Professional Documents
Culture Documents
IB Business SL Notes
(2016-New Syllabus)
Junior Sundar
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7
8
10
11
Role of a Business
11
12
12
13
13
13
21
Aims
21
Mission Statement
21
Vision Statement
21
Objectives
21
Business Ethics
23
23
SWOT Analysis
24
Ansoff Matrix
26
1.4 Stakeholders
28
Stakeholders
28
Internal Stakeholders
28
External Stakeholders
29
Stakeholders Conflict
31
33
S.T.E.E.P.L.E. Analysis
33
35
35
35
Economies of Scale
35
Diseconomies of Scale
36
37
37
38
39
39
Impact of Globalisation
42
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43
43
44
45
Decision Tree
45
46
47
47
Labour Turnover
47
Demographic Change
47
Labour Mobility
48
Workforce Planning
49
Recruitment
49
Training
52
55
Dismissal of Employees
56
56
Redundancies
57
57
59
Organisational Structures
59
59
59
59
60
60
61
Delayering
61
Bureaucracy
62
62
63
65
Communication in Business
67
2.3 Leadership
68
Leadership
68
68
68
Autocratic Leadership
69
Democratic Leadership
69
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Laissez-Faire Leadership
70
Paternalistic Leadership
70
Situational Leadership
71
71
2.4 Motivation
72
Motivation
72
72
73
74
74
75
75
Motivation Methods
76
Non-Financial Motivators
78
79
80
81
81
Types of Expenditure
81
81
82
86
86
86
87
88
Contribution
88
Break-Even Analysis
88
91
91
92
Balance Sheets
94
Intangible Assets
97
99
99
Efficiency Ratios
100
Liquidity Ratios
101
103
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103
Working Capital
103
Cash Flow
103
105
107
Payback Period
107
108
Chapter 4: Marketing
109
110
110
110
Market-Orientated Business
110
Product-Orientated Business
111
111
112
113
114
114
115
Marketing Plan
115
Market segmentation
115
Market Targeting
116
Consumer profiles
117
117
118
120
Market Research
120
Types of Research
121
121
123
125
Sampling
126
128
130
130
130
133
Branding (4 Ps)
134
Packaging (4 Ps)
135
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Price (4 Ps)
136
Promotion (4 Ps)
139
139
141
141
143
144
148
148
148
4.8 E-Commerce
149
Features of E-Commerce
149
149
Types of E-Commerce
150
150
151
Chapter 5: Operations
5.1 Role of Operations Management
152
153
Operations Management
153
Productivity
154
155
155
156
Production Methods
156
158
159
5.4 Location
160
Factors in Locating
160
Globalisation
161
162
162
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Chapter 1: Business
Organisation and Environment
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Labour: Human input involved in any business such as effort, research etc.
Capital: Money or tangible long-term assets of a business that can help in production.
Enterprise: The initiative taken to managing a business activity and allocation of resources
within a business.
Recruiting staff.
With increasing recruitment costs, the HR department is the most important department of a
business.
Market research into existing or new markets in order to identify new market
opportunities.
Planning new products, working closely with the Research and Development and
Production departments.
Deciding upon the best marketing mix for each product and making sure that it
is put into effect.
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Without effective marketing, no business will survive. Marketing managers have the role of
keeping contact with customers so that the products meet the needs.
Collecting all of this data together and presenting it in the regular account.
The accounting department keeps charge of the back-office helping the business to run
smoothly.
They ensure that the business holds profitability and doesn't hit bankruptcy.
Production or Operations:
The productions manager will have to make sure that work is carried out smoothly.
Administration:
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The administration manager has to ensure that the work environment is kept in good
condition so that there is employee satisfaction.
Primary sector:
-
This sector deals with the extraction of natural resources from the earth. Eg:
Farming,
Mining,
Fishery,
Forestry,
Extraction of oil.
Their goals are to obtain the highest amount of raw material (good quality) at the lowest
cost.
Secondary sector:
-
This sector deals with the manufacturing of products; it uses the raw materials from the
primary sector to create consumer goods or capital goods. Eg:
Construction,
Aircraft assembly,
Automobile assembly,
Automobile industry,
Computer,
Engineering,
Textiles.-
The main goal of this sector is to obtain the most amounts of raw materials in the cheapest
rate and using the most efficient but cheapest method of production to produce goods of the
highest quality.
Tertiary sector:
This sector deals with the provision of goods and services to the consumers, firms and other
businesses. Eg:
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Transport
Banking
Insurance
Hotels
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Retail
This sector aims to provide goods and services through the most efficient methods.
Quarternary sector:
This sector deals with intellectual operations and is based on knowledge applicable to some
business activity that involves provision of services. Eg:
IT
Teaching
Entrepreneur:
-
Finds a gap in the market, takes risks to go about providing for the gap by allocating
resources efficiently.
Intrapreneur:
-
Difference is that the fruits of the success are the credited to the organisation. Additionally,
the failures are also credited to the organisation.
Any initiative of the intrapreneur is supported by the organisation and is allowed only if the
company allows it.
Advantages
The idea is company property
Disadvantages
Possible losses will directly affect the business/
brand image and finance.
Role of a Business
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Consumer Goods:
Consumer Services:
Producer/Capital Goods:
Producer Services:
Losing a job encourages people to start a business and hope for greater stability.
Desire for independence and inability to take orders from others encourages people to start their
own business.
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Private
Not government owned
Public
Government owned
Goods and services provided outside of the Goods and services provided through government
government
funds
Aims to make a profit by selling goods and services
Values Profit
Sole trader businesses do not have a separate legal existence from their owners; therefore
individuals are unlimitedly liable for any of the business endeavours.
A sole trader has more direct control over the business and there is less seed capital.
Advantages
Disadvantages
Firms are small and usually easy to set up, as there A sole trader has no one to share the responsibility
are very few legal requirements to start them.
Benefit from secrecy as they are the sole owners of Sole traders often work long hours and find it
the organization and have complete and total control difficult to take holidays, or time off if they are ill.
over it
It is easier to keep overall control, because the Developing the business is also limited by the
owner has a hands-on approach to running the amount of capital personally available and so
business and can make decisions without consulting owners cannot benefit from economies of scale due
anyone else.
The wage bill will usually be low, because there are There is also the risk of unlimited liability, where
a few or no employees.
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Partnership:
-
Partnerships are businesses owned by two or more people (up to 20 people). A contract
called a deed of partnership is normally drawn up. This states the type of partnership it is,
how much capital each party has contributed, and how profits and losses will be shared.
Doctors, dentists and solicitors are typical examples of professionals who may go into
partnership together. They can benefit from shared expertise, but like the sole trader, have
unlimited liability.
A partnership can also have a sleeping partner who invests in the business but does not have
dealings in the day to day running of the enterprise.
Advantages
Disadvantages
Shared responsibility. This allows for specialization, Disputes can arise over decisions that have to be
where one partner's strengths can complement made, or about the effort one partner is putting into
another's. For example, if a hairdresser were in the firm compared with another.
partnership with someone with a business
background, one could concentrate on providing the
salon service, and the other on handling the
finances.
More people are also contributing capital, which The distribution of profits can cause problems. The
allows for more flexibility in running the business.
There is less time pressure on individual partners A partnership, like a sole trader, has unlimited
and there is someone to consult over business liability.
decisions
A private limited company is a voluntary association of not less than two and not more than
fifty members, whose liability is limited, the transfer of whose shares is limited to its
members and is not allowed to invite the general public to subscribe to its shares or
debentures.
Features:
Limited Liability: The Company is a separate legal entity from the owners. The
owners and the business financial accounts are separate
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Advantages
Disadvantages
Continuity of existence if either of the shareholder Shares cannot be freely transferred, sold or bought
pass away or exit from the business
More capital for investing into the business through Shares cannot be sold to the general public.
the sale of shares. This allows for expansion of
business.
Original owner can still have complete control over Paperwork is quite a lot and time consuming.
the business as long as excess shares are not sold.
Can benefit from limited liability and it is easier to Less privacy than a sole trader business as all
get loans from bank because limited companies are shareholders have access to internal information of
very large
The standard legal designation of a company, which has offered shares to the general public
and has limited liability. A Public Limited Company's stock can be acquired by anyone and
holders are only limited to potentially lose the amount paid for the shares.
Most suitable for large business and well-known businesses and it is owned by private
individuals and private business in the private sector.
Amend Memorandum of Understanding and add clause to say that there will be a
change in type of company.
Float shares based on the minimum amount stated by each country in the stock
markets.
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Initial Public Offering (IPO): Company is being announced to public, and the
initial share that is being offered is the initial public offering.
Owners and majority shareholders may or may not be the decision making panel. Directors
are elected by shareholders and are professionals:
Shareholders are not involved in the business other than electing directors.
Floatation: Allowing others to purchase shares of the company. Process in which private
limited companies move into public limited company. Reverse floatation is the opposite
motion.
. . . . . . . . . . . . . . . . .
Advantages
Disadvantages
The shareholders and the owners can benefit from Legal formalities are very lengthy with a lot of
limited liability and this encourages people to paper work involved in the process.
invest in the business.
Continuity of business should a shareholder die.
No limit on number of shareholders, which allows The company will lack secrecy as the general
for a larger sum of capital to be cumulated. public has access to internal data.
Additionally there are no restrictions of buying,
selling and transfer of shares.
The company will have a higher status and Size of business might become too large to handle
credibility making it easier to obtain loans from and the original owners might lose control over
banks.
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Co-operatives:
-
Features:
All members have one vote, regardless of capital invested or share holdings.
Legal entity
Forms of Co-operatives:
Retail Co-operatives: provide members with quality and low priced consumer
goods and services
Advantages
Disadvantages
Simple to create a cooperative and there is no The can be absence of motivation between
limitation to the people that can join.
Micro-financiers:
-
Type of banking service that provides money for small businesses during their startup, as
startup capital.
Loans that are given without security. But the loan is given after an informal background
check so that the money is used for advancing rather than consuming.
Maximum loan is around AED 1500. They are called micro credits (small loans).
It is given to underprivileged people and to poorer people. It is also given to women to help
them in any initiatives.
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Defaulting chances are lower than conventional bank loans, and almost 99% of loans are
returned.
Advantages
Disadvantages
Works as women empowerment and initiates people The amount is usually small, restricts the amount of
to attempt to do something.
innovation.
Assurance that the default rate is low and the The company does not make a lot of money out of
amount will be paid back.
these loans.
Public-Private Partnership/Enterprises:
Business relation between private sector companies and public sector industries.
They are generally used to developing new alliances and developing services such as public
transport and public spaces.
Since the job is being provided to a private industry, the work is usually done more
efficiently with better usage of resources.
This is done by private companies to amass a large sum of money, but the gain is extremely
slow.
Advantages
Disadvantages
Since this is for service motive, there is lesser tax on Private individuals have to make profit, so the
the consumer.
Since private companies are investing, the public Legalities are complicated to work together with the
sector has to put less input.
Business operating in the private sector that don't aim to make profits at all.
Social enterprises generate surplus rather than profit (conceptually the same thing). Rather
than being distributed to the owners of the business, it is used to advance its social purpose.
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Advantages
They help people or causes in need
Disadvantages
There is lack of control, can result with socially
undesirable goods.
They can foster a philanthropic spirit in the Sometimes the employees of non-profit social
community.
They help inform the world regarding global issues Fundings are irregular (they rely mainly on external
and help in allocation of resources.
funding)
NGOs:
Support a cause that is considered socially desirable. They are concerned, with
either a single issue or have other political aims.
Charities:
Charities do not have to pay taxes because of their philanthropic nature and
charitable status.
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NGOs funds can be raised by the government, but it maintains its nongovernment organisation status. They are also known as civil society
organisation.
A charity uses all its extra funds to further the benefit of the organisation/
charitable cause while an NGO does not.
NGOs still have to pay taxes since unlike charities, because they are still
considered a business.
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To make a profit,
Growth,
Survival,
Provision of services.
Various strategies are adopted by businesses to help achieve the business aims. The business
Mission Statement
These statements are set in the present tense, and they explain why you exist as a business, both
to members of the organisation and to people outside it.
Mission statements tend to be short, clear and powerful.
Vision Statement
Vision statements not only define your organisation's purpose, but they focus on its goals and
aspirations.
They're also timeless: even if the organisation changes its strategy, the vision statement can
often stay the same.
Objectives
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Timely: The deadlines for the business need to be achievable and appropriate.
Tiers of objective:
Strategic Objectives:
These are very important objectives which can affect the overall success of the
business.
Highest level of the objective hierarchy and are usually expensive and longterm.
Tactical Objectives:
Important objectives within a specialised area that are relatively less important.
These objectives are based on the strategic objectives taken by the higher-ups.
Operational Objectives:
These objectives are day-to-day one set by managers of low levels to manage
non-management staff.
They are directed to the coal face of the business; the ones that go out or make
the sales.
Profit maximisation.
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Profit satisficing.
Growth.
Survival.
Previous goals may have been satisfied, calling for a change in objectives.
Business Ethics
Ethics: Moral principles that guides the way a business operates and the way the businesses
make decisions.
Ethical code (code of conduct): A document detailing a companys rules and guidelines on staff
behaviour that must be followed by all employees.
There are different point of views when it comes to making ethical decisions. For instance, a
manager will find the safety of a company with higher regards to the satisfaction of his
employees. This doesn't mean that the manager is not ethical.
Advantages
Disadvantages
Offers a company a competitive edge against their Being ethical limits the business freedom to expand
competitors.
Ethical businesses benefit from consumer loyalty Being ethical increases the costs faced by the
and have better brand image
Corporate social responsibility differs from ethics as it emphasises that a business has an
obligation to operate in a way that will have a positive impact on the society.
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It is corporate initiative to assess and take responsibility for the companys effect on the
environment and impact on social welfare.
It usually involves incurring short-term costs, with no immediate benefits, to promote positive
Advantages
Disadvantages
The image of a business and its products can be Short run costs of the business may increase.
improved with socially responsible approach.
