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  1. 1. Business in Contemporary Society<br />Higher/Int 2 Business Management<br />Session 2009/2010<br />
  2. 2. Business Activity<br />Any activity which results in the provision of goods/services which satisfy human wants<br />Goods & Services<br />Wants<br />Needs<br />Capital<br />Goods<br />Consumer Goods<br />Non-Durable<br />Durable<br />2<br />
  3. 3. Terms<br />Production: refers to the making of goods to be sold or move to the next stage<br />Consumption: refers to the purchasing of goods/services<br />Needs: essential for survival<br />Wants: what people demand after needs are satisfied<br />3<br />
  4. 4. Wealth Creation<br />The 4 Factors of Production are combined together to produce an output<br />Land – natural resources<br />Labour – workforce<br />Capital – equipment and money invested<br />Enterprise – the entrepreneur (more later)<br />At each stage of production value is added with each new ingredient therefore wealth is created<br />Goods/Services are then sold in markets.<br />4<br />
  5. 5. Business Activity<br />5<br />External Influences<br />eg Government Policy<br />Marketing<br />Finance<br />The<br />Organisation<br />(Internal)<br />Inputs<br />Land <br />Labour<br />Capital<br />Enterprise<br />Output<br />Goods<br />and<br />Services<br />People<br />(Human<br />Resources)<br />Production<br />(Operations)<br />External Influences<br />eg Competition<br />
  6. 6. The Cycle of Business<br />6<br />WANTS<br />IDENTIFICATION<br />PRODUCTION<br />CONSUMPTION<br />
  7. 7. Sectors of Industrial Activity<br />7<br />Industrial Revolution<br />De-Industrialisation<br />
  8. 8. Activities<br />Activity No. 1: Sectors of Industry<br />Activity No. 7: Class Careers<br />8<br />
  9. 9. Types of Business Organisations(Private Sector) – Sole Trader<br /><ul><li>Advantages
  10. 10. Easy to set up
  11. 11. Owner keeps profits
  12. 12. Owner decides hours to work
  13. 13. Owner makes all decisions
  14. 14. Disadvantages
  15. 15. No one to share responsibility, workload or problems
  16. 16. Difficult to obtain finance
  17. 17. Unlimited liability</li></ul>9<br />
  18. 18. Types of Business Organisations(Private Sector) – Partnership<br /><ul><li>Advantages
  19. 19. Workload responsibilities shared
  20. 20. Partner experience/skills
  21. 21. Easier to obtain finance
  22. 22. Shared risks/decisions
  23. 23. Disadvantages
  24. 24. Disagreements
  25. 25. Unlimited liability
  26. 26. Profits are split
  27. 27. Legal agreement required</li></ul>10<br />
  28. 28. Types of Business Organisations(Private Sector) – Ltd<br /><ul><li>Advantages
  29. 29. Limited liability
  30. 30. Responsibility/risks shared
  31. 31. Privacy retained: no accounts published
  32. 32. Access to finance improved
  33. 33. Disadvantages
  34. 34. Complicated to setup
  35. 35. Rules and regulations of Companies Act</li></ul>11<br />
  36. 36. Types of Business Organisations(Private Sector) – Plc<br />£50,000 investment<br /><ul><li>Advantages
  37. 37. Limited liability
  38. 38. Access to finance improved
  39. 39. Economies of Scale possible
  40. 40. Disadvantages
  41. 41. Rules and regulations of Companies Act
  42. 42. Annual Accounts published
  43. 43. No control over ownership</li></ul>12<br />
  44. 44. Multinationals: Benefits<br />Taxation or Grant incentives<br />Lower wage rates<br />Higher skilled workforce<br />Legislation (relaxed)<br />Rate of Corporation Tax<br />Can operate competitively (locally)<br />Increased Market Share<br />Save on costs of transportation<br />Avoiding Trade Barriers<br />Selling Globally (without licenses)<br />13<br />
  45. 45. Multinationals: Costs<br />Legislation may be too restrictive<br />Local currency may be weak (converting profits back)<br />Lack of technical expertise<br />Poor infrastructure<br />Cultural difficulties<br />Political Instability<br />Exploitation (eg low wages)<br />Forcing local businesses out<br />Major functions remain at HQ usually – close a subsidiary<br />14<br />
  46. 46. Activities<br />Activity No. 2: Types of Business Organisation<br />Hall, Jones and Raffo: Chapter 6<br />Question 1: Sole Trader p43<br />Question 2: Partnership p44<br />Question 3: Limited Company p46<br />Question 4: Decision Making p49<br />15<br />
  47. 47. Franchises<br />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<br />The franchisee is allowed to use the franchisor’s business name and sell its products<br />16<br />
