Bank overdraft
- Allows businesses to borrow money and have a negative amount
- High costs and financial risk
- Current taxation laws allows interest to be claimed on tax
Bank bill
- Written order for a loan amount guaranteed by the bank
- Money is borrowed from another company with surplus funds
- The funds and interest will be paid to a particular person or business on a certain day in the future – usually 90 days
Trade credit
Long term borrowing
Mortgage
- Long term - Loans used to finance the purchase of property
- Monthly repayments are made to repay the loan/interest
Debenture
- Finance companies and other large firms are invited to invest in these business by lending large amounts of money
- Fixed price, a fixed time and a fixed interest rate
Term loan
- Loan that has a period of repayment over 12 months
Leasing
- Business lease non-current assets
- Reduces the cost of acquiring these assets
- Agreeing to an on-going regular payment
Factoring
- Can be used to improve cash flow using unpaid account
Venture capital
- Providing funds to a business in exchange for part ownership
Grants
- To qualify for grants the business needs to meet a strict criteria
- Financial considerations – matching the terms and sources of finance to business purpose and structure
The accounting equation and relationships
Assets = Liabilities + owners equity
Financial considerations
-
Match the length of term with the economic lifetime of the asset - matching principal
- Short tem finance
- Revenue must cover expenses incurred during the period that the revenue was raised
- The legal structure has an impact on the source of finance
- Comparison of debt and equity financing, including costs and benefits, risks, gearing/leverage
Comparison of debt and equity finance
Gearing/leverage
- Mix of debt and equity financing
-
As long as a business can make repayments on the due date it is financial secure and will not risk insolvency
- 60% of finance from debt and 40% from equity
Using financial information:
- Financial statements: revenue statement, balance sheet
- The accounting equation and relationships
-
Accounting = process of identifying, measuring and communicating financial information
-
Accounting framework - rules and assumptions that govern the process of transforming raw data into reports
The accounting equation
-
Accounting equation the relationship between assets and liabilities
-
The balance sheet is based on the accounting equation
Assets
- Something of value to a business
- Intangible assets = copyrights, logo and trademarks
Liabilities
- liabilities = claims on the business made by external parties
-
Contingent liabilities (future) recognised but not on financial statements
Owner’s equity
- Owners are paid when all liabilities have been accounted for
- Owners equity represents assets after deducting liabilities
Financial statements
Revenue statement/profit and loss statement
-
Revenue statement - the flow of revenue and expenses in and out over a period of time – calculating the business’s profit
- If revenue EXCEEDS expenses, the business is generating a PROFIT
-
Revenues refer to the income generated by a business from its operations
-
Expenses refer to the costs incurred by the business in the course of operation
-
Gross profit =
the total revenues – the cost of goods sold (COG)
- COGS; adding inventory purchases and inventory at the start of the year, then subtracting any remaining inventory
-
Expenses are deducted to show the net profit of the business
Net profit = Gross profit - expenses
Balance sheet
- Summary of what the business owns and owes
- Illustrates the relationship between assets, liabilities and owners equity
- Analyized to determine; financial stability in the short and long term
- Types of financial ratios:
* Measure the ability of a business to meet its short term financial commitments
Current Assets
Current liabilities
- Solvency: gearing debt to equity
Gearing ratio =Non current liabilities X 100
Owners equity
- Profitability: gross profit ratio, net profit ratio, return on owners’ equity
- Found on revenue and balance sheets
Gross profit ratio = gross profit X 100
Sales
Net profit ratio = net profit X 100
Sales
- Efficiency: expense ratio, account receivable turnover ratio
- Looks at how well the business is able to manage its operations to generate return
Expense ratio:
Expense ratio: total operating expenses x 100
Sales
- The expenses of a business as a proportion of total sales – how cost effective the business is
Accounts receivable ratio:
i
- Measures the efficiency of collecting customer debts
- Comparative ratio analysis
- Over time, with similar businesses, against common standards
- Limitations of financial reports:
- Historical costs, value of intangibles
Types of financial ratios
-
Ratios from BALANCE SHEET = liquidity and gearing
-
Ratios from REVENUE STATEMENT = profitability and efficiency
Liquidity
Solvency
-
Gearing debt to equity ratio tells the business if it can pay its liabilities
-
Measures long term stability
-
Low level of solvency = risky financial position
- When a businesses have a high level of debt they are vulnerable to higher interest rates
Changes to interest rates
- When interest rates are low it is acceptable for a business to have a higher level of gearing and a lower level of solvency
Liquidity and solvency as measures of business success
- Current ratio and gearing debt to equity ratio give a very good indication of a business’ financial stability
Profitability
-
Revenue statement is used profitability
- Gross profit is important for a retailer because it represents the money made from the core business activity
-
Gross profit ratio calculates for ever $1 of sales how much the business makes after paying for the cost of goods sold
-
Net profit ratio works out for every $1 of sales how much net profit the business makes after paying all expenses
- Return on owners equity works out how much income the owners receive from their investment
Efficiency
- Efficiency rations show how well the business is keeping expenses under control and how long it takes for the business to receive money from accounts receivable
- An expense ration can be calculating using any expense
- For a retailer the business aims to sell inventory as quickly as possible
-
Using the accounts receivable turnover ratio the business can work out how many days it takes on average for customers to pay their invoices – this will be compared to the credit policy of the business to see if customers are taking too long to pay
- By dividing the number of days in a year by the turnover we can establish that on average it takes approx X days for customers to pay accounts
Comparative ratio analysis
- Ratios are used to make comparisons
- By comparing the current years ratio to present year ratios – able to;
- Determine trends within the business eg) profit, costs and financial stability
- Determine if the business is meeting its objectives eg) increasing profitability, efficiency, liquidity, return on capital and growth
- It will be compared to other businesses in the same market and what is considered the best possible result eg) international standards, benchmarks or standards
- Some generalised standards;
-
Liquidity: current assets should be 1.2 or 1.5 times greater than current liabilities
-
Return on owners equity: should be greater than the current interest rate
-
Gearing debt to equity ratio: no higher then 60%
Limitations of financial statements:
- Financial statements do not tell the whole financial story of the business
- The rules followed to produce them can create a misleading impression of a business profitability and value
- Statements reliable – the statements and data must be accurate and be variable by an expert
- The revenue statement may not give a clear representation of the businesses profitability
- Complicated and detailed accounts will confuse individuals who haven’t got a background in accounting
- Actual profit may also be artificially reduced through complicated procedures to reduce the business’s tax liabilities
- When a asset is listed on the balance sheet its value is written at its historical cost – the original cost/different to the current market value
- Some assets may increase in value and others may depreciate
- Inflation can affect costs of assets
- When the business is sold the balance sheet isn’t a true indication of how much the business is worth
- If a business wishes to re-valuate its non-current assets it must have them valued by an independent individual – Can be recorded on the balance sheet
-
Accountants are allowed to depreciate assets using Accounting standards and applying the matching principal (matching principal = value of depreciation to the fall of the asset each year)
-
The financial manager can also not record all types of intangible assets
-
Good will is an intangible asset it can be included on the balance sheet if it is being bought or sold
- Intangible assets are not included because there is not set method to determine their value
-
Can lose value over time – amortisation
- Some liabilities and expenses have to be estimated eg)staff sick leave – funds need to be set aside for these liabilities
Other information on ratios
Liquidity
Strategies:
- Reduce current liabilities eg) overdrafts and accounts payable through the injection of more funds
- Used retained profits
- Sell non-current assets and have more funds available
- A reduction in stock levels or inventory controls eg)JIT
- Reduce accounts receivable through factoring
- Batching more frequently to increase cash flow
- Increase long term debt eg) mortgage
Solvency
Debt to equity ratio
Strategies:
- Level of liabilities needs to be reduced by increasing cash flow
- Increased efforts to increase domestic market share such as marketing/pricing policies
- Expansion into other markets (quality of goods/services and labour changes)
Gearing ratio
Analysis:
- The lower the figure the greater the protection for creditors
Strategies:
- Lowering the of liabilities can decrease high gearing ratios
- Lower debt and increase equity ie) increase shares
- Increase profit through new markets
Efficiency
Analysis:
- Indicates the effectiveness of the businesses credit policy
Strategies:
- Careful monitoring of the accounts receivable
- Discounts for early repayments and interest for late payments
- Using visa or other credit cards to reduce credit risks
- Look at administration and chasing accounts receivable
- Factor accounts receivable, for bad debtors cash only
Expense ratio
Strategies:
- Knowing the expense ratio of the business to develop strategies to lower expenses and improve efficiency
- Lower range of stock
- Improve marketing, introduce a new product
- Use assets over extended hours
- Reduce over time rates
Profitability
Gross profit ratio
Strategies:
- Look at pricing strategies and examine the sources of stock (find cheaper suppliers or purchase off shore)
- Use fixed assets more effectively
- Increasing the level of sales more effectively eg) marketing strategies
Net profit ratio
Strategies:
- Increasing gross profit will increase net profit
- Reduce operating expenses, decrease wages by down sizing and outsourcing, introducing new technologies (reduce administration costs)
- Sell and lease non-current assets
- Change the structure of organisation or management
Return on owner’s equity
Strategies:
- Include reducing expenses and improving efficiency – effective marketing and adjusting pricing policy
- Increased returns can also be obtained by getting out of areas of poor returns and reinvesting in areas of higher returns
- Comparative ratio analysis
- over time, with similar businesses, against common standards
- Ratios must be compared with other data or standards
- A lot of information is available from other sources – financial advisory services publish data for most companies and details of company reports are now generally available on the internet
- Stock exchange is also a great resource
Comparing over time (trend analysis)
-
When financial data are available for 3 or more years, trend analysis is a technique commonly used by financial analysts to asses the entities growth prospects
- Observing ratios over a period of time allows managers to identify possible problems and take corrective action
Comparing with similar businesses
- It is a very and revealing practice to compare the ratios of a business with the major competitor or competitors when assessing performance
- Comparing ratios over several years against the leading competitor can provide very valuable information for management
Comparing against common standards (benchmarking)
-
All businesses today should engage in what is known as benchmarking
- This involves a business comparing its performance in all aspects against the leading competitor or against industry averages/standards
- Limitations of financial reports
- Historical costs, value of intangibles
- the usefulness of financial reports can be limited by problems of compatibility and disclosure, most figures are not very useful when looked at in isolation
- limitations stem from number of procedures and practices used by business which affect the values of the assets, liabilities and the owners equity
