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Management
Business in Contemporary
Society
Today…
Needs and wants
Business activity
Business cycle
Goods and services
Competition
Factors of production
Needs and Wants
Needs – a need is something
essential to our lives: food, water,
shelter, clothing
Consumers
Wealth for
have
companies and
money to
employees
spend from
wages
Goods and Services
Goods are tangible, things we can see and
touch like clothes, DVDs, cars etc…
Richard Branson,
left, is Britain’s
most famous
entrepreneur
Entrepreneur Task
1. Define what is an entrepreneur.
2. Identify 4 entrepreneurs and the
business they were involved with.
3. Using the internet, write a short
biography of the 4 entrepreneurs.
4. What skills or personality traits do you
think entrepreneurs have?
5. Describe the role of the entrepreneur in
setting up a business.
1. Define what is an
entrepreneur
Examples:
McDonald’s Home Delivery in
Clydebank?¹
Virgin Galactic²
MJM³
Entrepreneurs and
Franchising
In order to minimise risks, many
young entrepreneurs have taken to
using franchises as a means of
starting up a business.
Combining Factors of
Production
The Entrepreneur brings together Land, Labour
and Capital.
Let’s look at Richard Branson at Virgin:
He would buy or rent the buildings/property
(LAND)
He would hire the staff (LABOUR)
He would raise the money to start the venture as
well as buy machinery/equipment (CAPITAL).
Innovation and Risk Taking
Entrepreneurs do not invent but innovate.
Henry Ford did not invent the automobile but
through different innovations such as the
assembly line and mass production he helped
popularise car use and make it affordable for
customers to buy
Risks involved are usually to do with uncertainty
and money. No-one knows for sure if a new
venture will be successful. The entrepreneur
could go bust… like John DeLorean¹
DeLorean Car & Sinclair
C5
a) the school
b) a football club
c) computer firm
Sectors of Industrial
Activity
Primary Sector – businesses involved in
exploiting or extracting natural
resources (mining, fishing, farming)
Secondary Sector – businesses involved
in manufacturing and construction.
Includes utilities.
Tertiary Sector – Businesses involved in
providing services such as banking,
tourism, security
a) For each of the sectors of
industry identify 3 local
businesses that operate in
that sector.
b) Use symbols/images to
draw a diagram of the
business activity sectors, and
place the businesses in the
proper sector
De-industrialisation
Economies begin in the primary sector
and as it grows moves through each
sector.
Reasons for this can be:
Changes in demand
Increased overseas competition
Lack of investment
Restrictive government policies
Explain why there has been a
growth in employment in call
centres in Scotland, and
state the reasons why it is
important that Scotland
continues to attract these
jobs
Recap…
IPO Diagram
Sectors of Activity
De-industrialisation
Today…
Sole traders
Partnerships
Private limited companies
plcs
Types of Ownership
Sole Trader
Partnerships
Private Limited Co.
Public Limited Co.
Franchises
Co-operatives
Charities
Sole Trader
One man/woman business
Sole Trader owns business. Owner and
business are the same
Owner provides own capital (savings &
borrowings)
Profits go to the owner (but responsible for
losses)
Owner controls business, all decisions are
theirs
Sole Trader +/-
Easy to set up Limited capital
Can make decisions Unlimited liability
quickly
Personal attention to
Commitment (long
business hours, every day)
Profits are not shared New ideas may be
Can cater for local needs limited
Business affairs kept
private
Partnerships
A business owned by several people 2-20
Deed of Partnership – contract dealing with share of
profits, roles and duties, capital contributed,
dispute procedures
Owned jointly but not always equally
Partnership is an extension of sole trader
Capital provided by partners
Profit goes to partners, not always equally
All partners entitled to participate in management
(unless silent partners)
Partnership +/-
More capital Actions of one
Excessive hours partner binds all
can be cut down More discussion
More ideas may be and consultation
generated Limitation on
Specialisation can number of partners
occur Unlimited liability
Limited Partnership ends if
partnerships a partner dies
Private Limited Companies
Organisation owned by a group of individuals
Memorandum/Articles of Association
Owned by Shareholders (usually family) whose
main function is to elect Board of Directors
Money raised by share issue or borrowing
Ordinary Shares & Preference Shares
Profit shared between shareholders or
retained by company
Private Ltd. +/-
More capital Must be registered
with Registrar of
Limited liability Companies
Owner can retain Harder to motivate &
control control workers
Company does not High set up costs
die if owners die (legal and
administrative)
Diseconomies of scale
Public Limited Companies
Org. owned by a group of individuals, has plc after name
Certificate of Incorporation approved by Registrar of
Companies
Shareholders 2+. Shares sold on stock exchange.
