HBM BICS CMD

Business in Contemporary Society
Higher/Int 2 Business Management
Session 2009/2010

Business Activity
Any activity which results in the provision of goods/services which satisfy human wants
Goods & Services
Wants
Needs
Capital
Goods
Consumer Goods
Non-Durable
Durable
2

Terms
Production: refers to the making of goods to be sold or move to the next stage
Consumption: refers to the purchasing of goods/services
Needs: essential for survival
Wants: what people demand after needs are satisfied
3

Wealth Creation
The 4 Factors of Production are combined together to produce an output
Land – natural resources
Labour – workforce
Capital – equipment and money invested
Enterprise – the entrepreneur (more later)
At each stage of production value is added with each new ingredient therefore wealth is created
Goods/Services are then sold in markets.
4

Business Activity
5
External Influences
eg Government Policy
Marketing
Finance
The
Organisation
(Internal)
Inputs
Land
Labour
Capital
Enterprise
Output
Goods
and
Services
People
(Human
Resources)
Production
(Operations)
External Influences
eg Competition

The Cycle of Business
6
WANTS
IDENTIFICATION
PRODUCTION
CONSUMPTION

Sectors of Industrial Activity
7
Industrial Revolution
De-Industrialisation

Activities
Activity No. 1: Sectors of Industry
Activity No. 7: Class Careers
8

Types of Business Organisations(Private Sector) – Sole Trader
Advantages
Easy to set up
Owner keeps profits
Owner decides hours to work
Owner makes all decisions
Disadvantages
No one to share responsibility, workload or problems
Difficult to obtain finance
Unlimited liability
9

Types of Business Organisations(Private Sector) – Partnership
Advantages
Workload responsibilities shared
Partner experience/skills
Easier to obtain finance
Shared risks/decisions
Disadvantages
Disagreements
Unlimited liability
Profits are split
Legal agreement required
10

Types of Business Organisations(Private Sector) – Ltd
Advantages
Limited liability
Responsibility/risks shared
Privacy retained: no accounts published
Access to finance improved
Disadvantages
Complicated to setup
Rules and regulations of Companies Act
11

Types of Business Organisations(Private Sector) – Plc
£50,000 investment
Advantages
Limited liability
Access to finance improved
Economies of Scale possible
Disadvantages
Rules and regulations of Companies Act
Annual Accounts published
No control over ownership
12

Multinationals: Benefits
Taxation or Grant incentives
Lower wage rates
Higher skilled workforce
Legislation (relaxed)
Rate of Corporation Tax
Can operate competitively (locally)
Increased Market Share
Save on costs of transportation
Avoiding Trade Barriers
Selling Globally (without licenses)
13

Multinationals: Costs
Legislation may be too restrictive
Local currency may be weak (converting profits back)
Lack of technical expertise
Poor infrastructure
Cultural difficulties
Political Instability
Exploitation (eg low wages)
Forcing local businesses out
Major functions remain at HQ usually – close a subsidiary
14

Activities
Activity No. 2: Types of Business Organisation
Hall, Jones and Raffo: Chapter 6
Question 1: Sole Trader p43
Question 2: Partnership p44
Question 3: Limited Company p46
Question 4: Decision Making p49
15

Franchises
A person who starts a business and provides a product or service supplied by another business is known as a franchisee and operates a business known as a franchise
The franchisee is allowed to use the franchisor’s business name and sell its products
16

SPAR Franchise
SPAR is a franchised Convenience store. It was founded in the Netherlands as a voluntary chain of grocers under the name "De Spar".
Secure cooperation between independent wholesalers and retailers as a response to the emergence of grocery chains in Europe.
"DESPAR" is the acronym for the Dutch sentence "Door Eendrachtig Samenwerken Profiteren Allen Regelmatig" which translates into "We all benefit from joint cooperation".
The symbol of the fir tree, SPAR in Dutch, to identify the organization and it became the SPAR logo.
17

The Franchisor
18

The Franchisee
19

Activities
Activity No. 8: McDonalds
Case Study: McDonalds (Server)
www.whichfranchise.com
www.franchiseexpo.co.uk
www.franchisedirect.co.uk
Short investigation and report into different franchises available including cost of initial investment
20

The Public Sector
Managed by the government on behalf of the taxpayer who owns them
Funded through taxation
Aims:
Provide services
Improve communities
Act in best interests of society
21

Types of Public Sector Organisations
22

Privatisation
Governments sold these companies because:
Huge amounts of income for the Treasury
Some public corporations were poorly managed and not profitable
Wanted to increase share ownership and make public interested in the success of companies/the economy
23
However:
Public corporations were often sold off too cheaply
Privatisation has not always led to greater competition

Contracting Out
Examples are refuse collection and school meals
Firms are invited to submit bids (competitive tendering) to provide these services
Cost effective? Private Sector organisations have an incentive to keep costs low
See Extra Note for more detail:
also appears in Growth section
24

Voluntary Organisations
Managed and run by volunteers:
no financial gain
they usually have an interest in the organisation
Examples:
Scouts
Girl Guides
Youth and Sports Clubs
Finance
Donations
Membership fees
25