Historical cost
- The assets of an entity are recorded initially at their cost
- Cost is measured by the amount of cash given in exchange for the assets received
- This assumption implies that the value of the assets purchased reflects their cost at the time of their acquisition, although the assumption is still generally adhered to, it is common in Australian entities to reveal certain assets from time to time to reflect their current values
Effective working capital (liquidity) management
- The working capital ratio
- Working capital – used in the day-to-day running of the business
- Current assets need to be well managed so that the business always has enough cash in the bank to cover/pay expenses when they are due
- Businesses also needs to have stock to sell
- Businesses need to manage accounts receivable to ensure it receives payment for goods it has sold on credit to customers
-
Net working capital can be calculated using;
Working capital ratio (current ratio): current assets
Current liabilities
- If the results are greater than 1:1 than the business is a stable position
-
A business can manage working capital by using strategies to control current assets and current liabilities – involves ensuring that the business has more current assets than current liabilities
- Management strategies include; increasing the value of current assets and reducing the value of current liabilities
- Control of current assets – cash, receivables, inventories
- Involves ensuring there is enough current assets to cover current liabilities
- Financial manager should develop strategies to increase the amount and frequency of cash flow into the business
Cash
-
Increase cash through using sale – lease back
- Cash from the sale can be put in the business bank account
- Reduces costs;
- Maintenance is leasing company’s responsibility
- Update equipment easily and frequently
- Now a monthly lease fee to pay – current liability
Accounts receivable
- Also known as debtors
- Effectiveness of accounts receivable measured using - accounts receivable turnover ratio
- Bad debts – Have to be written off as potential income
- To increase cash in-flow – Factoring; give the business cash for its accounts receivable, used to cover short term liabilities
- NOTE: Make the working capital ratio worse
- The manager may decide to;
- Impose a credit limit to customers
- Make a more careful check on credit ratings
- Send regular reminder notices for overdue accounts
- Reduce time allowed to pay accounts
- Refuse credit to lose that have bad credit history
- Offer incentives for early/prompt payment
Inventory
- Another working capital problem is to have too much cash invested in raw materials, work in progress and finished goods – this stock may take a long time to be converted back to cash (storage costs)
- The business does not have enough money to pay short term debts
- The business may discover that it loses stock through poor monitoring or security, lost stock is another cost. Successful business monitor their stock and protect their inventory
- Methods for internal control;
- Physical inspections and counts
- Security eg) cameras, tags ect to prevent theft
- Suitable transportation and storage to prevent damage or spoilage
- Limiting staff access
- Only purchasing enough inventory to satisfy anticipated sales
- Buffer to cover an accidental or unforseen costs
- Keep accurate records of purchases, inventory (received and sold)
- NOTE: even the best accounting systems can have errors and make mistakes, therefore a physical check is the best way to account for stock
- Accounting records will need to be corrected if an error is detected
- JIT – can be used to decrease the cost of inventory through reducing costs eg) storage/warehousing and the business needs a smaller amount
- A computerised inventory system using bar codes to identify stock movement will give the business instant information on about it’s stock eg) when and what stock needs to be ordered
- The internet can be used to automatically email suppliers when stock is needed
- A computer system may also identify stock that isn’t selling very well
- Control of current liabilities – payables, loans, over drafts
Accounts payable
- Accounts payable is the money the business owes to its suppliers – a supplier will deliver goods to the business with an invoice that the supplier expects will be paid within the given time
-
The time given will be determined by the business credit rating and its reputation with the supplier
- Paying bills too early is poor management of cash as the business should hang onto the money to pay more urgent expenses or invest the cash and earn interest
- Although if it pays its invoices too late it risks its reputation with the supplier
- A strategy to control accounts payable while keeping a good reputation is to stretch accounts payable – where the business pays invoices on the last day they are due
Loans
- Rather than borrowing to buy the product the business could sell lease back
- An advantage is the lease repayments are a tax deduction
Overdrafts
- A business can control its over draft by ensuring that all cash received is promptly deposited into the overdraft account to reduce the amount owing
Effective financial planning
- Effective cash flow management
- Cash flow statements
- Management strategies, distribution of payments, discounts for early payments
- A business must always have enough finance to pay bills eg)
- Rent
- Leasing costs for the company car
- Monthly bills ie) phone and internet
-
Managers can draw up a budget to anticipate how much money the business needs to pay expenses
- Some months will be more expensive than others and therefore the manager needs to be prepared
Cash flow statements
-
Cash flow statements are sometimes referred to as continuous or rolling cash budgets
- This financial report is used to show pattern of short term management of cash inflow and outflow
- They usually cover a period of 12 months
Sources of cash inflow and outflow
- Cash flow statement summaries how the business will pay for short term liabilities from sales of inventory
- By creating a cash flow statement managers can avoid a cash shortage by planning ahead
- If the business does expect to need more debt owing to a cash shortage it is able to shop around earlier for the cheapest interest for a short term loan
- Predicted cash flows are based on the owners knowledge of the market, figures from the previous years and external influences – actually results may vary
- A number of strategies can be used to avoid cash flow problems as well as retain cash from profitable months
Management strategies
Distribution of payments:
- A business can ensure that all large, predictable expenses do not occur at the same time
- Other costs may be paid for monthly rather than once a year
- A business can stretch its accounts payable by paying liabilities on the last possible day, to keep the money in the business bank account for as long as it can
- Pre-pay expenses
- Leasing – will incur a smaller and predictable monthly cost
Discounts for early payments:
- A business may offer discounts to account customers for early payment of their accounts
- Other incentives may be; small gifts or discount on future orders
Shortening of credit terms:
- May chose to shorten the credit period it allows
- Effective profitability management
- A good accounting and financial system has effective controls to ensure the business
- Does not over spend
- Does not lose assets
- Records financial records and transactions correctly
Cost control
- Increase profits by decreasing costs – reduce costs in 2 areas
- Outsourcing of non-core functions has been the most popular method of reducing costs by larger organisations
-
Costs may be classified as either fixed or variable
- Strategies of managing working capital – leasing, factoring, sale and lease back
Ethical and legal aspects
- Audited accounts, inappropriate cut off periods, misuse of funds
Ethical and legal aspects of financial planning and management
- Changes in social attitudes have forced business owners and managers to consider the ethics of the decisions they make.
- They are forced to act in an ethical and morally correct way.
Audited Accounts
Audit: An independent check of the financial records of a business by a certified accountant.
- Businesses must manage their finances in an honest and transparent manner
- The numbers on a financial report of a business do not always give a true and fair reading view of a business.
Inappropriate cut-off periods
- There are many strict rules in accounting that regulate how financial reports are to be prepared, such as the lengths of the financial year
- Some businesses may use shorter accounting periods to obscure transactions that will affects the business’s profitability.
- They also monitor transactions and the recording of the transaction, meaning that if either goods are sold or sales revenue used for employees wages this must be recorded on the financial statement.
- No company is to record a transaction for one year on the statement for a different year, businesses may be tempted to do this, to show they make less profit then they actually do and therefore pay less tax.
Corporate raiders and asset stripping
- This involves the take over of a company and then striping it of all the assets.
- This is not illegal but is considered unethical because it will affect many stakeholders involved, such as employees will be fired, shareholders will lose out on future earnings and suppliers can not receive any products or services they want.
- As it would earn the entrepreneur a huge personal profit, the ethical issue is that they should manage it back into a profitable state to benefit all stakeholders.
Corporate governance
- This is the business practises that encourage companies to create value for shareholders and reduce risks of the business through adequate controls
- Its aim was to develop a practise guide for companies to encourage:
- Entrepreneurship
- Innovation
- Accountability
- Effective risk management
Topic 3 - Marketing
Nature and role of markets and marketing
- Marketing is the process of developing a product and implementing a series of strategies aimed at correctly promoting, pricing and distributing the product to the target market
- It is the role of marketing to develop and implement strategies that generate revenue and sales for the business
-
Marketing involves researching and changing the nature of consumer tastes’ and preferences – the purpose of this is to determine what the business should be producing. It involves the development of products that provide consumers with a improved standard of living and greater choice within the marketplace
- Marketing is also concerned with determining a price that is consistent with consumers expectations and reflects the desire image of the product or business – it should consider the impact the price will have on the perceived quality of the product and the ability to sustain market share against competitors
-
The role of marketing in the firm and in society
- Marketing is used primarily as a method of enhancing business revenue streams and increasing the markets awareness of its products
- Marketing also serves the interests of society
Role of marketing
Choice employment standard of living
Choice:
-
An important feature of any business environment is competition – businesses compete to attract customers to their products. To do this they must differentiate their products. This is competitive advantage
- Competitive advantage may include; price, product quality or reputation of competitors
- Marketing provides consumers with choice
Standard of living:
- To ensure the businesses are providing consumers with goods that appeal to the ‘want’ element of human behaviour, organisations will develop and market products that are aimed at enhancing our lifestyle
- Through a variety of products and services provided by businesses the quality of life in Aust has improved
- Research and development has also played a significant role in improving our quality of life. businesses spend millions of dollars each year to develop products that will help consumers adopt and maintain a healthy lifestyle
Employment:
- It is important to remember that marketing would not exist without a product to sell
- To make a product ect a business must hire labour. It must use the skills of this labour to research to innovative methods of improving and enhancing the product eg) some people are required to sell the product
- Marketing provides jobs and income for millions for Australians – this income is used to satisfy their needs and wants – buying these innovations and products
- Types of markets – resource, industrial, intermediate, consumer, mass, niche
- The production and sale of goods and services is not restricted or targeted solely to consumers. Some organisations simply buy a finished good from a manufactory and sell it to consumers. Certain businesses will choose to concentrate on one section of the market
Resource markets:
-
Resource markets are those markets where the production and sale of raw materials occurs.
