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Today Needs and wants Business activity Business cycle Goods and services
Competition Factors of production
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Needs and Wants Needs a need is something
essential to our lives: food, water,
shelter, clothing
Wants a want is an additional
luxury that makes life pleasurable
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Business Activity Business activity is any activity
which provides us with goods and
services
A countrys wealth is measured by
how many goods and services itproduces
Q. How is a nationswealth measured?
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Business Cycle
BusinessCycle
Businessprovidesgoods/services
Consumer
buygoods/services
Wealth forcompanies andemployees
Consumershavemoney to
spend fromwa es
Needs&
Wants
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Goods and Services Goods are tangible, things we can see and
touch like clothes, DVDs, cars etc
Goods can be durable or non-durable
Services are things that are done for us.They are intangible
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Competition Firms are in constant competition with each
other, and indeed how they fare is affecting
by suppliers, buyers and even the threat ofboth new firms entering their market, andthe threat of substitute goods.
Michael Porter called this the Five Forces
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Factors of Production In order to produce goods and
services, businesses need to use
resources LAND LABOUR CAPITAL ENTERPRISE
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Factors of Production Land natural resources extracted from
Earth. Can be renewable or non-
renewable Labour physical and mental effort of
people in organisations Capital man-made resources, such as
buildings, machines, tools Enterprise bringing together the other
three factors of production
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Identify a local business
organisation and describeeach of the factors ofproduction it uses in order to
operate
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Recap Needs and wants Business activity Business cycle Goods and services
Competition Factors of production
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Today Entrepreneurs Role of entrepreneur Entrepreneurs and franchising Combining factors of production
Innovation and risk taking
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Entrepreneurs A person who takes
an idea and throughability and vision
turns it into a goodor service.
Richard Branson,
left, is Britainsmost famousentrepreneur
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Entrepreneur Task1. 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 youthink entrepreneurs have?
5. Describe the role of the entrepreneur insetting up a business.
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1. Define what is anentrepreneur
A a person who starts a businessfrom their own idea with the
intention of making a profit. Theperson who brings together thefactors of production.
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Questions 2 & 3
Tell the class about theentrepreneurs you researched.
4 Wh t kill lit
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4. What skills or personalitytraits do you think
entrepreneurs have? Entrepreneurs display creativity,
innovation, imagination and are risk-takers. Entrepreneurs normally areassociated with SMEs (Small to MediumEnterprises), however as we have seen
they can operate in large firms too.
5 D ib th l f th
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5. Describe the role of theentrepreneur in setting up abusiness
Entrepreneurs develop the business idea. They are not always theinventor (the originator of the product/service), but are innovative.
They organise the resources. They make the decisions as to thelocation of the premises, method of production, product design,prices, wages. As the firm grows decisions may be passed down toothers as Richard Branson does.
Arrange for the financing. Entrepreneurs may put personal moneyin, but they also find backers. The central business idea and thebusiness plan are central to receiving funding.
They are the risk-takers. If it goes wrong it is they who suffer. AsJohn DeLorean did! He used personal AND Government money to fundDMC, but when it all went wrong he went bankrupt!
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Role of Entrepreneur Identifying business opportunities Franchising Combining Factors of Production Innovation and Risk Taking
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Identify Business
Opportunities Look for a gap in the market
Examples: McDonalds Home Delivery in
Clydebank? Virgin Galactic MJM
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Entrepreneurs and
Franchising In order to minimise risks, many
young entrepreneurs have taken to
using franchises as a means ofstarting up a business.
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Combining Factors of
Production The Entrepreneur brings together Land, Labour
and Capital.
Lets 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 aswell as buy machinery/equipment (CAPITAL).
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Innovation and Risk Taking Entrepreneurs do not invent but innovate. Henry Ford did not invent the automobile but
through different innovations such as theassembly line and mass production he helpedpopularise car use and make it affordable forcustomers to buy
Risks involved are usually to do with uncertainty
and money. No-one knows for sure if a newventure will be successful. The entrepreneurcould go bust like John DeLorean
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DeLorean Car & Sinclair
C5
The DeLorean car bankrupted its owner; the C5 wasalso a massive flop and ruined Sir Clive Sinclairsreputation.