Prospectus prepared to attract shareholders
Capital raised by share issue or borrowing
Profits shared between shareholders or retained by
company
Board of Directors = Divorce of ownership and control
plc +/-
More capital Formation expensive
Employ specialists
Must publish accounts
May become too large
Limited liability to manage effectively
Company does not Decisions more
die if owners die difficult to arrive at
Shares can be
issued through
stock exchange
Recap…
Sole traders
Partnerships
Private limited companies
plcs
Today…
Franchise
Co-operatives
Charities
Public Sector Organisations and
Corporations
Franchise
Business buys a license to operate a well
known firm
Owned by Franchisor
Franchisee pays Franchisor to get
license as well as a royalty
Franchisees runs business on
Franchisor’s guidelines
Franchise +/-
Franchisor provides a Franchisee doesn’t
lot of support; have complete
training to start freedom
business, equipment, May not agree with
materials, advice, decision placed
brand name upon you
Take over a
successful, winning
formula
Co-operatives
Organisations set up to benefit workers or
consumers
Retail – owned by workers and shoppers
Producer – owned by workers
Retail – every pound spent receives dividend or
voucher
Producer – money comes from workers who
share profits and share a salary
Board of Directors (who may also be workers)
Co-operatives +/-
Less conflict Difficult to grow
between workers and find additional
and managers capital
Workers should be New workers may
more motivated not be able to raise
capital needed to
join co-op
Charities
An organisation formed to raise money for
underprivileged people
Trustees
Charities raise money through shops,
donations and lottery money
Surplus after costs goes to the ‘needy’
Board of Managers
Charities +/-
If charity has Less money may be
status of donated due to
charitable trust it introduction of
doesn’t pay tax lottery
Looks after less Relies on voluntary
privileged and the workers who may
environment not be paid for
work
Public Sector
Organisations
Businesses set up by an Act of Parliament
Government provides capital through
Treasury
Govt. appoints Chairman and Board
They may be natural monopolies
May be unattractive to private sector due
to enormous capital investment
Public Corporations
Reasons for being set-up:
To avoid wasteful duplication and
confusion
To set up and run important non-
profitable services
To prevent exploitation of consumers
To protect jobs and key industries
Identify as many different
types of business
organisations as you can that
are involved in producing a
new music CD
Recap…
Franchise
Co-operatives
Charities
Public Sector Organisations and
Corporations
Today…
Privatisation
Business Objectives
Mission Statements
Privatisation
The selling off of Public
Corporations to the private sector
Why Privatise?
To improve efficiency by
introducing competition
Shareholders in Modern Society
Privatisation raises huge monies
for government
Business Objectives
Survival
Growth and development
Profit maximisation
Social responsibility
Providing a service
Objectives by Business
Sector
Type of Aims/Objectives
Business
Private Sector Survival, profit maximisation,
increase returns to
shareholders
Voluntary Help others, maximise cash
Sector collections, offer a service to
community
Public Sector Help people, improve quality of
service, cut costs, raise
Questions a Business
Should Ask Itself
Peter Drucker (1973) believes a
business should ask:
What is our business?
Who is the customer?
What is value to the customer?
What will our business be?
What should our business be?
Mission Statements
A company’s raison d’être
Internal
External
Sources of Finance
Internal Sources of
Finance
Retained Profits – profit kept by
company for future activities
Internal
External
Today…
Merger
Takeover
De-merger
Divestment
Horizontal integration
Vertical integration
Diversification
Methods of Growth
Merger – an agreement to bring two firms
under one board of directors
Takeover – when a firm buys over 50% of
another firm’s share capital
De-merger – when a firm is split into two
parts
Divestment – selling off parts of business
no longer fitting long-term strategy
Horizontal Integration
Occurs when a firm takes over or
merges with another firm at the
same stage of production.
+ =
Benefits of Horizontal
Integration
This can help eliminate competition
Can lead to increased market share
Allows for economies of scale
Combined company becomes more strong
and secure
Acquisition of other company’s assets
Vertical Integration
Rubber
plantation
Backwar
d
Forward
Car
showroo
m
Benefits of Vertical
Integration
It reduces costs as there are no
middlemen; more profits are kept
Company benefits from greater
economies of scale
Processes can be linked easily
(supplies are guaranteed, retails
outlets available for products to be
sold in)
Diversification
Diversification is when businesses
reduce risk by expanding the
number of goods/services they
provide
Diversification Benefits
(aka Conglomerate Integration)
Reduces risk of business failure (if
one part fails, there is another to
compensate!)
Business becomes larger and more
financially secure
Firm acquires assets of the other
company
a) State 3 factors that affect a business
e) what is divestment?
Recap…
Merger
Takeover
De-merger
Divestment
Horizontal integration
Vertical integration
Diversification
Today…
Multinationals
Social Responsibility
Exxon Valdez
Multinationals
What is a Multinational?
Major Concerns
High Fossil fuel emissions
Global warming
Exploitation of workers
Safety of employees
Social Responsibility
Levi’s ‘Sweatshop workers’
EuroDisney US culture invades
France
DDT pesticide banned in High
income countries, yet sold on to
low income nations
Exxon Valdez Disaster
1989 Exxon Valdez
disaster in Alaska
11 million gallons of oil
spilled over 1,500 mile
shoreline
500,000 birds dead
4,500 otters dead
14 killer whales dead
Aftermath
Clean-up cost $100 million
1994 fined $5 billion by US courts
“Exxon Valdez synonymous with
corporate arrogance and shirking
of responsibility” – Alabama court
Consumer boycott: Exxon slipped
from 1st to 3rd biggest oil company
1999 Exxon merged with Mobil
Has Exxon learned it’s
lesson?
In 2002 ExxonMobil donated: