GCSE Business unit 1 for businesss.pptx

BUsiness Management basics

1. Business – (Investigating Small Business) By – Mr. Neeraj Gupta

2. 1 – Business activity and Influences on Business 1.1 Business aims and objectives Business aims and objectives when starting up: financial aims and objectives: survival, profit, sales, market share, financial security non-financial aims and objectives: social objectives, personal satisfaction, challenge, independence and control. Why aims and objectives differ between businesses.

3. Business Aims and Objectives Aims are the broad targets that an entrepreneur has at the back of their mind (for example, ‘to get rich’). These may or may not be talked about within the business, but eventually staff will come to understand them. From aims come objectives . Aims are general but objectives are specific.

4. Business Aims and Objectives Businesspeople like to use the term SMART objectives . In other words objectives should be: S pecific M easurable A chievable R ealistic T ime-bound (that is, they have a precise timescale).

5. Topic 1.1.1 Why aims and objectives differ between businesses? Aims and objectives differ because business owners differ. Some have their sights set on money; others have a business idea first and see money as a secondary factor. People starting a new enterprise usually have one of three objectives: 1 A financial objective, such as to be rich. 2 A business objective, such as James Dyson in setting up his own bag-less vacuum cleaner business – he was determined to prove that his idea would work. 3 A social objective, such as starting a charity aimed at improving water quality in African villages.

6. Financial Aims and Objectives When starting up, most entrepreneurs concentrate on survival . In other words, they want to bring in enough cash to pay the bills. This can be hard at the start, with too few regular customers to generate the revenues needed to outweigh the regular weekly operating costs. Profit: at the least to make enough profit to pay the family bills, and at the most to try to make enough to make the family rich. Then there is the important issue of timescale: some entrepreneurs are desperate to prove themselves as quickly as possible. Sales: some huge fortunes have been made in recent years by entrepreneurs who built sales and customer loyalty, but hadn’t figured out how to turn the sales into profit. WhatsApp was bought by Facebook for $19 billion even though it only had sales, no profit;

7. Financial Aims and Objectives Market share: while sales are only about scale, market share is about power within a market; this, in turn, can secure a long-term profitable position. Financial security: having the biggest market share is one way to achieve financial security. Another way is to protect the idea behind your product from being copied by others.

8. Non - Financial Aims and Objectives Some entrepreneurs are motivated by social objectives. The not-for-profit sector is becoming increasingly important. This refers to enterprises that are started with the objective of achieving a social goal, using business methods. Personal satisfaction: for many people it is hard to get satisfaction from being a small cog in a big wheel. They need to break away and show what they can do. This is a particularly strong motive for those who have struggled to show their talents at school. Challenge: some people are mountain climbers and others prefer a walk in the countryside. Starting your own business is an extraordinary challenge that will test your personal skills, such as leadership, charm and the ability to plan and to prioritise ; character traits, such as resilience, energy, dedication and persistence; as well as your intellectual abilities (intelligence).

9. Non - Financial Aims and Objectives Independence: entrepreneurs hate being told what to do; they value their independence greatly. Control: this is linked to independence. The entrepreneur demands to be in control. This is why many entrepreneurs are reluctant to sell out for large sums of cash. The control they have within ‘their’ business is a drug that is hard to give up.

10. 1 .1.2 Changes in business aims and objectives Why business aims and objectives change as businesses evolve: in response to: market conditions ( refers to the size of the market, the business’s competitors, and the proportions of large and small businesses in the market ) , technology (website, manufacturing tech changes, new software developments, new mobile technologie s emerging, and new payment systems etc.) , performance(revenue or profit), legislation(change in consumer protection laws or minimum wages), internal reasons (strategic decisions to enter a new market).

11. 1. 1.2 Changes in business aims and objectives How business aims and objectives change as businesses evolve: focus on survival or growth (new or old ones struggling) entering or exiting markets (to grow or develop a new target market) (shrinking markets, poor performance, a new market emerges, and overall failure of business) Growing (when business is growing and expanding) or reducing the workforce (when business is struggling and to overcome this we need to survive by reducing workforce) Increasing(to expand or diversify risk) or decreasing product range (to wind up struggling products or not generating revenues or profits).

12. Mission Statements Brief statement that summarizes how and where the firm will compete in the present. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

13. What is a Company Mission? Company Mission: A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.

14. The Need for an Explicit Mission Why is this firm in business? What are our economic goals? What is our operating philosophy in terms of quality, company image, and self-concept? What are our core competencies and competitive advantages? What customers do and can we serve? How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?

15. Three Essential Components: Basic Product or Service Primary Market Principal Technology If a firm uses a “silver bullet” mission for outsiders to read, it will include these three components.