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Recap Entrepreneurs Role of entrepreneur Entrepreneurs and franchising Combining factors of production
Innovation and risk taking
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Today IPO Diagram Sectors of Activity De-industrialisation
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IPO Diagram
Input Process Output
Raw materials workers FinishedNatural resources machinery goods
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Create an IPO diagram for
the following:
a) the schoolb) a football clubc) computer firm
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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 inproviding services such as banking,tourism, security
a) For each of the sectors of
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a) For each of the sectors ofindustry identify 3 local
businesses that operate inthat sector.
b) Use symbols/images todraw a diagram of thebusiness activity sectors, andplace the businesses in theproper sector
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De-industrialisation Economies begin in the primary sector
and as it grows moves through eachsector.
Reasons for this can be: Changes in demand Increased overseas competition
Lack of investment Restrictive government policies
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Explain why there has been agrowth in employment in call
centres in Scotland, andstate the reasons why it isimportant that Scotland
continues to attract thesejobs
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Recap IPO Diagram Sectors of Activity De-industrialisation
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Today Sole traders Partnerships Private limited companies plcs
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Types of Ownership Sole Trader Partnerships Private Limited Co. Public Limited Co.
Franchises Co-operatives Charities
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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
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Sole Trader +/- Easy to set up Can make decisions
quickly Personal attention to
business Profits are not shared
Can cater for local needs Business affairs keptprivate
Limited capital Unlimited liability
Commitment (longhours, every day)
New ideas may be
limited
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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)
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Partnership +/- More capital Excessive hours
can be cut down More ideas may begenerated
Specialisation can
occur Limited
partnerships
Actions of onepartner binds all
More discussionand consultation Limitation on
number of partners
Unlimited liability Partnership ends if
a partner dies
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Private Limited Companies Organisation owned by a group of individuals Memorandum/Articles of Association
Owned by Shareholders (usually family) whosemain function is to elect Board of Directors Money raised by share issue or borrowing Ordinary Shares & Preference Shares
Profit shared between shareholders orretained by company
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Private Ltd. +/- More capital Limited liability
Owner can retaincontrol
Company does not
die if owners die
Must be registeredwith Registrar ofCompanies
Harder to motivate &control workers
High set up costs(legal and
administrative) Diseconomies of scale
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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
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plc +/- More capital Employ specialists
Limited liability Company does not
die if owners die
Shares can beissued throughstock exchange
Formation expensive Must publish accounts
May become too largeto manage effectively Decisions more
difficult to arrive at
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Recap Sole traders Partnerships Private limited companies plcs
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Today Franchise Co-operatives Charities Public Sector Organisations and
Corporations
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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 onFranchisors guidelines
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Franchise +/- Franchisor provides a
lot of support;
training to startbusiness, equipment,materials, advice,brand name
Take over asuccessful, winningformula
Franchisee doesnthave complete
freedom May not agree with
decision placedupon you
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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 whoshare profits and share a salary Board of Directors (who may also be workers)
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Co-operatives +/- Less conflict
between workers
and managers Workers should be
more motivated
Difficult to growand find additional
capital New workers may
not be able to raisecapital needed to
join co-op
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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
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Charities +/- If charity has
status of
charitable trust itdoesnt pay tax Looks after less
privileged and the
environment
Less money may bedonated due to
introduction oflottery Relies on voluntary
workers who may
not be paid forwork
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Public Sector
Organisations Businesses set up by an Act of Parliament Government provides capital throughTreasury
Govt. appoints Chairman and BoardThey may be natural monopolies May be unattractive to private sector due
to enormous capital investment
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Public Corporations Reasons for being set-up:To avoid wasteful duplication and
confusionTo set up and run important non-
profitable services
To prevent exploitation of consumersTo protect jobs and key industries
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Identify as many differenttypes of business
organisations as you can thatare involved in producing a
new music CD
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Recap
Franchise Co-operatives Charities Public Sector Organisations and
Corporations
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Today
Privatisation Business Objectives Mission Statements
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Privatisation
The selling off of PublicCorporations to the private sector
Why Privatise?To improve efficiency by
introducing competition
Shareholders in Modern Society Privatisation raises huge monies
for government
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Business Objectives
Survival Growth and development Profit maximisation Social responsibility Providing a service
Objectives by Business
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Objectives by BusinessSector
Type ofBusiness
Aims/Objectives
Private Sector Survival, profit maximisation,increase returns toshareholders
VoluntarySector
Help others, maximise cashcollections, offer a service tocommunity
Public Sector Help people, improve quality of
service, cut costs, raise
Q i B i
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Questions a BusinessShould Ask Itself
Peter Drucker (1973) believes abusiness 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?
