Joint ventures – When two or more businesses agree to start a new project together, sharing the capital, the risks and the profits. Many European companies have set up joint ventures in China with Chinese businesses, As the local managers will have good knowledge of market needs and consumer tastes.
Franchise – A business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the licence to operate this business from the franchisor.
Multinationals
Multinational businesses are those with production facilities in more than one country.
There are several reasons why businesses become multinationals, including:
To produce goods and services with low costs, due to low wages or taxes
Extracting raw materials which the firm might need for production, like Saudi oil.
Producing goods nearer to the market to reduce transport costs, like bricks or cars
To avoid import barriers imposed by countries, like on Japanese made cars in Europe
Expanding into different markets to spread risks and increase sales
Advantages of multinationals operating in a country:
Jobs are created, which reduces unemployment
New investments in buildings and machinery increases output of goods and services in the country
Some of the output may be sold abroad, thus helping exports and reducing imports
Increased tax revenue for the government
Disadvantages of multinationals in a country:
The jobs created in ‘host countries’ are often unskilled. More educated jobs like R&D stay back home.
Local firms may be forced out of business, as new big business might have good economies of scale
Profits are often sent back to ‘home country’, so not used in ‘host country’ to buy goods and services
Multinationals often use up scarce and non-renewable primary resources in the ‘host country’ (oil)
Multinational businesses are very large and can influence the government for grants or subsidies
Organisational structure
Organisational structure – Refers to the level of management and division of responsibilities within an organisation
Delegation – Giving a subordinate the authority to perform particular tasks. Only authority to perform the task, not the responsibility, is delegated.
Subordinate - Person working under the directions of a listed manager
Chain of command – The structure in an organisation which allows instructions to be passed down from senior management to lower levels of management. Shows the hierarchy in the business.
Span of control – The number of subordinates working directly under a manager.
Internal communication – When messages are sent inside the same organization
External communication – When messages are sent between different organizations or individuals
Sender → Medium of communication → Message → Receiver → Feedback
- Financing business activity
A business needs funds to start-up the business, pay wages to workers, pay tax, raw materials etc.
Capital expenditure - Money spent on fixed assets which will last for more than one year
Revenue expenditure – Money spent on the day-to-day running of the business, like wages or rent
Debentures – Long-term long certificates issued by limited companies. No monthly charge.
Debt factoring – Selling your debts for ~90% value for immediate cash to a specialist agency.
Hire purchase – Allows a business to buy a fixed asset by paying monthly charges. Keeps the thing.
Leasing – Allows a firm to use an asset over a length of time for monthly payments. The business could decide to purchase the asset at the end of the leasing period. Otherwise, they don’t keep it.
Sale and leaseback – Selling and leasing back your assets for immediate capital, monthly payments.
Internal finance – Money which is obtained from inside the business itself:
Retained profit
Sale of assets
Sale of stocks
Owner’s savings
External finance – Money which is obtained from outside the business:
Issue of shares
Bank loans
Selling debentures
Factoring of debts
Grants and subsidies from outside agencies
Short-term finance – Working capital needed by the business for everyday operations, up to 3 years
Overdrafts
Trade credit
Factoring of debts
Medium-term finance – Finance available between 3-10 years. Usually for machines or vehicles.
Bank loans
Hire purchase
Leasing
Long-term finance – Finance available for more than 10 years.
Issue of shares
Long-term loans
Debentures
- Marketing
Market – A place where buyers and sellers come together to exchange products for money
Marketing – The management process which identifies customer wants, anticipates their future wants and then goes about satisfying them profitably.
Market share – The percentage of total market sales held by one brand or business
Marketing budget – A financial plan for the marketing of a product. Limits how much can be spent.
Product-orientated business – A business whose main focus of activity is on the product itself.
Market-orientated business – A business which carries out market research to find out consumer wants before a product is developed and produced.
