Unit 1 Flashcards
(104 cards)
1
Q
What is the purpose of business activity?
A
- Business activity uses scarce resources to produce goods and services that allows consumers to live a higher standard of living.
- Adding value
2
Q
Def. Consumer goods
A
- The physical tangible goods sold to the general public.
1. Durable goods: e.g cars or washing machines
2. Non durable goods: e.g food, toothpicks
3
Q
Def. Consumer services
A
- The non- tangible products sold to the general public
- E.g hotel accommodation, insurance services
4
Q
Def. Capital goods
A
- Fixed assets = physical goods used by industry for production e.g machinery, vehicles
5
Q
What are the factors of production? (7)
A
- Land: site for buildings and natural resources e.g coal
- Labour: manual and skilled labour to make up workforce
- Capital: Finance invested and capital goods
- Enterprise: a managing, decision making and coordinating role.
- Customers
- Suppliers
- Government: for the use of roads/rail/airports, law and order, Schools and college
6
Q
Def. Creating value
A
Increasing the difference between the cost of purchasing bough-in materials and the price the finished goods are sold for.
7
Q
Def. Added value
A
The difference between the cost of purchasing raw materials and the price the finished goods are sold for.
8
Q
Def. entrepreneur
A
Someone who takes the financial risk of starting and managing a new venture
9
Q
What are the characteristics of successful entrepreneurs? (6)
A
- Innovation: Must be able to carve a new niche in the market to attract consumers
- Commitment and self motivation: the willingness to work hard, keep ambition to succeed, energy and focus
- Multi - skilled: know technical skills, social skills, good at handling money and keeping accounting records
- Leadership skills: have the personality that will encourage people to follow
- Self - confidence and ability to ‘bounce back’: ability to make a come back from any setbacks.
- Risk taking.
10
Q
What is a business?
A
Any organisation that uses resources to meet the needs of customers by providing a product or service that they demand.
11
Q
What are the challenges faced by entrepreneurs? (5)
A
- Identifying a successful business opportunity.
- Sourcing capital (finance)
- Determining a location
- Competition
- Building a customer base
12
Q
Why do businesses often fail? (4)
A
- Lack of record keeping
- Lack of working capital
- Poor management skills
- Changes in the business environment
13
Q
What is the impact of enterprise on a country’s economy? (6)
A
- Employment creation: reduces national unemployment level.
- Economic growth: increase in output goods => increase in GDP => increase in living standards and increased tax for the government.
- Innovation and technology change: increase in use of IT firms => helps businesses become more advanced in IT => more competition.
- Exports: increase value of national export => more internationally competitive
- Personal development: becoming an entrepreneur can lead people towards self actualisation (sense of achievement). Also creates example for others to follow.
- Increased social cohesion: giving people jobs boosts their confidence and induces socialising,
14
Q
Def. Social enterprise
A
A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners.
15
Q
Def. Triple bottom line
A
The three objectives of social enterprises:
1. Economic: make a profit to reinvest back into the business and provide some returns to the owners.
2. Social: provide jobs and support local communities
3. Environmental: to protect the environment
16
Q
Difference between charity and social enterprise
A
- A charity runs on donations while SE make their own income to run
- A charity works within the given structures by the government, a social enterprise creates its own opportunities and operates like any business
- A charity is designed to help immediate suffering, usually quick and short lived. A SE can be both short lived and running for decades as any business
17
Q
Def. Opportunity cost
A
The benefit of the next most desired option which is given up.
18
Q
Def. Primary sector
A
- Firms extract natural resources so that they can be used and processed by other firms.
- E.g - Farming, Fishing, Oil Extraction
19
Q
Def. Secondary sector
A
- Manufacture & process products from natural resources / raw materials
- E.g - baking, clothes & construction
20
Q
Def. Tertiary sector
A
Firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking…
21
Q
What are the benefits of industrialisation (growing of secondary from primary)?
A
- Increase in Gross Domestic Product
- Increasing output of goods can result in lower imports and higher exports pf such products.
