UNIT 1 INTRODUCTION TO BUSINESS MANAGEMENT PDF

UNIT 1: INTRODUCTION TO BUSINESS MANAGEMENT 1.1 Business: An entity with the aim to satisfy and meet the needs or wants of individuals by acquiring, producing, delivering or informing them either in the form of goods or services. Resource inputs: Factors of production requ...

UNIT 1: INTRODUCTION TO BUSINESS MANAGEMENT 1.1 Business: An entity with the aim to satisfy and meet the needs or wants of individuals by acquiring, producing, delivering or informing them either in the form of goods or services. Resource inputs: Factors of production required to produce goods or services. Product outputs: The result of processing and manufacturing by the use of goods and services. Human inputs: Right quantity and quality of people required to produce a good or service. Physical inputs: Right quantity and quality of land, machinery or technology used to produce a good or service. Financial inputs: Right amount of cash or other types of financial resources required to produce a good or service. Enterprise: The concept and people themselves who are in charge of running a business, including their skills, experience and knowledge. It also includes the activity or project that produces goods and services. Production processes: Processes that add value to the inputs. Capital intensive: Processes that use a large portion of land or machinery to produce goods and services. Labour intensive: Processes that use a large number of people to produce goods and services, which are also related to land or machinery. Product outputs: Goods: Tangible products that can be physically taken home. Services: Intangible products that cannot be physically taken home but rather taken advantage or enjoyed for one’s benefit. Business functions: Branches of a business that are in charge of administering a portion of a business in regards to a specific area to reach success. Human resources: Sector in charge of administering human relationships, how they should be treated, how employees must be trained, paid and sometimes fired. Generally, their role is to manage and develop an organisation's workforce to maximise employee performance and ensure effective achievement of organisational goals. Finance and accounts: Sector that ensures to possess the appropriate funds to make the good or service. They manage an organisation’s financial resources, ensuring accurate financial reporting, budgeting, and strategic planning to support sustainable growth and profitability. Marketing: Sector that has the responsibility to ensure that the business offsets a product or service that is desirable by individuals, by promoting, packaging, pricing and using strategies to attract customers. Operations management or production: Sector that ensures that appropriate resources are applied during the elaboration of a good or service with the desired quality, by controlling the stock flow and seeking for better ways of production. Primary sector: Sector in charge of the acquisition of goods. It includes fishing, hunting, trapping, mining, farming, and other types of extraction. Secondary sector: Sector in charge of the processing of goods. It includes car manufacturing, construction, food processing, electronics manufacturing, textile production and steel manufacturing. Tertiary sector: Sector in charge of the provision of services or distribution of them. It includes wholesale, banking, retail, insurance, leisure, transport, security, healthcare hospitality and restaurant services. Quaternary sector: Sector in charge of informing. including fewer physical resources and a greater focus on knowledge. It includes education, the media, web-based services, data analysis and consultancy. Less developed economies have a better primary sector because they tend to have enough resources, but developed economies have a better tertiary and quaternary sector as they have better technologies. People start a business for: - Rewards for profits. - Independence to not depend on bosses. - Necessity. - Challenge and develop new skills. - Interests. - Finding a gap because of new opportunities. - Sharing an idea and selling it. Steps to start a business: - Organising the basics: They must ensure to settle the basic points of the business structure. - Refining the business idea: They must do a detailed analysis of the market status to determine how the business can enrol itself in the market. - Planning the business: They should set up a document on how the business will run and should register the requirements for the business. - Establishing legal requirements: They must follow legal registration, meeting legal requirements, and follow government regulations. - Raising the finance: Money must be raised to sustain the business’ operations. - Testing the market: It consists of launching the business. It can be expensive but it helps to verify that the business is successful. Problems from starting a business: - Inappropriate location. - Wrong structure. - Unreliable supplies. - Poor market research. - Inappropriate target. - Weak communication. - Vague plan. - Legal requirements not met. - Difficult registration. - Not enough capital raised. - Not an inspirational product. Tips for starting up a business: - Determination. - Finance management. - Time management. - Keep informed. - Market analysis. - Be ready to commit mistakes. - Be responsible. - Be focused. - Be innovative. - Be multiskilled. - Have leadership skills. Entrepreneurs: People who decide to start a business. Intrapreneurs: People who design new products inside a business and propose innovations. How to be prepared for starting up a business? - Be flexible. - Keep informed about the market status and global situation. - Retain experience. 