16. Elements of a Mission Statement Mission statements must include many or all of the following elements: Customers Products/Services Geographic Markets Technology © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17. Elements of a Mission Statement (cont.) 5. Concern for Survival/Growth 6. Philosophy 7. Public Image 8. Employees 9. Distinctive Competence © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

18. Elements of Mission Statement K eep it Simple Keep it Company Specific Keep it actionable Keep it measurable © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19. Keep It Measurable More complex and time consuming Mission statements exhibit one of three types of performance dimensions: 1. “feel-good” goals 2. specific financial goals 3. general financial or vague market goals © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

20. Vision Statements More compelling and overarching than the mission statement, an image of the organization in the future that motivates employees to focus their actions toward a common point. Example: Coca-Cola Company Our vision serves as the framework for our Roadmap and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

21. Providing Direction and Purpose These statements help answer two questions: 1.What am I expected to be doing today? Answer: Mission statement, which characterizes how the company competes in today’s market. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

22. Providing Direction and Purpose (cont.) Why are co-workers and I expected to act this way? Answer: Vision statement, because this is what we want the company to become. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

23. Strategy Planning Hierarchy © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

24. Vision and Vision Statements Vision helps define the long-term future for the company Benefits of a shared vision © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25. Long-Term Objectives Strategic managers recognize that short-run profit maximization is rarely the best approach to achieving sustained corporate growth and profitability To achieve long-term prosperity, strategic planners commonly establish long-term objectives in seven areas: Profitability – Productivity Competitive Position – Employee Development Employee Relations – Productivity Tech Leadership – Public Responsibility

26. Qualities of Long-Term Objectives There are seven criteria that should be used in preparing long-term objectives: Acceptable Flexible Measurable over time Motivating Suitable Understandable Achievable

27. Specific Short-Term Objectives Clarifies the actions expected of employees Provides a quick reinforcement Simplicity and focus are important © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

28. Topic 1.2 Types of Business Organizations The concept of limited liability: limited and unlimited liability the implications for the business owner(s) of limited and unlimited liability. The types of business ownership for start-ups: sole trader, partnership, private limited company th e advantages and disadvantages of each type of business ownership The option of starting up and running a franchise operation: the advantages and disadvantages of franchising.

29. Topic 1.2 Types of Business Organizations The concept of limited liability: As many as half of all new businesses close down within three years. All business failures are painful, but there is a big difference between a company going into liquidation and an individual being made bankrupt . When a company goes under, an independent accountant is appointed to try to raise as much cash as possible to repay the firm’s debts. If there is a shortfall, the company’s owners (the shareholders) do not have to repay the debts. The losses of the shareholders are restricted to the money they invested in the business. This is known as limited liability . By contrast, if the business had unlimited liability , financial disaster for the business will become a financial disaster for the owner or owners. Unlimited liability exists to prevent sole traders and partners from making careless and irresponsible decisions in managing their businesses. It makes private individuals accountable for their actions and decisions. However, the risk of loss of private property and personal possessions can deter sole traders and partners from taking risks, choosing to make safe decisions instead.

30. Topic 1.2 Types of Business Organizations The concept of limited liability: To achieve limited liability, a business must be started up as a company. Small limited companies must put the letters ‘Ltd’ at the end of the company name. These businesses have private Unpaid business debts could lead to the owner losing limited company status. A company can have share capital (perhaps 100 £1 shares), which makes it easy to divide up the ownership between different investors. As long as the company’s founder keeps hold of 51 per cent of the shares, he or she still has total control. ◆ If the business needs to raise more capital, it is quite easy to issue more shares for sale to other investors. ◆ The business continues to exist even if the founder of the business dies. The company develops a life of its own. ◆ Due to limited liability, the owners/shareholders can be bold about investing in the future of the business. If a bold move goes wrong, the business may suffer but individual shareholders are not liable for the debts.

31. Forms of Business Organizations Sole Proprietorship – single owner – who owns his/her personal business. Owner runs business and responsible for success or failure. Owner remains personally liable for lawsuits filed against the business Normally family owned and family run businesses and can be set up with small amounts of capital with capital coming from own capital or borrowings from friends and family. No state filing required to form a sole proprietorship or no registration required Easy to form and operate, least costly An important legal point about sole traders is that the business is unincorporated. This means the owner is the same legal entity as the business itself. Owner can lose his/her personal possessions if the business collapses. Owner reports business profit and loss on their personal tax return

32. Advantages and disadvantages of Sole Proprietorship Advantages Easy to establish Few legal formalities Profit taking Being your own boss Offering Personalised services to customers easier Easier to operate Sole Beneficiary of profits Compliance and Taxation are minimal Privacy is more with sole Proprietorship – no need to make financial records public Quicker decision making Disadvantages Unlimited liability Difficulty in obtaining funds Higher tax incidence Higher risk Workload and stress Limited economies of scale Lack of continuity

33. Forms of Business Organizations Partnership For profit private sector business owned by two or more persons Financed mainly from personal funds of the owners Can pool their funds to raise more finance then sole propreitors Partners remain personally liable for lawsuits filed against the business Usually no state filing required to form a partnership/ Registration not compulsory Easy to form and operate. Owners report their share of profit and loss in the company on their personal tax returns. Active Partners and Sleeping/Silent Partners Although it is not a legal requirement, most partnerships create a formal legal agreement between each of the partners. Without a contract, profits or losses must be shared equally amongst the partners who have the same rights in the running of the business.