Attracting better employees and motivating them There may be conflicts among shareholders
becomes much easier
Lesser pressure of environmental groups and Loss of price competitiveness if competitors dont
pressure groups.
Better relations from stakeholders and goodwill. Backlash if the company greenwashes instead of
Which can help the company attain loans and bank actually adopting CSR and others find this out.
acceptance.
Fairtrade: Fairtrade means that traders get a fair price for their products which covers
sustainable costs of production.
SWOT Analysis
This is the technique used to help the marketing department assess a product or a companys
strengths, weaknesses, opportunities and threats in the competitive market.
This analysis provides information that is helpful in matching the firms resources and
Relate to the changes in the environment that will impact the firm.
Strengths:
Market dominance.
Economies of scale.
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Financial resources.
Core competence.
Technological leadership.
Brand reputation.
Distribution networks.
Employee skill.
High productivity.
Old plant.
Outdated technology.
Weak position.
Undifferentiated products.
Poor reputation.
Opportunities:
Technological innovation.
New demand.
Market growth.
Demographic change.
Economic upswing.
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Trade liberalisation.
EU enlargement.
Diversification opportunities.
Threats:
Demographic change.
New regulation.
Change in laws.
Economic downturn.
Ansoff Matrix
Current Products
New Product
Current Market
New Market
Diversification strategies
Parts of Matrix:
-
Market Penetration:
The firm seeks to achieve growth with existing products in their current market
segments, aiming to increase its market share.
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Market Development:
The firm seeks growth by targeting its existing product to new market segments.
Development of new markets for a product might be good if the firms core
competency is related more to that product that the market segment.
Product Development:
The firm develops new product targeted to it's existing market segments.
Appropriate if firms strengths are related to its specific customer rather than the
specific product.
Diversification:
The firm grows by diversifying into new business and developing new products
for new markets.
The riskiest of the four growth strategies as the company is dropping everything
and investing in a whole knew unknown venture.
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1.4 Stakeholders
Stakeholders
Stakeholder refers to any person or organisation that has a direct interest in or is affected by the
activities of a business.
They have interest in the business, are influenced by the business and they influence the
business.
Internal Stakeholders
Internal stakeholders are those within an organisation who benefit financially from their
Shareholders:
-
They invest money into a business shares and expect returns from the business in the form
of dividends on capital gains.
Objectives:
Employees:
They are the workers within the business that impact the way the business operates.
Objectives:
Good salary.
Job security.
Benefits.
They make the big decisions for the business operations and influence what happens to the
business in the future.
Objectives:
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Greater profits.
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Increased benefits.
Employment security.
External Stakeholders
External stakeholders are those not directly involved in a business and do not form the business.
Suppliers:
-
They provide the business with the stocks and raw materials. They manage the capital goods
or services that a business purchases.
Objectives:
Create a strong relationship with the consuming business so that they make
continuous purchases.
Customer/Consumers:
Consumers are the most important stakeholder of the business as they determine its success
in the market.
Objectives:
Government:
The business operating location is managed by the government so they are considered an
important stakeholder.
Businesses must be in good relations with the government to survive in the market.
Objectives:
These stakeholders are the financial support of the business and they impact the businesses
ventures.
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Businesses must be in good relations with banks so that they get better loans and leniency.
Objectives:
Security for the loans so that businesses can pay them back on time.
Better relations with a business so that their services (loans, debentures etc.) are
purchased frequently.
Pressure Groups:
-
Pressure groups are organisations set up to try to influence what we think about the business
and its environment.
A pressure group can challenge and even change the behaviour of a business by:
Organising marches
Running campaigns
Boycotting:
A boycott is an act of voluntarily abstaining from using, buying, or
dealing with a person, organisation, or country as an expression of
protest, usually for social or political reasons
Lobbying:
Lobbying (also lobby) is the act of attempting to influence decisions
made by officials in the government, most often legislators or members
of regulatory agencies.
Public Relations:
Is the practice of managing the spread of information between an
individual or an organisation and the public.
Direct Action:
It's about taking direct action against the government, so it is still
political. You're seeking to influence the government by what you do.
Objectives:
Trade Union:
Organisation or group of workers joined together to negotiate pay, hours, benefits and
working conditions.
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Better relations with trade unions will provide the business with better interaction with its
employees.
Objectives:
Competitors:
-
Competitors affect the business by regulating the market in which the business operates in.
Competitors ensure that there isn't a monopoly and that the consumer has an option.
Objectives:
Local Community:
The local community is the business physical location and its surrounding atmosphere.
Objectives:
The business activities doesnt impact the general routines of the local
community.
Stakeholders Conflict
Groups of people with a common interest may also have a difference of opinion. This makes
sense since even though all stakeholders have a say in the business, their focuses are different.
A good business takes into consideration the interest of the stakeholders and manages them
efficiently.
Stakeholder Mapping:
Low Interest
High Interest
Low Power
High Power
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These stakeholders, who have minimal interest in the business and have limited
power over it, are rarely a problem for the business.
For owners and managers, making the group feel included is important.
This group must be kept satisfied as they have the ability to influence other
groups.
The business must aim to flatter self-esteem of this group members to make
them feel important.
These are the most important stakeholders of the business, and the business must
not only inform them but also consult them before making important decisions.
Failure to comply to this might cause very taxing negative impacts on the
business.
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An acronym that stands for Social, Technological, Economic, Environmental, Political, Legal
and Ethical that refers to an analytical framework for external environmental factors affecting
business objectives and strategies.
A STEEPLE analysis is conducted in conjunction with a SWOT analysis by managers to assess
a business operating environment so that decisions and strategies taken by the business are
suitable for the situation.
Socio-Cultural:
Demographics.
Attitude towards issues such as education, corporate responsibility and the environment.
Social mobility.
Technological:
-
Current and future levels of interest rates, inflation and unemployment rates.
Exchange rates.
Environmental:
Recycling considerations.
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Trade bodies.
Legal:
-
Change in EU laws.
Trading policies.
Regulatory bodies.
Ethics:
Business ethics.
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Sales Turnover:
-
Money earned through their sales of goods or services. It is also known as sales revenue.
Market Share:
The sales revenue of the business expressed as a percentage of the total sales revenue in the
industry.
Capital Employed:
-
Rate of profit returned on each unit of currency invested into the business.
Also the valuable items within the control of the company, eg. Machinery...
Employees Hired:
-
To gain a larger market share in order to gain a better market standing and market power.
To spread risk by diversifying into new markets and industries. This helps to spread risks faced
by focussing on only a specific market.
Economies of Scale
This refers to lower average production costs due to larger sales in the market, resulting with
Reduction of average costs of productions as a result of internal factors; factors within the
business.
Technical Economies: Large firms can use sophisticated machinery in an intensive way to
mass produce products for lower costs.
Financial Economies: Large firms can benefit by being able to borrow massive sums of
money as loans from banks at lower interest rates.
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Marketing Economies: Large firms can benefit from lower average costs by selling in bulk,
as there will be lesser paperwork (brand recognition).
Monopsony Economies: These savings can be enjoyed by large firms that have strong buying
powers, when there is only one buyer for products.
Commercial Economies: These are similar to monopsony economies in which the business
can benefit from buying in bulk, but applicable to all businesses.
External economies of scale are those that arise from outside the business due to favourable
location or growth in industry.
Technological Progress: Economies of scale arising from better technology in the market,
thus making trade better and efficient.
Trained Labour Force: Government supported training programs provide better efficiency
from workers and reduce training costs from within business itself.
Regional Specialisation: Economies of scale in businesses selling goods that are specialised
in the specific countries. Eg: Swiss chocolate, Indian Mangoes, Mediterranean Grapes etc.
Diseconomies of Scale
Higher unit costs as a firm becomes too large and inefficient for managing. Average costs per
quantity produced rises.
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Lack of Control and Coordination: As firm becomes larger the span of control increases.
This means communicated information has to travel to a large base of staff, which makes it
inefficient.
Poor Working Relationship: With a large oversized business, senior management is most
likely to become detached with those lower down the hierarchy, making them feel left out or
alienated.
Slack: With a larger workforce there may be higher chance for repetition in tasks resulting
with lower efficiency and procrastination among staff.
Increasing Market Rents: Concentration of businesses in one location results with land
becoming scarce and market rent to increase.
Higher Wages: Due to trade unions, the average minimum wages might increase causing the
average cost of production to increase.
Small Businesses
Large Businesses
Unaffected by diseconomies of scale from having a Brand recognition allows businesses to market their
large uncontrollable business
Lower overall financial risks as the business isn't Consumers of products from larger businesses
operating within a large scale
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Small Businesses
Large Businesses
They can better provide personalised service to their Larger businesses enjoy better consumer loyalty as
consumers as they have time to devote to them.
Smaller businesses are more flexible to changes in More choice is available from larger businesses as
the market and can easily change their products they have opportunities for diversifying into other
without facing costs.
markets.
There is lesser costs are the business operates in a Larger businesses tend to be more trusted as they
niche market (usually).
Advantages
Disadvantages
Better control and coordination. It is often easier to Diseconomies of scale. Growing too much results
grow internally that rely on external resources to with management becoming harder to maintain
fund the growth.
Relatively inexpensive. The main source of organic Overtrading. Taking too many orders and being
growth comes from retained profits so it is more unable to control its costs or manage the human
reliable and inexpensive.
resources well.
Maintain corporate culture. One problem facing A need to restructure. When a firm grows larger
mergers or acquisitions is that the new company there is a need to change its management and
may have different corporate policies than the main personnel structure.
business.
Dilution of control and ownership; If a firm grows
by changing legal status, like from a partnership to a
public limited company, then the original owners
will lose control.
Changing Price: More consumers tend to buy a product at lower prices. Determining price
of a good or service is based on the price elasticity of demand of the product. If few
substitutes of goods exist in the market, then changing its price will earn business more
revenue.
Advertising and Promoting: People are more likely to buy a product if they are more
informed about it.
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Improving or Bettering Products: Through market research, business can improve their
products to grow in the market.
Selling in Different Location: If product is widely available, customers are more likely to
make a purchase.
Offering Credit Payment Terms: Customers are more likely to make a purchase if they are
offered the ability to buy now and pay later.
External or inorganic growth occurs through expansion or dealing with outside the firm itself.
Advantages
Usually a much faster way to grow and evolve
Disadvantages
External growth is generally more expensive and
costly.
Its a quick way to reduce competition in the It is time consuming due to all the legal paperwork.
market.
Increases market share.
Sharing of good practices and ideas between There is introduction of new working culture into
businesses is possible.
the business.
Joint Ventures:
-
An arrangement in which two or more parties agree to pool their resources for the purpose of
accomplishing a specific task.
This task can be a new project or any other business activity. In a joint venture, each of the
participants is responsible for profits, losses and costs associated with it.
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The venture is its own entity, separate and apart from the participants' other business
interests.
Advantages
Disadvantages
Provides companies with the opportunity to gain It takes time and effort to build the right relationship
new capacity and expertise.
Allow companies to enter related businesses or new The profits of the joint venture are also shared, this
geographic markets or gain new technological may or may not be a disadvantage.
knowledge.
Access to greater resources, including specialized There is an imbalance in levels of expertise,
staff and technology
Strategic Alliances:
A strategic alliance is when two or more businesses seek to form a mutually beneficial
affiliation by cooperating in a business venture. In a way it is similar to Joint Ventures.
Advantages
Disadvantages
Strategic alliances help introduce newer skills and Risk of sharing proprietary information.
obtain newer management capabilities.
Costs and risks are faced as a group and they are Fear of losing an organizations unique community
distributed between the affiliated business
identity or autonomy
Mergers: Takes place when two firms actually agree to form a new company. A company
agrees with another to join their due to a similar aim.
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Conglomerate integration:
When one business merges or takes-over a completely different company
at a different industry.
Eg. A real estate agency buys a clothing manufacturer.
Also known as Diversification".
Advantages
Disadvantages
Loss of control.
Economies of scale.
Diversification
Franchising:
A form of business organisation in which a firm which already has a successful product or
service (the franchisor) enters into a continuing contractual relationship with other
businesses (franchisees) operating under the franchisor's trade name and usually with the
franchisor's guidance, in exchange for a fee.
Franchisee: A person who buys the rights from a franchisor to copy a business
format and provide the goods or service under their name.
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Advantages
Disadvantages
Franchisee pays for the license to use the brand If the established outlet does not do well it can
name
Expansion of the business is much more rapid as Franchisee keeps that profit from the outlets
franchisor does not need to finance it
Managing the franchise is the franchisees
responsibility.
All products that are to be sold must all be
purchased from the franchiser.
Advantages
Disadvantages
Benefit from an established brand name and well- The franchisee has very little independence over
known business.
The advertising costs for the outlet will be paid by Unable to take important decisions that suit the
the franchisor.
All supplies are obtained from the franchisor Licensing fee must be paid to the franchisor and
therefore the franchisee does not have to search for possibly a percentage of annual turnovers.
a supplier.
There are a fewer decisions to make regarding
range of product sold, store design etc. as the
franchisor pays for those.
Training for staff is provided by the franchisor
Relatively easier to obtain loans from banks due to
relatively lower risks
Impact of Globalisation
Globalisation is the process by which the worlds regional economies are becoming one
Increased Competition:
-
Large foreign business can force a competition upon domestic business as the domestic
consumer has more choice to purchase from and the producer has to increase productivity to
match the competition.
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The local producer also can act as a competition to the multinational business as their goods
can be cheaper, albeit unbranded.
This newer competition can often help improve the efficiency of domestic business as they
have to work more efficiently to survive in the market.
To match with the competitions of the big brand names of the MNCs, small domestic
businesses have to create a unique selling point (USP) to attract consumers.
This initiative to create a USP (within domestic business) helps grow the business as they
have to adopt unique strategies and force them to operate more efficiently and competitively.
Closer Collaboration:
-
With a global corporation at their doorsteps, local business can create strategic alliances and/
or joint ventures.
The global corporations will agree to this as it grants them an opportunity to witness local
business techniques and cultures to help improve their operation within the country
Additionally, this collaboration reduces the amount of competition the domestic businesses
have to face as they are working with the greater competition.