- Some businesses require materials eg) copper, zinc and sand to produce the goods they sell to other businesses
- Given that labour is such a key factor of production it can be argued that labour can be traded on the resource market
- Much of the Australian workforce is monitored and restricted by government legislation and tribunals
Industrial markets:
- Is where goods that are used as supplies in the production process are traded
Intermediate markets:
-
Are commonly referred to as wholesalers
- The sell products to retail businesses that have been produced by other organisations
Consumer market:
- Most recognised market
- Where businesses sell their products directly to the consumer
Mass market
-
The mass market is the market where the products are aimed at all consumers irrespective of their age, gender residential address or income
- The business does NOT target their products at a particular buyer group
- Petrol, electricity and water are examples
Market segments
-
A market segment is one particular area of a particular market
Niche market
-
A niche market is a smaller section of a larger market segment
- A niche market varies to a segment market in its consumer base is narrower
- Because of the narrower consumer base sales are not as frequent and prices for products are usually higher
- Production – selling-marketing orientation
- Businesses will often use a combination of strategies all aimed at increasing product awareness and generating sales of their products
- Businesses have previously focused their efforts on single elements of the marketing mix, rather than the combination
Product orientation:
- During the 1920’s-30’s businesses assumed that the high quality of a product would ensure it’s success – equalled in businesses placing ensuring production methods that were consistent with high quality
- Businesses that adopted the production orientation to marketing emphasised the concept of minimising costs of production, the business would focus on how good was produced, it was believed this would draw consumers to the quality of the product
Selling orientation:
-
Product quality was seen as an important aspect of the marketing process, some business though consumers needed to be convinced of the need to buy a particular product – saw the development of selling orientation
- Products can NOT be sold purely on quality, the consumer needs to feel the good will benefit the
-
Promotion played some role here but the aim was to take the product to the consumer – sales person
Marketing orientation
- Businesses have now recognised the importance of developing an integrated approach to selling
- A product that is marketed successfully must incorporate a strategy to make the consumer desire the product and think it is catered to their needs
- The pricing strategy used by businesses must be able to generate a return on funds invested by the owners to develop the product – it must be priced competitively and affordable for the consumer
- The marketing concept – consumer orientation, relationship marketing
- Marketing concept is based on the values supported within the marketing orientation
-
The marketing concept is the belief that the consumer is at the core of all business activities
Consumer orientation:
- The marketing concept holds the view that whether the business will achieve its goals will depend on the ability of the business to determine the needs and wants of its target market and deliver products more effectively than competitors
-
It provides businesses with consumers orientation the belief that every aspect of the business’s operations must be aimed at delivering, improving and maintaining the highest standards of consumer satisfaction
Relationship marketing
- Many companies have recognised that clients represent more than a point of sale
-
Relationship marketing – is the process of building and maintaining long term relationships with customers. It involves creating a high level of satisfaction, value and service, thus ensuring the customers return to the business
- Loyal customers provide a consumer base and are likely to refer the business to family and friends
- Marketing planning process
- Considerably planning must go into the process to ensure that the marketing strategies developed compliment each other and allow the organisation to achieve its goals
-
The marketing planning process refers to the process of developing implementing and then controlling a series of processes that involve the development of marketing strategies and goals aimed at a select group of consumers
- The marketing plan will differ between businesses
- The stages of the marketing planning process
Executive summary
- Executive summary = presented at the start of a business plan, it seeks to provide a brief description of the issues facing the business and what the report intends to include
Situational Analysis
- The situational analysis is the framework used to allow the business to examine its current position in the market, it provides information on such issues as:
- the business’ level of market share
- changing trends within the market
- products and strategies used by competitors
- consumers’ perceptions of the business in the market place
- A major component of any situational analysis is SWOT analysis
- Situational analysis also provides information about factors outside the business that could generate future growth or may cause future instability in the operations of the business
- Part of the situational analysis will involve consideration of what stage of the business life cycle the business or its products is currently experiencing
- A business will also analyse the strategies of its competitors and examine conditions in the market that are likely to impact on its operations
Establishing market objectives
- Once the business has analysed its current position and standing within the market place, it must look at what it seeks to change and achieve and in what direction it should head
- Market objectives vary based on the size of the business and the environment in which it is operating. It must consider internal and external factors
Identifying the target market
- When developing a product a business should be able to identify who in the community it hopes to show an interest in buying the product
- Which type of people will seek to purchase the product, why will they buy it and to whom will its benefits appeal?
- The business needs to ask these questions in order to determine the market for their product
Developing marketing strategies
- Once a business has established its organisational goals , it must develop effective strategies aimed at achieving these objectives. These strategies are known as the marketing mix
- It is essential that the components of the marketing mix work together
- The main 4 elements of the marketing mix are:
- Product
- Price
- Promotion
- Place
Implementation, monitoring and controlling
- Once the key elements of the marketing plan have been devised the business must begin to implement the features of the plan
- The business should also develop controls to monitor the success of the marketing plan
- Management could examine the impact that the chosen strategies have had on sales, market share and brand awareness
Elements of a marketing plan
- Planning is a central activity. It allows the business to examine its current position within the market, consider opportunities to strengthen that position and determine the most effective method of implementing the required changes
- The common elements of a marketing plan are:
Executive summary
Situational analysis
Establishing market objectives
Indentifying the target market
Developing marketing strategies
Implementation, monitoring and controlling
The executive summary
- Provides a brief summary of current issues facing the business
- Provides an overview of the goals and strategies that are to be featured in the marketing plan
- Summary of the main recommendations to be presented in the plan
- Situational analysis including SWOT and product life cycle
- Situational analysis provides the firm with an opportunity to examine its current position in the market
- The business will examine areas such as:
- The market share of its products
- Future trends within the market
- Strategies used by competitors
- Changing consumer tastes and preferences
- There are 4 key elements to situational analysis:
Market analysis
- Market analysis refers to a consideration of those factors in a business’ internal and external environments that impact directly on h operations, in a positive or negative ways
Product analysis
- Product analysis examine the current position of goods/services that the business produces
- Changing trends, innovation and product prices, sales and profit margin will impact the success of a product/service
-
A business or its product will often go through different phases during its existence = product life cycle
Establishment phase:
- Establishment phase = when the product is first launched
- Sales may be slow because the business is only beginning to establish awareness of the product
- Profit is low because of lack of revenue and while costs are high
- Management may decide to launch a product with a high price and a low cost of sales, the high costs may help recover costs and create an idea of quality
- Consumers may be willing to pay more to try a product
- Limited money spent on promotion may hinder attempts to gain market share
-
Or a business may launch a product with a low price to establish quick entry and spend a lot on promotion – known as penetration pricing
Growth stage:
- If a new product can begin to attract a core of customers who display their loyalty and satisfaction with the product by making repeated purchases then the business will enter the growth stage
- Businesses profit will grow and sales expand
- Marketing strategies will change. Business may choose to lower their price to deal or increase distribution channels with the increased threat of competitors
- Expected that promotional costs will increase
Maturity stage:
- Maturity = sales begin to slow
- The business is faced with a steady stream of income with limited prospects for growth
- Consumers now have choice where they purchase the product
- The business will need to modify its marketing strategy
- Important that the business develops a competitive advantage – strategies such as:
- Price differentiation
- After sales service
- Unique forms of promotion or making it easier for consumers to access the product
Post maturity stage:
-Final phase of the business life cycle, key decisions will be made that will determine the long term
- Increased competition and changing consumer demands may create a need for change
- Paths the business can take:
- Decline
- Renewal
- Steady state
- Cessation
Decline stage:
- The business faces a marketplace with increased competition and changes in the business environment
- If the product no longer meets consumer needs/expectations it is considered outdated
- Marketing strategies implemented would aim at revitalising the product
Renewal stage
- TO restrict the impact of increased competition, reinvent itself with a competitive advantages
- The business may alter the product’s features or packaging as it seeks to revitalise the products image
- Business may develop new promotional strategies aimed at sustaining interest in a particular brand or new strategies that take the new product to a new audience
Competitor analysis
- Competitors are a significant influence on the marketing strategies
- Influences the way a business promotes and prices its products and areas it distributes to
- Important competitors strategies are analysed to determine the effectiveness of its marketing mix
-
Competitor analysis can be described as the process of investigating and assessing the marketing strategies of competitors and examining their impacts
- competitor analysis involves:
- Identifying competitor objectives
- Identifying competitor strategies
- Analysing competitors strengths and weaknesses
- Identifying competitors objectives assists in explaining the strategies used and could provide insight into new areas of the market
- Identifying competitor strategies allows managers to measure efficiency of their existing strategies against competitors
- Could provide insight into new methods of marketing and allow the business to look at the effectiveness of such strategies
- Analysing competitors strengths and weaknesses offers the business the opportunity to develop areas where competitors are perceived to be strong and have an advantage
- Analysis should include a description of areas a business can exploit based on the perceived weaknesses of competitors
SWOT analysis
- A SWOT analysis is used to examine the strengths, weaknesses opportunities and threats of a business that lay with in the external environment
Strengths and weaknesses
- The strengths and weaknesses of a business are factors that are developed and control within the business
Opportunities and threats
- opportunities and threats come from the external environment of the business
- Establishing market objectives
- The objectives of a business provide the frame work for the business to develop a series of activities and operations that aim at achieving these