1.2 Private sector: Portion of the economy that is not owned or controlled by the government. Public sector: Portion of the economy that is owned or controlled by the government. For example, government services (insurance, hospitals, police and public schools) and state-owned corporations. Profit-based (commercial) organisations: Entities in which their main aim is to make a profit. Profits = Total revenues - total costs Legal distinction: Where businesses are recognised separately from their owners. Sole trader (sole proprietor): A business that is owned and run by one person, who has no legal distinction between the business and themselves and has unlimited liability. - The business disappears if the owner dies. - They begin with a limited budget and simple organisation. - They do it because they want to be their own boss, they want to seek a gap in the market and want to respond quickly, creating their own profit, granting community service and reaching their dreams. - They are geographically close to the customer and have a better interaction and personalisation. - They have more privacy and limited accountability because they meet less paperwork and do not declare finance status, except tax authorities. - Registering is relatively easy, inexpensive and quick. - Do not have shares. Advantages: - Profits for the owner due to legal distinction. - They have complete control over their decisions. - They have more flexibility and privacy. - They have minimal legal formalities. - They are close to customers. Disadvantages: - They deal with all the competition. - They have more stress that leads to ineffectiveness. - They have a lack of continuity of accidents or death. - They have a limited scope for expansion. - They have limited capital. - The owner is liable for all faults, debs and mistakes. Partnerships: A business owned and operated by two or more people (partners), who have no legal distinction between the business and themselves and have unlimited liability. - It is commonly owned by friends, family, associates, or people with similar or related skills and interests. - It is owned by 2 or more people, around 2 to 20. - Finance is more available in comparison to sole traders because all partners contribute to some start-up capital or “buy-into”. - There might be sleeping partners, who provide financial support and expect a share of the profits but do not operate the business. - They can provide different types of expertise to the business. - There is a greater degree of accountability, because all partners are completely responsible for the business, but they can set up a document (deed) that establishes certain boundaries and duties (responsibilities, financing, division of profits, liabilities and procedures for changing circumstances). - They are typically more stable and have more chances of continuity if somebody (a partner) dies or suffers an accident. - They do not necessarily share all the profits equally. Advantages: - They have more skills and qualities, leading to a more efficient production, specialisation and division of labour. - They bring more expertise to the business. - They have greater stability and lower risks, leading to a greater access to finance. - They can provide themselves with mutual help. - They have more continuity chances as the business will not end if a partner dies. Disadvantages: - Each partner has unlimited liability as each is legally responsible for debts or other actions, except for “limited partners”, who are established in the deed of partnership. - They have less access to loans from banks and other financial institutions because of their ability to raise capital through the sale of shares, their established creditworthiness, and the perception of reduced risk due to their limited liability structure. Additionally, companies often have larger assets and revenue streams, making them more attractive to lenders and investors. - A partner has to be interdependent and rely on other partners in terms of their work and goodwill. - If partners disagree, the business might cease to exist. Patent: A set of exclusive rights granted by a state to the investor of a product. Initial Public Offering (IPO): Shares sold to the public for the first time by a business. Companies or corporations (INC, LLC, PLC, LTD and others): A type of business where the owners, known as shareholders, have limited liability over the business and are recognised with a legal distinction between the business and themselves. - There can be multiple owners in a company.  - Shareholders own shares, which are a fraction of ownership and investment in the business. - They must obey more laws and pay more taxes. - Companies keep the profits from their business activities, unless shareholders decide to pay all or a portion of profits to the shareholders in dividends. - Shareholders receive profits as dividends, determined by shares. - Companies must share a portion of their profits to social organisations. Advantages: - Shares’ price may increase in value if the company performs well because profits rise. - Shareholders get paid in dividends. - There is a higher stability and continuity chances for no legal distinctions. - Shareholders have a limited liability over the business. Disadvantages: - Shares’ price may decrease in value if the company is not performing well - Shareholders might not get paid in dividends if the company does not want to because of other financial focuses, but, still, their shares have a