patent on a more fuel-efficient engine and plans to build a new factory to make these engines. Hence, if AS plc hasn’t been making the engines it uses in its cars, it is certainly planning to make them in the future.
How does AS plc add value?
AS plc takes inputs (eg car components) and through various processes requiring the application of additional resources (eg labour) transforms these into more valuable outputs (finished cars) and this increases their worth.
This increase in worth is known as the value added.
For customers, the value added is the benefit gained from not having to assemble or make the car (or car components) themselves. It is the time saved or freed up to do other more enjoyable things, or, in the case of business customers, the time saved or freed up to invest in other activities.
The more important the product is to the customer, and the less equipped and / or willing they are to produce or do it for themselves, the higher the price that can be charged to provide it.
For businesses owned by private individuals, where profit is the prime objective, as with AS plc, it is by adding value that such organisations make a profit. If they do not add value there is no justification for their existence.
The route to more profit is to add increased value and, thereby, increase sales revenue by raising price and / or selling greater volumes as the product becomes more desirable. The more successful AS plc are at adding value, the more profit they make, which can help fund product development, growth and expansion (and increase market share).
How else may as plc add value to their cars
Making the cars more environmentally-friendly.
Offering superior customer service eg after sales support, warranties, credit.
Making the cars more efficient in carrying out their function to get people (or goods) from A to B
How may make their cars more environmentally friendly add value?
Making the cars more environmentally-friendly. In the current climate, where there is growing concern about the environment, increasing the extent to which a car is environmentally friendly might also help to add value, ie increase the perceived worth of the car in the eyes of the customer, and allow higher prices to be charged.
Making the cars more efficient in carrying out their function to get people (or goods) from A to B eg by making them more economical to run, less noisy, more comfortable.
AS plc has (or will have) direct control over fuel efficiency and noise as it actually makes (and / or plans to) make the engines it uses in its cars.
However, it would have to liaise closely with the Spanish suppliers it uses for its seats in order to improve comfort, for example.
Making the cars more visually appealing eg through improved design or colour. Whilst AS plc is likely to have direct control over colour and body panel design (as it owns the Chinese company that makes these),
Businesses can also increase the perceived worth of a product by emphasising the product benefits through promotion (eg through advertising and branding).
Any of the above can help to differentiate one car from another ie make it stand out from other car producers around the world. In AS plc’s case, we are told that the engines it has developed are more fuel-efficient ‘than those of its competitors’ (lines 57-58). This is clearly a key benefit that AS plc should emphasise in all its sales ‘speak’ and promotional literature, in order to maximise sales from customers interested in a car that is more economical to run and / or a more environmentally–friendly car.
In terms of ‘physical’ decline this might mean the buildings have not been well maintained and are in a state of dis-repair.
In terms of economic decline this might mean that there is high unemployment. Finally, social decline might be evident in a high crime rate.
What does ‘an area in need of regeneration’ mean?
This statement implies that Bowton is an area suffering from physical, economic and / or social decline.
The fact that AS plc is located in an area in need of regeneration might mean what?
the rent paid on any premises AS plc leases in the area is low. This would help to keep down fixed costs.
What is the significance of being located in an area in need of regeneration for AS plc?(in terms of getting a government grant)
AS plc might find it easier to secure a grant from the UK government to construct the new factory it wants to build to produce the more fuel-efficient engines. The UK government are likely to be in favour of a project that creates employment for people in the local area. However, the extent to which the new factory will do this is limited. Although local people might be employed to construct the factory, there may not be many local people employed in the factory once built. This is because there is a shortage of skilled engineers in the UK able to work with the new ‘state of the art’ technology that AS plc plans to use and, to overcome this shortage, AS plc has recruited (and plans to recruit more) engineers with the skills required from other EU countries. The UK government is likely to be more in favour of a development that involves the training of local (or national) people to use the new technology, rather than one that sourced engineers from outside the UK. However, training people in the skills required could prove time consuming and expensive for AS plc (unless the government provided funding to train local people).
What is the significance of being located in an area in need of regeneration for AS plc? (Employees and wages)
AS plc might find it easy to recruit unskilled or semi-skilled workers – if unemployment is high in the area. (However, lines 63-64 inform us that there is a shortage of skilled engineers, not just in Bowton but in the entire UK, who could work with the new technology AS plans to use in the new factory it plans to build to make the more fuel-efficient engines).
wage costs may also be low - if unemployment in the area is high, which would help to keep down variable costs.
The Increase in Sales and Profits in the Developing Economies, Known as the BRIC Economies and Reasons for this Increase
What the Case Study says?
The Case Study informs us that AS plc had its best sales ever in 2011 and that its cars sold particularly well in ‘the developing economies known as the BRIC economies - Brazil, Russia, India and China’. (This provides evidence of AS plc’s involvement in international trade with other major trading partners). This increase in sales and profits was put down to the ‘continued growth’ in these developing economies which have seen ‘a strong rise in employment’.
What is meant by ‘developing’ economies? What are the BRIC economies?
Developing economies are countries with less industrialisation and lower living standards than that evident in countries such as the UK, USA or Australia.
The BRIC economies ie Brazil, Russia, India and China are actually classed as emerging markets. These are developing countries with a high rate of economic growth and industrialisation. The average inhabitant of these countries does not enjoy the same living standards as the citizens of the advanced countries, but the economies in such countries are growing rapidly. These emerging markets are also characterised by trade liberalisation and openness to foreign investment.
The Financial Times Stock Exchange actually lists Brazil (as well as Poland) as an advanced emerging economy, and lists Russia, China and India as secondary emerging economies. The basic distinction between the advanced emerging and the secondary emerging markets is that the former group has higher per capita (per person) incomes and / or has a more developed infrastructure.