34. Forms of Business Organizations Partnership deed if there will include The amount of finance contributed by each partner The roles, obligations and responsibilities of each partner How profits or losses are to be shared between the partners Conditions for introducing new partners Clauses for the withdrawal of a partner Procedures for ending the parnership

35. Advantages and disadvantages of Partnership Advantages While partnerships have to pay taxes on profits made, you don’t pay separate taxes for being self-employed as an owner. Partnerships can also be very fruitful due to each partner’s added knowledge, skills, and experience. Lastly, although they are more complicated than sole proprietorships, partnerships are easy. Disadvantages One of the worst parts of a partnership is that you can be responsible for something someone else has done. In one case, the courts can seize the assets of all the partners to do reasonable damages. There can also be some incredibly tricky situations when one partner wants to dissolve the business and the others don’t. While you may not pay as many taxes in a partnership, you are still legally and somewhat financially tied to your partner(s).

36. Advantages and disadvantages of Partnership Advantages Financial Strength Specialization and division of labor Financial privacy just like proprietors Cost effectiveness Disadvantages Unlimited liability A lack of continuity Prolonged decision making Lack of harmony – disagreements or conflicts are common between partners

37. Privately held companies Limited Liability Company Independent legal structures separate from their owners. Separates your personal assets from your business debts Taxed similarly to a sole proprietorship (if one owner) or a partnership (if multiple owners). No limit to the number of owners Not required to hold AGMs or record minutes.  An LLC is not incorporated; hence, it is not considered a corporation. Governed by operating agreements

38. Some other forms Pvt. Ltd Co - May have 2–200 shareholders; shares are held privately and can not be offered to public. A public limited company is a company listed on a recognized stock exchange and the stocks are traded publicly. On the other hand, a private limited company is neither listed on the stock exchange nor are they traded. It is privately held by its members only.

39. Public Vs Private Limited Company The minimum number of members required to start a public company is seven. As against this, the private limited can be started with a minimum of two members. In case of a public company, it is compulsory to call a statutory general meeting of members. There is no such compulsion in case of a private company. The public company will require a certificate of commencement post incorporation to begin its operation. In contrast to this, a private company can start its business right after its incorporation. The transferability of shares is restricted completely in private limited company. While the shareholders of a public company can transfer their shares freely. Since there is a limited number of people and fewer restrictions, the scope of a private limited company is limited and vice versa There is a greater regulatory burden on a public limited company. While it mandatory for public companies to appoint a company secretary, private companies may choose to do so only at their will.

40. Advantages and disadvantages of Private limited Firm Advantages No minimum capital Separate legal entity Limited liability Fund raising is easier Free and easy tranfer of shares Uninterrupted existence FDI allowed Builds credibility because of transparency Disadvantages   it restricts the transferability of shares by its articles number of shareholders, in any case, cannot exceed 200 it cannot issue prospectus to the public  shares cannot be quoted

41. Public Corporation A public corporation is that form of public enterprise which is created as an autonomous unit, by a special Act of the Parliament or the State Legislature. Since a public corporation is created by a Statute; it is also known as a statutory corporation. The Statute defines the objectives, powers and functions of the public corporation. Some examples are - Awqaf and Minors Affairs Foundation Dubai Corporation for Ambulance Services Dubai Export Development Corporation Dubai Government Workshop Dubai Media Incorporated Dubai Airports Mohammed Bin Rashid Housing Establishment Dubai Women’s Establishment Nedaa - Professional Communication Corporation Mohammed Bin Rashid Space Centre

42. Public Corporation Features – Formed by special acts of parliament Separate legal entity with perpetual succession and common seal Capital provided by governments Has financial autonomy Managed by board of directors nominated or appointed by governments Own staff selected by themselves Service motive but can be self supporting and earning reasonable profits Public accountability is there

43. Public Corporations Advantages Bold Management due to Operational Autonomy Legislative Control  Qualified and Contented Staff Tailor-Made Statute Not Affected by Political Changes Lesser Likelihood of Exploitation Reasonable Pricing Policy Disadvantages Autonomy and flexibility only in theory Misuse of monopolistic power Rigid constitutions – low flexibility Low managerial efficiency Problems of passing a special act – a time consuming process Clash of divergent interests

44. Topic 1.2.2 Characteristics Related to Size: Risk is about chance. What is the chance that a particular outcome will occur? Large firms know that, over the years, only one in five new products is a success. So, the chance of failure is four out of five. Does that mean firms should never launch new products? No. They must either: make enough profit from existing products to fund five new product launches for every one success make sure that the one success is big enough to make up for the failures.

45. Risk and Reward Risk - Business Failure - Business failure may not only use up all the family’s savings, but may also put huge strains on the family itself. Financial Loss - If a limited company gets into financial trouble, the owner is protected personally from business losses. Lack of Security – The lack of financial security is a major risk factor when starting a business. Rewards - Business success - Excitement comes from taking risks (that is, the risks generate the rewards) Profit and wealth - Starting a small business can generate huge returns. Most working people struggle to save much from their salary. They may be comfortable but can never become rich. Starting a business creates the possibility of selling it once it is established. Independence Many people dislike being told what to do, especially if they do not respect their boss. For such people, starting up on their own may be ideal. By becoming independent , they can make their own decisions and, if necessary, their own compromises.