  48. 48. SPAR Franchise<br /> SPAR is a franchised Convenience store. It was founded in the Netherlands as a voluntary chain of grocers under the name &quot;De Spar&quot;. <br />Secure cooperation between independent wholesalers and retailers as a response to the emergence of grocery chains in Europe.<br /> &quot;DESPAR&quot; is the acronym for the Dutch sentence &quot;Door Eendrachtig Samenwerken Profiteren Allen Regelmatig&quot; which translates into &quot;We all benefit from joint cooperation&quot;. <br /> The symbol of the fir tree, SPAR in Dutch, to identify the organization and it became the SPAR logo. <br />17<br />
  49. 49. The Franchisor<br />18<br />
  50. 50. The Franchisee<br />19<br />
  51. 51. Activities<br />Activity No. 8: McDonalds<br />Case Study: McDonalds (Server)<br />www.whichfranchise.com<br />www.franchiseexpo.co.uk<br />www.franchisedirect.co.uk<br />Short investigation and report into different franchises available including cost of initial investment<br />20<br />
  52. 52. The Public Sector<br />Managed by the government on behalf of the taxpayer who owns them<br />Funded through taxation<br />Aims:<br />Provide services<br />Improve communities<br />Act in best interests of society<br />21<br />
  53. 53. Types of Public Sector Organisations<br />22<br />
  54. 54. Privatisation<br />Governments sold these companies because:<br />Huge amounts of income for the Treasury<br />Some public corporations were poorly managed and not profitable<br />Wanted to increase share ownership and make public interested in the success of companies/the economy<br />23<br /><ul><li>However:
  55. 55. Public corporations were often sold off too cheaply
  56. 56. Privatisation has not always led to greater competition</li></li></ul><li>Contracting Out<br />Examples are refuse collection and school meals<br />Firms are invited to submit bids (competitive tendering) to provide these services<br />Cost effective? Private Sector organisations have an incentive to keep costs low<br />See Extra Note for more detail: <br /> also appears in Growth section<br />24<br />
  57. 57. Voluntary Organisations<br />Managed and run by volunteers: <br />no financial gain<br />they usually have an interest in the organisation<br />Examples:<br />Scouts<br />Girl Guides<br />Youth and Sports Clubs<br />Finance<br />Donations<br />Membership fees<br />25<br />
  58. 58. Charities<br />Charity?<br />Relieve poverty<br />Advance education<br />Advance religion<br />Carry out activities beneficial to the community<br />Examples:<br />Children in Need<br />Red Cross<br />RSPB<br />26<br />Charities Commission keep a register of charities<br />“Charitable Status’ means exemption from paying VAT<br />Can ‘Gift Aid’<br /><ul><li>Finance
  59. 59. Donations
  60. 60. Government and lottery funding
  61. 61. Selling goods
  62. 62. Fundraising events</li></li></ul><li>Activities<br />Activity No. 3: Contracting Out<br />Activity No. 4: Objectives (thoughts before next section)<br />27<br />
  63. 63. Objectives<br />Targets or Goals<br />Required so that a measurement of success can be made<br />Make decision to achieve goals eg:<br />objective = expand overseas<br /> action = find location; recruit staff; market products<br />28<br />Remember objectives can change over time<br />
  64. 64. Examples of Objectives<br />Private Sector Objectives<br /><ul><li>Survive
  65. 65. Maximise profit
  66. 66. Maximise sales
  67. 67. Market share increase
  68. 68. Become market leader
  69. 69. Grow
  70. 70. High quality product
  71. 71. Managerial Objectives</li></ul>Voluntary Sector Objectives<br />Provide a service<br />Help those in need<br />Raise money<br />Efficient use of money<br />Socially responsible<br />29<br />What about satisficing?<br />
  72. 72. Higher Level: ObjectivesIdentify vs Describe<br />30<br />
  73. 73. Entrepreneur<br />Have and develop a business idea<br />Willing to take risks<br />Known and associated with innovation<br />Combine the factors of production<br />Use their initiative to make decisions and solve problems<br />31<br />
  74. 74. StakeholdersHave an interest in and stand to be affected by the success or failure of an organisation<br />Internal:<br />Shareholders/Owners<br />Managers<br />Employees<br />External:<br />Suppliers<br />Customers<br />Banks<br />Central/Local Government<br />Local Community<br />Taxpayers<br />Donors (Charities)<br />Community (Society)<br />32<br />Ensure that you know the interests and influences<br />
  75. 75. Activities<br />What is my interest and influence?<br />Activity No. 5: Conflict between stakeholders<br />33<br />