Market segmentation – Separating the market up into groups of consumers with similar wants
Niche market – A small, specialised segment of a much larger market, e.g. supercars
Mass market – Is where there is a very large number of sales of a product
Marketing department – Contains the individuals who take care of the marketing in the firm:
Sales
Research and Development (R&D)
Promotion
Distribution
Objectives of marketing:
To increase sales revenue and profitability
To increase or maintain market share
To maintain or improve the image of products or a business
To target a new market or market segment
To develop new products or improve existing products
SWOT analysis
A technique used by the Marketing departments to assess a product.
Strengths
Weaknesses
Opportunities
Threats
Ways to segment a market:
Income group
Age
Region
Gender
Use of the product
Lifestyle
Marketing mix (The 4 P’s):
Product – All relevant to the product itself like design, quality, packaging etc.
Price – Price charged, pricing strategies
Promotion – Advertisement and promotion of the product
Place – Channels of distribution, location of shops etc.
Market research
Market research – Carried out to find out how many people would buy your product
Quantitative research – Answers questions about the quantity of something, like sales numbers
Qualitative research – Answers questions where opinions or judgements are necessary, like taste.
Primary research – Field Research; The collection and collation of fresh data from existing or potential consumers via direct contact. The methods are...
Questionnaire – A set of simple questions to be answered. Sometimes multiple choice, quantitative.
Consumer panels – Groups of people who agree to provide information about a specific product
Interviews – The interviewer has ready prepared questions for the interviewee
Samples - Speeding up the collation process by selecting a random or quota sample from answers.
Observation – Using recording, watching or audits to observe consumer spending patterns.
Experiments – Getting first reactions from consumers by having them test samples in shops.
Secondary research – Desk research; Information that has already been collected and is available for use by others. There are internal and external sources for this:
Internal sources of information – Info from the firm’s own records.
External sources of information – Info obtained from outside the actual company, like government, research reports, newspapers, internet etc.
Ways of presenting data: Table/Tally chart, pictogram, line graph, bar chart, pie chart
The 4 P’s detailed...
Product – Design, brand, packaging, life cycle →→
Development- Prototype tested, market research
Introduction- Sales grow slowly at first, informative
advertising used, price skimming used when there is
no competition (iPhone). Profits cover R&D costs.
Growth- Sales grow rapidly, persuasive advertising for
brand loyalty, price reduced a little to decrease new
competition, first profits made
Maturity- Sales increase slowly, intense competition,
promotional/competitive pricing & marketing
strategies, profits are at their highest
Saturation- Sales stabilise, no new competition,
competitive pricing used, high and stable level of
advertising is used, profits fall as sales are static
Decline- Sales decline as newer products enter market or because the product has lost its appeal. Product will soon be removed due to sales being too low.
Price – Price elasticity of demand, pricing methods and strategies
Pricing strategies are adopted for several reasons, including:
Breaking into new markets
Increasing market share
Increasing profits
Making sure all costs are covered and a particular profit is earned
Cost-plus pricing – The cost of manufacturing plus a profit mark-up.
Penetration pricing – Setting the price lower than the competitor’s prices to break into new markets
Price skimming – Where a high price is set for a new product on the market. For high profits and covering R&D costs.
Competitive pricing – When the product is priced in line with or just below competitor’s prices. To maintain market share.
Promotional pricing – Selling the product at a very low price for a short period of time. To increase sales
Psychological pricing – When particular attention is paid to the effect that the price of a product will have upon consumer’s perception of the product. To increase sales
Place (Distribution channels):
Producer → Consumer
Producer → Retailer → Consumer
Producer → Wholesales → Retailer → Consumer ....................................← ‘Breaking bulk’ happening
Producer → Agent → Wholesaler → Retailer → Consumer
Promotion (Advertising, sales, point of sales, public relations) has several aims:
Creating a brand image
Introducing new products to the market
Competing with competitors’ products
Improving company’s image
Increasing sales
Informing people about particular issues (*often used by the government*)
The AIDA model – A simple way of planning an advert’s design:
Attention
Interest
Desire
Action
Types of promotion:
Price reductions- Reducing prices in shops and giving money-off coupons, to encourage loyalty
Gifts- Adding small gifts in the packaging or providing gifts for collected coupons (Selga...)
