2. 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
3. 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
4. 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
5. 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
6. The Cycle of Business 6 WANTS IDENTIFICATION PRODUCTION CONSUMPTION
44. 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
45. 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
46. 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
47. 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
48. 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
51. 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
52. 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
57. 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
63. 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
71. Managerial ObjectivesVoluntary Sector Objectives Provide a service Help those in need Raise money Efficient use of money Socially responsible 29 What about satisficing?
73. 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
74. 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
75. Activities What is my interest and influence? Activity No. 5: Conflict between stakeholders 33
76. 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
77. 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
78. 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
79. Internal Growth Increasing number of stores Selling new products Entering new markets Employing more staff (demand) 37
80. External Growth When two businesses come together to form one business: Merger: Takeover: 38
81. 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
82. 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
83. 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
84. 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".
85. 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
86. 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!
87. 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
88. 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
89. External Factors (PESTEC) No. 2 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
90. External Factors (PESTEC) No. 3 Environmental Changes in weather Recycling and energy saving Carbon emissions Competition Competition from multinationals – a global market 48
91. Activities Activity No. 6: Case Study (various) Activity No. 9: New working practices Activity No. 11: Summary 49
92. Congratulations You have completed Business in Contemporary Society in Higher/Int 2 Business Management
