Topic 1 Key Terms

Question 1

Cooperatives

Answer 1

for-profit social enterprises set up, owned and run by their members, who might be employees and/or customers.

Question 2

A company (or corporation)

Answer 2

refers to a limited liability business that is owned by shareholders. A certificate of incorporation gives the company a separate legal identity from its owners (shareholders).

Question 3

Deed of partnership

Answer 3

the legal contract signed by the owners of a partnership. The formal deeds specify the name and responsibilities of each partner and their proportion of any profits or losses.

Question 4

Incorporation

Answer 4

there is a legal difference between the owners of a company and the business itself. This ensures
that the owners are protected by limited liability.

Question 5

An initial public offering (IPO)

Answer 5

occurs when a business sells all or part of its business to shareholders on a public stock exchange for the first time. This changes the legal status of the business to a publicly held company.

Question 6

Limited liability

Answer 6

restriction on the amount of money that owners of a company can lose if the business goes bankrupt, i.e. shareholders cannot lose more than the amount they invested in the company.

Question 7

Non-governmental organizations (NGOs)

Answer 7

private sector not-for-profit social enterprises that operate for the benefit of others rather than primarily aiming to earn a profit, such as Oxfam and Friends of the Earth.

Question 8

Partnerships

Answer 8

type of private sector business entity owned by 2-20 people (known as partners). They share the responsibilities and burdens of running and owning the business.

Question 9

The private sector

Answer 9

part of the economy run by private individuals and businesses, rather than by the government such as sole traders, partnerships, privately held companies an publicly held companies.

Question 10

privately held company

Answer 10

a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public on a Stock Exchange.

Question 11

publicly held company

Answer 11

an incorporated limited liability business that allows shareholders to buy and sell shares in the company via a public Stock Exchange.

Question 12

public sector

Answer 12

the part of the economy controlled by the government. Examples include state healthcare and education services, the emergency services, social housing and national defense.

Question 13

sole trader

Answer 13

a self-employed person who runs the business on his/her own. This mean s/he has exclusive responsibility for its success (profits) or failure (unlimited liability).

Question 14

Social enterprises

Answer 14

revenue-generating businesses with social objectives at the core of their operations. They can be for-profit or non-profit business entities, but all profits or surpluses must be reinvested for that social purpose rather than being distributed to shareholders and owners.

Question 15

stock exchange

Answer 15

a marketplace for trading stocks and shares of publicly held companies (or public limited companies).
Examples include the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).

Question 16

Unlimited liability

Answer 16

a feature of sole traders and ordinary partnerships who are legally liable or responsible for all monies owed to their creditors, even if this means that they have to sell their personal possessions to pay for their debts.

Question 17

Corporate social responsibility (CSR)

Answer 17

the conscientious consideration of ethical and environmental practice related to business activity. A business that adopts CSR acts morally towards all of its various stakeholder groups and the well-being of society as a whole.

Question 18

ethical code of practice

Answer 18

the documented beliefs and philosophies of an organization, so that people know what is considered acceptable or not acceptable within the organization.

Question 19

Ethical objectives

Answer 19

organizational goals based on moral guidelines, determined by the business and/or society, which direct and determine decision-making.

Question 20

Ethics

Answer 20

moral principles that guide decision-making and business strategy. Morals are concerned with what is considered to be right or wrong, from society’s point of view.

Question 21

mission statement

Answer 21

refers to the declaration of an organization’s overall purpose. It forms the foundation for setting the objectives of a business.

Question 22

Objectives

Answer 22

specify what an organization strives to achieve. They are the goals of an organization, such as growth, profit, protecting shareholder value and ethical objectives.

Question 23

Strategic objectives

Answer 23

longer-term goals of a business, such as profit maximization, growth, market standing and increased market share.

Question 24

Strategies

Answer 24

various plans of action that businesses use to achieve their targets. They are the long-term plans of the organization as a whole.

Question 25

Tactical objectives

Answer 25

short-term goals that affect a unit of the organization. They are specific goals that guide the daily functioning of certain departments or operations.

Question 26

Tactics

Answer 26

the short-term plans of action that businesses use to achieve their objectives.

Question 27

vision statement

Answer 27

an organizations long-term aspirations i.e, where the business ultimately wants to be.

Question 28

Conflict

Answer 28

refers to situations where stakeholders have disputes or differences regarding certain issues or matters. This can lead to arguments and tension between the various stakeholder groups.

Question 29

Customers

Answer 29

the clients of a business. As a key external stakeholder group, customers seek to have value for money, such as competitive prices and good quality products.

Question 30

Directors

Answer 30

senior executives who have been elected by the company's shareholders to address business activities on behalf of their owners.