Competitions- Packaging may include an entry form which makes it possible to win something(car)
Point-of-sale displays and demonstrations- Demonstrating the good things at a special display
After-sales service- Providing customer support
Free samples- Handing out small free samples of products to encourage their purchasing
- Production
Productivity – Output measured against the inputs used to create it: Out/number of employees
Types of production:
Job production- Where a highly specialised product is made to order
Batch production- Similar products are made in blocks or batches
Flow production- Mass production, continuously producing large quantities of something
Lead time – The margin of time between ordering and obtaining stock
Lean production- Techniques used by businesses to improve efficiency by cutting down on waste:
Kaizen- Means ‘continuous improvement’, focuses on eliminating waste through organizing
JIT- Just-In-Time; Involves eliminating stock levels through correct timing, reduces storage space
Cell production- Separating the production line into small ‘cells’ that merge as the final product
Kanban- Making sure that everybody is working when needed, no need to walk around finding parts.
Economies of scale – Factors that lower the average cost of making a product
Diseconomies of scale – Factors that increase the average cost of making a product
Economies of scale:
Purchasing economies – Bulk buying discounts
Marketing economies – Cheaper advertising rates due to bulk, having banners on firm’s vehicles
Financial economies – Higher credit rating, cheaper interest rates, ability to get better loans
Managerial economies – Money to employ highly skilled specialists to increase efficiency
Technical economies – Flow production methods; computers, machines, robots, CAD, CAM etc
Diseconomies of scale:
Poor communication – When a business is too large, so the existing managers are distanced from the workers and products of the firm, thus slowing decision making
Low morale – Lack of motivation in workers because they can never see their managers or their opinions aren’t heard or cared about, so efficiency falls and average costs increase
Quality control
Quality control is needed to ensure your customers that your products have a high quality and won’t fail to do what they are supposed to do.
Total quality management – TGM; The continuous improvement of products and processes by focusing on quality at each stage of production. Japanese creation, where emphasis is on ensuring that customers can be other people or departments in the same business. Aims to get it right the first time.
- Business costs
Fixed costs – Overhead costs; Costs which do not vary with the number of items sold or produced in the short term. They have to be paid whether the business is making sales or not.
Marginal costs – Extra costs a business will incur by producing one more unit of output
Variable costs – Direct costs; Costs which vary with the number of items produced or sold.
Total costs – Fixed and variable costs combined
Revenue – The income of a business during a period of time; Quantity sold * price
Average cost per unit – Total cost of production divided by total output
Break-even chart – Shows how many sales the business must make to cover all costs
Contribution – Selling price – variable costs
Break-even level - Total fixed costs / Contribution = number of units of production
(contribution = selling price- variable costs)
contribution its payed off once the break even point is reached, then it contributes to profit
- Budgeting, cash flow, profit and loss accounts
Budgets can be used to analyze performance e.g. over budget, on target etc.
Budgeting is an attempt to predict the following:
Business costs
Business income
Exchange rates and currency values (mainly exports)
Other changes to cost e.g. predicted wage & tax rises
Budgets contain:
Targets for sales and revenue
Limits for costs etc. per specific departments and managers
Information sources for budgeting:
Past financial history / records
Research (market / sales etc)
Experts – govt. officials, private consultants, reports prepared by experts etc.
Cash flow
Cash flow – The cash inflows and outflows of a business over a period of time
Cash flow forecast – An estimate of future cash inflows and outflows of a business. This will then show the expected cash balance at the end of each period of time
Profit – The surplus after total costs have been subtracted from sales revenue
Opening cash balance – The amount of cash held by the business at the start of the month
Net cash flow – The difference between inflows and outflows (each month)
Closing cash balance – The amount of cash held by the business at the end of each month. Next month’s opening cash balance
Debtors – People/businesses who haven’t yet paid for your goods or services
Creditors – People/businesses that haven’t received your payment for their goods or services
Profit and loss accounts
Profit and loss account – Shows how the net profit and retained profit of a business are calculated
Net profit – The profit made by a business after all costs have been deducted from the revenue.