- More jobs created -More tax for the government
22
Q
What are the problems of industrialisation?
A
- People moving from countries to the towns leads to housing and social problems. - Imports of raw materials increase import costs
23
Q
Why is there an increase in the importance of tertiary sector in developed economies?
A
- Rising economies -> higher living standards -> people spend income on services more
24
Q
Def. Private sector
A
Comprises businesses owned and controlled by individuals or groups of individuals.
25
Def. Mixed economy
Economic resources are owned and controlled by both private and public sectors.
26
Def. Free-market economy
Economic resources owned largely by the private sector with very little state intervention.
27
Def. Command economy
Economic resources owned, planned and controlled by the state.
28
Why are certain goods and services are provided by the governmental organisations?
- They may be too significant to be left to private businesses. Examples usually include health, education services, defence and public law and order (police force), or 'strategic' industries such public transport. - Public goods are owned by the government because they cannot be charged for for private businesses to make profit. Eg. Street lights.
29
Local vs National vs International businesses.
- Local businesses: operate in a small part of the country with no objective to expand eg. hairdressing businesses.
- National businesses: have branches or operations across most of the country without expanding internationally. eg. national banking firms.
- International businesses: operate is many countries.
30
Def. Sole traders
A business in which one person provides the permanent finance and in return has full control of the business.
31
Advantages of sole traders.
Ad: -easy to set up -owner has complete control, no disagreements. -owner keeps all profits -business can be based on their interests or skills, rather then working as an employee for a larger firm.
32
Disadvantage of sole traders
* Unlimited liability- all of owner's assets are potentially at risk
* Often faces intense competition form larger firms.
* Difficult to raise additional capital
* Long hours often necessary to make business pay.
33
Def. Partnership
A business formed by two or more people to carry on a business together, with shared capital and share responsibilities.
34
Partnership Advanatges (4)
* Partners may specialise in different areas of business management
* shared decision making, therefor shared less mistakes would be made
* Additional capital invested by each partner
* Losses are shared
35
Partnership Disadvantages
* Unlimited liability
* Profits are shared
* Many disassgreements may occur which slows down the process of decision making
36
Def. Limited liability
The only potential loss a shareholder has if the company fails is the amount invested in the company, and it does not spread to the shareholder's personal assets.
37
Def. Private limited companies (Ltd.)
To small to medium sized business that is owned by shreholders who are often members of the same family. This company cannot sell shares to the public.
38
What's the difference between companies and "unincorporated" businesses? (3)
* Limited liability
* Legal personality: A company is recognised in law as having a legal identity separate from its owners.
* Continuity: If the owner dies, the company is inherited.
39
Advantages of Ltd.
* Limited liability
* Separate legal personality
* Continuity
* Able to raise capital from sale of shares to family, friends and employees.
* Higher status
40
Diadvantages from Ltd. (3)
* Legal formalities involved in establishing the business
* Capital cannot be raised by selling shares to the public
* Less secrecy because end of year accounts can be availbale for public inspection
41
Def. Public Limited Companies (Plc)
* Often a large business
* Legal rights to sell shares to the general public - share prices are quoted on the national stock exchange.
42
Advantages of Company vs Sole Trader & Partnership
* limited liability
* separate legal identity
* continuity
* access to substantial capital sources due to the ability to issue a prospectus to the public and to offer shares for sale.
43
Disadvantages of Plc (4)
* Legal formalities in formation
* Legal requirements concerning disclosure of information to shareholers and the public, eg. annual publication of reports and accounts
* risk of takeover due to availability of the shares on the stock exchange
* shareholders influenced by short term objectives (profits)
44
What is "divorce between ownership and control"
This only happens in Plc, where original owners don't own the majority of shares, therefore they can no longer have full control over the business. At the annual general meeting, shareholders vote for a board of directiors who control the management and decision making of the business. Major investors, however, are only interested in short term gains.
45
Def. Public sector
Comprises organisations accountable to and controlled by central or local government.