certain value and they can sell their shares to others (capital appreciation). Dividends are for shareholders and salaries are for employees. (ASSET: Something of value that is owned by an individual, company or organisation). - Having less shares does not mean that they have a meaningful say in the business. Reasons to become a company: - Because of getting a legal distinction and limited liability. - Selling shares is a good financial source. - There is a higher stability even if a shareholder dies. - They have improved finance opportunities and more access to loans. Companies must have multiple investors and major infusion of capital. Executives may be hired by shareholders and the original business owner may be an investor. COMPANIES CAN BE EITHER PUBLICLY OR PRIVATELY HELD: - Publicly held companies are those that sell their shares to the public, while privately held companies can only sell shares privately (acquaintances, relatives). Both have limited liability, a separate legal distinction and shareholders. - Generally, private companies vary around 20 stakeholders. - Private companies limit financial opportunities but have more control. - Private companies do not have to disclose and report their affairs and oftentimes meet less legal requirements. - Public companies must produce an audited financial statement once a year (financial report). Potential investors can use their accounts. - Public companies MUST offer shares publicly, thus they lose privacy and control over who buys their shares. - Shareholders own but not necessarily run the business. Instead, they may have little running interaction and managers make decisions. - Shareholders are subject to change. - Details of formation are legally recorded and are of public record in two documents:  - Memorandum of association: It records the key characteristics and external activities of the company. For example, the basic information on objectives and the record of share capital initially required. It details the constitution of a company, including fundamental operation conditions, name, office address and objectives. - Articles of association: It records how the company will be regulated internally. For example, the initial organisation of a company’s executives, their titles and areas of responsibilities and other rights. - Greater finance is more available because it sells shares to the public and the price is paid at the IPO, which are of benefit to investors and future gains. However, if a business fails, it happens viceversa. - The business is held at a high degree of accountability because they must provide information to the shareholders so that they can understand the condition of their investment. They do it by published and audited annual reports, annual meetings (AGM), and extraordinary general meetings (EGM) when called by the shareholders. Advantages: - Finance is more available, allowing more investments and loans. - Shareholders have a limited liability over the business. - There are higher continuity chances. - There are higher expansion opportunities. - There is an already established organisational structure because managers and other employees do not have to change if shareholders do or sell shares. - They tend to be more flexible. Disadvantages: - It takes more time and costs a lot to fulfil necessary legal formalities. - Selling shares does not guarantee a desired or intended finance amount. - Owners risk partial or entire loss of control over the business, especially public companies. - There is a high loss of privacy, especially for public companies. - The company has no control over the stock market (place where investors buy or sell shares of publicly traded companies), meaning that share’s price may fall. - There is a limited control over who buys shares. - Private companies are smaller than publicly held companies. Social enterprises: A form of business that has a social purpose and runs it in a financially sustainable way. The organisation aims to improve human, social or environmental wellbeing, and these aims are over the desire to earn profits, growing and maximising sales. - Social enterprises do not necessarily rely on philanthropy (welfare of citizens). For-profit social enterprises do aim to make a profit, but do not want to maximise profits if it compromises their social aim. Cooperative: A business organisation where members pool their resources for a common goal. It is owned and operated by their members, who tend to be many. In the private sector companies, social enterprises operate in the private sector and; for example, can make donations. In public sector companies, they operate in the public sector. For example, they can make meals and deliver it to poor people or do activities related to recycling. Types of cooperatives: Financial cooperatives: It is a financial institution with ethical and social aims taking precedence over profits. It offers less interest rates to people who do not have enough money to ask for loans in regular financial institutions. It includes credit unions. Housing cooperatives: A cooperative that provides housing to all of its members. For example, in a building, members are delegated an apartment and they are entitled that unit in their names, having lower costs and control over who becomes a member. Workers cooperatives: A cooperative that is owned and operated by workers who take over the business to not lose their job and reinvest on it to prioritise that salaries are similar, and they get similar opportunities. They also have the priority to employ and emerge when a business is failing. Producers cooperative: Groups