- It is important that the goals are flexible so they can be adapted to the changing nature of the business environment
- Businesses generally adopt SMART in setting objectives , that is an objective needs to be
S – Specific
M – measurable
A – Achievable
R – Realistic
T – Time
General market objectives
- There are 3 general market objectives
- An effective business that develops goals that relate to the specific needs of its organisation
Increase market share
-
Market share refers to the percentage of sales compared to competitors
- Purpose of attempting to increase market share is increase the business profit and sales
Expand to new geographic markets
- Businesses may decide to expand in areas where their goods/services are distributed
- Allows the business to increase profit
- Allows the business to achieve a higher level of awareness about the product amoungst an increased number of consumers
Expand the product range
- Extension of the business’ product range presents the business to target new markets
- The new products may be substantially different from the existing brands but will be promoted and distributed in a way that reaches new markets
- Identifying target market
- A target market is a group of consumers for whom a particular product has been developed
- Some products appeal to all consumers, others have very limited appeal
- To identify the appropriate target market for its products a business needs to understand the nature of consumer markets
Types of consumer markets
- Consumer markets in be broken down into 3 segments
Mass market
- Consist of all consumers
- We all consumer these products and there are limited strategies that businesses can use to make these products different from competitors
- Some of the ways they differentiate there products are:
Packaging
Brand loyalty
Price
Offer of customer loyalty
Market segments
- May chose to target its products at a specific area of the market
- A business decides to segment its market to ensure that appropriate promotion and pricing strategies are developed
Niche markets:
- Each segment consists of a number of smaller markets – niche markets
- A business targeting a niche market has a specific narrow consumer base
- Developing marketing strategies
- Once the strategic goals have been set and the organisation has established the specific market objectives the business must develop appropriate marketing strategies
The marketing mix
- Developing marketing strategies involves using the marketing mix, called a mix because it consists of 4 elements
- Product
- Price
- Promotion
- Place
Product
- Refers to the good/service that is intended
- Business must consider the products
- Quality
- Image
- Logo
- Packaging
- Where the product will be placed against competitors
- Will also include decisions on extras that come with the product eg) warranties, after-sales service and maintenance
Price
- Price = cost of consumer purchasing the product
- When determining price the business must consider
- Its cost to the business eg) distribution and production
- The desired profit margin
- Consumers reaction to price
- Competitors pricing
Promotion
- Creating and maintaining consumer awareness and interest
- Hoped that the forms of promotion will convince consumers that they ‘need’ the product
Place
- Methods of distribution and availability of the good
- The business needs to decide where consumers will be able to purchase it
- Issues such as: storage and distribution need to be considered
- Implementation, monitoring and controlling – developing a financial forecast, comparing actual and planned results and revising the marketing strategy
Implementing
- Once the market plan is devised, the business must implement the strategies
Monitoring and controlling
- Important that a business develops methods that management can use to determine the extent whether strategies are achieving results
- Businesses monitor the progress of their operations through controlling
- Common forms of analysis and control
- sales
- market share
- marketing profitability
Sales analysis
- Sales analysis - examines sales of a particular product
- Can use sales analysis to determine which products are performing strongly or not
- By comparing actual sales against forecasted sales the business can examine how effective the marketing strategies have been
- Take into account external factors
Market share analysis
- Examines the sales performance of the business and compares it against direct competitors
- Useful in examining the strengths and weaknesses of the marketing plan
Marketing profitability analysis
- Process of evaluating the financial and non financial benefits that have been achieved by a specific marketing plan against the costs of implementing the plan
Revising the marketing strategy
- Must adopt revised strategies to ensure continued success
- Influenced by the changes in the business environment
Market Research process
- Determining information needs, data collection (primary and secondary), data analysis and interpretation
Determining information needs
- Firstly determines what information is needed – then determine the most appropriate research methods
Data collection – primary and secondary
Primary data – collected for the specific purpose for which it will be used
Secondary – previously gathered for another purpose
Primary data
Observational research
- Gathering primary data by observing
Surveys
- Asking a number of people the same questions
Experimental research
- Gathering data by selecting a group of people and observing their behaviour based on different conditions
- To examine how people react to different products and features
Secondary data
Internal sources
- Collected by the business
- Include:
- Annual and financial reports
- Prior research
- Past surveys
- Previous sales figures
External sources
- Exist outside the business
Government publications
- Australian Bureau of Statistics
Periodicals, books and internet
- Information that can be used to analyse trends in production innovations, changing consumer preferences and the strategies of competitors
Commercial data
- Collected by organisations that will either sell the information to those who consider it relevant or provide it to the community at no cost
Data Analysis and interpretation
- Must make sense of information – determine course of action
Customer and buyer behaviour
- Types of customers – people, households, firms and educational intuitions
Types of customers:
- Consideration when a developing the marketing plan = buyers of products and how they determine whether they need this product
- Buyer groups have different needs and will seek different benefits
People and households
- Influenced by their age, income, gender and residential address
- All consumers though will seek for goods/services that will satisfy their needs eg) food, water and shelter
Firms
- Businesses rely on others to provide the materials they need
-
Intermediate market
Educational institutions, clubs and societies and religious organisations
- Provide services to the community - they need to purchase goods and services
Government
- One of the largest buyers of products and services
- Government pays business to complete their tasks
- The buying process – buyers and users
The buying process
Stages of the buying process
Need recognition
V
Information search
V
Evaluation of alternatives
V
Purchase decision
V
Post purchase behaviour
Need recognition:
- The consumer recognises the need for a particular product or service
Information search:
- Once consumers decide that they need a product – they seek to gain information relevant to the product
- Brands available and the features
- Consumers find information from 4 sources
- Personal sources
- commercial sources
- public sources
- experiential sources
Evaluation of alternatives:
- Using the information found to make comparisons between the products they could possible purchase
- Consumers will place different degrees of importance on different attributes. Issues that they evaluate :
- Price
- product features
- country of manufacture
- brand reputation
- value for money
- after sales service
Purchase decision:
- Will often purchase products they have previously tried
Post purchase behaviour:
- Important! Remember that the satisfaction a consumer receives from buying a product occurs after the consumer buys the product
- During this stage the consumer may take further action eg) returning or recommending the business
Buyers and users
- Most instances = buyer is the user
- Businesses need to recognise that the buyer is not always the user
- Factors influencing customer choice – psychological, sociocultural, economic and government
Factors influencing customer choice
- Forces outside the business environment will play a role in the success of the marketing plan
- These forces are part of the buyers environment
Psychological factors
- Personal characteristics of individuals that influence their behaviour
- Psychological factors influence what goods/services consumers buy factors are:
Motivation:
-
To understand this we must look at Abraham Maslow’s HIERACHY OF NEEDS
- People will ensure that their basic needs are met before they seek to meet other needs
Perception:
- Image that a particular product has in the mind of the consumer
- Depends on the amount of information gathered, age, sex and income
- Price is a important influence on consumers perception of a product
Learning:
- Changes of individual behaviour as a result of an experience – use of a product, increased awareness or leaning of a friends experience/s with a product
- Determines the level of satisfaction consumers gain
Beliefs and attitudes:
- Factors such as religion may prevent certain customers from buying particular products
Lifestyle:
- Significant influence
- Leisure preferences, interests, attitudes and gender all influence a person’s lifestyle
Personality and self concept:
- We buy products that suit our personalities
Sociocultural factors
- Influences that come from the customers society and culture
- Culture will impact attitudes towards products offered
Economic factors
- Socioeconomic status is determined by the person’s level of income, occupation and level of education – “A Demographic”
Government factors
- Key govt factors influencing customer choice = federal govt regulation of the economy
- Monetary and Fiscal policies
- Play a social role in influencing consumers through age restrictions and censorship warnings and film
Developing marketing strategies
- Market segmentation and product/service differentiation
- Process of breaking down a total market into small markets based on similar characteristics
- A business is able to identify the specific needs of the group and tailor the marketing plan
Methods of market segmentation:
Geographic segmentation:
- Process of dividing the market based on different geographical locations
- May choose to operate in specific geographic areas so it can exclusively meet the needs/wants of people
- Allows for adjustments the marketing plan to suit the buying behaviour of consumers in specific locations
Demographic segmentation:
-
Demographic segmentation: (common form of segmentation) segmentation with the considerations of age, gender and income
Age
- Demand for certain products will be different at stages of life
- Marketing strategies used by a business will need to incorporate features that appeal to a specific age groups
Gender
Income
- Allows business to decide on the most appropriate promotional and pricing campaign and the suitable location for their business
Psycho graphical segmentation:
- Segmentation of the market based on lifestyle, personality, values and interests
Behavioural segmentation:
- Process of dividing the market based on people’s knowledge of, attitudes towards and use of a product
Purchase occasion:
- When the consumer is most likely to purchase a product
Benefits sought:
- Understanding of the benefits consumers seek from a purchase
- Business can divide the market according to what customers want
Usage rate:
User loyalty:
- Opportunity for businesses to develop a loyal customer base
- Attempts to establish strategies that will gain and maintain customers
- Product and service differentiation
Product differentiation
- Process whereby a business distinguishes the attributes and features of a product from those of its competitor/s
- Strategies to emphasis product differentiation – product price and quality
Price:
- Market it as the cheapest provider
Product Quality:
- Use a slogan or logo to promote quality
Service differentiation:
- Variety of strategies include after sales service – develop strong brand loyalty
The marketing mix
Product:
- Offers consumers tangible and intangible benefits
- Tangible (physical attributes) eg: design, style, colour and product features
- Intangible benefits the consumer’s associates with buying the product
- Businesses must look beyond the physical features of the product, most consider other marketing concerns
- Image the product has in the mind of consumers
- Determined by how a consumers perceive the product in relation to product quality and price
- Reputation the business has developed
- Consumers develop expectations of products/brands
- Physical appearance of the good
- Aims to protect and maintain the quality of the good