46
Def. Cooperatives
Businesses that are owned and run jointly by its members with mutual assistance, with shared profits, workload, responsibilities and decision making.
47
Advantages of Cooperatives
- Purchasing economy of scale (buying in bulk)
- Working together to solve problems and make decisions
- Good motivation in between members.
48
Def. Franchise
A businesses that uses the name, logo and trading systems of an existing successful business. To obtain a franchise, franchisee pays an initial fee to the franchisor and agrees to stick to the license. A royalty is paid based on franchisee's sales turnover.
49
Advantages of Franchise (3)
- Fewer chances of failing
- Advice and training offered by franchisor
- Supplies obtained from established suppliers.
50
Disadvantages of a Franchise
- A royalty has to be paid
- Initial franchise license may be expensive
- Strict rules over pricing and layout of the outlet reduce owner's control over his/her business.
51
Disadvantages of Cooperatives
- Poor management skills
- Capital shortage
- Slow decision making
52
Def. Joint ventures
A business formed when two independent businesses set up a new enterprise in which they each own a stake.
53
Advantages of Joint ventures (3)
- Costs and risks are shared
- Different companies may have different strengths and experience which may fit well together
- They can make use of each other's markets in different countries.
54
Disadvantages of Joint ventures (2)
- Style of management might not blend well
| - Disagreements may occur
55
What are the different measures of size? (5)
1. Number of employees
2. Sales turnover
3. Capital employed
4. Market capitalisation
5. Market share
56
Def. Sales turnover
Total value of sales made by a business in a given time period
57
Def. Capital employed
The total value of all long-term finance invested in the business
58
Def. Market capitalisation
The total value of a company's issued shares.
| Market capitalisation: Current share price x total number of shares issued
59
Which form of measurement is the best?
None of them.
| •If an absolute measure of size is required, test a firm on at least two of the above criteria and make comparisons.
60
What is the significance of small and micro businesses? (5)
* Many jobs are created
* Adds variety to the market
* Create more competition
* Supply specialist goods for larger firms needs eg. wheels
* They might become large business to benefit the economy
61
How can a government encourage and assist business start ups?
(4)
* Reduced rate of profit tax
* Loan guarantee scheme - the gov repays a % of bank loans
* Information and advice may be provided through agencies
* May finance some acitivites
62
Def. Market share
Sales of he business as a proportion of total market sales
| (Total sales of business/Total sales of industry) x100
63
Advantages of small business?
* Often able to adapt quickly to meet changing customer needs
* Offer personal service to customers
* Find it easier to know each worker
* If family owned, the business culture is usually informal, employees would feel motivated and less under pressure
64
Disadvantages of small businesses? (6)
* **Lack of specialist management expertise**, the owner has to undertake of management departments
* **No economies of scale**
* Do not have a lot of influence on **competition**
* Have access to **less sources of finance**
* **Cannot** spread their risk by **diversifying** into different markets
* May **not** be able to **afford market research.**
65
Why do business owners and directors seek growth?
* Increased profits to have higher source of finance.
* Increasing market share gives higher market profile
* Increased economies of scale reduce costs
* Increased power and status of the owners and directors
* Reduces risk of being a takeover target
66
Def. Internal Growth
Expansion of a business by means of opening new branches, shops or factories ( organic growth).
67
What is the importance of objectives?
- A business aims to direct, control and review the success of its activities.
- There has to be a detailed plan of action to ensure resources are correctly directed towards the final goal.
- A poor plan strategy will lead to failure.
68
What does an effective business objective meets?
SMART criteria.
- Specific: objectives should focus on what the business does.
- Measurable: Have to have a quantitive value
- Achievable: To motivate staff
- Realistic and Relevant: Realistic compared to resources and Relevant to people who have to carry them out.
- Time specific: To assess whether the objective been met.
69
What's the order of hierarchy of objectives?
- Aim
- Mission Statement
- Corporate objectives
- Divisional objectives
- Departmental objectives
- Individual targets
70
What are corporate aims?
