Complete Notes

Business Studies

Stage 6

Study Notes

HSC TOPIC 1: BUSINESS MANAGEMENT AND CHANGE .................................................................... 3

NATURE OF MANAGEMENT...................................................................................................................5UNDERSTANDING BUSINESS ORGANISATIONS WITH REFERENCE TO MANAGEMENT THEORIES...............................7MANAGING CHANGE..........................................................................................................................10

HSC TOPIC 2: FINANCIAL PLANNING AND MANAGEMENT .............................................................. 13

THE ROLE OF FINANCIAL PLANNING.......................................................................................................15FINANCIAL MARKETS RELEVANT TO BUSINESS FINANCIAL NEEDS..................................................................16MANAGEMENT OF FUNDS...................................................................................................................17USING FINANCIAL INFORMATION...........................................................................................................18

HSC TOPIC 3: MARKETING ............................................................................................................. 20

NATURE AND ROLE OF MARKETS AND MARKETING...................................................................................22MARKET RESEARCH PROCESS...............................................................................................................25CUSTOMER AND BUYER BEHAVIOUR......................................................................................................26DEVELOPING MARKETING STRATEGIES....................................................................................................28ETHICAL AND LEGAL ASPECTS...............................................................................................................31

HSC TOPIC 4: EMPLOYMENT RELATIONS ........................................................................................ 33

NATURE OF EMPLOYMENT RELATIONS....................................................................................................35KEY INFLUENCES ON EMPLOYMENT RELATIONS.........................................................................................36EFFECTIVE EMPLOYMENT RELATIONS......................................................................................................37LEGAL FRAMEWORK OF EMPLOYMENT....................................................................................................40INDUSTRIAL CONFLICT.........................................................................................................................41ETHICAL AND LEGAL ASPECTS...............................................................................................................44

HSC TOPIC 5: GLOBAL BUSINESS .................................................................................................... 45

GLOBALISATION.................................................................................................................................48GLOBAL BUSINESS STRATEGY................................................................................................................49SPECIFIC INFLUENCES ON GLOBAL BUSINESS.............................................................................................52MANAGING GLOBAL BUSINESS.............................................................................................................53MANAGEMENT RESPONSIBILITY IN A GLOBAL ENVIRONMENT......................................................................55

Business Studies Study Notes

HSC Topic 1: Business Management and Change

Content

Students learn to:

use existing business case studies to investigate and communicate ideas and issues related to business management and change. The focus of these case studies will be to:• analyse how management theories apply to various business situations• explain and evaluate how change is managed in one or more businesses.

Students learn about:

the nature of management• the importance of effective management• management roles

– interpersonal, informational, decisional• skills of management

– people skills, strategic thinking, vision, flexibility and adaptability to change, self-managing, teamwork, complex problem-solving and decision-making, ethical and high personal standards

• responsibility to stakeholders; reconciling conflicts of interest

understanding business organisations with reference to management theories• classical-scientific

– management as planning, organising and controlling– hierarchical organisational structure based on division of labour– autocratic leadership style

• behavioural– management as leading, motivating, communicating– flat organisational structure, teams– participative/democratic leadership style

• political– uses of power and influence, management as negotiating and bargaining– structure as coalitions – stakeholder view

• strengths and weaknesses of the classical, behavioural and political approaches• systems/contingency

– adapting management and organisational approaches to circumstances

managing change• nature and sources of change in business

– external influences — the changing nature of markets; economic, financial, geographic, social, legal, political and technological developments

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– internal influences — effects of accelerating technology including e-commerce, new systems and procedures, new business cultures

– structural responses to change — outsourcing, flat structures, strategic alliances and networks

• reasons for resistance to change– financial costs — purchasing new equipment, redundancy payouts,

retraining, reorganising plant layout– inertia of managers, owners– cultural incompatibility in mergers/takeovers– staffing — de-skilling, acquiring new skills, loss of career

prospects/promotional opportunities• managing change effectively

– identifying the need for change– setting achievable goals– creating culture of change (encouraging teamwork approach using change

agents)– change models — force-field analysis, Lewin’s unfreeze/change/refreeze

model

change and social responsibility• ecological sustainability, quality of working life, technology, globalisation/

managing cultural diversity, e-commerce.

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Nature of Management

The traditional definition of management is the process of coordinating a business’s resources to achieve its goals. The resources of a business are:

Human resources are the employees of the business and are generally its most important asset.

Information resources include the knowledge and data required by the business, such as market research, sales reports, economic forecasts, technical material and legal advice.

Physical resources include equipment, machinery, buildings and raw materials.

Financial resources are the funds the business uses to meet its obligations to various creditors.

A manager is someone who coordinates the business’s limited resources to achieve specific goals.

A contemporary definition of management views managements as the process of working with and through other people to achieve business goals in a changing environment. Crucial to this process is the effective and efficient use of limited resources. According to this definition, management requires:

Working with and through others. Achieving the goals of the business. Getting the most from limited resources. Balancing effectiveness and efficiency. Coping with a rapidly changing environment.

The 8 Skills a Manager must possess are: People skills Strategic thinking skills Vision skills Flexibility and adaptability to change skills Self-managing skills Teamwork skills Complex problem-solving and decision-making skills High personal standards and ethics

Stakeholders are groups of individuals who interact with the business and thus have a vested interest in its activities. A business’s responsibilities to its stakeholders are:

Change management Social justice Ecological sustainability Compliance with the law Codes of practice Reconciling conflicts of interest

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Management Roles:

Category Role Description

Interpersonal

Figurehead Performs ceremonial duties Symbol of legal authority

Leader Motivates employees

Liaison Establishes and maintains a network of

contacts Interacts with other organisations

Informational

Monitor

Seeks and receives information from a wide variety of sources to gain better understanding of the business and its environment

Disseminator Shares information with selected

employees within the business

Spokesperson Presents to outsiders information about

the business’s plans, policies, results and structure

Decision Making

Entrepreneur Scans the environment for opportunities Initiates projects to improve performance Brings about change

Disturbance Handler

Deals with issues and crises inside and outside the business

Takes corrective action

Resource Allocator

Decides who should get what resources Allocates the human, financial, physical

and information resources

Negotiator Participates in negotiations with other

parties (e.g. unions, suppliers)

An interpersonal role is one in which the manager deals with people. An informational role is one in which the manager gathers and

disseminates information within the business, also providing it to the outside world.

A decision-making role is one involves solving problems and making choices.

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Understanding Business Organisations with Reference to Management Theories

A classical perspective on management emphasises how best to manage and organise work so as to improve productivity. Scientific management is an approach that studies a job in great detail to discover the best way to perform it. The role of a manager in the classical-scientific theory is to:

1. Plan2. Organise3. Control

The other main features of the classical perspective on management are: Hierarchical organisational structures based on the division of

labour. An autocratic leadership style.

The behavioural approach to management stresses that employees should be the main focus of the way in which a business is organised. The role of a manager in the behavioural theory is:

1. Leading2. Motivating3. Communicating

The other main features of the behavioural approach to management are: A flat organisational structure, with employees divided into teams. A participative or democratic leadership style.

Politics is the use of methods sometimes unstated and/or unethical, to obtain power or advancement within an organisation. Organisational politics are often the unwritten rules of work life. They involve the pursuit of self-interest through informal methods of gaining power of an advantageous nature. The Sources of Power are:

Legitimate Expert Referent Reward Coercive

In the political management theory, the role of management is:1. Negotiating2. Bargaining

The other key features of the political management theory are: Coalitions, which are two or more people who combine their power

to push or gain support for their ideas. A stakeholder view of the business, where different stakeholders

support others for their own advantages.

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The systems management approach views organisations as an integrated process in which all the individual parts contribute to the whole. A diagrammatic representation of this is:

Resources: Human Equipment Financial Informational Materials Management

Managerial Abilities: Planning Organising Controlling Leading

Outcomes: Products – goods

and services Profits and losses Employment Waste and

pollution

Contingency theory stresses the need for flexibility and adaptation of management practices and ideas to suit changing circumstances.

Both systems and contingency management theories are based on adapting management and organisational approaches to changing circumstances.

Strengths WeaknessesClassica

lScientifi

c

Based on scientific principles Work methods may be

improved through time and motion study

Results in increased productivity

Management may be trained Measurements may be

analysed to verify improvement in output

Individuals interests subordinated to the survival of the business

Planning, organising and controlling are the central management functions

Specialisation and division of labour

Clear, orderly lines of communication and authority

Emphasises the important

Boredom resulting from production line approach

Rigidity of autocratic leadership style

Lack of employee empowerment

Neglects the “human” and social needs of employees

Employees are motivated not only by material gain

Today’s better educated employees are less willing to accept formal authority

Sense of impersonality and alienation between managers and employees

Fails to acknowledge the informal organisational structures

Overlooks employees need for job satisfaction

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InputsTransformational Processes

Outputs


role of money as a motivator

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Behavioural

Acknowledges the importance of the human dimension of work

Integrates ideas from sociology, psychology and anthropology

Outlines the importance of human resource managers

Highlights the importance of communications, teamwork, group dynamics, motivation and leadership

Stresses the importance of conflict resolution mechanisms

Greater empowerment of employees due to flatter management structures

Participative or democratic leadership style acknowledged

By understanding basic psychology, managers are more able to prepare themselves for managing people

Complex theoretical concepts

Positive results may not always be immediate

Difficulty in accurately predicting human behaviour

Some degree of conflict between the various behavioural theories

No simple formulas can be designed to explain complex personal behaviour

What motivates one individual may lessen another’s motivation

Management practice which was previously successful may not continue to work over time

Many behavioural theories appear to abstract to apply to the “real” world

Vast amounts of research for managers to read, digest and apply

Political

Recognises the “power plays” within groups of people

Acknowledges that individuals will pursue their own interests

Explains the existence of hidden agendas

Points out the existence and importance of coalitions

Highlights the need for managers to adopt new skills in negotiating, bargaining and conflict resolution

Explains power bases Argues that all

stakeholders views need to be taken into account

Provides a mechanism for using power to achieve a wide range of stakeholder

Provides only a superficial explanation of organisational politics and power

Sources of real power are often difficult to locate and analyse

Relies on personal observation and perception rather than scientific measurements

Entrenched power positions are often overlooked

Managerial dominance and control over employees may become acceptable behaviour

Many view some of the strategies used as manipulative

Managers may become hypersensitive about the

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demands strengths of their coalitions which affect their performance

Does not attempt to change the power relationships, only explain them



Managing Change

Change is any alteration in the business and work environment. The external business environment comprises the factors and characteristics that are largely outside the direct control of owners, directors and managers. The internal business environment comprises the factors and characteristics that are within the direct control of owners, directors and managers. The main sources of change in a business are:

External Factors Internal Factors Changing nature of markets Economic Financial Geographic Social Legal Political Technological

Accelerating technology E-commerce New systems and procedures New business cultures

Structural change refers to changes in how the business is organised, that is, the organisational structure. Structural responses to change include:

Outsourcing – the contracting of some business operations to outside suppliers.

Flat structures – the increasing of spans of control. Strategic alliances – this is when two or more businesses join

together and pool their resources. Strategic networks – these exist solely to provide administrative

control of another business or set of businesses that perform all the functions needed to produces and sell the product.

Reasons for Resistance to Change:

Financial Costs Inertia Cultural Incompatibility in Mergers and

Takeovers

Staffing Considerations

New equipment

Redundancy payouts

Retraining workforce

Reorganising plant layout

Lack of interest

Refusal to cooperate by managers/owners

Possible “culture clash”

De-skilling Acquiring new

skills Loss of career

prospects or opportunities for promotion



Strategies for Reducing Resistance to Change include:

Identifying the need for change Setting achievable goals Creating a culture of change (including encouraging a teamwork

approach using change agents) Change models

o Force-field analysiso Lewin’s unfreeze-change-refreeze model

Change and Social Responsibility relates to: Ecological sustainability Quality of working life Technology Globalisation/managing cultural diversity E-commerce





HSC Topic 2: Financial Planning and Management

Content

Students learn to:

use existing business case studies to investigate and communicate ideas and issues related to financial planning and management. The focus of these case studies will be to:• interpret the published annual reports of one or more businesses• analyse the financial statements of one or more businesses (real or imaginary)• undertake comparative ratio analysis — over a period of time, with similar

businesses, against common standards.


the role of financial planning• strategic role of financial management• objectives of financial management — liquidity, profitability, efficiency, growth,

return on capital• the planning cycle — addressing present financial position, determining financial

elements of the business plan, developing budgets, cash flows, financial reports, interpretation, maintaining record systems, planning financial controls, minimising financial risks and losses

financial markets relevant to business financial needs• major participants in financial markets including banks, financial and insurance

companies, merchant banks, superannuation/mutual funds, companies, government (Reserve Bank of Australia)

• role of the Australian Stock Exchange as a primary market• overseas and domestic market influences and trends in financial markets and

their implications for business financial needs

management of funds• sources of funds

– internal — owners’ equity, retained profits – external — short-term borrowing, (overdraft, bank bills), long-term borrowing

(mortgage, debentures) leasing, factoring, venture capital, grants• financial considerations — matching the terms and source of finance to business

purpose and structure• comparison of debt and equity financing, including costs and benefits, risks,

gearing/leverage

using financial information• the accounting framework

– financial statements — revenue statement, balance sheet– the accounting equation and relationships



• types of financial ratios– liquidity — current ratio– solvency — gearing debt to equity– profitability — gross profit ratio, net profit ratio, return on owners’ equity– efficiency — expense ratio, accounts receivable turnover ratio

• comparative ratio analysis– over time, with similar businesses, against common standards

• limitations of financial reports– historical costs, value of intangibles

effective working capital (liquidity) management• the working capital ratio • control of current assets — cash, receivables, inventories• control of current liabilities — payables, loans, overdrafts• strategies for managing working capital — leasing, factoring, sale and lease back

effective financial planning• effective cash flow management

– cash flow statements– management strategies — distribution of payments, discounts for early

payments• effective profitability management

– cost control — fixed and variable, cost centres, expense minimisation– revenue controls — sales objectives, sales mix, pricing policy

ethical and legal aspects• audited accounts, inappropriate cut off periods, misuse of funds• Australian Securities and Investments Commission• corporate raiders and asset stripping.



The Role of Financial Planning

Financial management is the planning and monitoring of an organisations financial resources to enable the organisation to achieve its financial goals. It encompasses:

Liquidity – The extent to which a business can meet its financial commitments in the short term.

Profitability – The ability of an organisation to maximize its profits. Efficiency – The ability of a business to use its resources effectively

ensuring financial stability and profitability. Growth – The ability of the organisation to increase its size in the

longer term. Return on Capital – The amount of profit returned to owners or

shareholders as a percentage of their capital contribution.

The Planning Cycle Diagram:

The planning processes involve the setting of goals and objectives, determining the strategies to achieve those goals and


Addressing Present

Financial Position

Determining Financial

Elements of the Business Plan

Developing Budgets

Monitoring Cash Flows

Interpreting Financial

Reports

Maintaining Record Systems

Planning Financial Controls

Minimising Financial Risk

and Losses


objectives, identifying and evaluating alternative courses of action and choosing the best alternative for the organisation.



Financial Markets Relevant to Business Financial Needs

Financial markets are made up of the individuals, institutions and systems supplying excess funds to those who require them. The term “financial” relates to money, and “market” indicates trading activity.

Financial intermediaries receive money from those with excess funds and provide finance to those wishing to borrow money.

Exchange traded markets are those traded on an authorized exchange, such as the Australian Stock Exchange (ASX) and Sydney Futures Exchange (SFE).

Over-the-Counter (OTC)markets are not traded on an exchange, but transactions take place via telephone and other means of communication. The 4 Types of OTC Markets are:

o Cash and securities marketso Foreign exchange marketso Commodity marketso Derivatives markets

The main participants in the financial markets are:o Bankso Finance and insurance companieso Merchant or investment bankso Superannuation fundso Mutual fundso Public and private companieso Reserve Bank

Primary markets deal with new issue of debt instruments by the borrower of funds.

Secondary markets deal with the purchase and sale of existing securities.

Domestic Market Influences include:o Employment patternso Level of economic growtho Changes in interest rateso Changes in government policyo Changes in inflation rateo Competing demands for funds

Overseas Market Influences include:o Foreign government interventiono Foreign exchange rateso World eventso Accounting regulations affecting foreign marketso Tax regulations for foreign operatorso Political riskso Differences in interest rates between countries



Derivatives are financial instruments used to hedge against businesses that have to deal with uncertain prices of their own products or their purchases.

Management of Funds

Financial decision making requires relevant information to be identified, collected and analyzed to determine an appropriate course of action.

Internal finance is the funds provided by the owners of the business (capital) or from the outcomes of business activities (retained earnings).

Owners’ equity is the funds contributed by owners or partners to establish and build the business.

External Sources of Funding are:o Bank overdrafto Bank billso Trade credito Factoringo Mortgagingo Debentureso Leasing

Internal Sources of Funding are:o Owners’ personal fundso Retained earnings

External finance is the funds provided by sources outside the business, including banks, other financial institutions, government, suppliers or financial intermediaries.

Venture capital is funds supplied by private investors or specialist investment organisations, either to new business or to established businesses ready to grow or diversify.

Costs to be considered in using debt finance include:o Repayment of principalo Interest paymentso Timing of repaymentso Administrative and legal costs associated with borrowingo Conditions and terms of borrowingo Tax considerationso Maturity date of the loan as refinancing may be requiredo Level of control by the lender

Restrictive covenants set down what a borrower can or cannot do for the period of a loan.



Leverage, or gearing, is the proportion of debt (external finance) and the proportion of equity (internal finance) that is used to finance the activities of a business.

Considerations for a business’s gearing include:o Return on investmento Cost of debto Size and stability of the business’s earning capacityo Liquidity of the business’s assetso Purposes of short term debt

Using Financial Information

The accounting framework consists of raw data that is processed, stored and then summarized in a meaningful and accepted form.

Financial statements summarise the activities of an organisation over a period of time.

The revenue statement shows the operating results for a period. It shows the revenue earned and expenses incurred over the period with the resultant profit or loss.

A balance sheet represents an organisations assets and liabilities at a particular point in time, expressed in monetary terms, and represents the net worth of the business.

The accounting equation forms the basis of the accounting process, shows the relationship between assets, liabilities and owners’ equity. The accounting formulae are:

o Assets = Liabilities + Owners Equityo Owners’ Equity = Assets – Liabilitieso Liabilities = Assets – Owners Equity

The types of financial ratios can be defined by four categories, relating too:

o Liquidity – Current Ratio Liquidity is the extent to which the business can meet its

financial commitments in the short term.o Solvency – Debt to Equity

Solvency is the extent to which the business can meet its financial commitments in the longer term.

o Profitability – Gross and Net Profit Ratios, Return on Owners Equity

Profitability is the earning performance of the business and indicates its capacity to use its resources to maximize profits.

o Efficiency – Expense Ratio, Accounts Receivable Turnover Ratio

Efficiency is the ability of the firm to use its resources effectively in ensuring financial stability and profitability.







HSC Topic 3: Marketing

Content

Students learn to:

use existing business case studies to investigate and communicate ideas and issues related to marketing. The focus of these case studies will be to:• analyse and evaluate marketing strategies for a product or service• analyse the marketing plan of a business• construct a marketing plan for a single product/service (real or imaginary).


nature and role of markets and marketing• the role of marketing in the firm and in society• types of markets — resource, industrial, intermediate, consumer, mass, niche• production–selling–marketing orientation• the marketing concept — customer orientation, relationship marketing• marketing planning process

elements of a marketing plan• situational analysis including SWOT and product life cycle• establishing market objectives• identifying target market• developing marketing strategies• implementation, monitoring and controlling — developing a financial forecast,

comparing actual and planned results, and revising the marketing strategy

market research process• determining information needs, data collection (primary and secondary), data

analysis and interpretation

customer and buyer behaviour• types of customers — people, households, firms, educational institutions,

government, clubs and societies, religious organisations• the buying process — buyers and users• factors influencing customer choice — psychological, sociocultural, economic,

government

developing marketing strategies • market segmentation and product/service differentiation• product and service

– positioning– branding– packaging



• price including pricing methods — cost, market and competition-based– pricing strategies/tactics — skimming, penetration, loss leaders, price points– price and quality interaction

• promotion– elements of the promotion mix — personal selling, advertising, below-the-

line promotions, public relations– the communication process including opinion leaders and word of mouth

• place/distribution– distribution channels and reasons for intermediaries– channel choice including intensive, selective, exclusive– physical distribution issues including transport, warehousing, inventory

• environmental effects on distribution — technology, local government

ethical and legal aspects• environmentally responsible products• other issues including creation of needs, impacts of retail developments, sugging

(selling under the guise of research)• role of consumer laws in dealing with

– deceptive and misleading advertising– price discrimination– implied conditions– warranties– resale price maintenance.



Nature and Role of Markets and Marketing

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy the individual and organizational objectives.

A market is a group of individuals, organisations or both that: Need or want a product. Have the money (purchasing power) to purchase the product. Are willing to spend their money to obtain the product. Are socially and legally authorized to purchase the product.

The main types of markets are: The resource market consists of those individuals or groups that

are engaged in all forms of primary production, including mining, agriculture, forestry and fishing.

The industrial market includes industries and businesses that purchase products to use in the production of other products or in their daily operations.

An intermediate market consists of wholesalers and retailers who purchase finished products and resell them to make a profit.

Consumer markets consist of individuals – that is, members of a household who plan to use or consume the products they buy.

In mass markets, the seller mass-produces, mass-distributes and mass-promotes one product to all buyers.

A niche market, also known as a concentrated or micro-market, is created when the mass market is finely divided into smaller markets consisting of buyers who have specific needs or lifestyles.

The main approaches to marketing are: The production approach was used primarily between 1820 and

1910 and consisted of business mass-producing products. Marketing primarily consisted of taking orders and delivering the products.

The sales approach was used mainly between 1920 and 1960, and was based primarily on selling goods. Marketing consisted of advertising and personal selling.

The marketing approach has been used from 1960 onwards, and focuses on using a coordinated effort aimed at satisfying consumers’ needs. This is achieved through:

o An emphasis on marketing products.o Establishing and maintaining customer relationships.o Identifying consumer needs.o Producing products for customers’ demands.

Marketing concept is a business philosophy that states that all sections of the business are involved in satisfying a customer’s needs and wants while achieving the business’s goals. This is achieved through customer orientation, which occurs when a business bases its marketing decisions and practices on its customers wants.



Relationship marketing is the development of long-term and cost-effective relationships with individual customers.



Strategic marketing planning is the process of developing and implementing marketing strategies to achieve the marketing objectives. The elements of a marketing plan are:

1. Performing situational analysis , including SWOT and product life cycle analysis. A situational analysis investigates the marketing opportunities and potential problems.

2. Establishing market objectives . A marketing objective is a statement of what is to be achieved through the marketing activities.

3. Identifying target markets . The target market is the group of customers to which the business intends to sell its products.

4. Developing marketing strategies . Marketing strategies are plans that outline how a business will use its marketing objectives.

5. Implementing, monitoring and controlling . Marketing management is the process of monitoring and modifying the marketing plan.

The Four P’s of Marketing are:

1. Product – including brand name, packaging, positioning and warranties.

2. Price – including list price, discounts, credit terms and payment period.

3. Promotion – including advertising, sales promotion and publicity.4. Place – including location of markets, warehousing, distribution,

transport and inventory.

Marketing objectives are outlined in the marketing plan. The four main marketing objectives are:

Increasing Market Share – refers to the business’s share of the total industry sales for a particular market.

Expanding Product Range – this is measured through a company’s product mix, which is the total range of products offered by a business.

Expanding Existing Markets – a key measure of this is a business’s geographical representation, which refers to the presence of a business and the range of its products across a suburb, town, city state or country.

Maximising Customer Service – this relates to a business’s ability to meet the needs of the consumer. Customer service means responding to the needs and problems of the customer.

Market segmentation occurs when the total market is subdivided into groups of people who share one or more common characteristics. The four main variables used by marketing managers are:

1. Demographic – age, gender, ethnicity, income, occupation, education level, religion, family size and social class.

2. Geographic – urban, suburban, rural, region, climate and landform.3. Product-related – regular user, first-time user, brand loyalty, price

sensitivity and end use.4. Psychographic – personality, motives and lifestyle.



Developing a financial forecast requires two steps. They are:1. Cost Estimate – how much is the marketing plan expected to cost?

Costs of the marketing plan can be divided into four major components. These are:

Market research Product development Promotion – including advertising and packaging Distribution

2. Revenue Estimate – how much revenue is the marketing plan expected to generate? Forecasting revenue is based on two key questions. These are:

How much consumers are expected to buy and for what price? What sales staff predict they will sell?

Comparing actual and planned results can be analysed through:1. Sales analysis is the comparing of actual sales with forecast sales

to determine the effectiveness of the marketing strategy.2. Market share analysis3. Marketing profitability analysis is a method in which the

business breaks down the total marketing costs into specific marketing activities.

Changes in the marketing plan are necessary because all businesses operate in a dynamic environment, and the marketing mix constantly needs to be updated and modified. Ways through which this can be achieved include:

Product modifications Price modifications Promotion modifications Place modifications The development of new products Product deletion



Market Research Process

Market research is the process of systematically collecting, recording and analysing information covering a specific marketing problem. Information is useful if it:

Results in marketing strategies that met the needs of the business’s target market.

Assists business to achieve its marketing objectives. May be used to increase sales and profits.

Marketing data refers to the information, relevant to the defined marketing problem. Marketing data is either:

Primary data is the facts and figures collected from original sources for the specific research of the problem. The three main methods used to gather primary data are:

1. Survey2. Observation3. Experimentation

Secondary data is information that has been collected by some other person or organisation. There are two types of secondary data. These are:

1. Internal data refers to information that has already been collected from inside the business.

2. External data refers to published data from outside the business.

Statistical interpretation analysis is the process of focusing on the data that represents average, typical or deviations from typical patterns.



Customer and Buyer Behaviour

Buyer behaviour, which is the decisions and actions involved in buying and using products. This is used to classify consumers into four categories. These categories are:

1. Individual and household customerso People (personal) – personal spending refers to consumer

purchases by individuals.o Families/households – household spending refers to the

combined purchases of the individuals living together.2. Organisation customers

o Businesses – the business market consists of all those businesses that purchase goods and services for further processing or for use in their production process.

3. Institutional customerso Religious organisationso Clubs and societieso Educational establishments

4. Government customers – tendering is a process whereby firms submit quotes to supply a good or service. The lowest bid that meets the specification is usually accepted.

o Federalo Stateo Local

The buying process is the series of common steps, as outlined below. The steps involved in this process are:

1. Recognise problemo Need or want requiring satisfaction.

2. Search for informationo Brand nameso Product characteristicso Warrantyo Serviceo Price

3. Evaluate alternativeso Various alternatives discoveredo Cost benefit analysis

4. Purchaseo Particular choice madeo Product bought

5. Evaluate after purchaseo Weighing up the suitability of the productso Satisfaction gainedo Dissatisfaction may occur

A buyer is the individual or group who purchases the product. A user is the individual or group who actually uses the product being purchased.



Psychological factors are influences within an individual that affect his or her buying behaviour. They are categorized into:

o Perception – the process through which people select, organise and interpret information to create meaning.

o Motives – the reason that makes an individual do something.o Attitudes – an attitude is a person’s overall feeling about an object

or activity. o Personality – an individual’s personality is the collection of all the

behaviors and characteristics that make up that person.

Sociocultural influences are forces exerted by other people and groups that have affect an individual’s buying behaviour. These are categorized into:

o Family and roleso Peer groupo Social classo Culture and subculture

Economic factors are the last key force exerted on a consumer. They can be classified into:

o Boomo Contractiono Recessiono Expansion




Government

Economic

Sociocultural

Psychological

FACTORS INFLUENCING CONSUMER CHOICE


Developing Marketing Strategies

A business controls four basic marketing strategies to reach its target market. These four strategies or tools of marketing are:

1. Product – anything that satisfies a need for want and can be offered in exchange. Product is made up of:

o Qualityo Styleo Positioningo Brandingo Packagingo Warranty

2. Price – the value placed on what is exchanged. Price is made up of:o Cost priceo Market priceo Competition-based priceo Price skimmingo Price penetrationo Loss leadero Price ling and price pointo Price and quality interaction

3. Promotion – activities used to communicate to a target market persuasive, positive information about a business and its products. Promotion is made up of:

o Personal sellingo Advertisingo Below-the-line promotionso Public relations and publicityo Opinion leaderso Word of mouth

4. Place – methods used to get the products to the customer. Place is made up of:

o Channelso Intermediarieso Intensive coverageo Selective coverageo Exclusive coverageo Transporto Warehousingo Inventory

The primary target market is the market segment at which most of the marketing resources are directed. A secondary target market is usually a smaller and less important market segment. For example, customer research conducted by “Sportsgirl” revealed a primary target market of 18-25 year old females and a secondary target market of 26-40 year old females.



Mass market or a total marketing approach seeks a large range of customers. Products that can be marketed using the mass marketing approach include basic food items, water, gas and electricity. A concentrated market approach requires the business to direct its marketing mix towards one selected segment of the total market.

POSITIONING A product is a good or service, an idea or any combination of the

three that can be offered in an exchange. Product differentiation, in its broadest sense, is the process of

developing and promoting differences between the business’s products and those if its competitors.

Product positioning refers to the development of a product image as compared with the image of competing products.

BRANDING A brand is a name, term, symbol, design or any combination of

these that identifies a specific product and distinguishes it from its competition.

A brand name is that part of the brand that can be spoken. A brand symbol or logo is a graphic representation that identifies

a business or product. Manufacturer’s or national brands are those owned by a

manufacturer. A private or house brand is one that is owned by a retailer or

wholesaler. Generic brands are products with no brand name at all. A trademark signifies the brand name or symbol is registered and

the business has exclusive right of use. Packaging involves the development of the container and the

graphic design for a product.

PACKAGING Packaging is the development of a container and the graphic design

of the product.

Price refers to the amount of money a customer is prepared to offer in exchange for a product. Pricing strategies include:

Price skimming – involves charging the highest price possible for innovative products.

Price penetration – occurs when a business charges the lowest price possible for a product or service so as to achieve a large market share.

Loss leader – involves deliberately selling a product below its cost price to attract customers.

Price lining – is used mainly by retailers where a limited number or prices, or price points, are set for selected lines or groups of merchandise.

Prestige pricing – is used where a high price is charged to give the product an aura of quality and status.



Promotion describes the methods used by a business to inform, persuade and remind a target market about its products. The promotion mix is the various methods a business uses in its promotional campaign. Methods include:

Personal selling – involves the activities of a sales representative directed to a customer in an attempt to make a sale.

Advertising – is a paid, non-personal message communicated through a mass medium. Advertising media refers to the many forms of communication used to reach an audience.

Below-the-line promotions – are promotional activities for which the business does not make use of an advertising agency.

Publicity and public relations – publicity is any free news story about a business’s products. Public relations are those activities aimed at creating and maintaining favorable relations between a business and its customers.

Word of mouth communication occurs when people influence each other during conversations.

A channel is any method used for carrying a message. Noise is any interference or distraction that affects and or all stages in the communication process. An opinion leader is a person who influences others.

Place or distribution are the methods through which a business distributes in products. Channels or distribution or marketing channels are the routes taken to get the product from the factory to the customer. The four most commonly used channels of distribution are:

1. Producer to customer.2. Producer to retailer to customer.3. Producer to wholesaler to retailer to customer.4. Producer to agent to wholesaler to retailer to customer.

Market coverage refers to the number of outlets a firm chooses for its product. This is relative to a business’s intensity of coverage. The three different intensities are:

1. Intensive distribution – this occurs when the business wishes to saturate the market with its product.

2. Selective distribution – this involves using only a moderate proportion of all possible outlets.

3. Exclusive distribution – this is the use of only one retail outlet for a product in a large geographic area.

Physical distribution is all those activities concerned with the efficient movement of the products from the producer to the customer. They are categorized into:

Transport – the physical movement of products from producer to the retailer or customer.

Warehousing – the set of activities involved in receiving, storing and dispatching goods.



Inventory control – a system that maintains quantities and varieties of products appropriate for the target market.



Ethical and Legal Aspects

Green marketing refers to the development, pricing, promotion and distribution of products that either do not harm or have minimal impact upon the environment.

Materialism is an individual’s desire to constantly acquire possessions.

Sugging, or selling under the guise of a survey, is a sales technique disguised as market research.

Monopolistic power occurs when only one business operates in a market and, therefore, controls prices in that market.

Methods used by companies to mislead consumers include: Fine print Before and after advertisements Unsubstantiated tests and surveys Country of origin Packaging Special offer Bait and switch advertising

Price discrimination is the setting of different prices for a product in separate market.

Implied conditions or terms are the unspoken and unwritten terms of a contract. They are categorized as:

Merchantable quality means that the product is of a standard a reasonable person would expect for the price.

Fitness of purpose means that the product is suitable for the purpose for which it is being sold. That is, it will perform as the instructions or advertisement implies.

A warranty is a promise by the business to repair or replace faulty products. Resale price maintenance occurs when the manufacturer or supplier insists that a retailer sell the product at a certain price.





HSC Topic 4: Employment Relations

Content

Students learn to:

use existing business case studies to investigate and communicate ideas and issues related to employment relations. The focus of these case studies will be to:• analyse how conflict and change are managed in a business• prepare and justify possible ways of resolving conflicts in the selected business

organisations.


the nature of employment relations• stakeholders in the employment relations process — employers, employees,

employer associations, unions, government organisations• managing the employment relations function

– line management and specialist

key influences on employment relations• social influences — changing work patterns, population shifts• legal influences — overview of major employment legislation• new organisational behavioural influences — flat management and team

structures• economic influences — economic cycle, globalisation

effective employment relations• role of employment relations • communications systems — grievance procedures, worker participation, team

briefings • rewards — financial, non-financial• training and development — induction• flexible working conditions — family-friendly programs• measures of effectiveness — levels of staff turnover, absenteeism, disputation,

quality, benchmarking

legal framework of employment• the employment contract — common law (rights and obligations of employers

and employees), statutes, awards, agreements• types of employment contract — casual/part-time/flexible, permanent, casual

industrial conflict• definition and causes — wage demands, working conditions, management

policy, political goals and social issues• perspectives on conflict — unitary, pluralist, radical• types of industrial action



– overt — lockouts, pickets, strikes, bans, work-to-rule– covert — absenteeism, sabotage, turnover, exclusion from decision-making

in business• roles of stakeholders in resolving disputes• dispute resolution processes — conciliation, arbitration, grievance procedures,

negotiation, mediation, common law action, business/division closure• costs and benefits of industrial conflict

– financial, personal, social, political, international

ethical and legal aspects• issues in the workplace

– working conditions– Occupational Health and Safety (OH&S)– workers’ compensation — state and/or federal agencies and common law

redress– anti-discrimination– Equal Employment Opportunities (EEO)– unfair dismissal.



Nature of Employment Relations

Employment relations refers to the total relationship between an employer and employee. An employer, for legal purposes:

Exercises control over employees Has responsibility for payment of wages Holds the power to dismiss employees

An employee is a worker under an employer’s control. Control, may involve:

The location of the workplace The way in which the work is performed The degree of supervision involved.

The criteria are critical in determining legal dispute over the employment contract.

The key stakeholders in the employment relations process (and their aims) are:

Governmentso Workplace reform and higher productivityo International competitivenesso Compliance with legislationo Higher living standards and employment

Employees – Trade Unions may represent employeeso Better wageso Better working conditionso Meaningful jobso Job securityo Participation in decisions

Employers – Employer Associations may represent employerso Increase profito Increase flexibilityo Minimise costs, be competitiveo Expand businesso Develop new productso Maximise customer service

A line manager is responsible for the management of staff contributing to the prime function of the business, for example, a production manager, service manager or sales manager. A specialist employment relations manager is more commonly involved in:

Recruitment and selection Induction and training Separation Managing the implementation of equal employment opportunity and

affirmative action legislation



Key Influences on Employment Relations

The key influences on employment relations can be categorised into four main categories:

Social Influenceso Changing Work Patterns

Casualisation of the work force Flexible working hours Rapid growth of outsourcing

o Population Shifts Increase in the female participation rate

Legal Influenceso Overview of Major Employment Legislation

Equal employment opportunity Anti-discrimination

New Organisation Behavioural Influenceso Flatter management structureso Team Structures and Coalitions

Economic Influenceso Economic Cycleso Globalisation



Effective Employment Relations

Effective employment relations systems involve a proactive, strategic approach to implementing a strategic plan developed with employees. The key principles of effective employment relations are:

Appropriate reward systems Performance measurement systems Common purpose including a focus on quality and customer service Commitment to change supported from management Human resources planning based on needs analysis linked to

recruitment and selection, training, rewards, motivation and separation strategies

Legal complianceo Equal Employment Opportunityo Occupational Health and Safetyo Industrial Relations Legislation

Culture based on trust promotes collaboration and participation, values the worth of each employee

Commitment to ongoing training and development Flexible, family friendly working conditions Non-discriminatory environment

The success of an employment relations system depends heavily on the strength of an organisations communications system. This system includes:

Grievance procedures – grievance procedures are formal procedures that an employer and employees have agreed to use to deal with issues or conflict in the workplace. This is a two way process, due to:

o Employees needing avenues to communicate problems and air conflicts

o Employers needing a system to reprimand staff for unsatisfactory work or conduct

Worker participationo Joint consultative committees

Team Briefingso Quality circleso Semi-autonomous/self-managing work teams

An effective rewards management system should attract, retain and motivate employees. Rewards can be classified as:

Intrinsic Extrinsic

Intrinsic rewards are those that the individual derives from the task or job itself, such as a sense of achievement. Extrinsic rewards are those given or provided outside the job itself. They may be monetary, for example, incentive payments, or non-monetary, for example, work schedules.



Intrinsic ExtrinsicJob Environment Direct Indirect

Interesting work

Challenge Responsibility Recognition Promotion Autonomy in

job Sense of

achievement

Good policies and practices

Effective leadership and/or supervision

Good relationships with co-workers

Safe and healthy work environment

Fair treatment Club

membership Social

activities Recognition

Wages Salary Commission

s Bonus plan Share plan Pay increase Gainsharing

Insurance Holidays Child care Medical care Employee

assistance Flexible work

schedules Free legal

advice Personal loans

at cheap rates Moving

expenses Training

expenses Time off Company car Parking space Discount

purchases

Training and development is designed to introduce new employees to the job, their cow-workers, the organisation and its culture. This is achieved through induction programs.

Flexible working conditions allow workers to balance work and family responsibilities more effectively. The main strategies to achieve flexible working conditions include:

Flexible Working Hours Job Sharing Part-time work

Family friendly programs can be classified into 6 main categories. These are:

Workplace Participation and Trainingo Increased multi-skilling to allow staff to “fill-in” for others.o Staff meetings to discuss work-life issues.

Othero Flexible salary packages.o Support on parental leave.o Work-family information.o Relocation policies, such as school matching services.o Family days.o Work experience for children.

Leave



o Maternity leave.o Paternity leave.o Family leave.

Child Careo Employer-supported venture.o Joint venture.o Reserved child care place.o Vacation care programs.o Sick children arrangements.o Advice/referral service.

Family Supporto Arrangement to check children.o Phone policy.o Employee assistance.o Seminarso Respite care for elderly and disabled.o Supporting community service.

Flexible Working Arrangementso Part-time work.o Variable full-time/part-time work.o Career breaks.o Job sharing.o Flexible hours.o Work from home.

The measures of effectiveness of a business’s employment relations policies can be explored through:

Levels of staff turnover – whether they are increasing, decreasing or steady.

Absenteeism – the average number of days missed by employees, either as a whole or done by average.

Disputation – the number of grievance procedures used in a given time-frame.

Benchmarking – comparing a business’s result with those of industry leaders.



Legal Framework of Employment

An employment contract is a legally binding, formal agreement between employer and employee.

The responsibilities of the employer include: Providing work Payment of income and expenses Meeting requirements of industrial relations legislation

o Anti-Discriminationo Equal Employment Opportunity

Duty of careo Occupational Health and Safety

The responsibilities of the employee include: Obey lawful and reasonable commands made by the employer Use care and skill in the performance of their work activities Act in good faith and in the interest of the employer

Key Statutes include: Racial Discrimination Act Trade Practices Act Workplace Relations Act Industrial Relations Act

Awards are legally binding documents, setting out minimum wages and conditions of employees in an industry or occupation, made by the Australian Industrial Relations Commission (AIRC). Awards are used as a benchmark for comparison with other agreements in a test of minimum wages and conditions.

Casual employees are in employment that is short term, irregular and uncertain, they are not entitled to paid holiday or sick leave.



Industrial Conflict

Conflict refers to disputes, disagreements or dissatisfaction between individual stakeholders, due to a different in views on certain business policies. The key causes of industrial conflict are:

Wage demands Working conditions Political goals and social conditions Management policy

The 3 Main Perspectives on Conflict are: Unitary – this approach assumes stakeholders, such as employees

and their employers, work “hand in hand” to achieve shared goals. Pluralist – this approach recognises the active roles played by

unions and employer associations and the framework developed by the government.

Radical – this approach views conflict as inevitable, and reflects the traditional view of an “us versus them”, conflict based relationship between employer and employees.

Industrial actions can be classified into two main types, over and covert. The main manifestations of these types of conflict are:

Overt CovertEmployee Management Employee Management

Pickets Strikes Stop-work

meetings Work bans Boycotts Work-to-rule

Lockouts Stand-downs Dismissals Retrenchment

s

Absenteeism High labour

turnover rates Higher defect

rates Reduced

productivity Lack of

cooperation

Discrimination Harassment Lack of

cooperation Exclusion

from decision making

The main roles of the key stakeholders in resolving disputes are: Employers and Managers – use grievance procedures and

negotiate agreements with employees to resolve disputes. Line managers are playing a much greater role today in resolving disputes.

Employees – use grievance procedures and negotiate agreements with employees, with or without unions, on a collective or individual basis.

Trade Unions – represent employees in disputes from the shop floor to the national level, negotiate with management, employers and associations, as well as representing employees in tribunals.

Anti-Discrimination Boards – work closely with the Human Rights and Equal Opportunity Commission to ensure that disputes about discrimination on the basis of age, colour, sex, disability, criminal record, political opinion, race or religion in the workplace are



resolved through provision of information, investigation and conciliation. Can refer cases to Administrative Review Tribunal for determination.

Civil Courts – Federal Court, State Supreme Courts. Enforce legislation and handle common law actions.

Industrial Tribunals (AIRC) – interpret legislation. Make and supervise awards and agreements. Provide conciliation and arbitration for the resolution of disputes and unfair dismissal claims.

Human Right Commission – monitors and reviews how legislation relating to human rights is implemented. It can investigate and conciliate complaints about discrimination in employment opportunities or a person’s treatment in the workplace. Refers complaints of sex discrimination in awards and agreements for determination to the Federal Court.

Governments – provide the institutions, policy and legislative framework for the resolution of conflict. Investigate breaches of legislation.

Employer Associations – provide information and support to employers, assist in negotiations with unions, and represent employers in tribunals.

The dispute resolution process is:1. Grievance procedures2. Negotiation3. Conciliation – decision is NOT binding4. Arbitration – decision is binding5. Mediation6. Common law action7. Business/Division closure

Benefits and Costs of Industrial ConflictBenefits Costs

Financial

Increase empowerment of all parties who “own an agreement”

Empowerment can lead to increased productivity, fewer disputes and reduced absenteeism and labour turnover

Cost-cutting measures can lead to conflict but can ensure a firm’s survival and competitiveness in the long term

Lost production and sales adversely affect a firm’s income and levels of debt, and reputation may be damaged

Some firms may close of relocate

Other businesses dependent on firms in dispute can be affected

Families can suffer significant loss of wages

Legal representation and fines imposed can be a financial burden on firms

Personal Conflict helps workers to gain management’s attention on major issues

Stress can be created through intensification of work and changes due to



that may have caused dissatisfaction and stress for a long time

Better work relationships may result from a clearer understanding of work problems

Greater employee involvement and motivation may result from negotiated changes and improvements in training

restructuring of the workplace

Rumours or threats of downsizing cause fear, insecurity and lowering of staff morale

Absenteeism, accidents and defect rates can increase

Working relationships may suffer as a result of conflict or methods used to resolve it

Social

Jobs can be saved in some cases

Employee and community welfare can be enhanced by changed work practices

Introduction of multiskilling, new training opportunities and career paths benefit individuals and society

Occupational health and safety problems may be reduced

Community bitterness can be directed at unions, employees or employers in industries where disputes affect the general public

Verbal and physical abuse can occur

Demonstrations can disrupt communities, and violence and injuries may occur in extreme cases

Political

Governments can change their policies in response to workplace conflict

Disputes draw public attention to the need to protect worker entitlements

Particular industries may be restructured to improve the economy

Frequent and disruptive conflict has an impact on government or opposition policies, particularly at election times

Bitterness between unions and government can lead to political conflict and large scale civil unrest

Loss of national income in extended disputes can affect economic growth

International

Changes to work practices following conflict can improve a business’s international competitiveness. This may present opportunities for international expansion

Loss of export income and markets can occur after periods of disruption

The nation’s reputation for stability can be lost and overseas customer or investors may turn elsewhere





Ethical and Legal Aspects

Ethical business practices are those practices that are socially responsible, morally right and honorable and fair.

An ethical employer can achieve safe and fair working conditions through:

Compliance with social justice and industrial legislation Providing a safe and healthy working environment Creating challenging, interesting and meaningful work Improving communication and fostering teamwork Implementing change through collaboration with staff Offering flexible working hours and conditions

The key legal aspect of employment relations are: Occupational Health and Safety Equal Employment Opportunities

Workers compensation provides a range of benefits to an employee suffering from an injury or disease relating to their work. It is also provided to families of injured employees when the injury/disease was caused by, or related to, their work.



HSC Topic 5: Global Business

Content

Students learn to:

use existing business case studies to investigate and communicate ideas and issues related to global business. The focus of these case studies will be to:• select a global business and identify its international targets• describe and analyse the reasons for its international expansion• explain the influences on this business in the global market• explain the strategies used by the business to achieve its targets.


globalisation• nature and trends — growth of the global economy and changes in markets

(financial/capital, labour, consumer)• trends in global trade since World War II• drivers of globalisation

– role of transnational corporations– global consumers– impact of technology– role of government– deregulation of financial markets

• interaction between global business and Australian domestic business

global business strategy• methods of international expansion

– export– foreign direct investment– relocation of production– management contract– licensing/franchises

• reasons for expansion– increase sales/find new markets– acquire resources and have access to technology– diversification– minimise competitive risk– economies of scale– cushioning economic cycle– regulatory differences– tax minimisation

specific influences on global business• financial



– currency fluctuations– interest rates– overseas borrowing

• political– tensions between protectionism and free trade– international organisations and treaties (World Trade Organisation)– trade agreements– regionalism– war and civil unrest

• legal– contracts– dispute resolution– intellectual property

• social/cultural– languages– tastes– religion– varying business practices and ethics

managing global business• financial

– methods of payment– credit risks– hedging– derivatives– insurance– obtaining finance

• marketing– research of market– global branding– standardisation and differentiation

• operations– sourcing (vertical integration, make or buy)– global web (components produced in different countries)

• employment relations– organisational structure– staffing– shortage of skilled labour– labour law variations– minimum standards of labour– ethnocentric/polycentric/geocentric staffing system

• evaluation — strategies with reference to a particular global market• modifications of strategies according to changes in global market

management responsibility in a global environment



• ethical practice — tax havens and transfer pricing– minimum standards of labour– dumping illegal products– ecological sustainability.



Globalisation

The global economy is the world economy and refers to the economic activity going on in the world. It includes the flow of all trade, finance, technology, labour and investment. Consequently, it is the total economic activity within and between countries.

Globalisation is the movement across nations of trade, investment, technology, finance and labour.

Some of the global influences on the Australian business environment are: Increasing globalisation and a changing international business

environment. Changes in protection policies. An increasing trend by Australian businesses towards the

establishment of overseas operations.

The globalisation of markets (finance/capital, labour and consumers) refers to the combining of one separate and distinct national markets into one huge marketplace. Globalisation of production refers to the practice of many businesses to purchase their inputs from around the globe as well as the tendency to manufacture components in low cost locations.

As globalisation continues, flows of finance, labour and consumer products between countries will increase as these markets undergo structural change.

Merchandise exports are domestically made products sold to customers in another country.

The Drivers of Globalisation can be classified as: Deregulation of financial markets

o Foreign Direct Investment (FDI) Role of transnational corporations Impact of technology Global consumers Role of government

o Free Trade Agreements

A transnational corporation (TNC) is any business that has productive activities in two or more countries and that operates on a worldwide scale.

Foreign Direct Investment (FDI) is investment made for the purpose of actively controlling companies, assets or property outside a business’s home country.

Australian businesses have three specific advantages during the transition towards a truly global economy. These are:



1. Many of the TNC’s that operate in Australia have done so since the 1960’s and, therefore, networks and relationships are well established.

2. The multicultural make-up of the Australian workplace provides personnel with language skills and people who understand and appreciate cultural differences.

3. Governments and numerous consultants provide advice, financial assistance and contacts to encourage export-oriented businesses.

Global Business Strategy

Exporting occurs when a business manufactures its products in its home country and then sells them in foreign markets.

The 3 Different Types of Exporting are:1. Indirect exporting is the most basic level. A business sells its

products to a domestic customer who then exports the product.2. Direct exporting happens when the exporting business sells its

products to an agent, intermediary or final consumer in another country.

3. Intracorporate exporting is the selling of a product by a firm in one country to a subsidiary firm in another.

The 3 Methods of Foreign Direct Investment are:1. The greenfield strategy involves commencing a new business

venture from scratch.2. The acquisition strategy occurs when one business acquires,

through a takeover or merger, an existing business already operating in a foreign country.

3. A joint venture means two or more businesses agree to work together and form a jointly owned but separate business.

The Advantages of Foreign Direct Investment are: It provides the parent business with direct control over the

foreign facilities. As the products are being produced in the overseas country there

is a subsequent reduction in transport costs. Transfer of technology, people, products and intellectual property

becomes easier. The parent business is in a better position to be able to monitor

and adapt to changes in the foreign country’s business environment.

The Disadvantages of Foreign Direct Investment are: Increased financial risk is likely, especially when investing in a

business that is located in a politically unstable country. The parent business is exposed to economic uncertainties of the

foreign country. Adverse currency fluctuations may wipe out cost efficiencies.



Legal, social, cultural and language barriers may create problems.

Joint venture profits must be shared between all the parties involved.

Relocation of production occurs when the domestic production facility is closed down and then set up in a foreign country. The main advantages of this strategy include:

Moving to a low-cost labour country should help decrease costs of production.

Decreased productions costs may result in increased profits. More modern, up-to-date facilities can be constructed, adding to

other cost efficiencies. Some governments provide financial assistance to cover

relocation costs.

The Disadvantages of Relocation of Production are: The parent business may be faced with social, cultural and

language barriers in the overseas country. The possibility of a consumer backlash if exploitative work

practices are used. The business needs to recruit a local workforce and train it to

meet its standards. This could be time consuming and expensive. The business may be perceived as foreign and no longer a local

business, which may result in some consumers being reluctant to purchase the products.

The management contract is an arrangement under which a global business provides managerial assistance and technical expertise to a second host business for a fee. The advantages of this include:

The global partner has greater control over production standards in a joint venture operation.

The fees paid by the subsidiary are a business expense, and are therefore a tax deduction.

The global business is able to earn extra revenue.

The Disadvantages of Management Contracts include: The host business does not gain any managerial training. The global business may face political pressures from the host

business’s government, especially with regard to foreign exchange restrictions.

Licensing is an agreement in which one business (licensor) permits another (licensee) to produce and market its product. In comparison, franchising is a specialized form of licensing in which the franchisor grants the franchisee the right to use a company’s trademark and distribute its product. The main advantages of licensing and franchising are:

There is little financial risk for the licensor/franchisor. It is a useful option for forms lacking the capital to develop an

overseas operation.



The licensor/franchisor is able to develop a global presence relatively quickly.

The Disadvantages of Licensing/Franchising include: It is difficult to maintain quality control over a wide range of

locations. International franchising is more complex than domestic

franchising, often requiring the need for extensive legal advice. The profits are shared between the two parties.

The reasons for global business expansion include: Increasing sales and finding new markets. Acquiring resources and technology. Diversification. Fewer government regulations. Minimise the risk of competition. Exploiting economies of scale. Cushioning economic cycles. Tax minimization.

Diversification is process of spreading the risks encountered by a business. Diversification can occur at a number of different levels. These include:

Geographic diversification – operating in foreign locations. Product diversification – expansion of product lines. Supplier diversification – counteract price increases.

Economies of scale refers to the reduction in costs of production that arise from increasing the size or scale of the production facility and spreading overhead (fixed) costs over a larger output.

A tax holiday occurs when no tax is paid for a certain period of time. A tax haven is a country that imposes little or no taxes on business income.



Specific Influences on Global Business

A business that operates globally has to deal with a more complex set of factors compared to a business that operates only in a domestic market, including:

Difficulty of assessment. Different value systems. Decision making is more complex. Cultural differences.

Financial Influences include: Currency Fluctuations

o Exchange rates Interest Rates Overseas Borrowing – The two main sources of international finance

are:o International Equity (Share) Marketo International Bond Market

Political Influences include: Tension between protectionism and free trade International Organisations and Treaties – the main organisations

are:o World Bank – (WB)o International Monetary Fund – (IMF)o Bank for International Settlement – (BIS)o World Trade Organisation – (WTO)

Trade Agreements – the main trading agreements are:o North American Free Trade Agreement – (NAFTA)o Association of South-East Asian Nations – (ASEAN)o Asia-Pacific Economic Cooperation – (APEC)

Regionalism – the main trading bloc is:o European Union – (EU)

War and Civil Unrest

Legal Influences include: Contracts Dispute Resolutions – including:

o Which country’s legal system applies?o In which country should the dispute be settled?o How will the final decision be enforced?

Intellectual Property – treaties protecting intellectual property rights include:

o International Convention for the Protection of Industrial Property.

o Berne Convention for the Protection of Literary and Artistic Works.

o Universal Copyright Convention.



Social and Cultural Influences include: Languages Tastes Religion Varying Business Practices and Ethics



Managing Global Business

The 5 basic methods of payment a business can select are:1. Payment in Advance – this method allows the exporter to receive

payment and then arrange for the goods to be sent.2. Letter of Credit – this is a commitment by the importers bank,

which promises to pay the exporter a specified amount when the documents proving shipment of the goods are presented.

3. Clean Payment – occurs when the payment is sent to, but not received by, the exporter before the goods are transported.

4. Bill of Exchange – this is a document drawn up by the exporter demanding payment from the importer at a specified time. The two types of bill of exchange are:

Document Against Payment – using this method, the importer can collect the goods ONLY after paying for them.

Document Against Acceptance – using this method, the importer may collect the goods BEFORE paying for them.

5. Open Credit – this allows the importer access to the goods with a promise to repay at a later date.

Hedging is the process of minimizing the risk of currency fluctuations. Hedging helps to reduce the level of uncertainty involved with international financial transactions.

Derivatives can be divided into three main types for exporters. These are: Forward Exchange Contract – this is a contract to exchange one

currency for another currency at an agreed exchange rate on a future date, usually after a period of 30, 90 or 180 days.

Options Contract – this gives the buyer the right, but not the obligation, to buy or sell foreign currency at some time in the future.

Currency Swap – this is an agreement to exchange currency in the spot market with an agreement to reverse the transaction in the future.

The main types of Insurance available to businesses are: Marine insurance – covering shipment by road, rail and air as well as

sea. Product liability insurance – protecting the manufacturer and

exporter from liability due to damage caused by the use of a product.

Currency risk insurance – protecting the exporter from losses due to currency fluctuations.

Finance can be obtained through: Domestic Capital Markets International Capital Markets Eurocurrency Markets

Marketing involves: Research of Market



Global Branding – this is the worldwide use of a name, term, symbol or logo to identify products of one seller and differentiate them from those of the competitor.

Standardisation and Differentiation – these can be defined as:o A standardized approach is an international marketing

strategy the assumes the way the product is used and the needs it satisfies are the same all over the world.

o A differentiated approach is an international marketing strategy that assumes the way the product is used and the needs it satisfies are different between countries.

Operations involves: Sourcing – the acquisition of a business’s products and materials.

This can be simply defined as “make or buy”. Global Web – this is a network of production sites located around the

world, each specializing in the part of the production process it can most efficiently perform.

Employment Relations involves: Organisation Structure Staffing Shortage of Skilled Labour Labour Law Variations Minimum Standards of Labour Staffing Systems – as defined below.

An ethnocentric approach to staffing is one in which all key management positions at all company locations are filled by parent company personnel

A polycentric approach to staffing is one in which personnel from the host country manage the subsidiaries, while the parent company personnel fill the key roles at company headquarters.

A geocentric approach to staffing means seeking the best people for key jobs throughout the entire organisation, irrespective of nationality.



Management Responsibility in a Global Environment

Tax Havens can be classified into three different types. These are: Tax Paradise

o No relevant company income tax.o Examples include Cayman Islands, Bahamas, Bermuda and

Vanuatu. Tax Shelter

o Tax may be levied on some internal transactions.o Low rates on tax on profits from internal sources.o Examples include Hong King, Panama and Liberia.

Tax Privilegeo To tax for some types of business.o Examples include Channel Islands, Liechtenstein, Luxembourg,

Isle of Man and Monaco.

Transfer Pricing refers to the prices one subsidiary of a company charges a second subsidiary for goods and services.

Labour standards refer to the conditions that affect a business’s employees, or those of its suppliers, subcontractors or others in the production chain.

Two other key environmental factors facing global businesses are: Ecological Sustainability Dumping Illegal Products

Arguments for and Against Corporate Social and Ethical Responsibility include:

For Against

A better society means a better environment for doing business. By adopting a philosophy of enlightened self-interest, a business can turn today’s problems into future profits.

A business is essentially an economic organisation which, therefore, lacks the ability to pursue social goals. Economic inefficiencies could result if managers are forced to undertake an extra role.

Businesses are unavoidably involved in social issues. Therefore, they have certain social rights and responsibilities.

Maximising profits ensures that society’s resources are sued efficiently. Providing the best quality products at the lowest price should be the goal of all businesses because this benefits society.

Businesses have the resources to help solve complex social problems. With their base financial, technical and human

Business managers are appointed, not elected. Therefore they are not accountable to society.



resources businesses can play a positive role.

Corporate social action will prevent government regulation. It is better to self-regulate than have governments force companies to comply with certain standards.


Complete Notes

Documents

business management

business financial needs

nature of management

nature of employment

business studiesstage

effective employment

study notes hsc topic

global business strategy