Charities
Charity?
Relieve poverty
Advance education
Advance religion
Carry out activities beneficial to the community
Examples:
Children in Need
Red Cross
RSPB
26
Charities Commission keep a register of charities
“Charitable Status’ means exemption from paying VAT
Can ‘Gift Aid’
Finance
Donations
Government and lottery funding
Selling goods
Fundraising events

Activities
Activity No. 3: Contracting Out
Activity No. 4: Objectives (thoughts before next section)
27

Objectives
Targets or Goals
Required so that a measurement of success can be made
Make decision to achieve goals eg:
objective = expand overseas
action = find location; recruit staff; market products
28
Remember objectives can change over time

Examples of Objectives
Private Sector Objectives
Survive
Maximise profit
Maximise sales
Market share increase
Become market leader
Grow
High quality product
Managerial Objectives
Voluntary Sector Objectives
Provide a service
Help those in need
Raise money
Efficient use of money
Socially responsible
29
What about satisficing?

Higher Level: ObjectivesIdentify vs Describe
30

Entrepreneur
Have and develop a business idea
Willing to take risks
Known and associated with innovation
Combine the factors of production
Use their initiative to make decisions and solve problems
31

StakeholdersHave an interest in and stand to be affected by the success or failure of an organisation
Internal:
Shareholders/Owners
Managers
Employees
External:
Suppliers
Customers
Banks
Central/Local Government
Local Community
Taxpayers
Donors (Charities)
Community (Society)
32
Ensure that you know the interests and influences

Activities
What is my interest and influence?
Activity No. 5: Conflict between stakeholders
33

Sources of FinanceCan you describe the following?
34
Government Grant
Bank Loan
Leasing
Share Issue
Remember there are others – for a recap check your finance notes
Mortgage
Bank Overdraft
Retained Profits

Sources of Assistance
35
Local Enterprise Agencies
Local Authorities
Business Gateway
Careers Scotland
HM Revenue and Customs
Banks
Prince’s Trust
Advice will be on starting up; business plans; recording financial transactions; payroll and taxation
Some organisations may be able to give business financial support through a grant or loan

Why Grow?
Increase sales/profit and therefore returns for owner(s)
Increase market share or become market leader
To take advantage of economies of scale
To reduce the risk of failure
To strengthen brand name
36

Internal Growth
Increasing number of stores
Selling new products
Entering new markets
Employing more staff (demand)
37

External Growth
When two businesses come together to form one business:
Merger:
Takeover:
38

Integration
Combining businesses in order to become larger and more powerful
Equal terms = merger
Loss of identity = takeover
Takeovers can be friendly, when it is the best way to survive or hostile when a predatory firm swallows up another one in order to gain market share or asset-stripping
39

Horizontal Integration
Combining two firms at the same stage of production:
Eliminate competition
Increase market share
Achieve economies of scale
Acquire the assets of the other firm
More secure from hostile takeover bids
40

Vertical Integration
Backwards Vertical: take over a firm at an earlier stage
eg jam manufacturer taking over a farm
Availability and quality of products ensured
Forwards Vertical: take over a firm at a later stage
eg cheese manufacturer taking over a local delicatessens
Control of distribution outlets gained
41
Eliminates middleman and his profit
Gives the firm greater economies of scale
Allows the firm to link processes more easily

Other Methods of Integration
Conglomerate:
Two firms producing completely different goods from each other joining together
Diversification results with reduced risk eg one firm/product failing; seasonal changes; acquire assets of other company
De-merger:
Splitting up the conglomerate so that its subsidiaries become companies themselves
Divestment:
Business sells some of its assets or part of its company
The part sold might not be performing well
Can raise finance to focus on core activity expansion
42
BT Cellnet, was hived off as a separate business named "mmO2".

Management buy-out/buy-in
A team of managers get together and buy an existing company from its owners
Large bank loans will be involved
Buy-out: managers come from within
Buy-in: managers come from outside
43

Dynamic Activity
Internal and External influences can affect an organisation
44
Think about the impact and possible consequences of each internal and external factor on a business.
Make a list!

Internal Factors
Availability of finance
New product developments
Changes in costs
Quality and skills of employees and management
Company policy
Availability of appropriate ICT
Corporate culture
45

External Factors (PESTEC) No. 1
Political
Legislation
Infrastructure provision
Taxation
Availability of funding eg grants
Economic
Interest rates
Exchange rates
Inflation
Unemployment
Business cycle
46

Social
Changes in culture, trends and fashions
Changes in demographics
Work/life balance
Working practices
Technological
Methods of communication
Use in production eg automation
Paperless office
E-commerce
47

Environmental
Changes in weather
Recycling and energy saving
Carbon emissions
Competition
Competition from multinationals – a global market
48

Activities
Activity No. 6: Case Study (various)
Activity No. 9: New working practices
Activity No. 11: Summary
49

Congratulations
You have completed
Business in Contemporary Society
in
Higher/Int 2
Business Management

HBM BICS CMD

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HBM BICS CMD

by knoxbusiness

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