46. Concept of Ownership Ownership  is the state, act, or right of owning something, i.e., possessing something. The term may also refer to an organization or group of owners. It is the exclusive and ultimate legal right to a lawful claim or title. If you have ownership, you can possess, enjoy, sell, give away, bequeath, destroy, or sell an item of property. Ownership means , for purposes of this definition, control of more than a 50% interest in an entity.

47. Characteristics Related to size: Ownership – big businesses may have one or more owners whereas smaller ones may have lesser owners in comparison Control – big businesses may control through different managers, smaller ones owners may directly control every function of business Sources of finance – big businesses have direct access to larger and more variety of funds whereas smaller ones struggle to get access to funds from different sources Use of Profits – Bigger businesses may use profits to pay to its shareholders or retain them for expansion, smaller ones may use the profits for further expansion Stakeholders and Shareholders - big businesses have an impact on wider variety of stakeholders and shareholders

48. Appropriateness of Different forms of Ownership Nature of business – businesses in need of personal attention and skill can be run as proprietorship, ones needing pool of funds and skills can be run as partnerships and ones involved in large scale production – company form of any type can be used Area of Operations - local businesses - proprietorships or partnerships, wide scope of operations – company form Degree of control – direct control required – proprietorships of partnerships, direct control not required – company form Capital Required - small amount required - proprietorship/partnership, large amount required – company form Extent of risk and liability – ready to bear risk and liability - proprietorship/partnership, not ready to bear risk and liability directly - company form

49. Appropriateness of Different forms of Ownership Duration of business – definite or adhoc duration (i.e. easy to dissolve) - proprietorship/partnership, permanent basis - company form Government regulations – not want to be bound - proprietorship/partnership, ready to comply – company form Profits to share – not ready to share - proprietorship/partnership, ready to share– company form

50. Franchising Franchise : The right given by one business to another to sell goods or services using its name. Royalty Fee Equipment Package Franchise Fee

51. Franchising Franchisee : a business that agrees to manufacture, distribute or provide a branded product, under licence by a franchisor. Franchisor : The business that gives franchisees the right to sell its product, in return for a fixed sum of money or a royalty payment. Franchisee Franchisor

52. Different forms of ownership - Franchising Franchising is a method of doing business wherein a “franchisor” authorizes proven methods of doing business to a “franchisee” for a fee and a percentage of sales or profits. Various tangibles and intangibles, such as national or international advertising, training, and other support services are commonly made available by the franchisor, and may, indeed, be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks.

53. Types Product – Right to distribute goods for a manufacturer Manufacturing/Product Distribution (Bottlers for the Soft Drink Brands) Business Format/Pure Franchising – Trade name franchising

54. Franchisor Strengths: Weaknesses: Growth Poor Performance (Less span of control) Customer Awareness Damaged reputation Less risky due to the spread of costs Lengthy application process Long Term Income – EC’s of scale

55. Franchisee Strengths: Weaknesses: Brand name Franchise Fee Clearly defined start-up costs Royalty Fee Training provided Lack of Flexibility Extensive marketing campaign

56. Advantages Advantages Access to quality training and ongoing support; Established concept with reduced risk of failure; Access to extensive advertising; Access to lower cost and possibly centralised buying Few start-up problems; Possibly easier to finance; and Use of well-known trademark or trade name.

57. Disadvantages Disadvantages Costs of supplies or materials may be more expensive; Possible exaggeration of franchisor advantages; Franchisor may saturate franchisee territory; Cost of franchise and other fees may reduce franchisee profit margins; Termination policies of franchisors may allow little security; Onerous reporting requirements; and Inflexibility due to restrictions imposed by franchisor.

58. Multinationals Multinationals - A multinational corporation (MNC) is  one that has business operations in two or more countries . These companies are often managed from and have a central office headquartered in their home country, but with offices worldwide. Simply exporting goods to be sold abroad does not make a company a multinational. To grow, increase customer base, profits and revenues and take advantage of tax laws across countries.

59. Characteristics Very high assets and turnover Network of branches Control – controlled from home country with certain amount of autonomy and empowerment available Continued growth Sophisticated technology Right Skills Forceful marketing and advertising Good quality of products

60. Social Enterprises A social enterprise or social business is defined as a business with specific social objectives that serve its primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the environment, and the profits are principally used to fund social programs. A social enterprise is a business with social objectives. Maximizing profits is not the primary goal of a social enterprise as is with a traditional business. Unlike a charity, social enterprises pursue endeavors that generate revenues, which fund their social causes. Regarding employment, preference is given to job-seekers from at-risk communities. Funding for a social enterprise is often obtained by selling services and goods.