It is a very long term goal that a business wishes to achieve, where the core of businesses activities is expressed. They are comon to be expressed in one short statement.
E.g. Cadburry aim to give shareholders maximum returns on their investment by expanding the business in existing markets, new markets and by increasing market share through product innovation.
71
Importance of corporate aims?
-Corporate aims are designed to provide guidance to the whole organisation.
72
Benefits of corporate aims?
- Starting point for the entire set of objectives
- Develop a sense of purpose and direction
- Allow assessment, to measure business success
- Provide framework within which the plans are drawn up.
73
Def. Mission statements
A statement of business core aims, phrased in a way to motivate employees and to stimulate interest by outside groups.
E.g Google "To organise the world's information and make in universally accessible and useful"
74
Advantages of Mission statements (3)
- Quickly inform outer stakeholders the business's central aim.
- They are motivating for employees as they are associated with the positive qualities mentioned in the mission statement.
- Help guide individuals
75
Disadvantages of Mission statements (4)
- Too vague and general, 2 businesses may have similar mission statements.
- Arise questions on how they are going to be achieved
- Based on public relations research to make stakeholder groups support the business
- Virtually impossible to analyse or disagree with.
76
What are corporate objectives?
Corporate objectives are corporate aims and mission statements broken down into strategic, specific plans. They are a much clearer guide for management action of strategy.
77
What are the 8 common corporate objectives?
1. Profit maximisation
2. Profit satisficing
3. Growth
4. Increasing market share
5. Survival
6. Corporate Social Responsibility (CSR)
7. Maximising short term sales revenue
8. Maximising shareholder value
78
Corporate objective: Profit maximisation (1 + 5disad)
- Producing at a level of output where the greatest positive difference between total revenue and total costs is achieved.
-It's limitations:
+Jeopardises the long term survival of the business
+Does not secure greatest possible market share.
+Most business analyses don't care about profit when assess performance, they focus on return of capital employed
+May arise concern over workforce's job security, and environmental concerns
+Very difficult to assess whether the point of profit maximisation has been reached.
79
Corporate objective: Profit satisficing (3)
- To achieve enough profit to keep the owners happy, but not working long hours.
- Common between small businesses who like to have leisure time and live comfortably.
- "Satisfactory" level of profit must be achieved.
80
Corporate objective: Growth (1 + 3ad+ 5disad)
-Usually measured in terms of sales and value of output
-Benefits:
+Larger firms are less likely to be taken over and benefit from economies of scale
+Higher salaries and higher fringe benefits for managers and employees -> motivation
+The business ceases to be competitive => appealing for investors.
-Limitations:
+Too rapid expansion leads to cash flow problems
+Sales growth might be achieved at lower profit margins
+Larger businesses can experience diseconomies of scale
+Retained profits can lead to lower shareholder dividends
+Can result in loss of direction and focus
81
Corporate objective: Increasing market share (1+ 2ad)
-Increasing market share indicates that the marketing mix of the business is more successful than of competitors.
-Benefits:
+Retailers keen to promote best selling brands
+Effective promotion materials due to the brand image
82
Corporate objective: Survival
- Key objective for start up businesses.
83
Corporate objective: Corporate social responsibility (CSR)
- Businesses considers the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment.
84
Why is CSR being utilised more?
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85
Corporate objective: Maximising short term sales revenue
- Beneficial when salaries contain bonuses
| - However if sales are increased by price reduction then profits may fall.
86
Corporate objective: Maximising shareholder value
- Taking decisions that would increase the company's share price and dividends paid to shareholders.
- Profit Maximisation
- This objective puts the interest of shareholders above any other stakeholders.
87
Factors that ensure that corporate objectives were effective in assisting a business to achieve its aim.
- Must be based on corporate aim with a clear link
- Should be achievable and measurable to motivate employees
- need to be communicated to employees and investors
- will form the framework of departmental objectives
- SMART
88
Why change corporate objective? (4)
- A newly formed business satisfied "survival" objective, and wants to move on
- The competitive and economic environment many change
- Short term objectives might become longer term objectives
- Change of law
89
Factors that determine the corporate objectives of a business (4)
- Corporate culture: the behaviour and attitude that influence the decision making style.