A multinational company is a business that operates in more than one country or is legally
registered in more than one country. The size of the business doesnt matter.
A small business that runs in operates in both Luxembourg and Belgium is a MNC, while a
large company registered in and operating only in the United States is not.
Multinational companies are the biggest type of business, and in fact they often generate more
revenues than the country they operate in.
For example, they can avoid transportation costs to ship a product from one country to another.
Improved communications: Not only through ICT but also through transport and distribution
networks.
Dismantling of trade barriers: Allowing for easier movement of raw materials, components and
finished products.
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Extension of product life cycles: A products life cycle may end in one country, but it may begin
in another.
Deregulation of capital markets: Allowing for easier transfer of funds and also tax avoidance
Advantages
Disadvantages
Investments of multinational companies into a new Multinationals usually produce products in cheapest
country will cause a direct flow of capital into the and efficient way, which may not be most
countrys economy giving it a boost.
environmentally friendly.
Multinationals also provide employment They may use up more natural resources from the
opportunities for people living in host nation. host country.
MNCs are large so their projects will also be large
and labour intensive.
Multinationals also provide tax revenue for the host Increased competition for existing companies in the
country.
host companies.
New technology and innovation is brought into the Unstable jobs from the multinational as they can
country.
Multinationals in new countries may only offer lowskilled employment as they have a strong higher up
management.
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A diagrammatic technique used to illustrate the possible options available in a decision and to
analyse the numerical (money) results of taking each action.
A decision tree is used to find theoretical financial values for various outcomes to form a
decision.
The outcome that produces the best EXPECTED OUTCOME is the best one and is chosen.
Decision Nodes are shown as squares. They are used when there is a decision to be made,
such as whether to launch a new product, invest in new machinery etc.
Chance Nodes are shown as circles. These are used to show the different possible outcomes
of a decision. Typically these include criteria such as failure or success. Usually each
chance also has possible outcomes (usually 3 better, same or worse and each of them have
a proposed percentage chance and result).
For each chance node there will be two or more routes (outcomes). These show the
probability of the different outcomes for each chance node. The probabilities for each
chance must add up to 1, or 100%.
The actual values for each outcome are stated at the end of each branch. It is important to
remember that the costs of each option must be deducted prior to writing down this figure.
Each unwanted branch of the decision is cut-off (rejected) by drawing two parallel lines.
This leave one best option to follow.
Advantages
Gives a clear answer to a complex decision.
Disadvantages
Is based on estimates of both outcomes and
probabilities of outcome.
Is simple to draw out and coherent to follow by any Can be difficult to draw for highly complex
iterated stakeholder.
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Labour Turnover
It measures the rate at which employees are leaving an organisation. And it is measured by the
following formula:
!
High labour turnover can have various impacts on a business.
Advantages
Disadvantages
Low-skilled and less productive staff may be Recruiting and training process can be costly.
leaving which makes way for better staff.
New ideas and practices brought in to the business Poor output levels and customer service due to high
with new workers.
Demographic Change
Population growth:
-
Opportunities:
Constraints:
Increased birthrates may take years before they impact the working population.
Net migration:
-
Opportunities:
Constraints:
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Brain Drain of qualified and experienced staff to other countries will reduce
competitiveness.
Ageing population:
Opportunities:
It is often claimed that older staffs are more loyal and reliable than younger
workers.
Constraints:
Older staff can be less flexible and adaptable to change, especially with
technology.
Labour Mobility
Occupational mobility:
-
How much workers are willing and able to move to different jobs needing different skills.
Geographical mobility:
How much workers are willing and able to move geographical region.
In emerging market economies, despite strong family and ethnic ties, mobility tends to be higher
because:
-
Low skill levels mean that workers can undertake low-skilled jobs in many different
industries.
Alternatively, high degree of geographical mobility, mostly between rural and urban areas, can
cause overcrowding and very poor living conditions in cities.
Many governments pursue policies to attempt to increase labour mobility. These include:
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Workforce Planning
Analysing and forecasting number of workers and the skills of the workers that will be required
by the organisation to achieve its objectives (mostly the long-term goals).
HR departments need to calculate the future staffing needs of the business. The starting points
Workforce Audit:
-
Thinking ahead and establishing the number and skills of the workforce required by business
to meet its objectives.
Workforce Planning Involves:
Forecasting number of staff required. This will depend on: demand for product, productivity
level, objective of the business, changes in laws dealing with workers rights, labour turnover
and absenteeism.
Forecasting skills required. This will depend on the pace of technological change and need
for flexible or multi-skilled staff.
Recruitment
The process of identifying the need for a new employee, defining the job to be filled and the
type of person needed to full it, attracting suitable candidates for the job and selecting the best
one.
Organisations needs to obtain the best workforce available if they are to meet their objectives
and be competitive.
Stages of Recruitment:
Vacancy Arises
Job Analysis:
Job Description:
Includes:
Job title, department and who the employees will be responsible to and
for.
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Consists of :
Job purpose
Job context
Accountability
Performance criteria
Resource requirements
Job Specification:
Includes:
Level of educational qualifications.
The amount of experience and type of experience.
Special skills, knowledge or particular aptitude.
Personal characteristics and personality traits.
Job Advertising
Application Forms/CVs/Rsums:
Job advertisements will require the applicants to apply in writing. This is either
through filling in an application form or sending a letter of application with a CV
or rsum attached.
CV (Curriculum Vitae) or Rsum:
o A summary of applicants qualifications, experience and qualities, and is
written in standard format
Parts of a CV or Rsum:
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Name
Address
Telephone number
Education qualifications
Work experience
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Position of responsibility
Interests
Interviews:
The recruitment department scans the application forms and shortlists the
applicants.
The shortlisted applicants are invited for interview, and the referees that are
provided will be contacted to give opinion of the applicants character, reliability
etc.
Purpose of interviews:
o
Questions:
o
Skill tests: Aim to show the ability of the candidate to carry out certain
tasks.
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Rejecting Unsuccessful Applicants: When a suitable candidate is offered the job and is
accepted into the business, it is customary that the department informs the other applicants
about it and thanks them for applying.
Types of Recruitment:
Advantages
Rewards good work of current employees.
Disadvantages
Can result with organisational inbreeding;
candidates may have limited perspective.
Advantages
Disadvantages
Training
Having recruited and selected the right staff, the HR department must ensure they are well
equipped to perform the duties and undertake the responsibilities expected of them.
For Employers:
Advantages
Disadvantages
Increased productivity.
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Advantages
Disadvantages
For Employees:
Advantages
Disadvantages
Unskilled workers
Increased knowledge
Types of Training:
-
Induction Training:
The employees are given a schedule for introducing various business activities
that will last for a day or for several.
On-the-job Training:
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Advantages
Disadvantages
Less expensive than sending them to a course (no Mistakes made by the trainee can be damaging to
travel costs involved).
the company.
Knows where the employee is and what he is doing The trainer will be less productive whilst he is doing
at all times.
the training.
Trainers bad habits can also be transferred.
Off-the-job Training:
This is where the worker goes away from the place of work to obtain training.
This is more useful when the worker is required to have a varied set of skills and
the job is more complex, since a broad range of skills can be taught this way.
Advantages
Disadvantages
Gains an official qualification, which will help Once the employee has gained the qualification, he
when applying for a promotion or a new job.
If courses are held outside of work hours, the Travel costs are involved.
employee is still working normally.
The employee will be missing work time to go to
the courses.
Cognitive Training:
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Work on skills required for learning, such as auditory, perception etc. This is a
basic form of training.
To raise brain capabilities, such as when the brain hasnt been working
analytically for an extended period of time.
Behavioural Training:
sense of self-fulfilment, the HR department should work closely with the worker to establish a
career plan.
An individuals progress and improvement can also be geared to the needs of the firm.
Appraisal is the process of assessing the effectiveness of an employee against pre-set objectives.
This is often undertaken annually.
An appraisal form is often used which will comment on the workers ability to meet certain
criteria and may suggest areas for action and improvement or recommendations for training or
promotion.
Types of Appraisal:
360-Degree Feedback:
The HR manager interview and employees supervisor, peers and any direct
reports.
The appraiser can gauge the workers job performance and technical skill set as
well as receive in-depth feedback on the employees behaviour.
Summative Appraisal:
To be effective, these benchmarks should have been discussed and agreed with
each employee before time period of assessment.
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Self-Appraisal:
This involves asking the employee to self-evaluate his or her job performance.
Typically the supervisor will ask the employee to complete an evaluation form,
which will be used as a basis for discussion during the annual performance
review meeting.
In the meeting the employer and manager discuss self-appraisal results, negotiate
final evaluations based on both managers and employers perception.
Dismissal of Employees
It may be necessary for a HR manager to discipline an employee for continued failure to meet
the obligations laid down by the contract of employment.
Dismissal of employees is not to be taken lightly, not only does it withdraw the employees
immediate means of financial support and social status, if the conditions of the dismissal are not
fully in accordance with company policy and law the civil court action might result.
Dismissal could result from employee being unable to do the job to the standard that the
organisation requires too may be that the employee has broken one of the crucial conditions of
employment.
Before the dismissal can happen the HR department must do all it can to help the employee
reach the required standards or to the conditions of employment.
This can be done by providing support and training as the organisation must not leave itself
open to allegations of unfair dismissal.
Dismissal: Being removed or sacked from the job due to incompetence or breach of discipline.
Contract of employment: A legal document that sets out the terms and conditions governing a
workers job.
Unfair dismissal: ending a workers employment contract for a reason that the law regards as
being unfair.
HR costs can be very significant for a business, mainly one in a service, tertiary and quartenary
sectors.
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This can, however, reduce the main companies direct involvement in that activity and lead to
loss of direct control.
Offshoring is when the business moves outside its immediate borders in order to reduce costs.
Usually productions aspect of the business are sent offshore. You still have control though.
Redundancies
When a job is no longer required so the employee doing his job becomes redundant through no
Redundancy occurs when a workers job is no longer required, maybe because of the following
men or changing technology.
The way these announcements are handled can have a very serious effect on the staff that
If the firm is seen to be acting in an uncaring or unethical manner, then the external stakeholders
can react negatively to the business.
Redundancy can happen if the job someone has been doing is no longer required and there is no
possibility of the person being re-employed somewhere else in the organisation, or even if the
firm needs to reduce its workforce due to budget cuts.
Nowadays, the working population in now faced with very different patterns in work such as:
-
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Need for greater labour flexibility with the rapid pace of technological change.
Advantages
Disadvantages
Employees can be asked to work at particularly More employees to manage than if they were full
busy periods of day and not during slack times.
time.
More employees are available to be called upon Effective communication will be more difficult as
should there be sickness or other causes of holding large meetings will be harder.
absenteeism.
Employee efficiency can be measured prior to Motivation levels of part-time workers differs from
getting the contract.
permanent workers.
Advantages
Contract could be ideal for certain types of workers.
Disadvantages
They will be earning less than full-time workers.
The workers can combine different jobs from There will be lower job security and working
different firms to have a variety to working lives.
Teleworking allows workers to organise their own Teleworking leads to less social contact with fellow
working day at home.
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workers.
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The internal, formal framework of a business that shows the way in which management is
organised and linked together and how authority is passed through the organisation.
Traditionally, head offices housed all key personnel taking all important decisions. Nowadays
more and more firms are using flatter and more decentralised structures, and the structures are
becoming flatter and flatter.
This is because employees are becoming better qualified and more knowledgeable, so they dont
want to work in formal hierarchies.
In small firms:
-
Level of Hierarchy: A stage of organisation structure at which the personnel on it have equal
status and authority.
Tall(vertical) Structure: One with many levels of hierarchy and, usually, narrow spans of
control.
Flat(horizontal) Structure: One with few levels of hierarchy and wide spans of control.
Chain of Command: This is the route through which authority is passed down an organisation.
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How accountability and authority are passed down the organisation chain of command.
The identity of the supervisor or manager to whom each worker is answerable to.
Advantages
Decision making starts at the top.
Disadvantages
One way top down communication is rarely
efficient.
Role of each individual is clear as is the chain of Department and organisation views are different.
command.
Inflexible and resistance to change.
Tall Organisation
Flat Organisation
Many Layers.
Few layers.
Poor communication as information has to pass Better communication as information reaches target
through layers.
directly.
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Job loss due to economic recession could lead to delayering to cut costs.
Corporate objectives.
New technologies.
Giving a subordinate the authority to perform a particular task which was originally assigned to
you.
It is simply the authority that is delegated as the ultimate responsibility still falls onto you; if the
It results with a reduction in direct control by supervisors and increasing trust towards the
workers.
The accountability is the obligation of an individual to account for his or her activities and to
Increasing time
Decreasing stress
Advantages
Disadvantages
Gives senior managers more time to focus on If the task is not well defined or if inadequate
important strategic roles.
Shows trust in subordinates and this can motivate Delegation will be unsuccessful if insufficient
and challenge them.
Delayering
Many businesses aim for a flatter organisational structure to reduce costs of management
salaries. This is known as delayering,
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It is the removal of one or more of the levels of hierarchy from an organisational structure.
Advantages
Reduces business costs.
Disadvantages
Could be one-off costs of making managers
redundant.
Shortens the chain of command and should improve Increased workloads for managers who remain
communication through the organisation.
Increases spans of control and opportunities for Fear that redundancies might be used to cut costs
delegation.
Bureaucracy
It discourages initiative and enterprise as decisions are taken centrally and then put into effect
by staff following set procedures and protocols.
The main attributes of bureaucracy can be identified as rationality and efficiency but it is also
recognised through impersonality and ineffectiveness.
Centralisation: Keeping all of the important decision-making powers within head office or the
centre of the organisation.
Centralised businesses want to maintain exactly the same image and product range in all areas
perhaps because of cost savings or to retain a carefully created business identity.
Decentralised businesses are those multinationals that allow regional and cultural differences to
be reflected in the products and services they provide.