Trading account → Gross profit = Revenue – cost of goods sold (added value)
P & L account → Net profit = Gross profit + non-sales revenue – overheads
Appropriation account → Shows how net profit is divided (Tax / Dividends / Retained profit)
Balance sheet – Shows the value of a business’s assets and liabilities. IT MUST BALANCE!
Assets – What a business owns. Puts money into your pocket
Liabilities – Items owed by the business. Takes money from your pocket
Fixed assets – Assets which stay in the business for more than 1 year
Current assets – Liquid assets; Assets which last less than a year
Long term liabilities – Liabilities that last more than a year
Current liabilities – What a business has to pay back within a year
Creditors – People/businesses who borrow you money. Usually long-term finance
Net assets = Fixed assets + net current assets - long term liabilities OR
Fixed assets + current assets – current liabilities – long term liabilities
Called-up share capital – The value of shares sold by the business when it started
Share premium account – The value of shares issued later
Other reserves – Other sources of finance
Capital employed – Shows the value of the business. Must balance with Net Assets
- Analysis of business accounts
Important to compare several sets of figures to understand how successful a business really is. These ratios are used to measure and compare the liquidity and performance of a business.
Ratio analysis – Comparing figures from the accounts
Liquidity – Whether a business can or cannot pay back its debts
Performance ratios:
Return on capital employed (%) = (Operating profit / Capital employed) * 100
Gross profit margin (%) = (Gross profit / Sales turnover) * 100
Net profit margin (%) = (Net profit before tax / Sales turnover) * 100
Liquidity ratios:
Current ratio (%) = (Current assets / Current liabilities) * If <1 then business has cash flow problems*
Acid test ratio (%) = (Current assets – stocks) / Current liabilities * If >1 then business doing good *
- Location
Retail locations need to have:
Consumers
A high pedestrian count
Many different and similar retail outlets
Parking area / Access to public transport
Available access for delivery vehicles
Security
Possibly low rent/taxes
Manufacturing and industrial locations need to have:
Pool of available labour
Access to raw materials
Proximity to road/rail/air/ship transport
A large amount of land
Available transport to the market
Infrastructure (water, power, telecommunications)
Climate
Proximity to support services
Government influence on location
Development area – A region of a country where businesses will receive financial support to establish there. Usually an area of high-unemployment.
- Governments often influence business location decisions. They try to encourage large firms to set-up in areas of high-unemployment. To do this, they give government grants (money) and tax subsidies.
- Governments also discourage firms from setting up in areas that are overcrowded or noted for their natural beauty.
- Planning controls are often used to regulate what type of businesses can set up in certain areas, e.g. only farming businesses in a naturally beautiful place.
- Human resources
Responsibilities of the Human Resources department:
Recruitment and selection
Wages and salaries
Industrial relations
Training programmes
Health & safety
Redundancy and dismissal
Recruitment process:
- Vacancy arises
- Job analysis
- Job description
- Job specification
- Job advertised in appropriate media
- Application forms and short-listing
- Interviews and selection
- Vacancy filled
Job analysis – Identifies and records the responsibilities and tasks relating to a job
Job description – Outlines the responsibilities and duties to be carried out by someone employed to do a specific job
Job specification – A document which outlines the requirements, qualifications, expertise, physical characteristics etc. for a specified job.
Features of a job description:
The title of the job, e.g. secretary or waiter
The department of the business in which the person will work, e.g. marketing
Who the job-holder is responsible to (the manager)
Who the job-holder is responsible for (subordinates)
The purpose of the job
The main duties of the job
The conditions of employment (salary, hours of work, pension scheme, staff welfare)
Training that will be offered
Opportunities for promotion
Features of a job specification:
The level of educational qualifications
The amount of experience and type of experience
Special skills, knowledge or particular aptitude (skills)
Personal characteristics, such as type of personality
Advertising the vacancy
Internal recruitment – When a vacancy is filled by someone who is an existing employee
Advantages of internal recruitment:
Saves time and money on advertising, interviewing etc.