Question 31

Employees

Answer 31

staff of an organization. They have a stake (an interest and involvement) in the organization they work for.

Question 32

External stakeholders

Answer 32

individuals and organizations not part of the business but have a direct interest in its activities oup and performance. Examples include customers, suppliers and the government

Question 33

Financiers

Answer 33

the financial institutions and individual investors who provide sources of finance for an organization. They are interested in the organization's ability to generate profits and to repay debts.

Question 34

Internal stakeholders of a business

Answer 34

members of the organization, namely the employees, managers, directors and shareholders (owners) of the business.

Question 35

Government

Answer 35

the ruling authority within a state or country. As an external stakeholder group, the government is interested in businesses complying with the law with regards to the conduct of business activities.

Question 36

local community

Answer 36

refers to the general public and local businesses that have a direct interest in the activities of an organization, namely to create jobs and to conduct business activities in a socially responsible way.

Question 37

Managers

Answer 37

an internal group of stakeholder responsibly for overseeing the daily operations of the business.

Question 38

Pressure groups

Answer 38

consist of individuals with a common concern (such as environmental protection) who seek to place demands on organizations to act in a particular way or to influence a change in their behaviour.

Question 39

Stakeholder conflict

Answer 39

refers to differences in the varying needs and priorities of the various stakeholder groups of a business.

Question 40

Stakeholder mapping

Answer 40

a model that assesses the relative interest of stakeholders and their relative influence (or power) on an organization.

Question 41

Shareholders (or stockholders)

Answer 41

the owners of a limited liability company. Shares in a company can be held by individuals and other organizations.

Question 42

Stakeholders

Answer 42

individuals or organizations with a direct interest (known as a stake) in the activities and performance of a business, such as shareholders, employees, customers and suppliers.

Question 43

Suppliers

Answer 43

an external stakeholder group that provide business with stocks of raw materials, component parts and finished goods needed for production. They can also provide commercial services, such as maintenance and technical support.

Question 44

Gross domestic product (GDP)

Answer 44

the value of a country's annual output or national income.

Question 45

host country

Answer 45

any nation that allows a multinational company to set up in its country.

Question 46

multinational company (MNC)

Answer 46

an organization that operates in two or more countries, with its head office usually based in the home country.

Question 47

Protectionist policies

Answer 47

measures imposed by a country to reduce the competitiveness of imports, such as tariffs (import taxes), quotas and restrictive trade practices.

Question 48

Adding Value

Answer 48

The practice of producing a good or service that is worth more than the cost of the resources used in the production process.

Question 49

Forward vertical integration

Answer 49

a growth strategy that occurs with the amalgamation of a firm operating at a later stage in the production process, such as a book publisher acquiring book retailers.

Question 50

Franchising

Answer 50

refers to an agreement between a franchisor selling its rights to other businesses (franchisees) to allow them to sell products under its corporate name in return for a fee and regular royalty payments.

Question 51

Horizontal integration

Answer 51

an external growth strategy that occurs when a business amalgamates with a firm operating in the same stage of production.

Question 52

Internal diseconomies of scale

Answer 52

occur due to internal problems of mismanagement, causing average costs of production to increase as a firm grows.

Question 53

Internal economies of scale

Answer 53

occur within a particular organization (rather than the industry as a whole) as it grows in size.

Question 54

Internal growth (also known as organic growth)

Answer 54

occurs when a business grows using its own capabilities and resources to increase the scale of its operations and sales revenue.

Question 55

joint venture

Answer 55

a growth strategy that combines the contributions and responsibilities of two or more different organizations in a shared project by creating a separate legal enterprise.

Question 56

Lateral integration

Answer 56

refers to external growth of firms that have similar operations but do not directly compete with each other, such as PepsiCo acquiring Quakers Oats Company.

Question 57

Marketing economies of scale

Answer 57

occur when larger businesses can afford to hire specialist managers, thereby improving the organization's overall efficiency and productivity.

Question 58

merger

Answer 58

a form of external growth whereby two (or more) firms agree to form a new organization, thereby losing their original identities.

Question 59

The optimal level of output

Answer 59

the most efficient scale of operation for a business. This occurs at the level of output where the average cost of production is minimized.

Question 60

The purchaser

Answer 60

refers to the acquiring company in an acquisition or the buyer of another company in a takeover.

Question 61

Purchasing economies of scale

Answer 61

occur when larger organizations can gain huge cost savings per unit by purchasing vast quantities of stocks (raw materials, components, semi-finished goods and/ or finished goods).

Question 62

Risk bearing economies of scale

Answer 62

occur when large firms can bear greater risks than smaller ones due to having a greater product portfolio.

Question 63

Specialization economies of scale

Answer 63

occur when larger firms can afford to hire and train specialist workers, thus helping to boost their level of output, productivity and efficiency.