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Advantages of Centralisation
Advantages of Decentralisation
A fixed set of rules and procedures in all areas of the More local decisions can be made which reflect
firm should lead to rapid decision-making. There is different conditions the managers who take the
little scope for discussion.
The business has consistent policies throughout the More junior managers can develop skills and this
organisation. This prevents any conflicts between prepares them for more challenging roles.
the divisions and avoids confusion in the minds of
consumers.
Senior managers date interest of the whole business Delegation empowerment are made easier and these
not just one division of it.
Central buying should allow for greater economies Decision-making in response to changes should be
of scale.
A structure in which power and responsibility are clearly specified and allocated to
individuals according to their standing or position in the hierarchy.
Decision-making power starts at the top but may be passed down to lower levels.
The goal for each individual will be clear and well defined, and there is a clearly identifiable
chain of command.
By Product:
Examples of a product line can be the different car brands under General Motors
or the softwares under Microsoft. Service line is Bank of Americas retail,
commercial, investing and asset management.
This gives larger business the ability to segregate large sections of the company
into semi-autonomous groups. These are mostly self-managed and their focus is
narrow.
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Advantages
Disadvantages
Product divisions can work well because they allow Product divisions may compete with each other for
a team to focus on a single product or service, with available financial resources and might reduce
an appropriate leadership structure.
cooperation.
Having a senior executive makes it more likely the Divisions can result in compartmentalisation that
division will receive resources it needs from the results in lack of coordination or even duplication of
company.
developments.
By Function:
It is the most common type of structure that follows the generic hierarchical
format.
Advantages
Disadvantages
Grouping employees by functional skills can Such a structure tends to suggest that one-way
improve efficiency. Specialists get clustered communication is the norm this is rarely the most
together promoting collaboration and development.
efficient form.
Employees can capitalise on their specialised skills There are few horizontal links between the
as a means to move up the ladder in a given department, and this leads to lack of coordination
department.
between them.
As each department specialties in a specific Managers get tunnel vision, they will mostly focus
function, managers train and develop employees on the departmental objectives as opposed overall
within their unit to be proficient in their given role.
business aims.
This is very inflexible and often leads to change
resistance.
By Region:
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Large businesses operating within one country might also divide the structure
into different regions.
Advantages
Disadvantages
Matrix Structure:
-
This approach to organising businesses aims to eliminate many of the problems associated
with the hierarchical structure.
This cuts across the departmental lines of a hierarchical chart and creates project teams made
up of people from all departments or divisions.
Emphasis is placed on individuals ability to contribute to the team rather than their position
in the hierarchy
Advantages
Disadvantages
It allows total communication between all members There is less direct control from the top as the teams
of the team, cutting across traditional boundaries may be empowered to undertake and complete a
between departments in a hierarchy.
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project.
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Advantages
Disadvantages
There is less chance of people focusing on just what The benefit of a faster reaction to new situations is,
is good for their department.
The crossover of ideas between people with Team members may have, in effect, two leaders if
specialist knowledge in different areas tends to the business retains levels of hierarchy for
create more successful solutions.
In this structure, employees are grouped by function into three areas planning, building
and running.
This structure allows the company to respond quickly to changing market conditions and
technological advances but may not work well for companies that produce products with a
longer lifespan, or service industries.
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-
Core managerial and technical staff, who must be offered full-time, permanent contracts with
competitive salaries and benefits. These workers are central to the survival and growth of the
organisation. In return for high rewards they are expected to be loyal and work long hours
when needed. As core workers are expensive, their numbers are being reduced in most
organisations.
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Flexible/temporary workers on part-time contracts, who are called on when the situation
demands their labour. As the organisation demonstrates little concern or loyalty towards
these workers, they often respond in kind. These workers are most likely to lose their jobs
during economic downturns.
Communication in Business
Verbal:
Visual:
Written:
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2.3 Leadership
Leadership
Leaders operate and exercise their authority differently. Each is said to have a different
leadership style.
The leadership styles are about:
The person who leads or commands a group, organisation or country is a leader; he/she will
have a vision and will lead a group towards the common goal.
Planning Managers must plan, set strategic objectives, tactical objectives and even
operational objectives. All of which have implications throughout the organisation.
Organising Managers must then make sure that the business has sufficient resources to
achieve its objectives. This requires careful organisation, since too many resources tie up excess
capital and too few means that the objectives cannot be met.
Commanding Managers must then make sure that the individuals know which duties they are
supposed to perform. They must also ensure that employees receive instruction in how they are
to perform the tasks.
Coordinating Managers must bring various resources together to achieve an objective. Many
activities occur within a business at the same time, managers make sure that these activities are
coordinated to where it is supposed to be.
Controlling Managers have power over a given situation to achieve objectives. They must
Manager:
-
Manager is responsible for planning and overseeing work of a group, monitoring a groups
progress, and ensuring that the plan is put into effect.
Managers are generally task-oriented; they focus on getting tasks accomplished in a timely
manner rather than on leading people.
Work of Manager:
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Generally have technical expertise, and bring that technical expertise to bear.
Leaders:
-
A leaders role is more emotional since a great leader has the ability to inspire people to
follow her/him voluntarily.
A leader spends a great deal of time and energy building relationships and are thus
relationship-oriented.
-
Work of Leader:
Autocratic Leadership
Most likely to be used when subordinates are unskilled, not trusted and their ideas are not
valued.
Advantages
Disadvantages
Workers may feel secure because they just do as Could be demotivating because workers are not
they are told and don't need to think for themselves.
Things are resolved quickly since time is not wasted Could lead to staff wanting to leave the company if
in decision making.
Decisions are made quickly in emergencies or Staff may feel, they do not matter and are
crises.
Democratic Leadership
The style of leader believes that decision making is done better if it is shared.
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Employees have greater involvement in decision-making and are asked for ideas and
suggestions.
Better if the workers have higher skill level and decisions affects the business.
Advantages
Disadvantages
Workers may feel more motivated as they can see Could be demotivating if the leader takes credit for
the ideas being used in the business
workers ideas.
Decision making takes longer and is bad in crises or
emergencies since time is taken in decision making.
Staff may feel demotivated if the manager earns
more for workers decisions.
Laissez-Faire Leadership
The name means let it be this leadership style is one in which the leadership
responsibilities are shared by all.
Advantages
Disadvantages
Can be motivating if people have control of their Sometimes the freedom can cause individual
work life.
Can help employees since they will be more Employees become less interested since they are
responsible for their jobs.
Paternalistic Leadership
Decides what is best for the employees and the decisions are usually justified.
Advantages
Disadvantages
Employee is motivated to impress leader and takes Low staff motivation if loyal connection to
ownership of business.
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Advantages
Disadvantages
Staff turnover decreases and there is employee Increasing dependency of employees on leader
loyalty.
Decisions take employees best interests into Dissatisfaction in employees if employees feel
account.
Situational Leadership
Style of leadership used will depend on the nature of the task and the work groups skills and
Advantages
Disadvantages
By allowing flexibility of leadership style, different Varying style of leadership may be difficult for
leadership approaches can be used in different some workers to accept and they may become
situations with different groups of people.
Ethical leadership by knowing and doing what is right. It can be utilitarian or deontological
approach, in the sense that either the leader looks towards bettering the company as a whole or
makes decisions that aid the staff.
Ethical leadership involves:
The ability to ignore personal interests for the sake of the organisation, the needs of the
employees and the greater good of the community.
A willingness to encourage and consider seriously feedback, opinions different from the
managers own, and challenging the managers ideas and proposed decisions.
Culture also influences the leadership style of a manager. This is because in different culture, the
way to handle people is different.
For instance Asians uphold a collectivistic attitude towards work, to them it is more about the
group as a whole than the individual employee, paternalistic and autocratic leadership is also
dominant.
On the other hand, individualism is dominant in western culture, and there we see greater stress
on employee relationship and we get to see more democratic leaders in those organisations.
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2.4 Motivation
Motivation
Better productivity
Better quality
Lower absenteeism
below.
His theory stated that to be truly motivated, different aspects had to be first satisfied like a
pyramid.
The hierarchy (from bottom to top):
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-
Physiological needs: These were considered the basics requirements such as food, air, shelter
etc.
Safety needs: These involved the workers feeling of security and the feeling that he/she was
safe.
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Social needs: There are the needs to have rewarding relationships with families and
employees at work.
Esteem needs: This is the need for self-respect and respect from others.
Self-actualisation: This is the need to feel satisfied about what one does.
Advantages
Disadvantages
to be applied effectively.
Simple and easy to follow and apply in Some elements of motivation are skipped: such
businesses and organisations.
Theory X:
Theory Y:
Require a management system in which the workers can show and develop their
skills and creativity,
Advantages
Disadvantages
Managers found it easy to understand and The concept was too generalised making it
classify some of the employees in the theories.
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Advantages
Disadvantages
Helps individuals relate to their work The theories are too separated with them being
experience and adapt to the management styles. too extreme and this was not supported by
evidence to prove its credibility.
He stated that humans could be made to do things by providing the basic needs, but they can
only be motivated by the higher levels.
His two factors included:
Hygiene factor: The basic needs for employees to work in a business. The lack of which can
only lead to dissatisfaction.
Motivation factor: The factors of motivation that cause job satisfaction and are needed for
employee productivity.
Advantages
Disadvantages
Helps when the focus is in a broader context It is too generalised and does not help when
and it needs to be addressed or mitigated in focus is needed on individuals in a group or
general.
organisation.
Makes it easier for businesses to understand the The theory was based solely off of accountants
general context of motivation towards their and engineers and will work differently for
employees.
Believed that humans are rational economic animals concerned with maximising their economic
gains; published this theory in 1911.
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People can be treated in a standardised fashion, like machines. Management task decide exactly
how every task should be completed. Then they need to design the tools needed to enable the
workers to achieve the task as efficiently as possible.
Believed that workers should get paid based on what they produced as piece rates.
Advantages
Disadvantages
John Adamss equity theory is built on the belief that employees become demotivated towards
their jobs and employer if they feel that their inputs are greater than their outputs.
Inputs include effort, loyalty, commitment and skill. Outputs include financial rewards,
Adams argued that employers should attempt to achieve a fair balance between what the
employee gives an organisation and what they receive in return.
If workers consider that their inputs are greater than the outputs received, they will be moved to
When a balance is found, employees will be more motivated and they will look forward to
working.
Autonomy:
-
Provide employees with autonomy over some (or all) of the four main aspects of work
When they do it (time) Allowing employees to have flexibility over when they complete
tasks.
How they do it (technique) Dont dictate how employees should complete their tasks.
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Whom they do it with (team) Although this can be the hardest form of autonomy to
embrace, allow employees some choice over who they work with.
What they do (task) Allow employees to have regular creative days where they can work
on any project/problem they wish.
Mastery:
-
Provide Goldilocks tasks Pink uses the term Goldilocks tasks to describe those tasks
which are neither overly difficult nor overly simple these tasks allow employees to extend
themselves and develop their skills further.
Purpose:
-
Take steps to fulfil employees natural desire to contribute to a cause greater and more
enduring than themselves.
Communicate the purpose make sure employees know and understand the organisations
purpose goals not just its profit goals.
Use purpose-oriented words talk about the organisation as a united team by using words
such as us and we," this will inspire employees to talk about the organisation in the same
way and feel a part of the greater cause.
Motivation Methods
Piece Rate:
Advantages
Disadvantages
Encourages workers to work faster and produce This usually results with poor quality goods
more goods.
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Advantages
Disadvantages
Careful workers earn less money than rushers.
Machinery malfunction results with lesser pay
towards employees.
Commission:
Advantages
Disadvantages
Encourages sales staff to sell as many products Excessive persuasion results with a bad
as possible. Increases company sales.
Fringe Benefits:
Extra benefits or perks provided with regular salaries, not considered taxable; thing such as
phone, transport etc.
Advantages
Greater employee retention percentage.
Disadvantages
Changing benefit plans causes excess
investments and distress between employees.
Additional amount of payment above basic pay as a reward for good work.
Advantages
Disadvantages
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Advantages
Disadvantages
Adds incentive to work harder and produce Individual performance related pay causes
quality goods or services.
Share Ownership:
-
Advantages
Makes employees feel part of the company.
Disadvantages
Reduces share price as more is released into the
market.
Aligns employee aims with that of the Discourages employees when share prices fall
shareholders.
Non-Financial Motivators
Job Enlargement:
Extra work and responsibility to employees thus improving skill and reducing monotony.
Job Enrichment:
-
Looking at jobs and adding tasks that requires more skill and responsibilities to an employee.
Increases productivity and skill but investment into training the programs will be needed.
Job Rotation:
-
Involve workers swapping round and doing each specific task for only a limited time and
then changing round again.
Increases variety in work and reduced risk of excess specialisation. However the tasks
themselves remain the same and aren't made better.
Cell Production:
-
A lean method of producing similar products using cells, or groups of team members to
facilitate operations by elimination setup time between operations.
Job Redesign:
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Involves the restructuring of a job usually with employees involvement and agreement
to make work more interesting, satisfying and challenging.
Team Working:
The team working approach to work places each member of staff into a small team of
employees.
It reduces overall stress on staff and improves flexibility and motivation. It is also argued
that sometimes employees may waste time through necessary team meetings.
Autonomous work groups:
A group of workers are given the responsibility for a job and they go about it however they
like.
Japanese term for a long-term approach to work that methodically seeks to attain small,
incremental changes in processes.
This is done to obtain maximum quality and competence and involves all levels of
management.
Culture also influences the method of motivating employees. This also changes between
countries.
In Asia, employees prefer to be recognised as a group rather than individuals. But this is
different in the West where employees prefer to be singled out (employee of the month schemes
etc.)
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When an individual plans to start their own business, they should consider all of the assets
they will need to buy in order to start trading. The finance needed to start a new business is
known as a start-up capital.
The owner of a successful business will often take a decision to expand it in order to increase
profits.
This could be in any form as in: expansion of size, increasing range of products etc.
Support a business during difficulty period:
Some businesses may need financing during any dry period to maintain liquidity.