61. Social Enterprise Examples of a Social Enterprise Many social enterprises successfully maximize improvements in  social well-being . For example, Warby Parker is an American eyeglass retailer that donates a pair of glasses to someone in need for every pair sold. TOMS, a California-based retailer, similarly has pledged to donate a pair of shoes or sunglasses for every pair sold. Also, Radicle trains businesses and gives them software tools to track and cut their greenhouse gas emissions.

62. Advantages 1. Making an Impact in the Society 2. It is Possible to Receive 3. Easy Marketing 4. The feeling of Responsibility to Employee 5. Making Occupations and Pay Streams

63. Disadvantages 1. Have to compete with commercials 2. Strict Rules and Regulation 3. Constantly Monitor Market

64. 1.3 Classification of Businesses 1.3.1 Primary, Secondary and Tertiary Activities Primary Sector - Primary sector is the sector that deals with raw materials and their production. This sector consists of all of the areas of human activity that convert natural resources into products. These raw materials are products produced from agriculture, animal husbandry, crop production, fishing, forestry and mining. In less advanced economies, the primary sector will include most of the economy in these areas. Generally, as the economy’s growth is achieved, there will also be an increase in labour productivity that will enable workers to leave the agricultural sector and transfer to other sectors, such as the service or the manufacturing sector.

65. 1.3 Classification of Businesses Secondary Sector – The secondary sector involves economic activities that generate finished products for consumption. Raw materials from the primary activities are taken and utilized to manufacture end products. In further technical explanation, the secondary sector is what we call industry. It’s an important sector in most of the world economies, and it started to alter society during the industrial revolution.

66. 1.3 Classification of Businesses Tertiary Sector – The tertiary sector is the service sector. This sector is responsible for services delivered to both the primary and secondary sector. The tertiary sector employment share has developed in the ensuing years. It is an organised sector and uses better methods. Services related to insurance, banking, trade and communication come in this sector.

67. 1.4 Decision on Location 1.4.1 The main factors influencing location decisions and relocation of business – Market - How near are they to their customers? E.g. for a physical service like a shop, restaurant or hotel, customer convenience will be critical to revenue. Labour - Are there staff nearby who are willing and able to work for you? Materials - For manufacturing businesses, nearness to materials may be more important than nearness to customers. This is especially true when the manufacturing process effectively shrinks the materials. Competitors - Lots of a businesses want a location far away from competitors e.g. local corner shop. However, some businesses e.g. restaurant chains find it better to be on the busy high street where other competitors are. Nature of activity - Depending on what the business is will influence what is the most important factor to consider. For example, a manufacturer would need to be near materials, whereas a shop will want to be near the market (consumers). Other business activity issues to consider include: The efficiency, reliability and cost of transport links. Proximity (nearness) to where the entrepreneur lived and lives. Impact of the internet - If the business is online, location is not as important as customers can access their

68. Impact of the internet on Location Decisions

69. Governments influence location decisions: to encourage businesses to set up and expand in areas of high unemployment and under-development.  Grants and subsidies  can be given to businesses that set up in such areas. to discourage firms from setting in areas of that are overcrowded or renowned for natural beauty.  Planning restrictions  can be put into place to do so. Trade blocs can act as encouragement to firms from friendly countries

70. 1.5 Business and the International Economy Globalisation is where countries trade with each other to buy global goods, such as Coca-Cola, or Costa Coffee. As a small island like the UK has always had to trade with other nations, such as selling cars to China and India. The impact of globalisation on businesses: Imports: competition from overseas, buying from overseas E xports: selling to overseas markets C hanging business locations M ultinationals.

71. 1.5.1 Globalization Globalization  is the word used to describe the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information. Countries have built economic partnerships to facilitate these movements over many centuries.  The wide-ranging effects of globalization are complex and politically charged. As with major technological advances, globalization benefits society as a whole, while harming certain groups. Understanding the relative costs and benefits can pave the way for alleviating problems while sustaining the wider payoffs.

72. Opportunities and Threats of Globalization for Businesses Access to new cultures The spread of technology and innovation Lower costs for products Higher standards of living across the globe Access to new markets Access to new talent Cheaper labour More choices Higher efficiency Multiculturalism Increased investments

73. Challenges International Recruiting Managing employee immigration Incurring taxes and export fees Payroll and compliance challenges Loss of cultural identity Foreign worker exploitation Global expansion difficulties – laws, maintenance issues, changes in tax structures etc. Immigration challenges and local job loss Global communication challenge International employee expectation management Supporting foreign customers Increased competition Marketing and communication changes Higher unemployment in local markets Environmental damage due to increased demand Exchange rate fluctuations

74. Key words Competing internationally Finding a way to succeed against rivals from overseas Imports Goods or services bought from overseas

75. The impact of globalisation on businesses Imports: Globalisation allows businesses to be able to access wider markets, which increases the choice of suppliers. This allows businesses to find the cheapest supplier and lower their overall average costs Competition from overseas: Due to the increased ability to operate in multiple countries it is now easier to move into new markets. This makes sales easier but also is likely to increase competition which can make smaller local firms struggle. Exports: Companies can now increase their number of sales by trying to sell their products overseas, this can increase revenue for the business and help the government pay for the imports that are brought in.

76. 1.5.2 The importance and Growth of Multinationals Changing business locations: Some countries are cheaper to operate in than the others because they have less laws in place or more raw materials on offer. Globalisation allows businesses to open factories in multiple countries to take advantage of the cheapest places, this lowers costs and allows businesses to maximise profits. Business Process Outsourcing, KPO’s and other such models of business are a result of globalization and its advantages. Nike’s manufacturing in China, Vietnam, Indonesia, Thailand etc., A lot of firms across the world have manufacturing in China. Multinationals - A multinational corporation (MNC) is  one that has business operations in two or more countries . These companies are often managed from and have a central office headquartered in their home country, but with offices worldwide. Simply exporting goods to be sold abroad does not make a company a multinational. To grow, increase customer base, profits and revenues and take advantage of tax laws across countries.

77. Why go Multinational? A company may seek to become an MNC in order to grow its customer base around the globe and increase its market share abroad. The primary goal is therefore to increase profits and growth. Companies may want to introduce their products in ways that are modified or tailored to specific cultural sensibilities abroad. MNCs may also benefit from certain tax structures or regulatory regimes found abroad. Access to lower production costs Proximity to international target markets Access to a large talent pool of employees

78. Risks for a Multinational? MNCs are exposed to risks related to the different countries and regions in which they operate. These can include regulatory or legal risks, political instability, crime or violence, cultural sensitivities, as well as fluctuations in currency exchange rates. People in the home country may also resent an MNC outsourcing jobs abroad.

79. Advantages Efficiency Development Employment Innovation FDI Additional resources

80. Disadvantages Loss of sovereignty Competition for local players Money and Resource outflows Sociocultural evils Economic Exploitation Inappropriate – too outdated or too advanced

81. B usiness and globalisation Barriers to international trade: tariffs trade blocs. How businesses compete internationally: the use of the internet and e-commerce changing the marketing mix to compete internationally.

82. Barriers to international trade Tariffs: These are taxes imposed on imported goods, this increases the cost of the import which may be passed onto the consumer in the form of higher prices. Trade Blocs: This is an agreement between countries to trade freely with each other behind a tariff wall that discourages outsiders. This makes trade within the bloc cheaper and provides easier access to bigger markets whilst potentially reducing competition of non trade bloc countries. However it a company operates outside the trade bloc it is much more expensive to trade with all countries within the bloc.

83. How businesses compete internationally Use of internet and ecommerce: Small businesses are able to use the internet to access a much wider range of customers without the added cost of setting up physical shops in these countries. This makes it possible for small businesses to achieve global success on the back of one trend or even a short term fad. For larger businesses, the internet can help to lower costs and allows the business to become more dynamic.

84. 1.5.3 Exchange rate calculations Exchange rates are important both to businesses and consumers. Many people take foreign holidays. They then have to buy foreign currency. The exchange rate is the amount of currency you can buy with one unit of another currency. E.g. if £1 = €1.20, it means you can buy 1.20 euros in exchange for 1 British pound. The British pound is often called the pound sterling.

85. 1.5.3 Exchange rate calculations A business may have to buy materials from other businesses which are located in foreign countries. When UK businesses buy imports, they have to pay the foreign firm with their own currency. So UK businesses have to buy foreign money. When a business sells it products abroad, it expects to be paid in pounds for these sales. When UK businesses export goods, foreign buyers have to buy pounds to pay for them. They buy these pounds with their own local currency.

86. 1.5.3 Exchange rate calculations To calculate the cost of a foreign exchange transaction, you need to know the exchange rate. E.g . UK business sells £10,000 of products to a French business The exchange rate is £1 = €1.20 10,000 x 1.2 = €12,000 UK business sells £20,000 of products to a US business The exchange rate is £1 = $1.5 20,000 x 1.5 = $30,000 In practice, the cost would actually be slightly higher as banks who specialise in buying and selling foreign exchange also charge commission (a small fee). Calculate the cost of the following: UK business sells £25,000 to a German business and the exchange rate is: a) 1.5 b) 2 c) 1.75

87. 1.5.4 Impact of Exchange Rate Calculations The firms who would be most concerned about changes to the pound’s exchange rate are: ◆ big importers, such as electrical goods companies or car showrooms ◆ big exporters, such as Rolls-Royce, who export more than 90 per cent of the products they make; for Rolls-Royce, a higher pound squeezes the profitability of their exports ◆ producers competing in the domestic markets against foreign companies, for example JCB, which has to compete directly against the Japanese Komatsu and US firm Caterpillar.

