Business Notes PDF

CHAPTER GOVERNMENT OBJECTIVES AND POLICIES Basic definitions Barriers to entry: restrictions which means its difficult for new firms to enter the market. Mergers: 2 or more businesses joining together to form one large business Dumping: where businesses sells goods in another country below the c...

CHAPTER GOVERNMENT OBJECTIVES AND POLICIES Basic definitions Barriers to entry: restrictions which means its difficult for new firms to enter the market. Mergers: 2 or more businesses joining together to form one large business Dumping: where businesses sells goods in another country below the costs. Trade barriers: measures designed to restrict the trade. Quotas: physical limits on the quantity of imports allowed into the country. Subsidies: financial support given to a domestic producer to help compete with an overseas firm. Tariffs: a tax that makes the imports more expensive. Administrative barriers: use of strict health and safety regulations to make the imports more awkward. Interests: prices of borrowed money and the reward to savers. Government spending and taxation The government of many countries spends a huge amount of money on the public services. For example, education, healthcare and infrastructure. The higher the spending level the more the businesses benefit. This is because incomes of people increases and therefore, they may have more disposable income and would purchase more products, hence, the profits rises. Government earns a huge amount of revenue from taxes and these taxes are of 2 types. One is the direct taxes that are levied on the income or profits of individuals or businesses. Example: income tax and corporation tax. While the other tax is the indirect tax which means the taxes that are levied on the producers of products but are indirectly passed on to consumers through higher prices. Examples: VAT, excise duties. Governments can use fiscal policy that is the making changes to the taxation and government spending in order to stimulate the aggregate demand in an economy. For example: when the taxes are lower people have more incomes hence, they may purchase more which will increase the profits for businesses. Constrains on public spending In the recent year’s government have decided to reduce the amount they spend on the public. These have had great impacts on businesses: 28   As many employees will be dismissed in order for public sector organizations to cope up with the increase in costs, this will result in businesses losing out as workers may lose their income hence, profits for businesses reduce.  Private sector businesses (construction companies) that carry out government infrastructure work will lose their business if the government cancel the projects such as building schools or so on. How can government affect business activity?  Infrastructure provision: as the government spends money on the infrastructure such as: building schools and motorways the private construction companies may get projects which may help in increasing their revenues and profits. Also, the employees may get increase in salaries and wages and therefore, they may have more disposable incomes hence, purchase more which will result in an increase in the profits for businesses.  Legislations: without the government intervention the businesses may not meet the needs of the stakeholders. One of the role of the government is to provide a legal framework in which business can operate and ensure that vulnerable groups are protected. They have imposed some laws such as: Consumer protection: consumers want the best product with the best quality at the reasonable prices. They want accurate and clear information. Government needs to ensure that businesses don’t use any anti-competitive legislation that may exploit the consumers. Such as: increasing the prices higher than they would be in a competitive market. Some of the consumer laws in UK are: sale of goods act, food safety act. Competition policy: government tries to promote competition by:  Encouraging the growth of small firms: this can be done by providing subsidies or grants and making them more competitive and able to compete with the larger firms.  Lowering the barriers to entry: so that more firms will find it easier to enter into the market and therefore, consumer choices increase while prices reduces.  Introducing anti-competitive legislations: these laws are designed to restrict the formation of monopolies or mergers which may exploit the consumers by increasing the prices. Environmental legislation: business activities may have negative impacts on the environment for example: air pollution caused burning of coal and water pollution caused by sending of waste materials to rivers and lakes. The approach used by the government is to impose strict laws with huge penalties which are big enough for business to be encouraged to cause less pollution.  Trade policy: the governments of many countries find international trade to be a disadvantage and due to this they impose trade barriers to protect the domestic industries which are known to be as protectionism. Reasons why government uses protectionism: protect the jobs of citizens working domestic industries, avoid inflow of harmful products and protect infant businesses. 