Unit 1-Lesson 2

Business Structure

Classification of Business Activity1- Primary sector business activity Businesses related to extraction of

natural resources2- Secondary sector business

activity manufacturing businesses3-Tertiary sector business activity firms providing services

Changes in Business activityBenefitsa. GDP increasesb. Lower imports high exportsc. More jobs d. More taxes to governmente. Value is added to countries'

output of raw materials.

Changes in Business activity (Increase in secondary sector activity)

Problemsa. Movement of people and housing

and social problemb. Imported raw materials increase

s import costs of countryc. Expansion of multinational

companies

Public and Private SectorPrivate SectorBusinesses owned and controlled by individuals or groups of individuals.

Public and Private SectorPublic SectorOrganisations accountable and controlled by central or local government.

Mixed economyBoth public and private sectorFree market economyLargely private sector with little state interventionCommand economy Economic resources owned , planned and controlled by the state.

Difference between Local, National and International businesses

The Private Sector1- Sole trader 2- Partnership3-Limited companiesa) Private (Ltd)b) Public (plc)4-Cooperatives

Limited Company

1- Limited liability2- Legal personality3-Continuity

Legal formalities in setting up a company

1- Memorandum of Association(MOA)

2- Article of Association(AOA)

Other forms of Business Organisations1- Cooperatives 2- Franchises3-Joint ventures4- Holding companies5-Public sector enterprise – public

corporations

COOPERATIVES•Co-operatives are owned by their staff, who are ‘members’ of the firm•Profits are shared amongst the members•Losses too must be shared

Joint venturesTwo or more businesses agree to work together on a particular project and create a separate business division to do so.Reasons for joint venture •Not same as mergers but can lead to a merger.•Costs and risks are shared.•Different companies` different strengths fit well together •More effective than “go it alone”

Franchise•A business that uses the name logo and trading system of an existing successful business.

•A business idea is licensed to a franchisee

•The owners of the brand receive a license fee

•The franchisee gains the right to use the business brand

Holding companiesA business organisation that owns and controls number of separate businesses but does not unite them in a unified company.

•Not a legal form of business.

•Holding company has diversified interests.

•Independent of major decisions and policies.

•Possibility of centralised control over key issues like new investments.

Public corporation A business organisation owned and controlled by state___ also known as nationalised industry.Profit is not the motive.Social objectiveGov raise finance Loss making services still operate.Subsidies will lead to low efficiency

Franchise

A-LEVEL PRIVATISATION Selling state owned and controlled business

organisations to investors in the private sector.

Argument for and against PrivatisationFor Privatisation Against PrivatisationProfit motive will lead to

efficiency Strong motivationMore profit ..market forces

will operateNo commercial reasons More finance for govFree competition no

consumer exploitationIncreased investment in

industries

Unprofitable areas will close down

Difficult to achieve coordinated policy for the country

Less gov controlNo economies of scale

due to breaking up of nationalised industries in to several units .

Public private partnership (PPP)These are the gov services or business

ventures that are funded and managed through a partnership of gov and one or more private sector companies.

Types Of PPP Government Funded Private Sector Funded

Nature and scope of international trading links

Loss of output and jobsDecline in domestic industries Job lossesFactory closuresCompetition Infant industries may not growSome importers dump goods below cost to

eliminate competition

Free trade and Globalisation Free Trade :No restriction or trade barriers exist that

might prevent or limit trade between countries

Tariffs: Taxes imposed on imported goods to make them more expensive than they would other wise be.

Quotas: Limit on physical quantity of goods to be imported

Voluntary export limits exporting country agrees to limit the quantity of goods sold to one country to discourage setting of tariffs or quotas.

Protectionism :using barriers of free trade to protect a country`s own domestic industries.

Benefits Of Trade Between NationsWider choiceImported raw materialsDeveloping economies can increase rate of

industrialisationAdditional competition for developing

countriesComparative advantageSpecialisation leads to Economies of scaleLiving standards of consumers increase.

Globalistaion The increasing freedom of movement of goods capital and people around the world.

World trade organisation Free tarde blocs

Multinational businesses Business organisations that has its head

quarters in one country but with operating branches, factories and assembly plants in other countries.

Multinational businesses Why become a multinational---closer to main markets---lower cost of production ---Avoid import restrictions---access to local natural resources

Potential problems of multinationals.---risky ---Language, culture and legal differences---coordination issues ---low local skill level (training costs )

Evaluation of the impact on host countries of multinational operationsADVANTAGES Foreign currency Employment Local Firms quality increasesTaxes for govIncreased management expertiseTotal output of economy will increase

Evaluation of the impact on host countries of multinational operationsDRAWBACKSExploitation of local work forcePollution Local firms out of businessReduction in cultural identity Profits sent back to country Extensive depletion of limited natural

resources