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Business in Contemporary Society

Business in Contemporary SocietyHigher/Int 2 Business ManagementSession 2009/2010


Business ActivityAny activity which results in the provision of goods/services which satisfy human wantsWantsNeedsDurableNon-DurableConsumer GoodsCapitalGoodsGoods & Services2


TermsProduction: refers to the making of goods to be sold or move to the next stageConsumption: refers to the purchasing of goods/servicesNeeds: essential for survivalWants: what people demand after needs are satisfied3


Wealth CreationThe 4 Factors of Production are combined together to produce an outputLand natural resourcesLabour workforceCapital equipment and money investedEnterprise the entrepreneur (more later)

At each stage of production value is added with each new ingredient therefore wealth is createdGoods/Services are then sold in markets.4


Business Activity


TheOrganisation(Internal)InputsLand LabourCapitalEnterpriseOutputGoodsandServices

MarketingPeople(HumanResources)FinanceProduction(Operations)External Influenceseg CompetitionExternal Influenceseg Government Policy




Sectors of Industrial ActivitySectorDescriptionExamplePrimaryExtracting materialsFishing, farming, coal mining

SecondaryManufacturingCars, computers and cakes

TertiaryProvide a serviceSupermarkets, airlines, accountants

7Industrial RevolutionDe-Industrialisation


ActivitiesActivity No. 1: Sectors of Industry

Activity No. 7: Class Careers8


Types of Business Organisations(Private Sector) Sole TraderAdvantagesEasy to set upOwner keeps profitsOwner decides hours to workOwner makes all decisionsDisadvantagesNo one to share responsibility, workload or problemsDifficult to obtain financeUnlimited liability

9OwnershipSizeObjectivesFinanceIndividual< 50 employeesSurviveMake profitQuality productPersonal savingsOverdraftsLoansGrants


Types of Business Organisations(Private Sector) PartnershipAdvantagesWorkload responsibilities sharedPartner experience/skillsEasier to obtain financeShared risks/decisionsDisadvantagesDisagreementsUnlimited liabilityProfits are splitLegal agreement required

10OwnershipSizeObjectivesFinance2-20 partnersLocallyNationallySurviveMake profitQuality productPersonal savingsOverdraftsLoansGrantsPartner


Types of Business Organisations(Private Sector) LtdAdvantagesLimited liabilityResponsibility/risks sharedPrivacy retained: no accounts publishedAccess to finance improvedDisadvantagesComplicated to setupRules and regulations of Companies Act

11OwnershipSizeObjectivesFinanceShareholders(not publically available)NationalAlso:Strong brandHigh salesGrowthSharesBanks loansMortgagesGovernment grants


Types of Business Organisations(Private Sector) PlcAdvantagesLimited liabilityAccess to finance improvedEconomies of Scale possible

DisadvantagesRules and regulations of Companies ActAnnual Accounts publishedNo control over ownership

12OwnershipSizeObjectivesFinanceShareholders(sold on stock exchange)>250 employeesOften multinationalAlso:Market leaderSocial responsibilityGrowthMaximise profitsAlso:Shares easily sold on Stock Market

50,000 investment


Multinationals: BenefitsTaxation or Grant incentivesLower wage ratesHigher skilled workforceLegislation (relaxed)Rate of Corporation TaxCan operate competitively (locally)Increased Market ShareSave on costs of transportationAvoiding Trade BarriersSelling Globally (without licenses)



Multinationals: CostsLegislation may be too restrictiveLocal currency may be weak (converting profits back)Lack of technical expertisePoor infrastructureCultural difficultiesPolitical InstabilityExploitation (eg low wages)Forcing local businesses outMajor functions remain at HQ usually close a subsidiary14


ActivitiesActivity No. 2: Types of Business Organisation

Hall, Jones and Raffo: Chapter 6

Question 1: Sole Trader p43Question 2: Partnership p44Question 3: Limited Company p46Question 4: Decision Making p4915


FranchisesA person who starts a business and provides a product or service supplied by another business is known as a franchisee and operates a business known as a franchise

The franchisee is allowed to use the franchisors business name and sell its products16