The person is already known to the business and is reliable
The person knows how the organisation works and what is expected for employees
It can be very motivating for other employees to see their co-workers promoted, they work harder
Disadvantages of internal recruitment:
No new ideas or experiences come into the business, like different ways of working and motivation
There may be jealousy and rivalry amongst the existing employees
External recruitment – When a vacancy is filled by someone who is new to the business
Most vacancies are filled by external recruitment, with advertisements in places like...
Local newspapers (low-skill, factory positions)
National newspapers (higher skill, senior positions)
Specialist magazines and journals (high-skilled, specialised)
Recruitment agencies (semi-to-high skilled, gets money when person recruited)
Centres run by the government/Job Agencies (unskilled, semi-skilled)
Possible effects of government legislation on the recruitment process:
In several countries, governments have passed laws that affect equal employment opportunities. The effect of these laws is that all people should be treated equally at the workplace, during the recruitment process and when paying the salaries. This is particularly focused on the fair treatment of women, the disabled, different races and religions. This means that businesses have to carefully word their advertisements, i.e. they can’t say “we want a woman for this job”, they must say “person”. If a business fails to do this, they can be prosecuted and fined. These laws help motivation.
Designing a job advertisement:
After the business has decided to advertise externally, the next step is to draw up the advertisement. The business will need to decide:
What should be included in the advert
Where the advertisement should be placed
How much the advertisement will cost and is it too expensive? (Can they afford it?)
Application forms and CVs/Résumés
A job application will require the applicant to reply in writing. This is done by filling in an application form and sending it to the employer along with your CV. A business will use these CVs to see which ones are the closest match, who will pass on to the selection stage.
CV – Curriculum Vitae; Résumé; A summary of a person’s qualifications, experience and qualities and is written in standard format. A résumé must be laid out and clear. It should contain the details:
Name
Address
Telephone number
Date of Birth
Nationality
Education and qualifications
Work experience
Positions of responsibility
Interests
Names and addresses of referees (for references)
Why the applicant wants the job (briefly)
Why the applicant feels he/she would be suitable (briefly)
Summary of the recruitment and selection process:
-
Analyse the exact nature of the job (and the duties to be undertaken)
- Design a job description
- Design a job specification
- Advertise the vacancy
- Send out application forms to the applications, read CVs
- Produce a short-list of replies of those to interview
- Hold interviews and selection tasks
- Select suitable applicant and offer the job, reply to unsuccessful applicants
- Organise induction training
Training
Training is often needed to:
- Introduce a new process or new equipment
- Improve the efficiency of the workforce
- Provide training for the unskilled workers to make them more valuable to the company
- Decrease the supervision needed
- Improve the opportunity for internal promotion
- Decrease the chances of accidents
Training is usually trying to achieve one of the following:
- Increase skill
- Increase knowledge
- Change people’s attitude/raise awareness, e.g. customer service
There are 3 main types of training:
Induction training
On-the-job training
Off-the-job training
Induction training – An introduction given to a new employee, explaining the firm’s activities, customs and procedures and introducing them to their fellow workers
On-the-job training – Occurs by watching a more experienced worker doing the job
Off-the-job training – Involves being trained away from the workplace, usually by specialist trainers
Advantages of training to managers:
Greater flexibility of workforce, multi-skilled
Greater motivation and commitment of the employees
Increased productivity
Improved quality of the output
Improved customer service
Ability to use new technology
Disadvantages of training to managers:
Loss of output whilst training
May raise employee expectations of promotion
Cost of training
Employees may leave after training, so another business might benefit from your training
Advantages of training to employees:
May get increased pay
Improved chance of promotion
Easier to apply for jobs at other businesses
Disadvantages of training to employees:
May be asked to undertake additional duties
May have to work in a different way
May be moved to a different job
Workforce planning
Workforce planning – Establishing the workforce needed by the business for the foreseeable future in terms of the number and skills of employees required
When this forecasting is complete, the Human Resources department can plan how this will be achieved by:
- Finding out the skills of all the present employees
- Counting out anyone who will be leaving soon, e.g. due to retirement
- Consulting with existing staff as to who could and would want to retrain for the new jobs
- Preparing a recruitment plan to show how many new staff will be needed and whether they are recruited externally or internally
Dismissal – A worker is told to leave the job because their work or behaviour is unsatisfactory
Redundancy – When an employee is no longer needed and so loses their job.