29 There are 4 types of protectionism the government can use: tariffs, quotas, subsidies and administrative barriers. (See basic definitions). Another approach in which government can influence is businesses is through forming a trade bloc in which businesses will be able to sell and buy product with no forms of trade barriers which will reduce their costs. Some of the benefits of trade blocs are:  Access to wider markets  Lower costs due to economies of scale  Protection from large MNC’s from outside the blocs However, drawbacks are that regional monopolies may form which may exploit the consumers and conflicts may occur. Effects of interest rates on businesses and consumers spending (monetary policy) Monetary policy is the use of interest rates and money supply to stimulate the aggregate demand in an economy. Higher interest rates means more expensive to borrow money and more worthy to save money. Lower interest rates means cheaper to borrow money and less worthy to save money. Effects on businesses: when interest rates are higher, the costs of borrowing will increase which will result in consumers having less disposable income and therefore, they may purchase less which will decrease the profits for businesses. Furthermore, as interest rates rises costs may increase if the business has borrowed money and this will increase their costs of production and therefore, lower their profits. Moreover, as interest rates increases consumers will save more as to gain the reward and purchase which will again is a loss for the business. Effects on consumer spending: savers will be hit if interest rates are lower and therefore, may save less. As more consumers depend on the interest or reward that they get from savings now they will have to borrow more. Additionally, demand for goods and services may fall as interest rates increases as more consumers purchase using the borrowed money. However, when interest is higher it becomes expensive to borrow and therefore, may not borrow and purchase lower quality products which will decrease the living standards. For more impacts on consumers and businesses refer book page 95 and 96 as edexcel may not ask more than 3 impacts. 30  CHAPTER 13: EXTERNAL FACTORS Basic definitions Urbanization: process of constructing more building on villages. Capital intensive: using more machineries than labor Market orientated: when a business concentrates more on its consumers rather than products Sustainable developments: idea of that people must satisfy their basic needs for survival and improve their living standards ensuring that they don’t compromise the quality of life for future generations. Pressure groups: groups or organizations that try to influence the opinions of ordinary people and persuade the government to take actions The nature of external factors There can be many impacts on businesses when external factors occur. However, businesses have no control over these factors and therefore, they may have positive or negative consequences. They can fall into various categories which are explained below. Social factors Businesses have to adjust with the changes that may occur in the societies, examples include:  Increased consumer awareness: nowadays, as technology has been advancing consumers are having many choices and make their purchases over the internet. This has allowed many business to publish their information online and set up e-commerce businesses. Businesses are becoming more market orientated.  Changing demand patterns: as the lifestyles of people changes according to the modern era this results in changes in goods that they want. For example, more consumers want the most advanced products that doesn’t require any human action such as: automated cars.  Increased numbers of woman at work: woman have now changed their roles from childcare to work. This has resulted in an increase in the supply of labor.  More part time workers: as the number of people taking part time works have increased more income is required by these people this has resulted in an increase in goods and services purchased. This also has increased the flexibility for businesses.  Urbanization: as in many developing nations more people have moved from rural areas to towns and cities which has increased labor supply and profits of many businesses. 31 Technology As technology have been evolving in last few decades this has resulted in huge impacts on businesses which is considered to be more efficient, beneficial and saves more time. Some of the examples are:  In the primary sector: the use of pesticides by the farmers have helped the crops to grow faster and safely.  In the secondary sector: the use of robots have helped to increase the productivity of labors and save more time although machineries are expensive.  In the tertiary sector: banks have used ATM machines to make it easier for consumers to withdraw money and other transactions without the need of coming into banks. More businesses become capital intensive as machineries have been replaced labors and this decreases the costs of labor. Business usually welcome technological developments as there benefits outweigh the drawbacks:  It saves time  Reduces the costs as employment in labor reduces  Productivity increases  Development in social media has improved the communications and reduce the costs of advertising. Environment As most businesses produces a lots of waste materials and causes a lot of pollution such as: Air pollution, water pollution and noise pollution.  Global warming: most business factories emits carbon dioxide gas which is a greenhouse gas which can contribute to global warming. Also as the economy develops this results in more cars and airplanes to different destinations which again increases global warming.  Habitat destruction: some of the businesses build factories and other operations in habitats of many animals. Such as forests. This results in deforestation which means that many trees are being cut down. This is habitat for many animals such as birds.  Resource depletion: as oil, coal and gas are non-renewable resources they are running out and can’t be replaced.  