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Mission Statements
A companys raison dtre
Why Define Aims/Objectives? End result to work to
Goals motivate people
Keeps focus and direction
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Mission Statements
We exist to refresh everyone wetouch
We strive to lead in the invention,development and manufacture of
the industry's most advancedinformation technologies
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Mission Statements
Qualities of Good Mission Statements:
Visionary
Clarify intentions and aspirations Describe current activities and
intended position
Key values of organisation Capable of being realised
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Recap
Privatisation Business Objectives Mission Statements
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Today
Stakeholders Identifying stakeholders Interest of stakeholders Influence of stakeholders
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Stakeholders
Stakeholders are people with a keyinterest in a business
Stakeholders effect businesses byexerting influence over decisions
Their influence depends on the
degree of their involvement orrelative interest in company
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Identifying Stakeholders
Owners Employees
Customers Banks Investors
Local government suppliers
Management Members
Committees Donors Taxpayers
Community shareholders
St k h ld
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StakeholderAims/Objectives
Owners = profits, dividends
Managers = promotion, job security
Employees = wages, working conditions, jobsecurity
Suppliers = regular orders, payment
Customers = low prices, high quality
Banks = loans repaid on time
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a) What is a stakeholder in business?
b) Give 3 examples of a stakeholder in
a businessc) What kind of influence may
stakeholders be able to exert on
business?d) Complete the stakeholder grid
available on the work area
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Influence of Stakeholders
Cabinet Backbenchers
Party MembersTrade Unions Media
General Public(Voters) Pressure GroupsTony Blair is
influenced by:
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Pressure Groups
A Pressure Group is an organisation formed bypeople with a common interest, who get
together in order to further that interest.
Eff i f P
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Effectiveness of PressureGroups depends on
Number of peopleinvolved/scale ofoperation
Amount of presscoverage they receive
Amount of publicsympathy they receive
How well organised thecampaign is
Amount of financeavailable forcampaign
Ability to lobbypoliticianssuccessfully
Strength ofindividualcampaigners
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Explain why it is importantfor managers to
communicate theirdecisions to stakeholders
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PEST Analysis
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PEST Analysis
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Political Factors
Tax policy Employment laws Environmental regulationsTrade restrictions and tariffs Political stability
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Economic Factors
Economic growth Interest rates Exchange rates Inflation rate Unemployment
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Social Factors
Demographics LifestylesTrends and fashions Attitudes Education levels Ethnic markets
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Technological Factors
ICT R&D activity Automation Rate of technological change E-commerce
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Competitive Factors
Product differentiation Price wars Profit margins Imitators Location
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Complete a PEST Analysis
grid for an industryselected by the teacher.
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Recap
PEST Analysis (External Analysis) Political Factors Economic Factors Social FactorsTechnological factors Competitive Factors
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Today
Sources of Finance
Internal
External
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Sources of Finance
Internal Sources of
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Internal Sources ofFinance
Retained Profits profit kept bycompany for future activities
Selling Assets money raised byselling off an asset no longer needed
Both are Short-term
External Sources of
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External Sources ofFinance
Long Term (10 years +) Issuing Shares capital raised by
selling shares Debentures a fixed interest long
term loan Loans borrowing money, repaid over
a time period with interest Mortgages a loan secured for
property
External Sources of
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External Sources ofFinance
Medium Term (1-10 years) Leasing renting equipment or
premises Hire Purchase acquiring an asset
on credit followed by fixed
payments. After last instalmentpurchaser owns asset. Loans
External Sources of
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External Sources ofFinance
Short Term (up to 1 year) Overdraft borrowing more money
than is available in bank accountTrade Credit businesses receive
goods first, then pay later
Factoring a specialist businesscollecting unpaid debts for a fee
Additional Sources of
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Additional Sources ofFinance
LEC ScottishEnterpriseRenfrewshire
Local authorities East RenfrewshireCouncil
GovernmentPartnerships Business Gateway
Grants and allowances Repayable Grants,Soft Loans, Subsidies
EU grants RegionalDevelopment Fund &Social Fund
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Recap
Sources of Finance
Internal
External
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Today
MergerTakeover
De-merger Divestment Horizontal integration Vertical integration Diversification
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Methods of Growth
Merger an agreement to bring two firmsunder one board of directors
Takeover when a firm buys over 50% ofanother firms share capital
De-merger when a firm is split into twoparts
Divestment selling off parts of businessno longer fitting long-term strategy
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Horizontal Integration
Occurs when a firm takes over ormerges with another firm at the
same stage of production.