Types of Expenditure
Capital Expenditure:
-
Money spent on capital expenditure is money spent on fixed assets that last for more that a
year. Non-current assets.
Revenue expenditure is money spent on day-to-day expenses, which do not involve the
purchase of a long-term asset. Working capital.
This is finance arranged from within a company, from its daily operations.
Retained Profits:
-
Profit kept in the business after owners have received their fair share from the profits. As
either dividends or salaries.
Small/specialised firms wont make heavy profits so they cant benefit from this.
Managing Working Capital:
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Its is a short term finance that is important for daily functioning of a business.
Selling off existing assets that may not be of any use to the business, or are simply in
surplus.
New businesses may not have excess fixed assets that they may be willing to sell and
capitalise.
This however must be done carefully to avoid disappointing customers if not enough of
goods are available.
Overdrafts:
The banks allows the business to overdraw its bank account, which means to
let the business spend more that what is present in their account.
The firm can use this to pay wages or suppliers, but this cannot be done
indefinitely.
Banks may also ask business to pay off overdrafts in short notices.
Trade Credits:
Its almost like interest-free loans to the businesses for the length of time the
payment is delayed for.
Debt Factoring:
Junior Sundar
This is when businesses pay off debtors through specialist debt factoring firms.
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The factor provides company with immediate cash to pay off a percentage of a
debt, and company has to pay of the factor the amount back with certain interest.
This means that the risk of collecting debt is now in the hands of the debt
factoring firm.
Medium Term Finance (Finance for machinery, capital goods; up to 3-10 years):
-
Bank Loans:
Really quick to arrange, and large businesses receive lower interest rates.
There is usually some security/collateral, which is taken by the bank if loans are
not paid back in time. For instance a public limited companies might have to sell
some of the parts of the company if they fail to repay any loans. A sole trader
will have to place his/her property at line as well.
Sponsorship:
The sponsored brand can overtake the sponsor, which can be a disadvantage for
the company sponsoring another.
Hire Purchase:
Allows a business to buy fixed assets over a long period of time (the asset must
be purchased at the end of the hire period).
Leasing:
Allows a firm to use an asset, but not have to purchase it at the end of the leasing
period.
This is good for small businesses as they dont have to have a large sum of
money to handle start-up.
Some businesses decide to sell of some of their fixed assets for cash and lease
them back from the company it was sold to. This is called sale and leaseback. It
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allows for easy access to large sums of money even though the leased cost of the
asset is higher that the product itself.
Long Term Finance (Finance for expansion; over 10 years):
Equity Finance:
This is finance obtained through sales of shares. This is only applicable for
public and private businesses.
Private limited companies can sell more shares to reduce their ownerships over
the business.
Public limited companies can float more shares to accumulate a large sum of
money.
Preferential shareholders benefit from fixed dividends and lower risks, but there
are lower returns. They also have no votes in AGM.
Ordinary shareholders gain higher returns, but their dividends are flexible and
the investment is riskier. They have a vote in the AGM.
Mortgages:
It is a loan taken from the bank for the use of purchase of a property with it
being the collateral.
Debentures:
Venture Capital:
It is an option that will provide loan to a business if banks have turned them
down.
The company must come up with a good plan and present it to the venture
capitalist firm and convince them of its possibilities to obtain the loans.
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The venture capitalist usually looks for a stake in the business in return.
However they wont have a majority stake in decision making.
Business Angels:
Theses are companies that provide money to small scale businesses. This loan is
highly risky as the company may go bankrupt.
It is last option to borrow money, and is only given to firms with potential.
The business angles will take percentage ownership of the venture in return.
They will also have a majority say in the decision making.
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Fixed Costs:
-
They are considered to be consistent during the daily running of the business and are not
usually affected by external factors.
These cost vary as output changes, such as the direct cost of materials used in making a
washing machine or the electricity used to cook a fast-food meal.
Examples: The electricity standing charge plus cost per unit used, sales persons fixed basic
wage plus a commission that varies with sales.
Direct Costs:
-
These costs can be identified with each unit of production; can be allocated to departments.
The two most common direct costs in a manufacturing business are labour and materials.
The most important direct cost in a service business, such as retailing, is the cost of goods
being sold.
These costs cannot be identified with a unit of production or allocated accurately to a cost
centre these are also known as overhead costs.
Production overheads include factory rent and rates, depreciation of equipment and power.
Selling and distribution overheads include warehouse, packing and distribution costs and
salaries of sales staff.
Administration overheads include office rents and rates, clerical and executive salaries.
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Revenue streams usually refer to methods through which money comes into a company. It is
associated with the branded products of a company, specific merchandises or specialised
services.
Example:
-
For Ferrari, their main revenue stream is through their merchandises as opposed to their cars.
This trend is similar to many other companies as well. Such was Disney, whose main
revenue stream is from their merchandises, theme parks and TV shows as opposed to their
movies.
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The difference between the selling price and the variable costs involved in the production of the
item is the contribution.
Contribution per Unit:
The difference between the total revenue made and the total variable costs incurred.
!
!
Contribution and Profit:
Since the contribution is a representation of the sales revenue less the variable costs, total
profit can be calculated by deducting the fixed costs from the total contribution.
!
Break-Even Analysis
The point where total costs are exactly the same as total revenue, is called the break-even point.
The level of output a business needs to produce so that total costs are exactly the same as total
revenue is called the break-even output.
Break-Even Point:
-
By nature, the break even point is when total revenue equals total costs. Or when there is no
profit being made.
!
Break-Even Point and Contribution:
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In other words, the break-even point is fixed costs divided by contribution per unit.
contribution per unit and the difference between the target production and break-even
quantity.
!
This can be rearranged to find target production given profit:
!
Break-Even Chart:
A graph containing the total cost and total revenue lines, illustrating the break-even output of
the business.
!
-
Break-even output:
The output a business has to produce so that its total revenue and total costs are
the same.
Break-even point:
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The point at which the total revenue and the total costs are the same.
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Margin of Safety:
The range of output between the break-even level and the current level of output,
over which the profit is being made. Calculated using:
!
Advantages
Disadvantages
It provides useful guidelines to management on The assumption that costs and revenues are always
break- even points, safety margins and profit/loss represented by straight lines is unrealistic. Not all
levels at different rates of output.
Comparisons can be made between different options Not all costs can be conveniently classified into
by constructing new charts to show changed fixed and variable costs. The introduction of semicircumstances. The charts could be amended to variable costs will make the technique much more
show the possible impact on profit and break-even complicated.
point of a change in the products selling price.
Break-even analysis can be used to assist managers It is assumed that all units produced are sold. This is
when taking important decisions, such as location unlikely to always be the case in practice.
decisions, whether to buy new equipment and which
project to invest in.
Decreases
Price
Fixed Costs
Variable Costs
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Business Managers:
-
Measure the performance of the business to compare with targets, previous time periods and
competitors.
Help in taking decisions, such as new investments, closing branches and launching new
products.
Control and monitor the operation of each department and division of the business.
Set targets or budgets for the future and review these against actual performance.
Banks:
Assess whether the business is liquid enough to pay off its debts.
Determine whether they will be assured of future supplies of the goods they are purchasing.
Establish whether there will be security of spare parts and service facilities.
Government and Tax Authorities:
Determine whether the business is likely to expand and further create newer jobs.
Assess whether the business is in danger of closing down, creating economic problems.
Confirm whether the business is staying within the law in terms of accounting regulations.
Investors:
-
As potential investors, compare details from accounts with those of other businesses to
determine which one to buy shares from.
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As actual investors, decide whether to consider selling of all or parts of their holdings.
Workforce:
Assess whether the business is secure enough to pay wages and salaries.
Find out whether, if profits are rising, potential wage increments are possible.
Compare the average wage in the business with that of the directors.
Local Community:
An income statement records the revenues, costs and profits or losses of a business over a given
period of time.
A detailed income statement is produced for internal use because managers will need as much
information as possible. It can be produced as frequently as possible (once per month etc.).
A less detailed summary is produced usually at the end of a year for external use.
Trading Account:
-
This shows how gross profit (or loss) has been made from the trading activities of the
business.
Sales Revenue: Total values of sales made during the period of time.
!
Cost of Goods Sold: Direct costs of purchasing goods sold in the financial year.
!
Gross Profit: Sales revenue less the costs of sales or goods sold.
!
This section of the income statement calculates both the net profit (or profit before interest
and tax) and the profit after tax of the business.
Overheads: Costs or expenses of the business not directly related to number of items made
or sold.
Non-Sales Income: Any profits or incomes of money not related with he business sales.
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Operating Profits (Net profit before tax and interest): Gross profits and the non-sales income
minus the overhead expenses.
!
Net Profit (after tax and interest): The net profit after corporation tax and interest costs are
deducted.
!
Appropriation Account:
-
This shows how profit after deduction of tax and interest is divided among owners as
dividends and the remainder retained profit. This is not usually shown in the published
accounts.
Dividends: Share of profits paid to shareholders and return for investing into the company.
Retained Profit: Profits left after all deductions, including dividends, are made. This is
ploughed back into the company as a source of finance.
!
3060
(1840)
1220
Gross Profit
Profit and Loss Account
Overheads
All Other Incomes
(580)
220
860
Interest
Tax
(80)
(112)
668
Appropriation Account
Dividends
Retained Profit
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(200)
468
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They can be used to compare and measure performance of a business over time with other
firms.
Actual profit data can be compared with expected profit values to help make future
predictions more accurately.
Bankers and creditors of the business will need to know this information to help decide
whether to lend money to the business or not.
Investors assess the value of investing into the business after looking at the level of profits
being made.
Balance Sheets
Also known as the statement of financial position; outlines the assets, liabilities and
shareholders equity at a specific point in time. Its a snapshot of a business at a specific time
period.
Fixed Assets:
Fixed Assets: Long-term assets that last in a business for more than 12 months. These assets
usually depreciate over a period of time this is depreciation.
Accumulated Depreciation: The net amount the fixed asset has depreciated by being within
the company
Net Fixed Assets: Value of the fixed assets after deduction of the depreciation.
!
Current Assets:
Short term assets that last in a business for up to 12 months. They are listed in the order of
liquidity from the most to least liquid.
Debtors: The value of payments to be received from customers who have bought goods on
credit.
Stock: Sticks held in the business in the form of materials, work in progress and finished
goods.
Total Current Assets: Sum of the values of all the current assets.
!
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Current Liabilities:
-
Overdraft: When a lending institution allows a firm to withdraw more money that it
currently has in its account.
Short-term loans: Money borrowed from banks that need to be returned with interest within
12 months time.
Total Current Liabilities: Sum of all the values of the current liabilities.
!
This is a number that indicates whether the business is capable of paying off its day-to-day
bills or running costs.
!
These are long-term debts or borrowings payable after 12 months by the business. They are
inclusive of long-term bank loans and mortgages.
Net Assets:
!
Equity:
These are pre-existing fundings from within the firm or from outside it.
Share Capital: This refers to original capital invested into the business through shares
Retained Profit: This is the profit ploughed back into the business obtained from the profit
and loss statement or income statement. It is also known as reserves as it includes profit that
the business has made in the previous years.
!
Therefore:
!
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600
30
570
CURRENT ASSETS
Cash
20
Debtors
15
Stock
55
90
CURRENT LIABILITIES
Overdrafts
10
Creditors
20
Short-term Loans
15
45
45
615
250
365
Net Assets
FINANCED BY
Equity
Junior Sundar
Share Capital
220
Retained Profit
145
365
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Intangible Assets
These are fixed assets that lack physical substance or are non-physical in nature, however they
still can prove to be very valuable to a firms long-term success or failure.
Patents:
These provide inventors with the right to manufacture, use, sell, or control their invention of
the product.
Inventors are provided legal protection to prevent others from copying their ideas. Anyone
wishing to do so must apply and pay a fee to be granted permission.
It includes the good customer base and relations, strong brand-name, highly skilled
employees, desirable location and the good reputation a firm enjoys with its clients.
During an acquisition goodwill is valued as the amount paid by the purchasing firm over and
above the book value of the firm being bought.
Copyright laws:
-
These are laws that provide the creator with the exclusive right to protect the production and
sale of the artistic or a literary work.
Copyright laws only apply if the original idea is put to use such as in the creation of a
published novel, a music album or developed computer software.
Most copyright last for between 50-100 years after the death of the creator. Usage of
copyrighted information requires creators permission similar to patents.
Trademarks:
These are a recognisable symbol, word, phrase or design that is officially registered and that
identifies the product or business.
Trademarks can be sold for a fee and last for a 15 year renewable period depending on their
use.
Intangible assets are difficult to value, due to their subjective nature and in many cases they
might not be shown on the balance sheet.
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Their value can fluctuate over time and simple changes in the reputation of the organisation can
either inflate or deflate a firm's value.
Intangible assets are simply use to artificially increase the value of the firm just before
purchases.
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Financial analysis tool used in interpretation and assessment of a firms financial statements.
Helps evaluating a firms financial performance and determining certain trends and exposing
various strengths and weaknesses.
Profitability Ratios
Businesses always aim for higher gross profits to help them manage their expenses.
Useful for:
Shareholders
Employees
Strategies to Improve:
Business might aim to reduce direct labour costs by ensuring that its staff are
more productive. However, excessive firings might lower staff morale.
Measure of profit that remains after deducting all costs from the revenues.
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High NPM means that firm is meeting its expenses very well; low NPM could indicate
difficulties in controlling overall costs.
Useful for:
Shareholders
Employees
Strategies to Improve:
A firm can carefully check indirect costs to see where unnecessary expenses may
be avoided. This can demoralise the higher-ups who benefit from these fringe
benefits.
Firm could negotiate with key stakeholders with aim to cut costs. However,
negotiating for cheaper rent could lead to firm being located in a poorer
environment.
Efficiency Ratios
These ratios assess how well a firm internally utilises its assets and liabilities. They also help to
This ratio measures both efficiency and profitability of a firms invested capital; i.e. returns
on a firms capital employed.
!
-
Higher the ROCE the greater the returns businesses get from their capital employed.