Sustainable development: this means that people should satisfy their needs and increase their living standards. If they don’t then this will result in reduction in the quality of life. When businesses develop they use more of the non-renewable resources which may disappear and there would be no left for the future generations.  Businesses can reduce the environmental issues by using environmentally friendly products and reduce the greenhouse gases produced. 32 Political Businesses are affected by political factors. These factors can influence businesses that are operating in stable, democratic counties. However, in unstable countries although the government is corrupt there are many pressure groups that monitor the business and ensure that the country benefits. Some examples include:  In 2015, some felt that Greece might leave the EU. This could have disrupted financial markets and created a great deal of uncertainty in the Eurozone.  A new government may be elected which is very pro-business. This might encourage more people to become entrepreneurs. It might also mean that more foreign investment can be attracted. CHAPTER 14: MEASURING SUCCESS IN BUSINESS Basic definitions Capital employed: amount of money that is being invested in the starting of the business usually or in the middle. For any business, it is unlikely that the owners will not want to know whether their business is successful. In order to measure the success of businesses there are 7 ways which have their advantages and drawbacks. These are listed below: Revenue Revenues could be used to judge if the business is successful. For example, if the revenues increases year by year this can indicate that the business is successful. In the same way, if a business sets an objective to increase their revenues generated by say 5% in the following year and if they had achieved this then this again ensures the owner that the business is becoming successful. Businesses can also compare their revenues with their competitors in the same industry. The advantage of this is that it is easy to calculate revenues as it is readily available in the income statement however, the drawback is that the costs of production is not taken into account. 33 Market share When a business have increased market share it is easier to dominate the market and earn higher profits. This would raise the profile of the business. If a business increases its market share from year to year this means that they are winning the consumers from the rivals as they may have a competitive edge which clearly differentiates their products from that of the rivals. Therefore, they are considered to be successful. The advantage of this method of measuring success is that, if their market share increases then the owners can ensure that their products are satisfying to consumers. However, collecting information for market share could be very challenging as a lot of information may be required and their not in numbers. Customer satisfaction If consumers are satisfied then a business is considered to be successful. When customers satisfaction increases this results in higher revenues and profits. As many businesses are becoming market orientated this results in them focusing more on the consumers rather than their products. Owners of businesses can collect these information by providing consumers’ questionnaires and monitoring the customers’ complaints that they may post on social media and take necessary steps to overcome their weaknesses and benefit the business. The advantage of this method is that it is more appropriate as business can ensure that their consumers are really satisfied from the products supplied. However, the drawback could be that the information provided by the consumers may be biased or the fashion and tastes changes all the time. Profits Another possible method of measuring success could be the profits that are made by the business. If the profits increases year by year this may mean that the business is successful. The advantage of this method is that the profits could be compared with the rivals’ profits. Also, the profits can be measures more effectively for small business as there are figures and are easily available in the income statements and also considers the costs. However, the drawbacks are that the profits of businesses are often depending on the size of the business. If the business is huge then the profits made may be huge and cannot be compared with small rivals. It also may be possible to make higher profits if there is no competition in the market. Growth The objectives of many small businesses is to grow. If the business is growing from year to year this may mean that they are successful. It could be measured in 4 different ways:  Turnover/ revenues: when the revenues increases this means that the business is growing and also the costs are increasing with the increase in the production.  Number of employees: as the output level increases the number of people employed also increases. When the number of employees increases year by year this means that the business is successful. 34   Market share: for a business like apple that has about 80% of fthe market share may considered to be huger than a rival such as Alcatel that may have about 20% of the market share.  The amount of capital employed: if the amount that the owner invested in the business is higher and then the business is considered to be successful.  