+ =
Benefits of Horizontal
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Benefits of HorizontalIntegration
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 companys assets
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Vertical Integration
Rubberplantation
Carshowroom
Forward
Backwar
d
Benefits of Vertical
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Benefits of VerticalIntegration
It reduces costs as there are nomiddlemen; more profits are kept
Company benefits from greatereconomies of scale
Processes can be linked easily
(supplies are guaranteed, retailsoutlets available for products to besold in)
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Diversification
Diversification is when businessesreduce risk by expanding the
number of goods/services theyprovide
Diversification Benefits
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Diversification Benefits(aka Conglomerate Integration)
Reduces risk of business failure (ifone part fails, there is another to
compensate!) Business becomes larger and more
financially secure
Firm acquires assets of the othercompany
State 3 factors that affect a business
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a) State 3 factors that affect a business
b) give an example for each factors of aPEST analysis
c) explain merger and demerger
d) list and explain 3 sources of finance
e) what is divestment?
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Recap
MergerTakeover
De-merger Divestment Horizontal integration Vertical integration Diversification
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Today
Multinationals Social Responsibility
Exxon Valdez
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Multinationals
What is a Multinational?
A company with HQ in one countrybut with bases, manufacturing orassembly plants in others
Why become a
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Why become aMultinational?
Companies may become Multinationals to:
increase market share
secure cheaper premises and labour to avoid tax or trade barriers
to take advantage of government grants
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Multinationals +/-
Provide jobs &income
Improve level ofexpertise of localworkers
Economies of Scale
Jobs may only below-level skills
Profits go back tohome country
Cut corners
May exert political
muscle
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Social Responsibility SR is about how companies manage
their business processes to produce anoverall positive impact on society - CSR
Major Concerns High Fossil fuel emissions
Global warming Exploitation of workers Safety of employees
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Social Responsibility
Levis Sweatshop workers EuroDisney US culture invades
France DDT pesticide banned in High
income countries, yet sold on to
low income nations
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Exxon Valdez Disaster 1989 Exxon Valdez
disaster in Alaska
11 million gallons of oilspilled over 1,500 mileshoreline
500,000 birds dead
4,500 otters dead
14 killer whales dead
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Aftermath
Clean-up cost $100 million 1994 fined $5 billion by US courts
Exxon Valdez synonymous withcorporate arrogance and shirkingof responsibility Alabama court
Consumer boycott: Exxon slippedfrom 1st to 3rd biggest oil company
1999 Exxon merged with Mobil
Has Exxon learned its
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lesson?
In 2002 ExxonMobil donated:
$2 million to US Education AllianceProgram
$100 million to Global Climate andEnergy Project
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Social Responsibility +/-
Customerperceivescompany in good
light
Financial cost
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Today
Multinationals Social Responsibility
Exxon Valdez
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For each of the followingexamples, identify whichwould be the best type of
business organisation to use.Justify your decision for each.A) firm of solicitors
B) window cleanerC) garage repair and sales
c o e o ow ngservices are provided by
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p ygovernment and are publicly
funded? Identify whetherthey are funded by Scottish
or UK government.A) university educationB) local bus serviceC) water supply
D) sheltered housingE) Letter postal service
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Identify 2 business
objectives of HBOS fromcase study on p. 30
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How do businessobjectives of an
organisation like the BBCdiffer from STV?