This incentivises business owners to inject more money into their businesses for higher
returns.
It is important as it measures and judges how well a firm is able to generate profit from its
key sources of finance.
Useful for:
Employees
Strategies to Improve:
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A firm should try to reduce amount of loan capital while still ensuring that net
profit remains unchanged or doesnt fall. However, this reduces possibilities to
extend a business using loans from banks.
Liquidity Ratios
These ratios measure the ability of a firm to pay off its short-term debt obligations. Businesses
need sufficient levels of liquid assets to help in meeting day-to-day bills.
Current Ratio:
!
-
Current ratio needs to equal to or higher for the firm to be considered healthy, however some
firms such as branded clothing stores can manage with a low current ratio.
There is too much cash being held back and not being invested.
Too much stock is being held back, leading to high warehouse storage costs.
Useful for:
Banks
Creditors
Strategies to Improve:
A firm might reduce bank overdrafts and instead choose long term loans. This
helps to reduce current liabilities and improve the current ratio. However this can
increase the gearing ratio of the company and lower its future liquidity.
A firm could also sell existing long-term assets for cash to increase its working
capital. The disadvantage is that if they are needed back then leasing costs will
be faced.
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!
-
More stringent indicator of how well a firm is able to meet its short-term obligations. This is
because it removes stock as part of current assets and considers them to be a liability.
In this, they remove the least liquid of assets to focus on extreme short term liquidity
situation.
A high acid test ratio is also not a good thing; same implication as for quick test but without
stocks.
Useful for:
Banks
Creditors
Strategies to Improve:
A firm could sell off stock at discount for cash to improve liquidity position of
business and avail more working capital to pay off short-term debts. However,
this may reduce revenue generated from sold stock to reduce firms profits.
A firm might increase the credit period for debtors to purchase more stock on
credit. This can however lead to bad debts in businesses.
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Cash flow is the money that flows in and out of a business over a given period of time.
The product is the difference between the sales revenue and total cost.
Working Capital
Capital needed to pay for raw materials, day-to-day running costs and credit.
Working capital looks at the current situation, as it focuses on the cash inflow and cash
outflow.
A loss making company may have high cash inflow, and a profit making company may have a
Liquidity:
-
When a firm ceases trading and its assets are sold for cash.
Working Capital Cycle:
Period of time between spending cash on production process and receiving cash payment
from the customer.
Cash
customers
and materials
Resources used for
production
Cash Flow
Sum of cash payments to business (inflows) less the sum of cash payments made by it
(outflows).
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Insolvency is when a business cannot meet its short-term debts, due to low working capital.
It is important that business continually monitors and controls its cash flow, so that it has
enough cash for immediate spending.
Holding back cash is also bad as it means that the company cannot benefit from profits made
by spending it.
A business will have more effective control over their cash flow if they:
Always plan ahead, for example by producing more accurate cash flow forecasts.
Forecasting cash flow is estimating future cash inflows and cash flows is cash flow
forecasting.
Owners Capital
Debtors payment
Lease payment
Labour costs
Variable costs
Improving Forecasts:
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Accurate data
Reducing bias.
!104
February
March
April
May
1000
1250
950
750
400
Sales
500
250
250
400
600
Loans
200
700
250
250
400
600
250
250
250
250
250
Utility Bills
100
100
Wages
50
50
50
50
50
Marketing
50
50
50
50
50
Others
100
100
100
300
100
450
550
450
750
450
250
(300)
(200)
(350)
150
CLOSING BALANCE
1250
950
750
400
550
OPENING BALANCE
CASH INFLOWS
CASH OUTFLOWS
Materials
Investing too much in fixed assets: It is usually a better idea to usually lease the fixed assets
over purchasing them at early stages.
Stockpiling: Holding back too much stock can be expensive and it can cost too much to
support.
Credit accumulation: Having too much money as credit can cause the cash flow to reduce, as
it takes time for the credit to convert to cash.
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Under or Overestimation of external factors: The cash flow statement doesnt usually
account for external issues, and this can pose a problem in short notice.
Alleviating Cash Flow Problems:
Additional Finances:
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Bank loans.
Overdrafts.
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Refers to the amount of time it takes for a project to recover or payback the initial investment.
Year
Cash Flow
(500)
(500)
100
(400)
125
(275)
125
(150)
160
10
150
160
We know that the whole investment will be covered between year 3 and 4. So to find out the
exact months we use the following formula:
Example: This will show that the above example the payback period is 3 years 11 months.
This method of appraising an investment has its own advantages and disadvantages.
Advantages
Disadvantages
Particularly useful for business where liquidity is of Does not take into consideration timing of cash flow
greater significance that overall profitability.
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This measures the annual profitability of an investment as a percentage of the initial investment.
Year
Cash Flow
(500)
100
125
125
160
150
Advantages
It uses all of the cash flows.
Disadvantages
It ignores timing of cash flows. This could have 2
project having same ARR while one has faster
payback period than other.
It focuses on profitability, which is the central As all cash inflows are included, the later cash
objective of many business decisions.
The results are easily understood and easy to The time value of money is ignored as the cash
compare with other projects coppering for a limited flows have not been discounted.
investment fund.
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Chapter 4: Marketing
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selling or advertising.
Marketing is a business philosophy of how best to think about satisfying consumer needs and
wants.
Marketing is the management process involved in identifying, anticipating and satisfying
Workforce planning.
Goods
Services
Are tangible.
Are intangible.
Cannot be returned.
Goods are easier to compare because they will have Services are more difficult to compare due to the
a similar nature.
Market-Orientated Business
A business who's approach is to first establish consumer demand in the market through market
research before making or selling a product.
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Most business have a market orientated approach, especially in the technology market.
Advantages
Disadvantages
As a result of market research, there is an increased Conducting market research can be costly and
amount of confidence in the production of a therefore weigh heavily on a firms budget.
product.
Access to market information means that firms can Due to frequently changing consumer tastes, firms
respond more quickly to change and anticipate may find it difficult to meet every consumer need
them.
Firms will be in a strong position to meet the Uncertainty about future could also have a negative
challenge of new competitors entering the market influence on market-planning strategy.
resulting from regular consumer feedback.
Product-Orientated Business
A business whose approach is to focus on making the product first before selling it. It is product
led, and assumes that supply creates its own demand. Here businesses produce innovative
products and tempt consumers to buy them.
This is more common in health-care product markets.
Advantages
Disadvantages
It is associated with the production of high-quality Since firms ignore need of market, it takes a risk
products.
It can succeed in industries where speed of change Spending money on research and development
is slow and firm already has high reputation.
The design, implementation and control of programs to influence the acceptability of social
ideas involving the use of the marketing mix.
A strategy where the success of marketing is evaluated to the extent to which the society
benefits.
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Advantages
Disadvantages
It gives firms a competitive advantage as consumers This technique works by influencing consumer
may perceive firm to be more socially responsible.
Commercial Marketing:
Involves creating, developing and exchanging goods and services that consumers need or
want.
Advantages
Disadvantages
Consumer demand is known, so attracting Market research is a time consuming and very
customers becomes easier.
expensive process.
This is a marketing technique in which businesses use social networking websites to market
their goods or services.
Social networking sites include Facebook, Twitter, Google Plus, Tumblr, Instagram etc. This
way the firm can target the exact target audience that they want.
Advantages
Disadvantages
Firms can obtain direct feedback from consumers Due to the easiness of advertising through this, it
while appealing to them personally.
currency.
Market Size:
-
Represents the total sales of all businesses in a given market and is measured in two ways.
Volume:
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This measures the amount of money spent by customers on the total number of
Value:
Market Growth:
-
It is the percentage change in the market size over a given period of time, usually a year.
This is the percentage of one firmss share to the total sales in the market the firm is
operating in.
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-
It can also be measured by value (revenue) or volume (unit) just like the market size.
Market Leader: A firm with the highest market share in a given market
Since the market leader could also be the brand leader, the leading brand can act
as a good promotional tool for other sub-brands or brands of the company.
Since market share may be measured through volume or values, different values
may be obtained in the same time period.
Changes in time period and market can influence market share results.
For-profit organisations aim to identify, design and develop marketing strategies that will
ultimately be profitable.
NPOs usually use marketing strategies more for social marketing reasons.
NPOs are using more complex marketing strategies to achieve their aims, which include
enhancing their image and reputation.
NPOs also use marketing to inform and influence certain behavioural change such as educating
public of the danger of smoking.
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Due to their limited financing, NPOs look to raise funds from fundraiser events, seminars and
endorsements while simultaneously improving public relations. These activities also work like
marketing and attract potential consumers.
To maintain free publicity, NPOs have to be ethical at all times and practice a high degree of
social responsibility.
Companies must change marketing strategies to meet demands of changing consumer wants.
It is increasingly globalised world where worlds economies and markets are integrating,
innovation, ethics and culture now greatly affect marketing.
Businesses must be ready to adapt to new innovations and change their products. Especially in
the technology market.
Businesses must ensure that the process and the product or service is most ethical.
Businesses must advertise ensuring cultural norms of people are adhered to.
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Marketing planning is the process of formulating marketing objectives and devising appropriate
marketing strategies to meet these objectives.
A marketing plan is a detailed document about the marketing strategies that are developed in
Key strategic plans: These are steps that provide an overview of how the marketing
objectives will be achieved.
Detailed marketing actions: These provide information on specific marketing activities that
are to be carried out.
Marketing budget: This includes finance required to find overall marketing strategy.
Advantages
Disadvantages
Marketing planning helps firms in identifying their Marketing plans may become outdated if market
potential problems and seeking solutions.
Setting SMART objectives improves the chance of Process may consume considerable resources and
success of a firms marketing strategy.
time.
Sharing marketing plan with other business Failure to prioritise marketing objectives may make
departments improves coordination and provides it difficult for firms to tell whether they are meeting
better focus on objectives.
them.
Good marketing plans take into consideration the 4 Ps: Product, Price, Place and Promotion,
and how these aspects will be managed efficiently to meet the marketing objectives.
Market segmentation
Market segmentation is process of dividing the market into smaller or distinct groups of
consumers in an effort specifically to meet their desired needs and wants.
Segmentations:
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Age
Gender
Religion
Family characteristics
Ethnic groupings
Geographic segmentation: This is where the market is divided into different geographical
sectors and may consider factors including:
Climate conditions
Psychographic segmentation: This divides the market based on peoples lifestyle choices or
personality characteristics, such as:
Values
Advantages
Disadvantages
Segmentation helps businesses identify existing Market segmentation can be expensive in terms of
gaps and new opportunities in domestic as well as research.
international markets.
Designing products for a specific group of When characteristics of market segments change,
consumers can increase sales and profitability.
Segmentation minimises waste of resources by Separate promotion and production for different
businesses through identifying the right consumers segments can become expensive.
for their products.
By differentiating their products, businesses could
diversify and spread their risks in the market and so
increase market share.
Market Targeting
After segmenting the market, a firm now decides on the market segment it is going to target.
A target market consists of a group of consumers with common needs or wants that a business
decides to serve or sell to.
Targeting Strategies:
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Undifferentiated marketing:
Also called mass marketing, it is when the firm ignores specific market segments
and targets the entire market.
Differentiated marketing:
With this, the firm wants to gain stronger position in each of the segments and so
increase their sales and market share of their brands.
This is a strategy that appeals to smaller and more specific market segments.
It is suitable for smaller firms that may have limited resources as there are
limited resources.
Consumer profiles
These characteristics include gender, age, social status and income levels.
Consumer profiles can also include details of spending patterns as numbers or frequency.
For segmentations and targeting, this is very important for firms to have good knowledge of
who their consumers are. This enables them to target their product effectively to right
consumers.
This also makes it easier to expend on promotions, as businesses will know where to expend
their money and where to cut costs at.
Product positioning involves analysing how consumers define or perceive a product compared
to other products in the market.
An effective tool to help in this is a position or perception map, which is a visual representation
of how consumers perceive a product in relation to competing products.
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The position map helps to position a product on the basis of 2 features (1 on each of the axes).
This way, the business will know how to achieve what they want to achieve with their
marketing.
Advantages
Disadvantages
A position map helps firm to establish which are its Product position maps are highly relative.
close competitors or threats in market.
It also helps identify important market gaps that A product position map is also highly subjective to
business can fill in with a new product.
consumer tastes.
It is a simple and quick way of presenting This means that the position map will lack precision
sophisticated research data.
This is a feature of the product that differentiates it from other competing products in the
market. This differentiating factor is what makes the product unique and help consumers choose
one product over another.
Importance of having a USP:
Helps establish a firms competitive advantage in its product offering and helps attract more
consumers.
Leads to customer loyalty as consumers can identify something special about the product in
comparison to rival products, resulting in increased size.
Examples:
Price: Flydubai offers cheaper airline flights (budget airlines), this is their USP.
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Place: Coca Cola have retail outlets everywhere (and of every kind) and this is their USP.
Promotion: Nikes Just Do It slogan is unique and emphasises the action element, which
are the types of products they sell.
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Market research is the systematic and objective collection, analysis and evaluation of
information relating to the market.
Stages of Research:
Purpose.
Collection.
Interpretation.
Reason for Market Research:
To predict future.
The Market:
Size of market.
Location of market.
Profile of customers.
Potential market.
Consumer behaviour.
Market Segments.
The Products:
Packaging.
Pricing policies.
Sales methods.
Sales personnel.
Distribution systems.
Suitable outlets.
Sales:
Promotion:
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Promotional activities.
Media effectiveness.
Competitors:
Activities of competitors.
Market shares.
Trends.
Economic Environment:
Types of Research
Qualitative Research
Quantitative Research
Based on quality, addressing questions regarding Quantity based, addressing questions based on how
why.
Involves finding out opinions, attitudes and feeling Market research involving numerical data;
regarding something.
More useful than quantitative data but it is more Generally collected from large samples and is easy
difficult to analyse
to analyse.
Tends to be time consuming and expensive but more relevant and useful.
Questionnaires
Focus groups
Interviews
Observations
Process of primary research:
Decide on the size of the sample needed and who will be targeted.
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Advantages
Disadvantages
Time consuming
Often expensive
Questionnaires:
Advantages
Disadvantages
Detailed quantitative information can be gathered Accuracy of answers depends on the specificity of
about the product or service.
Interviews:
Research where an interviewer visits the target market personally to ask readily
set out questions to obtain qualitative responses.
Advantages
Disadvantages
The interviewer can explain the questions if the Interviewer bias: the tone of presence of interview
target cannot understand them.
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Advantages
Disadvantages
They can provide detailed information about Hard to determine quality of the product.
consumer opinions.
Easier than targeting a mass audience to obtain The respondents can lie sometimes under pressure
market information.
Observation:
Advantages
Inexpensive way of data gathering.
Disadvantages
Only provides basic figures and does not provide
the company with reasons for consumer decisions.
Easy to make the research focused on what the Observer bias: sometimes the observers point of
company wants to know.
for use for others. It could be obtained from internal or external sources.
Secondary research is relatively less time consuming to conduct and is generally a cheaper
method of conducting market research.
Market research agencies produce research reports into the market that companies can purchase.
Internal Sources:
-
A lot of information can be readily be obtained from within the firms own records such as:
Finance department
External Sources:
This kind of information is obtained from outside sources. The results may have varied
nature since the information is not out of the companys need such as:
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Academic Journals.
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Government publications
Media articles.
Advantages
Disadvantages
Data is available freely or at far lesser cost Secondary researcher needs to understand various
through secondary sources.
An organisation can filter that data and consider The data may not fit the topic being researched,
only parts which they are targeting.
From secondary data one can form hypothesis and Using copyrighted information can cause legal
can evaluate the cost and efforts required to infringements and issues.
conduct own surveys
Detailed reports written by expert market research agencies, that lists everything
that the company will want to know.
Advantages
Disadvantages
Allows company to look at the competition they Extremely expensive, as the agencies are hired.
may face in the market
Allows company to gather detailed intel on Sometimes the agencies can provide misjudgement
consumer opinions on products
Academic Journals:
Advantages
Disadvantages
Reputable source.
Cheaper to obtain.
Government Publication:
Advantages
It is freely obtained.
Disadvantages
Usually biased, sometimes information may be
overestimated to project it favourably.
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Advantages
Disadvantages
Usually updated, so the information may not be It is not for the industry, so the information cannot
unreliable in that sense.
Media Article:
Any article obtained through mass media such as newspapers, magazines etc.
Advantages
Disadvantages
There are multiple sources for the same topic, e.g. Since there are multiple sources, the data can be
there are multiple sources for 1 figure from distorted sometimes and sometimes the data might
different newspapers.
Market research has experienced a resurgence with the widespread use of the Internet and the
popularity of social networking.
It is easier than ever before for companies to connect directly with customers and collect
individual information that goes into a computer database to be matched with other pieces of
data during transactions.
Deceptive Practices:
The ease with companies can access and gather data about its customers can lead to
deceptive practices and dishonesty in the companys research methods.
This means not telling customers that information is being collected when they visit a
website misrepresenting research results by changing database numbers.
Invasion of Privacy:
Companies have an unprecedented ability to collect, store and match information relating to
customers that can infringe on a persons right to privacy.
Breaches of Confidentiality:
-
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Some companies regularly share information about customers with partners and affiliates,
requiring customers to opt-out if they dont want to be involved.
Some companies even sell information that they have gathered to other companies for a
price.
Objectivity:
-
Sometimes the researchers personal point of view can affect the research being conducted.
Researchers that tend to allow their own prejudices skew their work ten to contribute to
perpetuation of stereotypes in advertising.
Sampling
When conducting market research it would be ideal to use results from the whole market (all
Why to do Sampling:
-
If the business decides not to use a census, it must decide who to ask, and the chosen target is
called a sample.
Types of Samples:
Random Samples:
This means that everybody in the group has the same chance for being picked for
research.
This can be good way of choosing unbiased sample, but it cannot show a fair
example of the market you are trying to target.
Advantages
Disadvantages
Random sampling reduces bias as everyone has an The sample which is chosen may be too small and/or
equal chance of being chose.
Relatively easier to obtain the sample and data The process lacks the specificity of the type of
from surveys.
Stratified Samples:
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This is away go choosing people making sure that a fair spread of people are
used.
This is done by splitting the population into certain characteristics. One this has
been done, a random sample will be done on each group of people.
Advantages
Disadvantages
The sample selected is more representative of it is not easy to select relevant strata from a
particular population.
Random sampling within the stratified sample The process is more time consuming.
ensures that there is no bias.
Quota Samples:
This is where the interviewer is given a list of amount of type of people they
must interview.
Once target amount has been reached, the interviewer may not interview anyone
within the segment.
This is good way of sampling if exact figures of your market are known, it is like
sampling a mini version of the market.
Advantages
Disadvantages
Quick and cost effective sampling method. Results obtained are not always statistical
Especially when proportions of different groups in representative of population. Statistical errors.
population are known.
Findings are usually more reliable than random Interviewer bias in choosing interviewees may
samples.
occur.
Cluster Samples:
Advantages
Disadvantages
Quick and easy as it does not require complete Expensive if the clusters are large.
population information.
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Advantages
Good for face-to-face surveys.
Disadvantages
Greater risk of sampling error
Snowballing Samples:
This is when sampling is done to one group of individuals who suggest further
people who are willing to participate.
Advantages
Disadvantages
It is a cost effective method of obtaining There is a potential for getting a biased sample, since
participants.
Convenience Samples:
Sampling technique where groups are selected based on their access and
proximity to the researcher.
This can be used when the results needed are immediate and unrelated to target
markets.
Advantages
Disadvantages
It is a fast process as the participants are in Sample may be biased and not representative of
immediate vicinity.
population.
It is cost-effective as the business neednt expend The business may not even receive information from
money on finding participants.
Graphical format is the most effective in terms of displaying research results, but it only works
with quantitative data.
Benefits of Properly Collected Data:
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Table/Tally chart:
Bar chart:
Pictogram:
Pie charts:
Line graph:
Tables:
Photographs:
Maps:
Diagram:
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Simplify information
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Generate ideas:
-
Customers suggestions.
Employees.
Competitors products.
Sales department.
Select best ideas for further research:
Some products may be too expensive to produce, other products would probably not sell
well.
Decide if the company will be able to sell enough:
Marketing department looks at the ideas and assesses how large the sales will have to be
cover costs.
The department will have to consider the companys market share while assessing.
Develop prototype:
The stages a product will pass through from its introduction through its growth until it is
matured and declining. Applies to product class (soft drinks), product form (diet cola) or a brand
(Dr. Pepper).
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Stages of PLC:
!
-
Strategies:
Pre-booking options.
Provide consumer testing and trials to promote.
Low sales.
Minimal competition.
Strategies:
Offer a basic product.
Use cost-plus pricing.
Build selective distribution.
Build awareness among early adopters and dealers/resellers.
Create trials.
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Rising profits.
Growing competition.
Strategies:
Offer product extensions, services, warranties.
Use penetration pricing.
Build intensive distribution.
Tone down aggressive promotion.
Reduce expenditures to take advantage of consumer demand.
Maturity:
Sales peak.
High profits.
Strategies:
Diversify brand and models.
Set prices to match or beat competition.
Build more intensive distribution.
Stress brand differences and benefits.
Increase sales promotions to increase switching from other brands.
Decline:
Declining sales.
Declining profits.
Declining competition.
Strategies:
Phase out weak items.
Cut price.
Use selective distribution; phase out unprofitable outlets.
Reduce marketing to level needed to retain hard-core loyalists.
Reduce sales to minimum level.
Extension strategies:
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It is also known as the growth-share matrix and is a useful tool for a business to manage its
product portfolio, evaluating environment and to allocate resources.
Problem Child/Question
Stars
Cash Cows
growth market
growth market
growth market
growth market
Business is likely to
self sustaining.
units.
share.
point.
Mark
Dogs
Recommended Tactics
Expand product and
Defend and maintain
services.
Invest more cash
position (hold).
Holding strategy.
Building strategy
Harvesting strategy.
Invest in R&D
Growth: Stars
Decline: Dogs.
!
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Advantages
Disadvantages
Useful tool for helping managers evaluate balance High market share in not the only success factor.
in the companies current portfolio.
The model is easy to understand and simple to This analysis neglects the effects of synergy between
design.
business units.
It provides a base for management to decide and There are only two dimensions to this analysis
prepare for future actions.
process.
Company will know exactly how to manage each High market share does not directly equate to a high
product based on its market position.
Branding (4 Ps)
A brand is a name, term, symbol, design or any other feature that allows consumers to identify
the goods and services of a business and to differentiate them from competitors.
Brands are considered to be intangible assets of companies. Their worth is evaluated
A brand might be one product, a family or range of products or the actual business itself.
Brand names are a part of that brand that can be spoken, usually a product from a brand is
directly affiliated to the brand name.
Developing a Brand:
It is suggested that successful brands are often the first in the market.
This might mean being the first product to reach target consumers or to use new
technology.
An effective brand name should be easy to pronounce and spell, especially if the
company wants to operate in international markets.
A good brand name is short and to the point and must indicate something
positive about the product.
A brand name must be distinctive so that customers can identify and differentiate
them from the competitors.
Finding a USP:
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A brand that is successful has a unique selling point (USP) that differentiates it
from the competitors in the market.
What makes them different from other products and what makes people want to
buy them.
A brand must be places in the correct market for it to be successful, for instance
a brand associated with its high-quality will probably have an exclusive channel
of distribution.
A brand that produces tangible goods may not need such exclusivity in its sales.
Aspects of Branding:
-
Brand awareness: This refers to the ability of consumers to recognise the existence and
availability of a firms good or service.
Brand development: This is any plan to improve or strengthen the image of a product in the
market, it is a way of enhancing brand awareness.
Brand loyalty: This is when consumers become committed to a firm's brand and are willing
to make repeated purchases. Brand loyalty comes from brand preference.
Brand value: This refers to how much a brand is worth in terms of its reputation, potential
income, and market value. Brand value is the extra money a business can make from its
products because of its brand name.
Advantages
Disadvantages
Having a brand image raises awareness of the firms Developing a maintaining a brand can get very
product among the consumers.
A brand boasts a sign of consistency in the market, Similar to how positive attributes are related to a
this means consumers will be more likely to buy brand, a bad reputation also sticks.
your product than consumers.
A brand can act as a differentiating factor among After some time a brand can become generic and
firms and can be a way for creating a global image.
Packaging (4 Ps)
Packaging refers to the designing and production of the physical container or wrapper of a
product.
Packaging plays a significant role in marketing and can help in distinguishing one product from
another.
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Uses of Packaging:
-
It provides information,
It aids in promotion.
Price (4 Ps)
Price plays a significant role in marketing mix because it is the only one that generates the
revenue for the business.
Price refers to the money consumers pay for having the good or service. And business need to
When a company launches products with high prices and reduce this cost as time passes.
This is usually used for a short period of time when he aim of the company is to gain as
much profit as possible from the product.
This is a way to get short run profits mostly, and this is best suited for companies that are
well developed in the market.
Advantages
Disadvantages
Consumers associate high price with high value or The high prices may discourage consumers from
high-quality product, and enhanced brand image.
purchasing product.
When a company charges a low price for their products initially in order to reach the largest
amount of target market.
Lower price attracts consumers and increases market shares. Best if consumers are sensitive
to consumers.
This can be used by businesses introducing new products in an existing market or entering a
new market.
Low price causes large demand and if company cannot cope then it can cause issues. If
prestigious brands use this strategy, then it can lower brand equity.
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Advantages
Disadvantages
As the prices are low, consumers are encouraged to Gaining high sales volume doesn't mean achieving
buy the products, leading to high sales volume and high profits, especially if prices are low.
market share.
The high sales volume can lead to decreases in the Consumers may perceive the product to be of low
costs of production and increase in stock turnover.
This is a pricing strategy that takes into consideration what the competitors are charging for
their product.
It involves charging a price that is in line with or just below the competitors prices.
Charging lower than consumers to drive them away is called predatory pricing.
Advantages
Disadvantages
Consumers benefit from the low prices, especially Predatory pricing is illegal in many countries as it
in a competitive market.
A strategy in which extra charge is added to products as mark-up to the average cost of
production.
The mark up is the profit the competitors wish to gain for every product they sell.
Advantages
Disadvantages
It is a simple and quick method of calculating It fails to consider market needs or consumer value
selling price of a product.
It is a good way to ensure that a business covers its Since competitors prices are not considered, a firm
costs and makes a profit.
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This refers to when the firms considers how pricing affects consumers perception of the
value of their products.
Sometimes, businesses can charge 1 denomination less than the whole number price to make
them perceive as if the cost is lesser.
Advantages
Disadvantages
Psychological effect of selling at a slightly lower Using absurdly accurate prices can be difficult for
price can obtain large revenues for a firm selling in making transactions if the business lacks the
large quantities.
denominations.
Business charges a low price for a product, usually below its average cost.
The aim of this strategy is to attract many customers and to sell off near expired products and
empty stocks.
Advantages
Disadvantages
Businesses selling a large number of frequently Firms using this strategy may be accused by
purchased products may attract many customers competitors of undercutting them using unfair
and benefit from higher overall profits.
business practices.
Charging different prices to different groups of consumers for the same product.
This requires some conditions met first, the firms must be a market leader or else this might
be very difficult for the pricing strategy to catch on.
The market must be elastic demand, so that having discriminated pricing can be more
attractive to them.
The market has to be separated to ensure that product is not easily traded.
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Advantages
Disadvantages
Businesses can create a sense of urgency or This strategy requires some research to be
exclusivity based on how they want the consumers conducted, and the markets elasticity has to be
to react.
Promotion (4 Ps)
Company does not have much control over who all Company has greater control over their promotion.
the promotion reaches.
Informative Advertising:
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Persuasive Advertising:
Reassuring Advertising:
The focus is on existing consumers to remind them that they are making the right
purchasing decision.