EU definitions of size: as per the EU definition of size. ( you can find it below ) The advantage of this method is that it is easier to measure growth as it is in figures while the drawback is that business try to use shortcut methods to grow very fast and as a result they fail. Owner/ Shareholder satisfaction Owners judge the success of the business by the amount of money that they get in return for the capital that they have invested and if it increases year by year then it is considered to be successful. Shareholders judge the success of the business by the increase in their dividends payments year by year and if it increases then they consider the business to be successful. This is mainly for shareholders in public limited companies. However, in private limited companies the shareholders judge the success of the business by the increase in salaries and survival in the market as they are owned by close friends and family members. Employees’ satisfaction Employees judge the success of the business in their perspectives. If they get higher salaries or more facilities and a pleasant working environment with more job security then the business is considered to be successful. However, it is not always possible to make a business successful in the eyes of the employees because sometimes businesses may have to lay of staffs and this may mean higher profits however, in the eyes of employees it may mean that a business is not successful. When a business sets objectives this makes it easier to judge the success of the business because if these objectives are met then a business can be considered to be successful. Further importance of objectives is available in the notes for chapter 2. 35  CHAPTER 15: REASONS OR BUSINESS FAILURES There are various reasons why businesses fail and one main problem is due to the lack of cash. Some business tart with insufficient capital which is known to be as undercapitalized hence, they eventually run out of cash and are unable to raise funds from financial institutions as they cannot persuade them and financial institutions find it risky to lend money to these businesses. Reasons for businesses to fail 1) Cash flow problems  Overtrading: some businesses accept orders which they are incapable of producing. For example, if a business has its monthly output to be as 15000 units and if they accept an order from another for about 15500 units then it would be impossible to produce and finally this will lead to failure to produce as well as losing out cash. They may try to do this as they may want to increase their profits.  Investing too much in non-current assets: Some businesses invest too much in non-current assets while it is much cheaper to lease them. Hence, they run out of cash.  Allowing too much of credit: some businesses allow their consumers a credit period which is known o be the amount of time that consumers have to pay the amount that they owe for the products consumed. If a business allows too much of credit period this may results in many irrecoverable debts. And may eventually be forced to borrow the money as consumers may delay the payments.  Over borrowing: many businesses borrow money in order to start a business, purchase resources or many other reasons. When businesses borrow more money this may result in them having more interests which may eventually increase the costs and then which will force them to increase their prices.  Seasonal factors: some businesses have higher revenues in certain time of the year. For example, farmers may have increased crops in spring. Os for the rest of the year they must trade without any income flowing in hence, cash may be lost and eventually fail. 36   Unexpected expenditures: for example, a tax company may walk into a business and charge an amount of tax for producing products that may cause diseases such as obesity this will increase the costs. And businesses didn’t even know about it. These unexpected expenses may cause a business to run out of cash.  External factors: Consumers’ fashions, tastes, demand patterns may change from time to time. This may result in businesses to struggle while some other businesses may benefit. So, these are out of control of businesses hence they may have insufficient cash at this time.  Poor financial management: when a manager is recruited for running a company, the company must ensure that the recruited manager is capable and has experience. Because if the wrong person is recruited this may result in he/she spending too much on particular things and eventually run out of cash. 2) Lack of finance Some businesses underestimate the importance of cash. This may eventually result in businesses to fail. As some businesses start without cash which is previously said to be as undercapitalization. They may not have money for long and may finally borrow money which may increase their costs and force them to increase their prices for the products hence, results in lower market share. Many restaurant owners do this as they underestimate the need for money to start-up new restaurants. 3) Not competitive  New entrants: it may be very challenging for new entrants to enter into an established market. This is because the rivals may use destroyer pricing and bring out superior products or their products may not match the needs and wants of the consumers. Hence, they may eventually fail.  Ineffective costs control: when the costs increases the profits may decrease. Some the reasons for the costs to be higher than the profit are that they may be too small to exploit the economies of scale, they may be using wasteful resources, paying too much for unwanted resources and due to external factors.  Ineffective marketing: some businesses fail because of many reasons. Some of them are because of launching products that don’t satisfy the needs of consumers or using inappropriate marketing strategies or inappropriate pricing strategies or investing heavily on unwanted marketing campaigns.  Lack of business skills: most small businesses fail because their owners or managers are having less skills or experience to run a businesses in a competitive environment. As they are the decision makers their work depends on their ability to make a decision and if their decision fails then the business fails.  