  76. 76. Sources of FinanceCan you describe the following?<br />34<br />Government Grant<br />Bank Loan<br />Leasing<br />Share Issue<br />Remember there are others – for a recap check your finance notes<br />Mortgage<br />Bank Overdraft<br />Retained Profits<br />
  77. 77. Sources of Assistance<br />35<br />Local Enterprise Agencies<br />Local Authorities<br />Business Gateway<br />Careers Scotland<br />HM Revenue and Customs<br />Banks<br />Prince’s Trust<br />Advice will be on starting up; business plans; recording financial transactions; payroll and taxation<br />Some organisations may be able to give business financial support through a grant or loan<br />
  78. 78. Why Grow?<br />Increase sales/profit and therefore returns for owner(s)<br />Increase market share or become market leader<br />To take advantage of economies of scale<br />To reduce the risk of failure<br />To strengthen brand name<br />36<br />
  79. 79. Internal Growth<br />Increasing number of stores<br />Selling new products<br />Entering new markets<br />Employing more staff (demand)<br />37<br />
  80. 80. External Growth<br />When two businesses come together to form one business:<br />Merger:<br />Takeover:<br />38<br />
  81. 81. Integration<br />Combining businesses in order to become larger and more powerful<br />Equal terms = merger<br />Loss of identity = takeover<br />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<br />39<br />
  82. 82. Horizontal Integration<br />Combining two firms at the same stage of production:<br />Eliminate competition<br />Increase market share<br />Achieve economies of scale<br />Acquire the assets of the other firm<br />More secure from hostile takeover bids<br />40<br />
  83. 83. Vertical Integration<br />Backwards Vertical: take over a firm at an earlier stage<br />eg jam manufacturer taking over a farm<br />Availability and quality of products ensured<br />Forwards Vertical: take over a firm at a later stage<br />eg cheese manufacturer taking over a local delicatessens<br />Control of distribution outlets gained <br />41<br />Eliminates middleman and his profit<br />Gives the firm greater economies of scale<br />Allows the firm to link processes more easily<br />
  84. 84. Other Methods of Integration<br />Conglomerate:<br />Two firms producing completely different goods from each other joining together<br />Diversification results with reduced risk eg one firm/product failing; seasonal changes; acquire assets of other company<br />De-merger:<br />Splitting up the conglomerate so that its subsidiaries become companies themselves<br />Divestment:<br />Business sells some of its assets or part of its company<br />The part sold might not be performing well<br />Can raise finance to focus on core activity expansion<br />42<br />BT Cellnet, was hived off as a separate business named &quot;mmO2&quot;.<br />
  85. 85. Management buy-out/buy-in<br />A team of managers get together and buy an existing company from its owners<br />Large bank loans will be involved<br />Buy-out: managers come from within<br />Buy-in: managers come from outside<br />43<br />
  86. 86. Dynamic Activity<br />Internal and External influences can affect an organisation<br />44<br />Think about the impact and possible consequences of each internal and external factor on a business.<br />Make a list!<br />
  87. 87. Internal Factors<br />Availability of finance<br />New product developments<br />Changes in costs<br />Quality and skills of employees and management<br />Company policy<br />Availability of appropriate ICT<br />Corporate culture<br />45<br />
  88. 88. External Factors (PESTEC) No. 1<br />Political<br />Legislation<br />Infrastructure provision<br />Taxation<br />Availability of funding eg grants<br />Economic<br />Interest rates<br />Exchange rates<br />Inflation<br />Unemployment<br />Business cycle<br />46<br />
  89. 89. External Factors (PESTEC) No. 2<br />Social<br />Changes in culture, trends and fashions<br />Changes in demographics<br />Work/life balance<br />Working practices<br />Technological<br />Methods of communication<br />Use in production eg automation<br />Paperless office<br />E-commerce<br />47<br />
  90. 90. External Factors (PESTEC) No. 3<br />Environmental<br />Changes in weather<br />Recycling and energy saving<br />Carbon emissions<br />Competition<br />Competition from multinationals – a global market<br />48<br />
  91. 91. Activities<br />Activity No. 6: Case Study (various)<br />Activity No. 9: New working practices<br />Activity No. 11: Summary<br />49<br />
  92. 92. Congratulations<br />You have completed<br />Business in Contemporary Society<br />in<br />Higher/Int 2<br /> Business Management <br />