SPAR FranchiseSPAR is a franchised Convenience store. It was founded in the Netherlands as a voluntary chain of grocers under the name "De Spar". Secure cooperation between independent wholesalers and retailers as a response to the emergence of grocery chains in Europe."DESPAR" is the acronym for the Dutch sentence "Door Eendrachtig Samenwerken Profiteren Allen Regelmatig" which translates into "We all benefit from joint cooperation". The symbol of the fir tree, SPAR in Dutch, to identify the organization and it became the SPAR logo. 17


The FranchisorAdvantagesDisadvantagesQuick entry to new marketsReliant on franchisees to maintain image and good nameReceive % of profitsMoney received < running selfProtection from competitionRisk is shared



The FranchiseeAdvantagesDisadvantagesAlready established name and brand% of profits paid to franchisorTraining providedStrict rules imposed by franchisorBack-up Service provided (advice)Performance depends on franchisors input and other franchiseesAll benefit from shared ideasRisk is shared



ActivitiesActivity No. 8: McDonaldsCase Study: McDonalds (Server) investigation and report into different franchises available including cost of initial investment20


The Public SectorManaged by the government on behalf of the taxpayer who owns themFunded through taxationAims:Provide servicesImprove communitiesAct in best interests of society21


Types of Public Sector OrganisationsCentral Government Health, Defence and Transport People are elected to become politicians Politicians control Central Government

Local Government East Lothian Council is an example Schools, roads, council housing and leisure Elected politicians control and appointed managers run local government

Public Corporations Goods and services provided Owned by government nationalised industries Funded by government and members of public eg BBC License Fee Chairperson and Board of Directors



PrivatisationGovernments sold these companies because:Huge amounts of income for the TreasurySome public corporations were poorly managed and not profitableWanted to increase share ownership and make public interested in the success of companies/the economy23

However:Public corporations were often sold off too cheaplyPrivatisation has not always led to greater competition


Contracting OutExamples are refuse collection and school mealsFirms are invited to submit bids (competitive tendering) to provide these servicesCost effective? Private Sector organisations have an incentive to keep costs low

See Extra Note for more detail: also appears in Growth section24


Voluntary OrganisationsManaged and run by volunteers: no financial gainthey usually have an interest in the organisationExamples:ScoutsGirl GuidesYouth and Sports ClubsFinanceDonationsMembership fees25


CharitiesCharity?Relieve povertyAdvance educationAdvance religionCarry out activities beneficial to the community

Examples:Children in NeedRed CrossRSPB

26FinanceDonationsGovernment and lottery fundingSelling goodsFundraising events

Charities Commission keep a register of charities

Charitable Status means exemption from paying VAT

Can Gift Aid


ActivitiesActivity No. 3: Contracting Out

Activity No. 4: Objectives (thoughts before next section)



ObjectivesTargets or GoalsRequired so that a measurement of success can be madeMake decision to achieve goals eg:objective = expand overseasaction = find location; recruit staff; market products28Remember objectives can change over time


Examples of ObjectivesPrivate Sector ObjectivesSurviveMaximise profitMaximise salesMarket share increaseBecome market leaderGrowHigh quality productManagerial ObjectivesVoluntary Sector ObjectivesProvide a serviceHelp those in needRaise moneyEfficient use of moneySocially responsible29What about satisficing?


Higher Level: ObjectivesIdentify vs DescribeProfit MaximisationTo make as much profit possible by maximising sales and keeping the cost of sales low

To control and dominate the market within which the organisation operates. This may involve eliminating competitionBecome Market LeaderGrowExpand into new markets/countries. Taking advantage of economies of scale and minimising risk of failure



EntrepreneurHave and develop a business ideaWilling to take risksKnown and associated with innovationCombine the factors of productionUse their initiative to make decisions and solve problems31


StakeholdersHave an interest in and stand to be affected by the success or failure of an organisation

Internal:Shareholders/OwnersManagersEmployeesExternal:SuppliersCustomersBanksCentral/Local GovernmentLocal CommunityTaxpayersDonors (Charities)Community (Society)32Ensure that you know the interests and influences


ActivitiesWhat is my interest and influence?

Activity No. 5: Conflict between stakeholders33


Sources of FinanceCan y