Poor leadership: many companies employ managers. They must ensure that the managers that are being employed are skillful, motivational and have a good knowledge of that field. If they employ 37  managers that have no experience in this field this may result in them taking wrong decisions which may lead a business to fail. 4) Failure to innovate As technology evolves many businesses fail to innovate as they may fear the increased costs of research and development. They may not be updated with the latest technology and consumers may want their life styles to be easier, faster and automated. And as consumers needs are not met this may result in lower profits as revenues may fall. And the rivals may introduce new products which are more automated and adopt the latest technology and therefore, may increase their market share. If the businesses are unable to keep up with the latest technology then they may eventually fail. Next Chapter P.T.O 38  UNIT 2: CHAPTER: 16: THE IMPORTANCE OF GOOD COMMUNICATION IN BUISNESS Basic definitions Communication channels: the route through which the messages pass from the sender to the recipient. Communication is sending and receiving message which includes a sender and a recipient. Communication can take place in various forms such as: 1) Downward communications: the messages passed from the top of the management such as directors to the blue collar workers or employees. Examples: instructions 2) Upward communications: messages which are passed from the bottom of the hierarchy such as: employees or workers to the top management such as: managers. Examples: complains 3) Horizontal communications: the talk or communication that takes place between the workers of the same hierarchy. Examples: discussion of work. Importance of upward and downward communication  Upward communications help managers and directors to understand the requirements of the employees.  It also helps staffs to feel valued.  Downward communications allows managers to command, control and organize.  It also helps employees to look for their managers for leadership and guidance. Internal and external communication Internal communication takes place inside a business between employees. Example: manager warning to a subordinates. External communication is the communication between the business and an outsider. Example: a statement from the credit card company. 39 Formal and informal communications Formal communication in business is when the business use recognized channels to communicate. While informal communications is when the non-approved channels are used and are mostly of gossips and rumors. Formals groups are the groups that are formed by the business, examples: departments while informal groups are the groups that are formed outside the business or not appointed by the business examples: employees who meet outside the workplace. Advantages of communications between informal groups: more cooperation and encouragement. Drawbacks: leaders of informal groups have more than the leaders of formal groups. Importance of good communications Communication is important because if internal communication is poor this can lead to problems such as: message may not be understood, mistakes may occur, costs will increase and profitability lowers. As a result, motivation suffers hence, staff turnover increases. Poor external communications may result in damages to the reputation of the business and also increase costs. Methods of communications 1) Face to face communications This takes place when information could be exchanged between people who can see each other and may exchange information verbally. Examples: discussion between an employee and a manager for a project. Advantages Disadvantages Allows immediate feedback Negative body language could be a barrier Encourages corporations A record of information cannot be kept for future Saves time Non-relevant information may be included 2) Written communication There are different types of written communications such as:  Letters: they can be used to send private information and the messages can be expressed and are flexible. The advantage is that people can read it at times when no one is next to them (especially for warnings and other private messages). However, it may take time and poor writing skills can be a barrier. 40  Reports: they can be short, complex or detailed and can be used to send numerical data and graphical data. Advantage is it is easier to read and understand the progress of the business however, they should be accurate and carefully constructed.  Memorandums: they can be used to send short messages. Advantage is that it is easier to distribute to all employees and make them aware of the events taking place. However, information is not detailed.  Forms: they are used to communicate routine information. Advantage is that it is easier to get information however, they may be inflexible and out of date.  Noticeboards: they can be used to pass on information to a large number of people. Advantage is that it is cheaper. However, they are opened to abuse. 3) Electronic communications  Emails: it allows businesses and individuals to communicate while exchanging ranges of information such as: documents, photos or videos. Advantage is that it could transfer information from one corner of the world to another within a fraction of a second. However, it might ignored as people get 1000’s of mails each day.  Internet: it can be used for communications with employees inside the business and customers. Businesses can use the internet to get feedback of the product they have produced and to make improvements to the products. Advertising can also be done.  