- The size and legal form of the business: such as small businesses care about "profit satisficing" while Plc due to "divorce between ownership and control" will have "maximising shareholder value".
- Public or private sector
- The number of years the business has been operating
90
Divisional, departmental and individual objectives
- Corporate objectives cannot be used for each division or department
- Divisional objectives must be coordinated between divisions because if they do not work together, the business will seem confused to outsiders, and it arises disagreements between departments; consistent and relevant.
- Divisional objectives are then divided into departmental, then individual.
91
Def. Management by objectives (MBO)
A method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee.
-Process undertaken after discussion and agreement with personnel at each level of the organisation.
92
Def. Ethics
Are the moral guidelines that determine decision making
93
Def. Ethical code (code of conduct)
A document detailing a company's rules and guidelines on staff behaviour that must be followed by all employees
94
Disadvantages of ethical decisions (4)
- Using ethical and Fair-trade suppliers can add to costs
- Not lying in advertising can mean less attention and interests.
- Not pricing competitively may lower profits
- Paying fair wages adds to costs
95
Advantages of ethical decisions (5)
- Avoiding potential expensive court cases
- Getting caught can lead to loss of consumer loyalty and long term reduction in sales
- Attract ethical consumers
- More likely to be awarded government contracts
- Attracts well qualified staff
96
Def. Stakeholders
People of groups of people who can be affected by, and therefore have interest in any action in the organisation.
97
Def. Stakeholder concept
It is the view that businesses and their managers have responsibilities to a wise range of groups, not just shareholders.
98
Who are the stakeholders? (7)
* Customers
* Suppliers
* Employees
* Local community
* Government
* Focus Groups
* Shareholders
99
What are the customer's roles, rights and responsibilities? (2 2 2)
Roles:
• Purchase goods and services
• Provide revenue from sales
Rights:
• To receive goods and services that meet laws regarding health, safety and performance
• To be offered replacements, repairs, or compensation if the service/good fails (depends on the good or service).
Responsibilities:
• Not to steal
• Not to make false claims of for e.g poor service
100
What are the suppliers' roles, rights and responsibilities? (1 2 1)
Roles:
• Supply goods or services
Rights:
• To be paid on time
• To be treated fairly by the business e.g not put lower pricing
Responsibilities:
• To supply in the time and condition as laid down by the business
101
What are the employees' roles, rights and responsibilities? (1 3 3)
Roles:
• Provide manual and other labour services to the business
Rights:
• To be treated above the minimum limits as established by the law
• To be treated and paid by the employment contract
• To be allowed to join trade union (in most countries)
Responsibilities:
• To be honest
• To meet the conditions and requirements of the employment contract
• To cooperate
102
What are the local community's roles, rights and responsibilities? (1 2 1)
Roles:
• To provide local services and infrastructure
Rights:
• To be consulted about major changes that affect it e.g changing methods of production
• Not to have health affected by the business's activities
Responsibilities:
• To cooperate when reasonable
103
What are the government's roles, rights and responsibilities? (3 1 3)
Roles:
• Passes laws that restrain some business activities
• Provides law and order to allow legal business activities
• Achieve economic stability to encourage business activity.
Rights:
• Businesses have to meet all the legal constraints and pay taxes
Responsibilities:
• To treat all businesses equally
• To prevent unfair competition
• To establish good trading links for international trade
104
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Benefits of accepting responsibilities to:
• Customers
• Suppliers
• Employees
• Local Community
• Government
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* Customers: Consumer loyalty, Repeat purchases, Good publicity
* Suppliers: Supplier loyalty- will meet deadlines and give reasonable pricing
* Employees: Employee loyalty, low labour turnover, employee contribution, improved motivation
* Local community: Local councils will give permission to some activities.
* Government: Receiving planning permission, Receiving valuable government contracts.