88. 1.5.4 Impact of Exchange Rate Calculations International competitiveness measures the relative cost and value of a countries exports. For example, if UK goods and services become more expensive than its competitors, then the UK would see a decline in its international competitiveness. International competitiveness is determined by Short-run factors – inflation and exchange rate Long-run factors – Education, health-care, institutions, levels of corruption and macroeconomic environment that determine the productivity and quality of goods that firms produce. Factors affecting international competitiveness 1. Relative inflation rates - Evaluation  – low inflation may be offset by an appreciation in the currency. Although Japan has had the lowest inflation rate in this period, it also saw an appreciation in the value of the Yen. Therefore, the gains from lower inflation were offset by the stronger currency. 2. Exchange rates - Movements in the exchange rate will affect competitiveness. If a country experiences an appreciation then its exports will be more expensive to foreigners. Devaluation will give a temporary boost to competitiveness. 3. Real exchange rate - The real exchange rate measures the value of a currency – taking into account relative changes in prices. An increase in the real exchange rate – means that – even including the effects of inflation, the exchange rate is stronger and therefore, the country will see a decline in competitiveness.

89. 1.5.4 Impact of Exchange Rate Calculations Benefits of improving international competitiveness Exports relatively cheaper leading to higher demand for exports. Export-led growth has been a significant factor in Chinese economic growth. Higher exports will help increase aggregate demand and economic growth Improved competitiveness will help improve a country’s current account deficit. Create jobs in the export sector Help to reduce inflation in the economy.

90. 1.5.4 Impact of Exchange Rate Calculations How does exchange rate affect exports and imports? A rising level of imports and a growing trade deficit can have a negative effect on a country's exchange rate.  A weaker domestic currency stimulates exports and makes imports more expensive ; conversely, a strong domestic currency hampers exports and makes imports cheaper. The balance of trade (which reflects higher or lower demand for a currency) can affect currency exchange rates. A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency. A country that imports more than it exports will have less demand for its currency. 1. Movements in exchange rates alter the international price of goods and services. a. If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases. 1. The change in relative prices will increase U.S. exports and decrease its imports. b. If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls. 1. The change in relative prices will decrease U.S. exports and increase its imports.

91. 1.6 Government Policies and Objectives 1.6.1 Government spending: to provide public service taxation and constraints on public spending. Economic stability: The objectives of public expenditure are  to maintain economic stability . Government participation is important when a country faces inflation or deflation. Economic stability can come back under the market process. Thus, the government needs to increased expenses or reduce expenses. Government will need to spend to ensure that the citizens of the country are provided with stable prices in the market, full employment for its citizens to enhance the standards of living, and ensure stable economic growth for country’s economy. This can be done by the government through tools like monetary policy, fiscal policy and other instruments used by the government to either enhance or reduce the money supply in the market if either deflation or inflation is there in the market. They can also do so by spending on infrastructure, education, real estate, medical health facilities, and other areas by ensuring that the citizens do not need to worry about the basic amenities and can focus on enhancing the economy of the country by contributing to the overall productivity of the nation.

92. 1.6.1 Government spending: Fiscal Policy looks at changes in taxation and government spending to manage the economy. Taxation is the money collected by the government from people and businesses in order to fund public spending. Two main types include - Income Tax – charged to individuals and unincorporated businesses Corporation tax – charged to incorporated businesses Both reduction or increase in these taxes can have impact on the overall economy of the country and on the businesses running in the country.

93. 1.6 Government Policies and Objectives Governments need to come up with policies which lead to – Lower manageable inflation levels. Lower levels of unemployment Economic growth and A favorable balance of payments situation (i.e. either the exports are more than the imports of the country or the country has enough forex reserves so that it doesnot default on the payments to be made for their imports) Inflation is when prices rise rapidly, leading to lower real income (things which money can buy at market prices), higher prices than other countries reduces competitiveness of local industry too – leading to job losses – ultimately leading to shrinking of businesses and falling living standards Unemployment occurs when people are not working and higher levels mean lower level of output, leading to government having to pay unemployment allowances, which is a cost to government and they might not be able to focus on public services to be delivered efficiently

94. 1.6 Government Policies and Objectives Economic growth is defined as level of output for a country and if growth is high means, GDP is increasing and thereby leading to increase in standard of living Less economic growth  less output  less workers needed  unemployment increases  people’s buying power reduces  poor standard of living  businesses start shrinking Government’s need to work hard to either ensure growth or boom in the economy and to avoid recession or slump as these can cause a negative impact on all economic indicators of a nation

95. 1.6 Government Policies and Objectives To avoid such situations the government spending on social development initiatives, infrastructure and economic resources, social benefit initiatives, etc. must be enhanced so as to avoid negative growth in the economy and ensure a stable economic outlook for the economy of a country which always encourages investors to come and invest in the country leading to further growth.

96. 1.6 Government Policies and Objectives 1.6.2 How governments can affect business activity: infrastructure provision legislation trade policy - membership of trading blocs, tariffs. Governments can change laws to encourage or discourage certain businesses in the country and thus ensure that they can facilitate the growth in the economy Governments can influence the rate of interest at which capital is available and exchange rates of currency to help businesses tide over the changes which affect them negatively either during inflationary or deflationary economic scenarios. Change levels of government expenditure and taxation Introduce policies such as subsidizing farming industry or providing tax breaks or concessions to industries having potential but struggling for survival Providing and developing infrastructure (transport, communication, medical, educational etc.) Trade policies like what time of taxes or tax breaks to have on certain imports and exports (like tax breaks on products needed in emergency during covid 19 so as to reduce their prices) or decisions related to joining of particular trade blocs in the world like EU, QUAD, ASEAN, OPEC etc.