Mobile phones: they can be used to communicate with employees who move around frequently. Modern phones allow to access the internet, social media, emails and others which makes this a valuable method of communication.  Social media: business can use social media to communicate with their consumers. One of the main thing that business can do in the social media is to advertise their products as it can reach millions of people worldwide, cheaper method, faster method and an easier method. They can get feedbacks about their products and can use to improve and satisfy the needs and wants of consumers  Intranets: intranet is a server that is used for communication inside the business with the employees. Advantage is that sudden changes of meeting schedules or other events can be uploaded.  Video conferencing and teleconferencing: video conferencing allows people in different parts of the world to communicate face to face. This allows a lot of information to be discussed. Teleconferencing is similar but all people are linked using the telephones. This makes it easier for people in different parts of the world to communicate.  Public address systems: these are often in supermarkets. Messages can be spoken in loudspeakers and everyone can hear them.  Electronic noticeboards: messages, pictures and videos can be displayed in these boards. They can be used to communicate information with the visitors and employees. However, they may be opened to abuse. 41  CHAPTER 17: BARRIERS TO COMMUNICATION IN BUSINESSES Basic definitions Jargon: this is a word or a phrase that is used between members of a specific group but will be meaningless to others. Barriers to communications  Lack of Clarity: it is important that the message is to be clear and precise with good writing and speaking skills. If not the message is likely to be ignored or misunderstood.  Technological breakdowns: businesses must ensure that the technical faults are always resolved immediately as they occur. Because lots of transactions are happening online which means there is higher percentage that there may be losses if technical faults occurs.  Poor communication skills: when communicating face to face some people have poor verbal skills. This makes a barrier between the 2 parties and the message may not be understood. Some of the listeners may not be attentive in a large meeting due to boredom and eventually may be misled as they may not obtain full information said. Some people are poor writers and they may not use proper words to express what they say and finally leading to misunderstandings.  Jargons: employees in specific groups use jargons. However, when they use jargons while speaking with a person from outside the group this results in misunderstandings.  Distractions: messages may not be clear at factories or construction sites due to the loud noise and therefore, messages may be ignored or people may be misled.  Business culture: some business have developed a culture for poor communication. If this continues the messages sent by the top management may be passed in different ways to other employees therefore, employees may fail to understand and hence, costs rises.  Long chain of command: when the chain of command is too long the messages passed may be misinterpreted and therefore, people may misunderstand. 42   Using the wrong medium: if businesses use the wrong medium to communicate this can result in important messages being missed out. For example: complex and detailed information should be communicated through reports.  Different countries, Languages and Cultures: in a Multinational company there are workers and managers of different nationalities and therefore, each of them may understand and speak with their own languages which may result in information being missed out or misunderstood. Problems of ineffective communications Ineffective communications for businesses can result in problems such as: more staff absenteeism. Lower motivation and high staff turnover. Ineffective external communication can result in misunderstanding between businesses and the consumers or suppliers. How can barriers to communication be removed?  Recruitment: when businesses recruit new employees they can assess the written communication using forms that applicants submit. While verbal communication and body language could be assessed through interviews.  Training: business can ensure that the staffs are well-trained in their jobs. This can increase the productivity and reduce the mistakes which could save money and time. And also can give more priority to communication verbally and written trainings.  Written communications: businesses can ensure that they provide standard company letters with a company logo and a letter head. They can also use forms to make details clearer. This would prevent employees including information that are irrelevant.  Technology: if communication is being interrupted by faulty technology businesses can ensure that they use good broadband connections and keep up with the most up-to-date technology.  Chain of command: using a shorter chain of command with less layers of management can ensure that business messages can be easily understood and are clear with lower frustrations.  Social events: businesses can organize events such as yearly parties to make the communication between different departments easier. As employees get to know each other well this results in more cooperation at work.  Culture change: if the business has a culture of poor communication then they can ensure that the communication methods changes in the upcoming future. For example, introducing some formal groups and inserting new public address systems to make communication easier. CHAPTER 18: RECRUITMENT AND SELECTIONS Basic definitions Recruitment: this is the process of employing people due to reasons such as expansion. 43