Question 64

Strategic alliances

Answer 64

formed when two or more organizations join together to benefit from external growth, without having to set up a new separate legal entity.

Question 65

Synergy

Answer 65

a benefit of growth, which occurs when the whole is greater than the sum of the individual parts when two or more business operations are combined. Synergy creates greater output and improved efficiency.

Question 66

takeover (also referred to as hostile takeover)

Answer 66

occurs when a company buys a controlling interest in another firm without the prior agreement or approval of the target company’s Board of Directors.

Question 67

target company

Answer 67

refers to the organization that is purchased by another in an acquisition or takeover deal.

Question 68

Technical economies of scale

Answer 68

are cost savings by greater use of large-scale mechanical processes and specialist machinery, such as mass production techniques which help to cut average costs of production.

Question 69

Vertical integration

Answer 69

takes place between businesses that are at different stages of production.

Question 70

acquisition

Answer 70

a method of external growth that involves one company buying a controlling interest (majority stake) in another company, with the agreement and approval of the target company’s Board of Directors.

Question 71

Average cost

Answer 71

refers to the cost per unit of output.

Question 72

Backward vertical integration

Answer 72

occurs when a business amalgamates with a firm operating in an earlier stage of production, such as a car manufacturer taking over a supplier of tyres or other components.

Question 73

Conglomerates

Answer 73

businesses that provide a diversified range of products and operate in a range of different industries.

Question 74

demerger

Answer 74

occurs when a company sells offa part ofits business, thereby separating into two or more businesses. It usually happens due to conflicts, inefficiencies and incompatibilities following an earlier merger of two or more companies.

Question 75

Diseconomies of scale

Answer 75

the cost disadvantages of growth. Average costs are likely to eventually rise as a firm grows due to a lack of control, coordination and communication.

Question 76

Economies of scale

Answer 76

refer to lower average costs of production as a firm operates on a larger scale due to gains in productive efficiency, such as easier and cheaper access to source of finance.

Question 77

External diseconomies of scale

Answer 77

occur due to factors beyond its control which cause average costs of production to increase as an industry grows.

Question 78

External economies of scale

Answer 78

occur when an organization’s average cost falls as the industry grows. Hence, all firms in the industry benefit.

Question 79

External growth (or inorganic growth)

Answer 79

occurs when a business grows and evolves by collaborating with, buying up or merging with other organizations.

Question 80

Financial economies of scale

Answer 80

cost savings made by large firms as banks and other lenders charge lower interest (for overdrafts, loans and mortgages) because larger businesses represent lower risk.

Question 81

Adding value

Answer 81

the practice of producing a good or service that is worth more than the cost of the resources used in the production process.

Question 82

Businesses

Answer 82

organizations involved in the production of Wants are people's desires, i.e. the things they would like to goods and/or the provision of services. have, such as new clothes, smartphones, overseas holidays and jewellery.

Question 83

Consumers

Answer 83

people or organizations that actually use a product.

Question 84

Customers

Answer 84

the people or organizations that buy the product.

Question 85

entrepreneur

Answer 85

an individual who plans, organizes, and manages a business, taking on financial risks in doing so

Question 86

Entrepreneurs

Answer 86

people who manage organize and plan the resources needed for business activity in pursuit of organizational objectives. They are risk takers who exploit business opportunities in return for profits.

Question 87

Entrepreneurship

Answer 87

the management, organization, and planning of the other three factors of production. The success or failure of a business rests on the talents and decisions of the entrepreneur.

Question 88

Goods

Answer 88

physical products produced and sold to customers, such as laptops, books, contact lenses, perfumes and children’s toys.

Question 89

Needs

Answer 89

the basic necessities that a person must have to survive, including food, water, warmth, shelter and clothing.

Question 90

Primary sector

Answer 90

refers to businesses involved in the cultivation or extraction of natural resources, such as farming, mining, quarrying, fishing, oil exploration and forestry.

Question 91

Production

Answer 91

the process of creating goods and/or services, adding value in the process.

Question 92

Quaternary sector

Answer 92

a sub-category of the tertiary sector, where businesses are involved in intellectual and knowledge- based activities that generate and share information, such as research organizations.

Question 93

Secondary sector

Answer 93

refers to businesses concerned with the construction and manufacturing of products.

Question 94

Services

Answer 94

intangible products sold to customers, such as the services provided by airlines, restaurants, cinemas, banks, health and beauty spas, schools and hospitals.

Question 95

Tertiary sector

Answer 95

refers to businesses involved with the provision of services to customers.

Question 96

Wants

Answer 96

People's desires, i.e. the things they would like to have such as new clothes, smartphones, overseas holidays and jewelry