of producers that cooperate in certain stages of production. It is common in agriculture. It has the intention to maximise the utilisation of an expensive piece of equipment or procedure that is not affordable. For example, grape farmers cooperate with wine producers. Consumer cooperative: A cooperative that provides a service to its customers who are also part owners of the business. For example, grocery stores that allow members to purchase products at a lower cost. - The cooperative’s priority is mostly not to make profits but ensure the satisfaction of the needs of members. - It sells or offers its products or services typically at as close to the cost price as possible, lowering costs to members. However, these low prices are prone to leading to a decline or financial deficit by not reinvesting in the business. - There are tax exemptions. - There is still an aim to make some profit for backup, but it is not the main aim. Features of a for-profit business: - They tend to have shares. - Profit is important but not the main priority. - They have a high degree of collaboration between the business and the local community because both recognise a need being met by ordinary business activity or by a government.  - They are more democratic than other typical for-profit companies or organisations, because decision-making is more consultative and transparent. Also, it generates a greater willingness on the part of stakeholders to be supportive. - The business operates the four functions (HR, Marketing, Finance and Accounts, Operations Management). Advantages: - They reach a favourable legal status because it allows individuals to engage in activities that are good for society or the environment without being personally liable or accountable to shareholders with traditional interests. - There is a strong communal identity because it motivates the community and employees to engage in their activities. - The general stakeholder’s community benefits because of their products. Disadvantages: - Decision making is complex because many parties tend to be involved in. - There might be insufficient capital for growth because their main aim is not to maximise profits at all. - They have a lower financial strength because of insufficient capital. Non-profit social enterprises: Organisations with many similarities to a normal social enterprise, whose aim is to provide a social service, but they are much less willing to earn a profit, or “surplus”, as they consider them to be. Non-governmental organisations (NGO’s): Organisations with a humanitarian purpose that are independent of the government but often receive government support and cooperate with them. - They generate or sometimes aim to generate surpluses, which are the excess of income (in other words, a profit, but it is not seen that way), and they are used to advance the social purpose for which the business was set up. Surplus = Total revenue - total costs THERE ARE TWO TYPES (BOTH WORK IN THE PRIVATE SECTOR): NGO’s: They support a cause that is considered socially desirable and are concerned with a single issue or with a broader spectrum. - They might not have a political affiliation or agenda/political aims. Charities: A specific type of NGO’s that provide as much relief as possible to those in need and have a philanthropic focus, meaning that they focus on the welfare of others. - They might be single-event charities. - They might focus on a single and specific issue. - They have no interest in politics, or may have strong political ties or preferences. The difference between charities and NGO’s is that charities, because of a charitable purpose, are exempt from taxes, but NGO’s pay taxes. - Both make surpluses. - Both rely on donations. - There is an unclear ownership structure and control. Advantages: - They help people in need. - They foster a philanthropic spirit in the community and positive attitudes. - They foster informed discussions and decisions in the community. - They tend to innovate a lot. Disadvantages: - There might be intense lobbying (lawfully attempting to influence actions, policies or decisions) that leads to socially undesirable results. - Sometimes, employees might be too enthusiastic, which deteriorates the direction of the social purpose. - Funding can be irregular because they depend on donations. Privatisation: Process of turning a public sector company into a private one. Nationalisation: Process of turning a private sector company into a public one. 1.3 Vision statement: A business’ statement that establishes a future view of what the company wants to achieve and what direction it aims to follow. - It speaks to long-term aims and highest aspirations. - What do we want? - It points to the future. - It has to be inspiring and motivating. - It gives a sense of shared beliefs. - It cannot be changed. - They are brief. Mission statement: A business’ statement that establishes their purpose of existence and generally includes aims, expressing its important values. - It helps to accomplish objectives to achieve the mission. - It is a step on the way to the vision. - Why are we doing what we are doing? - It communicates what needs to be done in order to achieve the vision. - It gives means for accountability by defining key performance indicators. - It measures how successful the business is achieving its vision. - It is subject to change or adaptation to certain circumstances. - They are longer than vision statements. Business objectives: Articulated, specific and measurable targets that a business must meet to achieve the aims or long-term goals of the business. Strategic