97. 1.6 Government Policies and Objectives 1.6.3 Effect of Interest rates on – Businesses & Consumer Spending The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars.  When consumers pay less in interest, this gives them more money to spend , which can create a ripple effect of increased spending throughout the economy. Low Interest Rates Can Spur Business Expansion and Growth - Low interests rates make it much more beneficial for you to take out new loans to invest in the expansion of your business. Locking in a lower interest rate means your loan will cost you less in the long run.

98. 1.6 Government Policies and Objectives 1.6.3 Effect of Interest rates on – Businesses & Consumer Spending When interest rates are higher businesses and consumers will quizlet ? When interest rates are higher, businesses and consumers will:  decrease investment spending and interest-sensitive consumption spending . Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments . 

99. 1.7 External factors 1.7.1 The external factors affecting business decisions: social technological environmental political

100. 1.7 External factors 1.7.1 The external factors affecting business decisions: Social - Changes in taste and fashion or the increase in spending power of one group, for example, older people Technological - Different types of technology used by business: e-commerce social media digital communication payment systems. Environmental - For example weather conditions affecting sales or production and growing interest in being ‘green’ , for example by recycling Political - For example, new legislation

101. 1.7.1 The external factors affecting business decisions The purpose of legislation: principles of consumer law: quality and consumer rights principles of employment law: recruitment, pay, discrimination and health and safety. The impact of legislation on businesses: cost consequences of meeting and not meeting these obligations. Policies that can have long-term effects on companies include: Taxation Tariffs Employment law Competition regulation Import restrictions Intellectual property law

102. 1.8 What makes a business successful? 1.8.1 Measuring success in business: A business is considered successful when it achieves its aim and objectives. Success metrics give a picture of your business performance, which allows you to improve overall results as well as future performance. Revenue - Sales revenue is the income received by the company by selling goods and services. Sales revenue is often listed on the top line of the income statement. By comparing sales revenue over the years, companies can measure their business growth. Market Share - means the sales of the company measured as the percentage of the total sales in an industry. A business will try to increase its market share over time. A higher market share will gain the company a competitive advantage, such as lower product prices and brand reputation.

103. 1.8 What makes a business successful? 1.8.1 Measuring success in business Profit - the company's financial gain after deducting expenses. A higher profit margin means that the company has more money to cover its purchases and daily operations, which reflects an overall healthy financial condition. Customer Satisfaction - the measure of how satisfied customers are with your business. To improve customer satisfaction, you need to pay attention to customer feedback, then use the collected data to improve your products and services. Common tools to collect customer feedback include polls, services, and email newsletters. Growth of number of customers - reflects your business's ability can draw in new customers. If your business has a hard time attracting new customers, there's a sign that something needs to be changed, for example, a marketing strategy or product features. The best way to keep track of new customers coming into your business is to build a customer email list.

104. 1.8 What makes a business successful? 1.8.1 Measuring success in business Owner/Shareholder Satisfaction - reflects your business's ability to keep the shareholders satisfied in terms of their financial goals and objectives being met by the business performance. Employee Satisfaction - the measurement of your employees’ contentment with their jobs. The more satisfied the employee is with your business, the higher their productivity level and the company's output. To improve employee satisfaction, your company can implement an open and social culture to encourage employees to share their views and interests.

105. 1.8 What makes a business successful? 1.8.2 Reasons for business failure: Cash flow problems/lack of finance - the reason small businesses fail overwhelmingly includes cash flow issues. This includes poor cash flow management and poor understanding of cash flow, starting out with too little money, and lack of a developed business plan . If your expenses exceed your cash, then you have a cash flow problem. To manage it categorize your spending and then analyze if any of the expenses are superfluous, benchmark expenses according to industry standards or develop benchmarks for your own business and micromanage the spending to put less burden on your profit margins and undertake only essential spendings.

106. 1.8 What makes a business successful? 1.8.2 Reasons for business failure: Not competitive - The marketplace is tough enough with its numerous competitive businesses each trying to outdo the other. A business must learn to start battling tougher and renowned moguls in the industry to at least make a blip in the scheme. The 'Red Queen' hypothesis, named after an Alice in Wonderland character, asserts that in order for a business to survive, it has to adapt, and that leads to worsening conditions for its competition, forcing the competitor to adapt as well. What results is a cycle of competition and learning, where both businesses improve their product or service in a response to the other. If both fail to do so, they fail overall. Failure to adapt to changes in the market - Failing to adapt to change is one of the biggest mistakes a business can make. The world is moving incredibly fast. Each day we’re seeing new developments in technology, and changes in the way that people live their lives. This change is inevitable, and the businesses who adapt early are the ones who will thrive in the face of adversity, while the rest are left behind.

107. Thank You Happy Learning!