Trade Unions
Trade Union – A group of workers who have joined together to ensure their interests are protected
Types of trade unions...
Craft Union – A trade union which represents a particular type of skilled workers (e.g. bakers union)
General Union – A trade union which represents workers from a variety of trades and industries
Industrial Union – A trade union which represents all types of workers in a particular industry
A white-collar union – Trade union which represents non-manual workers, e.g. office workers
Shop steward – An unpaid representative of a trade union at factory/office level
Trade unions seek to...
- Communicate with the media and influence governmental decisions, like minimum wage
- Improve communication between workers and management
- Ensure equal and fair treatment of workforce
- Improve the pay
- Improve the conditions of the workplace
- Improve the conditions of the employment
Advantages to an employee of trade union membership:
Strength in numbers
Improved conditions of employment, e.g. rates of pay and hours of work
Improved working environment, e.g. health and safety
Improved benefits for members sick or made redundant
Improved job satisfaction by encouraging training
Advice & financial support in case member has been unfairly treated
Benefits that have been provided by union members, e.g. discounts and provisions at shops or clubs
Employment where there is a ‘closed shop’
Closed shop – Where all employees must be a member of the same trade union
Single-union agreement – When a firm will deal with only one trade union and no others
Negotiation – When union representatives meet with management to negotiate a compromise
Productivity agreement – When worker’s benefits increase only with an increase in productivity
Advantages to employees of a single-union agreement:
There is only one union to negotiate with management – discussions are clearer
Most employees are concentrated in one union, so they have greater power
There are no disagreements between different unions
A better working relationship should develop between the management and the union
Disputes are probably solved quickly, as only one union is involved in negotiations
Advantages to employers of a single-union agreement:
Only one union to negotiate with management – discussions are clearer
A better working relationship should develop between management and the union
Disputes are probably solved more quickly as only one union is involved in negotiations
Easier to agree on changes and less time wasted in arguments
Good for both employers and employees, as better relationship leads to fewer industrial disputes
Worker participation – When employees contribute to decision-making in the business
Works councils – Committees of workers who are consulted on matter affecting employees
Quality circles – Designed to involve workers in decision making to encourage continuous improvement in quality & production but also in the workplace
Employer associations – An organisation formed by similar employers to benefit its members
Advantages of employer associations:
Strength in size
Acts as a pressure group on government
Represents many employers to negotiate with unions
Shade ideas and do research
Deals with media/press
Often negotiates purchasing discounts as bulk buying (economies of scale)
Industrial action – Action taken by the trade unions to decrease or halt production
Picketing – When employees stand outside their workplace to protest (with banners etc.)
Work to rule – When rules are strictly obeyed so that work is slowed down
Go slow – When employees do their normal tasks but more slowly than usual
Non-cooperation – When employees refuse to comply with new working practices
Overtime ban – When employees refuse to work longer than their normal working hours
Why have the trade unions lost power? (~200 words)
Trade unions used to have a lot more rights years ago. They were more militant and instead of negotiations preferred to force their own opinions onto the employers. After several disputes, loads of workers were losing their jobs, because management closed the business and moved abroad. Thus, they realized that they can’t just force their own will upon the management. Governments soon started imposing more regulations to keep the large manufacturing businesses in the country, otherwise the balance of payments might get worse and unemployment would increase. Decreasing employee rights like that also encourage large manufacturing & exporting companies to set up in that country, since the management will have less problems and costs with their workforce. A good example is China, where worker’s strikes would be very seriously curtailed. Another reason is that concerning how the employment is dispersed between the primary, secondary and tertiary sectors now. Many years ago, especially in Europe, a lot more people were employed in the primary and secondary sectors, so trade unions were needed to maintain the benefits of all the low-skilled workers. Nowadays, the largest employment in Europe is in the tertiary sector, where employees have individual employment contracts, which negates trade unions useless.