- The packaging must offer some reason for the consumer to buy
- Price including pricing methods – cost, market and competition based
- Pricing strategies/tactics – skimming, penetration, loss leaders, price points
- Most influential for consumers
- Must reflect the position and branding of the business or product
Pricing strategies to generate fast sales:
Penetration pricing:
- Refers to setting prices at the lowest price to gain immediate consumers
- Used to generate market share rapidly
- Price will rise when there is a loyal base of consumers
Loss leaders:
- Involves providing a limited number of goods at a price that generates minimal or no profit to encourage consumers to purchase goods from the business
Product deletion pricing:
- Used to clear stock that the business believes is no longer selling or attracting consumers
Multiply unit pricing:
- Discount for bulk purchases
Pricing strategies to achieve the greatest financial return:
Market skimming:
- Strategy used when a business wants to recover high costs involved in producing and releasing a product by setting a high price
Demand based pricing:
- Higher demand – higher price
Prestige pricing:
- Perceptions of the product influence the price they are willing to pay
- Prestige pricing used for consumers who regard products as prestige
Pricing strategies used in a highly competitive business environment
Cost-plus pricing:
- Total cost to the business and then adds a profit margin
Competition based pricing:
- Publically stating that it will match a competitors advertised price if it is lower then the businesses
Price points:
- Sets different prices for similar products, the products are differentiated by features
Psychological pricing:
- Used to take advantage of the consumer response – consumers are influenced by even the most minor price difference
Price and quality interaction:
- Consumers associate price with quality
- Often the fist source of information on the product
- Elements of the promotion mix – personal selling, advertising, below the line promotion and public relations
- Seeks to generate interest and awareness
Personal selling:
- Establishes a direct link between the business and the consumer
- Involves taking the product directly to the customer
Advertising:
- Seeks to convey a message to a broad number of consumers
Sales promotions:
- Intended to generate interest and awareness of a product eg) free samples, 2 for 1 offers and samples
Direct marketing:
- An electronic method of advertising directly to the consumer
Above and below the line promotions:
-
Above the line = industry considers the norm, conventional and traditional
-
Below the line = non traditional that people would consider unusual
Public relations:
- Process of creating an event for a business to generate awareness for its products and business
- The communication process – opinion leaders and word of mouth
- Element businesses use to convey a message
Opinion leaders:
- Recognised individuals within the community, used to promote
- Benefits of a opinion leader - consumers will create a link between the leader and product
Word of mouth:
- Publicity where businesses have little or no control
-
Place concerned with the process of distribution and availability of products
- Distribution channels an reasons for intermediaries
-
Distribution Channels are the channels by which a product is moved from place of manufacture to the consumer
Producer to consumer:
- Where the good/service is produced and then passed directly to the consumer
Producer To consumer:
- Retailer = intermediary who accesses the good from the producer and then sells it to the consumer
- Often producer and retailer share marketing responsibilities
Producer to wholesaler to retailer to consumer:
- Another intermediary – a wholesaler
- Wholesaler takes responsibility of distributing the product from producer to retailer
- Channel choice including intensive, selective, exclusive
- Choice of channel will influence the type of customers the product attracts, perception of the product, ease the consumer can access the product
Intensive distribution:
- Product is readily available to a wide selection of stores/locations
Selective distribution:
- Use of limited stores/locations to sell/distribute a product
- Allows the business to control its product
Exclusive distribution:
- Restriction on the number of products/availability of the product
- Allows the business to have control over all elements of production
- Physical distribution eg) transport, warehousing, inventory
Transport:
- Process of moving the product from one location to another
- Considerations of transport are:
Warehousing:
- Process of storing products until there are distributed
- Allows the business to build up its stock
- The warehouse will distribute the stock to the retailer in a short time when needed
Inventory:
- Stock is inventory
- Over stocking is a bad decision.
- Environmental effects on distribution – technology, local government
- Business must consider the impact of external forces on channels and forms of distribution – environmental effects
Technology:
- Technological developments have altered methods in which distribution is achieved
- Most significant is the development of e-commerce
Local Government:
- Business activity in Australia is governed by all levels of government including local government. Examples are:
- Business location
- Use of public space eg) tables on the footpath
- Health regulations and building inspections
Ethical and legal aspects
- Environmentally responsible products
- Demand for goods and services comes at the expense of our natural environment
- Stakeholders in business have taken an interest in environmental issues
-
non=renewable resources can not be replaced
- Concern for the natural environment has led to businesses/consumers to develop environmentally responsible approaches
-
1997 – Kyoto Protocol was developed to encourage businesses to limit global greenhouse emissions
- Other issues including creation of needs, impacts of retail developments and sugging
Creation of needs:
- Today’s marketing strategies - businesses attempt to convey consumers that their products are needs rather than wants
-
Planned obsolescence is a deliberate practise to make consumers make another purchase
Impacts of retail development:
- Growth of retail development is at the expense of smaller businesses
Sugging:
- Unethical marketing practise – selling under the guise of research
Higher costs:
- Often argues that the consumer incurs the costs of the businesses marketing in the form of higher prices
- Role of consumer laws in dealing with
- Deceptive and misleading advertising
- Benefits of marketing mean that some business will market in ways that are unfair:
- giving misleading information on a product
- overstating the benefits
- offering special deals/discounts that don’t exist
- using bait or switch advertising
- Process of a business giving preference to some retail stores by providing them with stock at lower prices
- Trade practises act – tries to discourage price discrimination
- Implied conditions and warranties
- Good way to show faith in products is offer warranties – powerful marketing too
- All products have implied warranty – under legislation the state govt tries to protect consumer rights
- Resale price maintenance
- Manufacture can not refuse to sell products to a retailer that will sell them under the RRP
Topic 4 – Employment relations
The nature of employment relations:
- Stakeholders in the employment relations process – employers, employees employer associations, unions, government organisations
- Managing the employment relations function
- Line management and specialists
Key influences on employment relations:
- Social influences – changing work patterns, population shifts
- Australian workplaces are now characterised by greater diversity
- Ethnic and cultural backgrounds
- More women
- Desire to have a balance between family and work
- Impact employment relations functions
Changing work patterns:
- growth of part time working
- more women
- increased growth in retail, hospitality and education
- Technology has created decline in employment in manufacturing – fewer unskilled jobs
- Traditional work hours started to change
Population shifts:
- Our workforce is global
- Changes creates a ethnically and culturally diverse workforce – must ensure that workplaces are free of discrimination, harassment and promote cultural tolerance
- Legal influences – overview of major employment legislation
- Federal/state governments provide the legal frame work for the relationship between employers and employees
- Wage negotiation
- Process of resolving industrial disputes
- Create a tolerant workplace
- Regulated through 3 key areas;
- Common law; legally binding
- Feral legislation
- State legislation
Overview of major employment legislation
Federal legislation:
Workplace relations Act
- Frame work by which wage negotiation under federal law can take place
- Role of the AIRC involving industrial disputes
- Methods employees are able to use for industrial action
Anti-discrimination Act
State legislation:
Industrial relations Act
Occupational Health and Safety Act
Workers compensation Act/Workers Compensation and Workplace Injury Management Act
- New organisational behavioural influences – flat management and team structures
Flat management and team structures:
- Encouraging employees to take more responsibility in decision making will affect how well they complete their jobs
-
Intrinsic awards: the level of satisfaction an individual receives by either being asked or performing a task
- Flatter management allows for a more direct relationship with employees
- Common goals are established with each employee taking on responsibility for achieving these goals
- Economic influences – economic cycle, globalisation
Economic cycle:
- The level of economic activity is primarily determined by the level of consumer and business spending
- Economic cycle - Fluctuations in consumer/business spending
- If employees are confident about their level of job security they show increased willingness to spend
- Increase in consumer demands – increase in goods/products
- The government will need to ensure that this level of growth is sustainable and will not lead to economic problems
Globalisation:
- Integration of the worlds economies into a single market
- Aust businesses have faced increased competition from foreign business – these businesses - employ Aust staff
- Employment relations perspective; making sure procedures ensure employees receive their legal entitlements if they are retrenched
- Globalisation – multicultural workforce
- Multicultural workplace holds challenges – recognition of foreign qualifications and the development of diverse workplaces
Effective employment relations:
- Role of employment relations
- Employment relations = a link between managers and employees
- Process of managing people in a workplace
Acquisition:
- Recruiting staff that have the skills and experiences required
- Acquisition process may include;
- Hiring a external firm
- Conducting interviews
- Testing
- Group observations
Development:
- Continually improving the skills of staff through training and development
- Use of performance appraisals
- More important now to minimise costs through employment relations
Maintenance:
- Managers must ensure that workers are motivated to work to their potential
- Rewards can be:
Separation:
- Businesses must follow their legal obligations when a employee leaves
- Communications systems – grievance procedures, worker participation, team briefings
-
Communications systems: how people in the business are connected
- NOT a one-way process
- Crucial to successful employment relations
- Allows for communication to and from senior management and employees
- Successful communication can be done through:
- Meetings
- Memorandums
- Emails
- Performance appraisals
- Interviews
- Social functions
- Managers must be aware of communication between different cultures
Grievance procedures:
-
Grievance: when something happens in the business that makes someone feel as though they have been unfairly treated and want to complain
- Typical procedure:
- If this does not resolve the grievance then it should be taken to senior management – employee can ask for union assistance at this stage
- If it can still not be resolved the dispute may be taken to the Australian Industrial Relations Commission
Worker participation:
- Involvement of employees in the decision making process
- Productivity increases when workers participate in the decision making ie) training and performance appraisals
- Influenced by size of the business
- Worker participation can occur through:
- consultation committees
- informal feedback
- discussions between staff-elected representatives and managers
Team briefings:
-
Team briefings: meetings held regularly so managers can discuss issues important to the team
- Team meetings increase commitment and help people adjust to change
- Provides and opportunity for managers to disseminate information/tasks
- Rewards – financial, non-financial
-
Rewards: benefits people gain from their work
Financial rewards:
- Most common source of rewards
- Includes additional payments beyond the employees legal requirements