objectives: Long to medium-term goals of a business set by the CEO, board of directors and senior managers that indicate how the business intends to fulfil its mission and usually include performance goals. Business strategy: Plan to reach the strategic objectives. Tactical objectives: Medium to short-term goals set by executive managers and middle-level managers that will help the business reach its strategic objectives. Business tactic: Plan to reach the tactical objectives. Operational objectives: Short-term goals set by middle-level managers, floor managers and employees that are day-to-day targets that help to reach tactical objectives. Common objectives: Growth, gaining market share, increasing sales, enhancing profits, being sustainable, reaching ethical objectives. MARKET SHARE: Percentage of total industry sales a company has. Aims are not concrete and are purposely vague and abstract, while objectives are concrete. Best business objectives are SMART (Specific, Measurable, Achievable, Relevant, and Time-specific). Specific: Clear, defined. Measurable: In order to see if the objectives are being achieved. Achievable: They are realistic, motivational, reduce distraction and are not beyond the reasonable reach of employees. Relevant: Useful, important, applicable. Time-specific: Time frame set and sufficient time available. Changes due to the internal environment: - Leadership: Change of aims and objectives or leadership style. - Human resources: Recruited people, training changes, communications. - Organisation: New arrangements, internal pressures. - Finance: Fewer finance sources or limited access to capital. - Operations: Innovations or better methods. - Marketing: Promotion strategies. Changes due to the external environment: - Limited/no control over the external environment. - STEEPLE (Social, Technological, Economic, Ethical, Political, Legal, Ecological). Tips for reaching goals: - Question yourself. - Work on your strengths.  - Enjoy what you are doing. - Have structured goals. - Build a great team. - Be prepared. - Learn from your mistakes. - Separate work from life. - Chase your dreams. - Have fun. Corporate social responsibility (CSR): View that businesses, rather than focusing on increasing shareholder value, should contribute to the economic, social, and environmental wellbeing of society. Companies should do more than merely make money for shareholders. It is also considered a powerful force in worldwide companies. Focus on: - Philanthropy. - Generous salaries and wages. - Benefits. - Environmental support. Ethical objectives: Objectives based on moral principles. - Building customer loyalty. - Creating a positive image. - Developing a positive work environment. - Reducing the risk of legal redness. - Satisfying customer’s ever higher expectations for ethical behaviour. - Increasing profits as people seek businesses that behave ethically. Impact on ethical objectives: - It impacts the business itself on norms and practices. - Competitors must ensure to maintain their market position as the business enhances its image. - Suppliers may have to respond to policies of buying from ethical businesses. - Customers build trust and loyalty. - The local community can get affected by employment, goodwill, and good relationships established. - Recognition from the government. Ethical objectives and CSR: - Ethical objectives are specific goals that a business sets for itself based on behaviour codes. - CSR is the concept that a business has an obligation to have a positive impact on society. - CSR policies assess business actions and lead to implement ethical objectives.  - CSR is broader and less specific than ethical objectives. SWOT Analysis: A table that classifies a business’ strengths, weaknesses, opportunities and threats, that helps the strategic planning process and helps to understand the organisation itself. It is meant to be the first stage in the planning process. - Strengths and weaknesses arise from the business itself and opportunities and threats arise from the external environment. - A poor analysis can lead to failure. - It is a strategy rather than a brainstorming. Opportunities and strengths: Growth strategies: Strategies that are best achieved by combining strengths and opportunities that produce a positive short-term strategy available from the matrix. It is less risky and more forward-looking. Weaknesses and opportunities: Re-orientation strategies: Strategies that focus on addressing weaknesses and use them for opportunities available in the market. They are positive and long-term. First, they must address weaknesses and later orientate into opportunities. Threats and strengths: Defusing strategies: Strategies that eliminate threats in the market by focusing on strengths. They are neutral and medium to short-term. Weaknesses and threats: Defensive strategies: Strategies adopted in a vulnerable state, so they should be defensive and quick and are considered the most negative because they help to survive. They are short-term. Ansoff Matrix: A framework that evaluates strategies for growth in regards to the product and market for either existing or new. Existing product and market: Market penetration: Growth by increasing its market share and selling more of its existing products in the same market. - It is the safest option for growth. - Opportunities might be limited by competition. - Relies on promoting the brand. New product and existing market: Product development: Expansion in the same market by developing new products in terms of upgrading and variations. It is riskier than market penetrations and depends on customer’s loyalty. - It depends on strong market research. Existing product and new market: Market development: Expansion into new markets by looking for new segments for selling the product. It is riskier than market penetration as businesses may not understand the new markets. - It depends on good communication and market research. New product and market: Diversification: Riskiest type of expansion because it combines a new product with a new market by testing both into a lack of familiarity. - It depends on market research and a good strategy to enhance competitive advantage. 