Direct Marketing
It eliminates the use of intermediaries and therefore can save the business
money.
Personal Selling:
This can get costly as the sales representative has to be paid commission.
Public Relations:
These are promotional activities aimed at enhancing the image of the business
and its products.
A press conference is a good example of this, and in this process the business
can show case their products.
Sales Promotion:
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These are short-term incentives provided by business with the aim of increasing
or boosting sales.
Examples include:
Money-off coupons.
Point-of-sale displays.
Free offers and gifts.
Competitions.
Buy-one-get-one-free offers.
The successful promotional mix will involve good balance of both the types of promotional
methods.
However some facts which have to be considered for an effective promotional mix:
-
Cost: Does the marketing budget support the use of a particular promotional method?
Legal framework: Has the law been taken into account when deciding on various
promotional methods to use?
Target Market: What specific segment of the market is the product aimed at?
Stage in product life cycle: Which promotional methods will be most appropriate at the
different product life cycle stages?
Type of product: Has the promotional method considered the nature of the product and how
it would be successfully sold to customers?
In marketing context, technology is defined as the information or tools required to sell a firms
good or service.
Over the last decade, technology has changed rapidly and marketers are incorporating this
change into the their strategies.
Key Terms:
-
Social Media:
Social Networks:
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This refers to the way technology is used to build relationships, drive repeat business, and
attract new customers by individuals sharing with other individuals.
SMM is the process of gaining website traffic or attention through social media sites. This
usually centres itself on attracting attention and encourages readers to share it on their social
networks.
Viral Marketing:
-
Advertisements in the form of YouTube videos are often called viral ads and are highly
capable of amassing millions of views and hits.
The main objective of viral marketing is to increase brand awareness though replicating
viral-like process, similar to how a virus spreads.
Viral marketing has to be hip and short to spread effectively. It must also attract the target
audience.
Advantages
Disadvantages
Wide Reach Internet has enabled firms to reach Accessibility Problems Regions with no
out more consumers at a more personal and computers or Internet, areas with poor Internet
interactive level.
Engagement Market research can now be Distractions The use of pop-ups in advertising is
conducted directly without having to leave vicinity viewed negatively by consumers and can lead to bad
of the office.
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Advantages
Disadvantages
Market Information Social networking, SMM, Lurkers There are individuals who just absorb the
and viral marketing provide useful information on information without spreading it, this means that
market trends.
Cost Savings Social media marketing and Viral Misinformation Marketing through this method
marketing are relatively cost-effective.
It is unconventional method of marketing that tries to make an emotional connection with the
consumer.
Traditional Marketing
The primary investment is money.
Guerilla Marketing
The primary investments are time, effort and
creativity.
Advertising works.
Activity Firms need to have an awareness of the available opportunities that exist to make
their products known and they should seek ways of doing this when an opportunity presents
itself.
Presence Firms should look for ways to make their products known to the market using
different promotional methods.
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Energy Businesses need to note that every contact and every day is an opportunity to
market their company.
Networks Businesses should be on the lookout for new contacts and focus on building
relationships.
Peer Marketing Bringing people with similar interests or ages together to build up interest
in the product.
Roach baiting and buzz marketing where actors are used to behave as normal customers
to create interest, controversy or curiosity in a product or service.
Live commercials using people to do live commercials in key places such as clubs and
pubs.
Bill stickers.
Advantages
Disadvantages
Low cost the types of activities involve do not Denting brand image if guerrilla marketing
require large financial outlay.
Flexibility it can be changed easily as its small High negative attitudes since main goal of
scale.
Simplicity many of these marketing techniques Negative impact on social life distractive
are simple and easy.
Direct interaction and communication Ethical issues since we are playing with
companies can connect directly to the consumers.
The place talks about how the product reaches the consumers. It is concerned with how the
product is distributed to make it available to customers.
Areas of Distribution:
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Method of
Description
Distribution
Department stores
Chain stores
Discount stores
Superstores
Retail stores offering a wide range of products, many branded products, at discount prices. Often
the product ranges are of similar types of products such as electrical goods.
New very large out-of-town stores which sell a wide range of products.
Supermarkets
Retail grocery stores with dairy products, fresh meat, packaged food and non-food departments.
Direct sales
Mail order
A large store, usually in the centre of the town or a city that sells a wide variety of products from
Internet/e-
The use of Internet to carry out business transactions. Businesses could communicate via email
commerce
as well. Producers as well as retailers can use the Internet to sell to customers.
A channel of distribution is basically a pipeline from a producer to the consumer, and this takes
into consideration the mediums through which the products will pass through.
Direct Channel: When a producer and ultimate consumer deal directly with each other.
Indirect Channel: When there are intermediaries between the producer and consumers.
Producers usually take indirect channels because it saves money and helps producer focus
elsewhere and optimise other parts of production.
Channels of Distribution:
Channel 0:
EG: Agricultural goods are sold straight from the farm and businesses buy raw
goods directly from another.
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Channel 1:
Involves selling a good or device through a retailer. Common when the retailer is
large or the product is expensive.
EG: Apple sells its goods through retailers in locations where they do not have a
store yet.
Channel 2:
Involves selling though a wholesalers because they break bulk so that retailer
can purchase in smaller quantities.
Channel 3:
Involves selling the product overseas through an agent, who sells them to a
wholesaler on behalf of the company.
This may be because the agent may have better knowledge of the local
conditions.
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Home market is saturated, so growth in that market is limited. Also the home market is very
competitive and survival in the market is difficult.
Gain economies of scale which makes production costs decrease for all markets and make the
firm more competitive in all markets.
Internet.
Exporting.
International franchising.
Joint ventures.
Licensing allowing another firm to produce its branded goods or patented products.
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4.8 E-Commerce
If the Internet is used to sell products/services then it is considered e-commerce.
Features of E-Commerce
Customisation The consumer will have greater involvement in the customisation of the
product they are purchasing.
Global reach this extends over national boundaries, and is available globally.
Integration allows combined use of audio, video and text to deliver marketing message to the
consumer.
Stock of manuals on the Internet and dont have to provide to each individual.
Price:
-
Promotion:
-
Advertising can be changed quickly, and the sites where it is advertised can be also changed
quickly.
However, they may be some risk in delivery and damage during shipping.
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Types of E-Commerce
B2B:
-
Business to business.
This involves purchasing of capital goods from business to be used later in the production
process.
Eg: SupplierUAE.com
B2C:
Business to consumer.
This is when businesses sell their goods online rather than through another channel.
Consumer to consumer.
This is when consumers transfer goods between themselves, such as secondhand good etc.
Advantages
Disadvantages
Can check the prices between different stores and No physical contact with producer and product.
sources.
Open 24/7.
Hacking of information.
The consumer can know more about the product Websites can sometimes not be consumer friendly
before purchasing it.
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Advantages
Disadvantages
Rent on selling location do not have to be paid by If delivery time exceeds promised time, then the
the seller.
They can have their products in a different place, Maintaining websites can get cumbersome.
i.e. save in storage costs by spreading the goods
over different places.
Easy to promote goods online.
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Chapter 5: Operations
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They have a direct impact on the level of competitiveness of that organisation and the
attainment of corporate objectives.
An efficient and effective operations management system:
Maximises efficiency.
Planning.
Organisation.
Leading.
Controlling.
Ensuring that the operations systems are in line with organisational objectives.
Inventory management.
Manufacturing.
Quality control.
Maintenance/engineering.
INPUT
PROCESSING
OUTPUT
Inputs:
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Technology.
Time.
Processing:
Assembly.
Testing.
Packaging.
Dispatch.
Outputs:
Goods.
Services.
Productivity
A measure of the functioning and efficiency of a production system; the level of output obtained
Determinants of Productivity:
-
Technology levels.
Layout of facilities.
Communication processes.
Workplace safety.
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Operations are done by people, so the HR department gets involved to manage the workers and
the personnel.
Operations involve funding, so the finance department gets involved to predict costs and
determine a break-even quantity.
Operations produced goods, so the marketing department has to do the research as well as the
Refers to the fact that budgets must be respected, wastage must be kept to a minimum and,
whenever possible, further savings should be made.
The aim is to use the available resources and raw materials to their best advantage
ultimately ensuring profitability in the long term.
The management must always look to cut unnecessary costs when possible.
Social Sustainability:
Refers to the fact that organisations are becoming more aware of their responsibility towards
the internal and external stakeholders.
They have to ensure that the work environment of the workers is kept well and that their
actions do not influence the external community.
Ecological Sustainability:
Refers to the fact that organisations are becoming more and more aware of the impacts their
actions have to the environment.
This focuses mainly on the air, water, land and noise pollution caused by their actions.
Triple Bottom Line:
The need to take economic, social and ecological factors into consideration while making
business decisions.
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There are several different ways in which goods and services can be produced.
Job Production:
-
Used for the production of single, one-off products. These products may be small or large
and are often unique.
In order to be called job production, each individual product has to be completed before the
next one is started. Only one product is being made at the same time.
Job production enables specialised products to be produced and tends to be motivating for
workers because they produce the whole product and can take pride in it.
However this production method tends to result in high unit costs, often takes a long time to
complete and is usually labour intensive.
The labour force needs to be highly skilled and this is not always easy to achieve.
Advantages
Disadvantages
Unique product or service, prestige status of High skilled workforce will need high wages or
owning the product or service.
salaries.
Job satisfaction Increased motivation since There will be high production costs since at a period
workers will do different jobs at the same time.
Batch Production:
-
Batch production makes products in separate groups and the products in each batch go
through the whole production process together.
The process includes a number of distinct stages and the key feature is that every unit in the
batch must go through an individual product stage before the whole moves on to next stage.
Batch production allows firms to use division of labour in their production process and it
enables economies of scale if batch is large enough.
It allows each individual batch to be specifically matched to the demand, and the design and
composition of each batch can be easily altered.
Advantages
Possible economies of scale.
Disadvantages
Businesses will need to hold large stocks within the
business.
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Advantages
Can help deal with unexpected orders.
Disadvantages
Batch size is limited by the capacity of the
machinery
Batch production gives consumer more choice Maintenance for machines can be costly and can
and so captures more market share.
reduces efficiency.
Mass Production:
-
This is used when individual products move from stage to stage of the production process as
soon as they are ready, without having to wait for any other products.
Flow production systems are capable of producing large quantities of output in a relatively
Advantages
Disadvantages
Systems need little maintenance once they are set- Set-up costs are high.
up.
Business can cater to large orders to achieve huge Breakdowns are costly, as the whole assembly line
economies of scale.
can be stopped.
Labour costs are low and relatively low skilled Production process can be demotivating for workers
workers may also be hired.
Cell Production:
Mass production where flow is broken up by teams of workers who are responsible for
certain parts of the line.
Each cell has a team leader and below that a single level of hierarchy made up of multiskilled workers.
Performance of each cell is measured agains pre-set targets. These will include output levels,
quality and lead times.
Cells are responsible for the quality of their complete unit of work.
Cell Production system has lead to: significant improvement in worker commitment and
motivation as there is team work and sense of ownership of the complete unit of work, job
rotation within the cell, increased productivity.
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Cost of equipment.
Staff demotivation, and can no longer promote the product as customised to each
consumer.
May have to promote the benefits of lower prices and consistent quality.
From Job/Batch to Mass:
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Productivity and quality improvements should allow competitive pricing and promotion of
quality products.
Factors include:
-
State of existing technology Which can limit how flexible production can be?
Government Regulations Are the working conditions and goods meeting quality
standards?
It is not uncommon for businesses to use more than one production methods.
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5.4 Location
Factors in Locating
Costs:
-
Land If the business is a large manufacturer, it may need a large, flat surface area,
whereas a small home-based office may only require a spare room.
Labour If the business is a technical one (such as a laboratory) requiring skilled workers,
the biggest cost may be labour.
If the business is bulk increasing (i.e. buying in many components and building
something bigger) it may be sensible to set the business close to the market
(transporting bigger items would be more expensive).
If the business is bulk decreasing (i.e. buying in large quantities of raw materials
and turning them into smaller end products, such as happens at paper mills or
slaughterhouses) business may set up close to source of raw materials.
Competition:
-
Retail outlets, theatres, law firms and may other business often set up close to their rivals.
Sometimes companies adopt a system called cannibalistic marketing where they set up more
than one branch in a location, until eventually there are so many outlets that there is no more
possible extra trade to be generated.
Type of Land:
Different types of land will not only incur different costs, but it will also vary in suitability
for the business.
For example, a ski ship would prefer to be near a snowy region, while a desert safari
company would situate itself near the desert.
Markets:
Many businesses had to set up close to their customers. Sometimes special marketplaces
would be set up to cater to a specific market segment.
Now due to the mobility of the market, and the transition from a physical to an electronic
marketplace, companies now have to focus on efficient distribution systems.
Often, new businesses are set up in the place that the owners are familiar with. New
businesses try not to take any risks and this is effective.
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This is disadvantageous because they have to give up opportunities to try newer places.
Labour Pool:
Some companies require highly educated staff and for that reason they tend to locate
themselves in regions with a more highly educated populace.
Others look for low-skilled staff for cheaper, this means they will situate themselves in such
a region.
Infrastructure:
Infrastructure refers to everything related to the distribution networks. It could include the
transport, people, products and even the technology.
Access to such infrastructure is important for all businesses to stay ahead of the curb.
Suppliers:
Lower transports costs and transport time since raw material does not have to be transported
for a long distance.
Loyalty, the company and supplier can make an agreement and can mutually benefit.
Some businesses may even expand to supply themselves (backward vertical expansion).
Government:
-
Laws:
Businesses must be careful about local laws to make sure that it does not get into
trouble.
Some laws to be kept in mind include: local labour laws, laws on trade and
transportation etc.
Taxes:
Business must also consider how much tax it will have to pay before relocating,
if the taxes are stringent then it will be bad for the business.
Globalisation
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Some companies have now started to reverse outsourcing. To stop the approach and to perform
peripheral activities internally again.
The business decisions to stop outsourcing can be motivated by the desire to gain full control or
to reduce external costs.
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