- Training and development – induction
-
Training: refers to learning the skills needed to do a job well
- Affects the employee in 2 ways:
1 – Difficult to enjoy a job you’re not trained for
2 – Provides the opportunity for career developments
-
Formal training: eg) lectures, seminars, apprenticeships and external courses
-
Informal training: Employee is shown or modelled the correct skills
Induction
- Critical area of training
- Training given to new employees to enable them to do the job
- Flexible working conditions – family friendly programs
-
Flexible working conditions: involves varying working conditions to suit the needs of the business and the employees
Family friendly programs
- Workplace initiatives that accommodate family commitments and work
Childcare centres:
- Employees have established childcare or joint ventures with childcare centres
Permanent part-time work:
- Guaranteed a minimum hours a week, flexibility of working more hours and not required to work everyday
- Benefits of a full time employee - annual leave, sick leave, holiday loading ect
Job share:
- Involves 1 job being completed by more than 1 employee
Home based work:
- Provides staff with the flexibility of choosing work hours
Other programs:
- Flexible starting/finishing times
- Carer’s leave
- Family support networks and discussion groups within the business
- Measures of effectiveness – staff turnover levels, absenteeism, disputation, quality, benchmarking
- Levels of staff turnover
- Absenteeism:
- Disputation: when employees are generally unhappy
- Quality:
- Benchmarking
Levels of staff turnover:
- Poor employment relations – high levels of (voluntary) staff turnover
High turnover is costly to the business
Absenteeism:
- Some employees use sick days to show dissatisfaction with the business
- It is costly
Legal framework of employment
- The employment contract – common law (rights and obligations of employers and employees), statues, awards, agreements
The employment contract:
-
Established when en employee agrees to a specific employment offer
- Legally enforceable
Types of employment contracts:
Part time employment:
Permanent employment:
- Provided with continual employment – sometimes over ordinary hours
Casual employment:
- Employed for short periods of time
- Regularity determined by employers demands
- Do not receive benefits
- Entitled to 1.5 times the amount of full time employees
Fixed term contracts
- Used when businesses only need labour for a specific time
Common law:
- Contract of employment sets out;
- rewards for employee
- work requirements
- working conditions
Rights and responsibilities of the employer
- Pay correct wages
- Reimburse employees for work related expenses
- Ensure a safe working environment, suitable for the employees duties
- Not act in a way that may harm the employee’s reputation, mental health or cause humiliation
- Make appropriate SUPERANNUATION payments
Rights and responsibilities of the employee
- Obey the lawful and reasonable instructions of the employer
- Exercise due care in the performance of the work and do it competently
- Account to the employer all money’s and property received while employed
- Disclose information to the employer relevant to the employers business
- Be faithful to the employers interests
Statutes:
- Laws made by state/federal government parliaments
- working conditions and pay
- safe employment practises
Awards:
-
Downgraded under the Work place relations Amendment
-
Award = legally enforceable agreement which sets out the minimum working conditions and wages;
- Hours of employment
- Type of work
- Pay
- Holidays
Agreements:
-
Employee collective agreement: employees negotiate collectively with their employer
-
Union collective agreement: negotiated between unions and the employer
-
Australian workplace agreements: negotiated between the individual employee and the employer (employee can ask for someone to act on their behalf)
-
Union Greenfield agreement: negotiated with unions for new businesses that do not have employees yet
-
Employer Greenfield agreements: (similar) except that the employer makes the agreement without negotiating with a union
-
Multiple business agreement: a number of businesses carry on the same type of business activity, want to offer their employees the same conditions ie) franchises
- All agreements are lodged with the OFFICE OF EMPLOYMENT ADVOCATE
- All new agreements take place the day they are lodged may operate for a max of 5 years
- Types of employment contract – casual/part time/flexible, permanent, casual
Industrial conflict;
- Definition and causes – wage demands, working conditions, management policy, political and social goals
Definition:
-
Industrial conflict: where an employee/employees have taken measures to express their dissatisfaction with the business
-
Industrial actions: measures taken
- Perspectives on conflict - unitary, pluralist and radical
Unitary
- Conflict within the business occurs due to staff being disloyal to the organisation
Pluralist
- NOT possible for all the shareholders to hold the same view
- Conflict is therefore not expected, all parties acknowledge that it CAN occur
Radical
- Believe conflict in a business is evitable- competing interests of stakeholders
- Types of industrial action;
Is industrial action allowed:
- Under the Workplaces Relations Act industrial action that takes place within the bargaining period is accepted
- Methods of action must not endanger others in an illegal way
- Employees who partake in the action during the bargaining period can not;
- lose their job
- have their job description altered
- lose benefits
- be threatened with the above actions
- Overt; lockouts, pickets, strikes, bans and work to rule
Overt industrial action
- Refers to industrial action taken by employees that is clear and visible
- Dispute resolution processes – conciliation, arbitration, grievance procedures, negotiation, meditation, common law action, business/division closure
Dispute resolution process
- Resolving an industrial dispute can be complex, success depends on the willingness of stakeholders to work cooperatively together
- The culture and attitudes of management are crucial in determining the process used to resolve the dispute
- Unions will inform employees of their legal rights and obligations in relation to the dispute
Negotiation:
- Involves discussions between both parities
-
Collective bargaining: negotiations over workplace disputes
Mediation:
- Independent person to assist
Conciliation:
- If a settlement is not reached through mediation ect the Australian Industrial Relations Commission will be notified and requested to help assist with resolution
Arbitration:
- Lawyers representing the parties will present their cases to the AIRC
- Decisions are legally binding
Resolving other workplace disputes:
- Disputes involving harassment or discrimination are dealt with by the HUMAN RIGHTS AND EQUAL OPPORTUNITY COMMISSION and NSW ANTI-DISCRIMINATION BOARD
Common law actions:
- Workplace relations with no specific employment relations – compensation through courts
- It could be;
- A breach of the duty of care
- Action taken by employee/s that has caused financial damage to the business
- Breach of contract ie) early termination
Business/division closure:
-
Industrial action may have adverse impacts on the business
- It may be in the businesses best interests to cease operation
- Roles of stakeholders in resolving disputes
- Costs and benefits of industrial disputes
- Financial, personal, social, political, international
- Designed to raise awareness of a source of conflict – conflict could have serious consequences
Financial costs:
- Loss of income for employees
- Loss of production/output by the business
- Loss of market share and sales – may be long term
Personal costs:
- Uneasiness created within a disputing workplace
- Tension could further breakdown the communication system
- Conflict may result in low staff morale, lower levels of job satisfaction and increased staff turnover
Social costs:
- Management and employees will undoubtly tell others, financial strain and personal costs may lead to break downs in areas of the employees life
- Social costs may be heightened with prolonged disputes
Political costs:
- Govt may play a role in resolving disputes
- Govts may be damaged by adopting a particular view on a particular dispute
International costs:
- Damages of the reputation/image of the business involved
- May cause the loss of foreign exportation – loss of revenue damages the business
Benefits of industrial disputes
- Increases awareness of those managerial choices that are unlawful and considered unethical
- Resolving disputes may involve dealing with issues causing disputes for some time
- New methods of communication can be established
- More effective practises adopted
- Employees may receive improved wage entitlements and working conditions that reflect their job
Ethical and legal aspects
- Issues within the workplace;
- The environment employees work in
- Influences on the culture of the business
- Negotiation of working conditions regulated through employment relations legal frame work
-
Workplace relations Act 1996 – tried to shift emphasis form industry wide negotiations to ones directly involving employers and employees
- Work related injuries - social and ethical issue, can bring emotional and financial strain
- Workplace safety is the concern of state Govts
- OHS within NSW has led to the development of industry reference groups – provide guidelines for employer to follow and ways to minimise the incidence of injuries
- Not legally enforceable
- The worker must report the incident and ensure documentation, employer must show they took reasonable precautions
- There is financial burdens associated with injuries
- Workers compensation – state/federal agencies and common law
State and federal law
-
Workers compensation: aimed at rehabilitating employees
- Administrated at state level
- Ensures that employees can return to payed work as soon as possible or receive financial compensation
- Regulated through;
- Workers compensation Act 1987 (NSW)
- Workers compensation and workplace injury management 1998 (NSW)
- The claim assistance scheme of Workcover allows disputing parties to reach a settlement where all stakeholders are satisfied
- If no settlement is made the compensation may be forwarded to NSW workers compensation commission
Common law
- Gives employees injured at work rights to pursue the claim through the courts
- DISCRIMINATION - employees treated differently because of personal characteristics
-
Direct discrimination: intentionally treating an employee differently because of personal characteristics
-
Indirect discrimination: policies developed by a business that indivertibly impacts on a group within the community, does not intentionally treat a particular group/individual unfavourably
- UNETHICAL
- State/federal govts have a range of laws/legislation that relates to discrimination based on age, gender, ethnicity, age and disability
Anti-discrimination legislation
- 19745 – govt have passed legislation aimed at promoting workplaces free of discrimination
- Anti-discrimination Act 1977
- Racial discrimination act 1975 (Cmwth)
- Sex discrimination act 1984 (Cwlth)
- Disability discrimination act 1992 (Cwlth)
- Human rights and equal opportunity commission act 1986 (Cwlth)
- Promoting culturally tolerant workplaces falls on the employer
- Making all reasonable steps to free the workplace of discrimination and harassment
-
The human rights and equal employment opportunities commission is responsible for promoting/enforcing
- Equal employment opportunity
- Process of ensuring that female employees in a workplace are treated with fairness/equality in all operations
-
Legislated under: equal opportunities for women in the workplace act 1999
- Organisations that are subject to the act must submit a report yearly
- Where employees leave the organisation under unfair circumstances
- Employees have the right to pursue their claim with the AIRC
- The AIRC needs to consider whether the employee was;
- Notified of a grievance
- Given an opportunity to respond to managements claims
- Warned of unsatisfactory work performance
- Provided with avenues to improve work
- Employees can not be dismissed because of:
- absence from work for a certified illness
- refusal to sign an Aust workplace agreement
- trade union support/membership
- non-member of a trade union
- absence from work on paid maternity leave/paternity
- Unfair dismissal doesn’t apply with employees under 20
- Employees that are on contracts or probationary contracts and don’t have their contacts renewed can not pursue unfair dismissal
Topic 5: Global business
Globalisation:
- Nature and trends – growth of global economy and changes in markets (financial/capital, labour, consumer)
- Nature of trends – growth of global economy and changes in markets (finance/capital, labour, consumer)
Growth of the global economy:
- Globalisation is the integration and interdependence of the economies of different countries
- Results are; increasing flow of goods, services, people, finance and information around the world
- Geographic location and distance have become less important
- Any operations outside the ‘home’ country are part of the global economy
- Reasons for the global web of operations is to drive costs down and exploit the competitive advantage each region has
Changes in markets
- Created world wide markets
- The price of money, wage levels and the demand for goods/services is influenced by factors outside a business’s control in other countries
Financial/capital markets:
- Companies no longer restricted to acquiring debt/equity finance from home countries
- Businesses borrowing target those countries where interest rates are lowest
- Contributed to the development of the Euro/US bond market
- Buying and selling of currency/money in other countries
- Businesses need foreign currency to pay for inputs in other countries and will receive foreign currency
- Financial crisis on the global financial market where demand for investments has fallen and share prices plummeted
Labour markets:
- Movement of people with different skills between nations
- Less developed nations - many ag workers moved off the land and travelled to industrial centres to obtain better paying jobs
- Businesses in these industrial centres provided training and increased wages
- Skilled professionals are no longer limited to the country of education
- Deregulation of the labour markets by govts has been a major contributor to the movement of labour
- Due to internet migration is not required
Consumer markets:
- Globalisation facilitated the growth of consumer markets
- increase in demand for consumer goods
- Each nation develops, individuals demand higher standards of living by purchasing household items
- new luxury markets have appeared
- Trends in global trade since WWII
- TRADE LIBERALISATION - WWII
- Encouraged by countries due to the benefits to the nations economies
- Capital to fund business expansion
- Access to technology
- A larger market
- A wider range of less expensive goods/services
- Higher standards of living
- Global trade encouraged by decreases in tariffs – tariff = tax on imported goods
- After WWII
- Countries imposed high restrictions against trade to protect their economy and feelings of nationalism
- Some interruptions in the globalisation process –
- Organisation of Petroleum Exporting Countries, oil shock
- Vietnam war
- As well as growth in global trade, growth in the types of goods and service
- Role of transnational corporations
-
Transitional corporations (TNC’s) – establish subsidiary companies in different countries
-
Holding company – owns either a controlling interest in another company or all its shares
- The subsidiary companies may produce products with different brands or operate in different countries but are still controlled by the holding company
- Established to take advantage of lower costs/new markets in other countries
-
Inner-firm trade = Raw materials, intermediate goods, information
-
Multinational corporations: global businesses that have a global web or operations
- Global businesses can view the world as a single market – products require minimal adjustments to be sold in different countries
- Products now include western and eastern influences
- Rise in standard of living – increase in demand for education/tourism
- Australia’s response – exporting these services to Asia, more students come to Aust to receive education
- Transport technology has made the distances minimal barrier
- Technological drivers of globalisation:
- Container ships
- Air travel
- Internet and satellite
- Goods can be rapidly transported incl fresh foods
- internet instant access to global markets
- Internet has become popular form of communication
- Majority of administrative tasks can be completed on line incl;
- receiving sale orders
- sending invoices
- purchasing inputs
- accessing advice and professionals
- Nations have government policies for increasing international trade
-
Austrade has the specific purpose assisting Aust businesses deal with global trade issues
- Strategies incl
- Knowing and growing community project to increase exports
- Assisting local businesses to contact, network with other businesses globally
- Seminars educating potential exporters on markets
How have trade agreements been a driver of globalisation?
- Trade agreements – conditions where trade can occur more freely
- Bilateral/multilateral agreements aim to create clearly defined set of trading rules and minimise trade barriers
-
World trade organisation (WTO)
- Aim is to develop a trading system more free, reliable, competitive and beneficial to developing nations
- Developed trading rules members must follow
- Aims to create a single market across Europe
- The removal of barriers has sped up the movement of goods across boarders
- Deregulation of financial markets
- Govt removes legal restrictions on an industry - individuals learn to survive in a competitive market = benefits for consumers
- Governments around the world have removed restrictions on the banking and financial industry – more finance flowing world wide
- Deregulation of the global financial market has its own business cycle – strongly influenced by the US monetary policy
- Deregulation of currencies, most influential on globalisation
- Companies/investors can buy shares, property and other assets in Aust
- Interaction between global business and Australian domestic business
- Businesses are becoming more global - shares bought from overseas
- Domestic businesses interact with global businesses through marketing, operations, employment and finance
- Australia has experienced growth in global trade
- Australian businesses benefit greatly from trade liberalisation
- Many famous Aust brands are successful marketed overseas
- Employment relations in Aust is complex because of globalisation –
- Australians have the opportunity to work in overseas subsidiaries of global businesses that have operations in Aust
Global business strategy:
- Methods of international expansion
- Manufacturing the product in the home country and selling it overseas
- Direct – selling products overseas, importer is responsible for marketing
- Indirect – selling goods to a agent or export management country
- Intracorporate exporting – selling products or inputs by a firm to a subsidiary in another country
- Advantage of exporting is lower level of risk
- Disadvantage is trade barriers, transport costs
- Foreign direct investment
- When a business invests in another country ie) property or business
1 – Takeover or merger with another business ie) supplier
- Forward vertical integration – a business that supplies
- Backward vertical integration – an overseas business supplier
2. Establish a business from scratch
3. Two or more business join to share resources and information
4. Purchase of shares/corporate bonds in investment businesses
- Shifting an entire business function to another country
- Production outsourced overseas to more cost effective places
- Purchasing a manufacturing business in a country where costs are low
- Considerable risk involved because of poor knowledge of the market
- Advantage – save on tariffs ect
- Where a business provides managerial assistance overseas for a fee
- Management team makes all decisions and trains the local staff
- Establishing operations by exporting a professional service
-
Licensing – One business permits another to produce/sell its products in return for royalties and fees
- Licensor sells the right to other companies to use
- Logo
- Production methods
- Brand name
- Licensor must monitor licensee’s closely
- Success comes from the well known product that will provide instant sales
-
Franchising – one business sells another the rights to use its operating methods, products and trademark
- High initial purchase price and are on going fees compared to licensing
- Establish name in other countries without establishment costs
- Can be difficult to control and measure franchises
- Increase sales/find new market
Marketing reasons:
Increase sales
- Our small population limits potential sales and potential profits
- Most population growth is occurring in developing countries – they can provided therefore a higher level of sales and faster rate of growth
Find new markets
- Newly industrialised countries in Asia represent markets for consumer goods
- Increasing incomes make markets for products for standard of living
Minimise competitive risk
-
Businesses may enter an over seas market by selling its product in a new country to minimise competitive risk – being the first in a country
Extended product lifecycle by exporting overseas
- Products in declining stage find new markets overseas
- Products return to establishment phase in a new market
- Increasing sales and profits in new markets will offset falling sales/profits in the home economy
Operating reasons
- Increasing efficiency and productivity
- Lower costs through acquiring cheaper materials
Achieve economies of scale
- Allows reduction of costs through production of ore goods
- Works in conjunction with increasing sales
- Through relocation or expanding costs of manufacturing can be lowered
- Relocation closer to consumers – lower transportation costs
- Govts may offer financial incentives to relocate
-
Vertical integration – business creating own supply chain
- Process of buying or merging with another firm that is its supplier or who it supplies its goods to
Gain access to technology
- Acquiring new technology by taking over a firm that has developed it
- Saves time, money and gains a competitive advantage, less risk
Employment relations reasons
Regulatory differences
- Seek cheap labor to reduce production costs and increase profits
Skilled
- Some businesses will employ labour with the skills already
Finance reasons
Cushioning the economic cycle
- Diversifying businesses can reduce financial risks
- Marketing resources can redirected to the economy experiencing economic growth
Diversification
- Reduce risk through spreading sources of revenue amoung countries
Tax minimisation
- Businesses can acquire subsidiaries business in other countries that have lower rates of company tax
- Moving profits between different countries can significantly reduce the profit it makes in high-tax countries and reduce tax payed
Specific influences on global business
- Changes in the value of a countries money
-
Exchange rate = value of currencies using compared to others
- Impact profitability and financial stability
- Transferring funds between currencies can increase or decrease the value on net profit
- Uncertainty created through currency fluctuations is not acceptable – business will need to use strategies to ensure the amount it receives/pays will not be affected
- Interest rates and overseas borrowing
- Obtaining finance in other countries at cheapest price
- Exchange rate risk to the business – value of home country depreciates the interest repayments increase
- Tensions between protectionism and free trade
- Protectionism - Govts have policies to assist local businesses when threatened by global businesses
- Given to domestic business to reduce competition from overseas
- Tariffs
- Quotas
- Subsidies
- Levels of protection are falling
- Tensions in relation to trade agreements – not all sectors of the economy are treated equally
- International organisations and treaties
General agreement on tariffs and trade 1947
- First multilateral trade agreement between western countries to promote trade by reducing protection
- Brought about successful growth in trade of manufactured goods
World trade organisation
- Promotes a reduction in trade barriers
- Trade disputes can be solved using the dispute resolution processes
- There are set of rules and regulations that members must follow – penalties can be enforced
European union
- Involved in many areas including trade, environmental protection, humanitarian aid, human rights and security
- Less risk from currency fluctuations, inflation rates and the standardisation of prices over Europe
Association if south East Asian nations and the Asia pacific economic cooperation group
- Regional trade agreement 1967
- Goals are to promote trade amoung nations in South-East Asia
- Very important to Australia
- Trade agreements and Regionalism
- Nations may reduce barriers between one another or place additional barriers to an outsider
- Easier for a business to establish itself in a country where no trade agreement exists
-
Regionalism – some countries develop a common trade policy against businesses in non-member countries
- Reductions in restrictions are given to member countries – trading bloc
- In a country experiencing war/civil unrest markets will be disrupted – sales and profits fall because of lack of demand and consumer confidence
- Business may be looted/destroyed
- International shocks have affected consumer confidence and business confidence
- SARS
- Middle east conflict
- Bali bombing
- September 11
- Risk is also based on the relationship between govts – may be retaliation against businesses
- Must have knowledge of all the laws in the residing country Businesses outsource legal advice such as;
- Company law
- Taxation law
- Financial system regulations
- Industrial relations law
- If accused of illegal practise a business may be charged with a criminal offence or be sued under civil law
- During a dispute these need to be answered;
- What countries laws apply?
- Are there international laws relevant?
- What type of court will the dispute be held in
- Laws aim to protect the value of intellectual property
- New WTO rules give businesses of member countries an avenue to take action
- Languages
- Tastes
- Religion
- Varying business practises and ethics
- Culture will influence the marketing mix – products/promotions will need to be customised to suit the local culture
- Religion can affect the hours of work and ingredients in food and management decisions
- Businesses need to know the unwritten rules of business such as;
- Appropriate style of negotiation
- Entertainment
- Gift giving
- Payment and acceptance of bribes
- Lack of cultural sensitivity and knowledge of language ect will create business barriers
Managing global business
Credit risks
- Most secure – receive payment before goods are sent
-
To ensure payment an importer is required to have a letter of credit from a confirmed secure bank
- Bill of exchange and international bank as intermediary – written order requesting the buyer pay the seller a specified amount at a specified time
- Important for businesses to research and analyse the businesses that are purchasing, importing and distributing its products
- Strategy used by the business to reduce financial risk
- Can be used to eliminate transaction exposure
- Common form of hedging – special contract between global business and suppliers
- Hedging involving subsidiaries – global business avoiding changing between currencies
- Using contracts are financial tools to reduce currency risk
-
Forward exchange contracts: guarantee the exporter a certain exchange rate on a certain date – paid regardless of the actual interest rate
-
Currency option contract: option to buy or sell foreign currency rate movement to its advantage
-
Swap contract: allows an exchange rate on a particular day (spot rate) to be the price of the currency to be bought or sold within 2 days
- Exporters should take out insurance to protect themselves from non-payment
- Reduce exporting risk through insuring goods incase they never arrive
- Price of insurance policy will be based on many different variables ie) weather conditions, price of cargo
- Aust business can take out insurance with the federal govt – EXPORT FINANCE AND INSURANCE COPORATION
- Aust business may acquire finance from other financial markets
- Hedging will be used
- Business may obtain cheap interest rates to find they increase
- Different financial and legal systems
- Differences in company law & financial system between countries may create problems
- Financial risk to the business from the influence of overseas economies on the level of economic activity in Aust
- Strategies of global business need to be customised to suit different cultures and nations
- A product may need to be altered to meet govt regulations eg) labelling or quality
- Research is important for segmentation and target identification
- Various problems with research ie) translation of surveys
- More effective and efficient to promote brands than products
- Standardisation and differentiation
- Products will have to differentiate different aspects to suit different cultures and markets
- Four p’s must be appropriate for the new market
Marketing strategies:
Product
- Features will vary
- Labels need to be in the correct language, display information differently or have extra information
Price
- Competitive pricing is difficult due to additional costs
Promotion
- Understand marketing variations needed in language, culture ect
Place
- Good relationship with local distributor is important
- Sourcing (vertical integration, make or buy)
- Refers to a global business acquiring its inputs – may choose to vertically integrate
Make or buy
- Businesses may import its inputs from overseas from a specialist supplier
- Advantages
- Business can concentrate on core function
- Inputs may be constantly improved by the supplier
- Competing business may have access to the same inputs – no competitive advantage
- Outsourcing stages of production and distribution requires a global supply chain
Vertical integration
- Is to take over a business that can supply inputs
- Advantages are that it allows the business to;
- Reduce costs through economies of scale and remove profit margin in supplier prices
- Use JIT inventory management
- Use transfer pricing to reduce tax and negative exchange rate effects
- Global web (components produced in different countries)
- Involves businesses sourcing inputs and manufacturing from cheapest origins and distributing to any demanding nation
- Key type – each input made in the country which can make them at best quality and lowest price
- Businesses using the strategy locate headquarters in a developed countries
- Disadvantage; coordinating delivery is difficult to reduce costs
- Global business organisational structure will determine who has decision making power
Geographical organisational structure:
- A manager for each key business function + global manager
- Each subsidiary will run the business functions excluding finance independently
- Uses decentralised decision making
Functional organisational structure
- More centralised approach to decision making
- Managers at each subsidiary will need to know their function but also how their function is affected by; political, legal and financial factors
Product based organisational structure
- Exists where management is responsible for operations, marketing, finance and employment relations for a particular product
- Advantage; manager becomes very specialised in their product and performing their role
- Deciding how employees will be sourced
ETHOCENTRIC
- Using home country managers and employees within the business overseas
- Managers/employees will be relocated to the subsidiary incurring costs
- Disadvantages;
- Managers/employees will not know the local market/culture
- Local Govt may insist locals be given jobs
POLYCENTRIC
- All employees are from the country of the subsidiary
- Key senior positions are from the home country to train local managers
- Advantage; local managers know their home country eg) culture
- Disadvantage; high costs through training
- Socially responsible strategy
GEOCENTRIC
- No concern about the country of origin of the employee
- Aims to employ the best person for the job
- Shortage of skilled labour
- Businesses need to balance cheap labour against training costs
- Ability to learn skills in developing countries is hindered by lack of education
- Some governments in developing countries are increasing education but keeping lower costs to create business investments in their labour
- Businesses employing citizens must comply with local laws about employment relations eg)
- Minimum age
- Minimum wages
- Minimum standards of workplace health and safety
- Evaluation – strategies with reference to a particular global market
- Modifications of strategies according to changes in the global market
Management responsibility in a global environment
- Businesses ethics and the behaviour of businesses in the global environment are increasingly important to shareholders
- Businesses are likely to also deal with interest groups, pressure coming from;
- Publicity campaigns and demonstrations
- Media attention
- Lobbying government officials and decision makers
- Education of consumers
- Community and local businesses may react negatively if they perceive the business is exerting corporate influence
- To behave ethically the business must act morally and socially correct
- There is a need for international standards of conduct for global businesses
- Ethical practice – tax havens and transfer pricing
Tax havens:
- Country that has no or very low tax on companies
- Deliberate government policy to attract global businesses
- Businesses may use inter-firm transactions between subsidiaries to move its profits ect from higher tax countries to tax havens
- Unethical; businesses do not pay for the upkeep of the country they are in ie) roads, hospitals and ports
Transfer pricing:
- Businesses owning subsidiary companies in other countries can set pricing for things traded between subsidiaries
- Manipulating these prices allows businesses to reduce profits in high tax companies and have no/low tax in low tax countries
- Individual businesses can claim a loss made on currency exchange
- Using these strategies allows business to avoid financially contributing to the nations they operate in
- minimum standards of labour
- Nations have varying laws surrounding working conditions and standards of pay
- Fear there will be a race to the bottom to attract FDI, lowing rates of pay and conditions
- Subcontracting can cause problems – head office has no direct control over treatment of subcontractor employees
- International Labour Organisation – set up 1919 under United Nations
- Sets minimum standards of worker treatment
- Makes recommendations that labour be allowed to join unions
- Bargain with employers to improve wages and conditions
- Working conditions and living standards vary between countries and a business must reward appropriately
- To act ethically businesses must ensure subsidiaries follow set standards of pay and working conditions
- Involves selling huge volumes of excess stock in a foreign market
- By exporting excess the market makes revenue
- Exporting excess means the price of the product falls, local producers make lower income
- Disposing of hazardous waste
- Selling hazardous waste from countries with strict environmental laws to countries who will buy the waste to make income to pay debt
- Selling products that are detrimental to health
- Sales of products falling in educated/developed countries are sold to developing countries to make revenue as they don’t know health risks
- Selling goods in foreign markets that would other wise be considered illegal
- Eg) Selling a toy that hasn’t passed Australian Safety Laws in a developing nation
- ecological sustainability
- Concept that the quality and supply of natural resources are sustained for future generations
- Pollution caused by production methods in one nation can affects others or the globe
- Businesses need to consider the environment in the future when making decisions
- Businesses may invest profits into environmental restoration
- International agreements protect the earth’s natural resources eg) Kyoto Protocol
Authoritarian, an autocratic manager dominates the decision making process
Subcontract a task to another business that operates on your behalf
Inability to change or move to a new system
Someone who helps bring about change
Involves a business ‘hiring’ the assets it needs for a period eg) a year. The business has the right to use the asset without having to buy it. A fee must be paid every week or period of time
A type of long term debt finance that a business can acquire by offering a prospectus to the general public in the stock exchange. The business is offering an investment opportunity to people who want a good return from a more risky investment
An asset that does not physically exist but adds value to the business
Valued according advantage or reputation of a business that it has acquired over time
Strategy involves the business selling non-current assets to another firm and leasing it back
Assessment of the businesses ability to repay loans based on past financial performance and past repayments on loams. They are usually expressed as letter grades eg) A+, A and A-
A tool to evaluate the performance of the business by comparing actually results with planned results
Fixed costs do not change when a business produces more goods or if it sells more goods/services
Do wary as sales and inputs change
Involves a business placing emphasis on strategies aimed at convincing consumers of the need to buy a product
People hired to communicate virtues of their employees product, differentiating them from competitors
Unfavourable, harmful or undesirable effects on the business
Document issued by the bank to the seller of goods that has specific instructions from the buyer giving authorisation for the seller to draw money from the buyers account under certain conditions