1.4 Stakeholders: Any individual or groups of individuals who have an interest in a business, and can affect or are affected by it. Market stakeholders: Stakeholders who have a commercial relationship with the business. Non-market stakeholders: Stakeholders who do not have a commercial relationship with the business. Primary stakeholders: Stakeholders who affect or are affected by the business. Secondary stakeholders: Stakeholders who have an indirect relationship with the business. Internal stakeholders: People who work inside the business. External stakeholders: People who are outside the business. Grey areas: The circumstances where stakeholders can be both internal and external. Interests of stakeholders: Results a stakeholder wants as a result of the output or actions of an organisation: - Returns on investment. - Coordination. - Objectives (strategic, tactical, operational). - Rights and working conditions. - Operations. - Stable relationship. - Quality of outputs. - Impact on the area. Conflicts between stakeholders: Differences on opinions and interests between stakeholders: - Salaries. - Taxes. - Funds. - Profits. - Budget. - Satisfaction (key to success). - Job positions (leads to unemployment). - Working conditions. Stakeholder analysis: A circular diagram that classifies stakeholders according to their importance within a business, where the managers, owners, shareholders and CEO are at the core, while the media, pressure groups and the community are at the outermost part of the diagram. Stakeholder mapping: A two-by-two table that classifies the stakeholders according to their level of interest and degree of power, developed by Johnson and Scholes. It has from Group A to D: - Group A: Those that should not be taken into account at all because they do not have any interest or power over the business. - Group B: Stakeholders that must be made feel included given that they have a high degree of interest in the business, such as the media or events. - Group C: They must be kept satisfied because they have a high degree of power but have no interest at all in the business, such as the government in most cases. - Group D: They must be kept both satisfied and included, and must have a proper communication with them in terms of consulting them for decisions and preferences. 1.5 PEST: Political, Economic, Social, Technological. PESTLE: Political, Economic, Social, Technological, Legal, Ecological. STEEPLE: Social, Technological, Economic, Ethical, Political, Legal, Ecological. S: Lifestyle, education, fashion, demographics. T: ICT, improvements, infrastructure, research, development. E: Economic growth, unemployment, exchange rate, inflation, interest rates. E: Corruption, fair trade, behaviour codes, transparency. P: Stability, policies, lobbying. L: Regulations, laws, legislation. E: Resources, organic, global warming, carbon footprint. Scale of operations: Size or volume of output. Economies of scale: Decrease in per unit cost production as output or activity increases. Diseconomies of scale: Increase in per unit cost production as output or activity increases. TOTAL COST = FIXED COST + VARIABLE COST Fixed cost: Costs that do not change in relation to the output (salaries, insurance, loans). Variable cost: Costs that change according to the output (supplies, deliveries, commissions, raw materials). 𝑇𝑂𝑇𝐴𝐿 𝐶𝑂𝑆𝑇 AVERAGE COST = 𝑄𝑈𝐴𝑁𝑇𝐼𝑇𝑌 𝑃𝑅𝑂𝐷𝑈𝐶𝐸𝐷 Conditions of an economies of scale: - Capacity. - Less average costs. - More productivity. - More demands. Internal economies of scale: Efficiencies a business can make by itself. - Technical. - Managerial. - Risk-bearing. - Purchasing. - Marketing. - Financial. External economies of scale: Efficiencies a business can make with the aid of external factors or actors. - Consumers. - Employees. - Government. Internal diseconomies of scale: Inefficiencies a business makes by its own: - Technical. - Marketing. - Financial. - Purchasing. - Managerial. - Risk-bearing. External diseconomies of scale: Inefficiencies a business has as a consequence of the growth of an external actor or by external factors. - Competence. - Employees. Reasons to grow: - Survival. - Economies of scale. - Status. - Market share. - Market leadership. Reasons to stay small: - Greater focus. - More flexibility. - Greater prestige. - Greater motivation. - Competitive advantage. - Less competition. Decision trees: A diagram that helps businesses decide on whether to grow or stay small. It has square nodes, which are where decisions must be made, and round nodes, where the different outcomes are predicted. Costs are under respective choice lines. Probabilities are under respective outputs and returns are at the end of the lines. Internal growth: Growth by using a business’ own capabilities and resources. It happens slowly, steadily, less risky and uses self-financing. External growth: Riskiest growth with the aid of external factors. Types of external growth: - Merger: Where two businesses, considered “equal”, combine with each other. - Acquisition: Where a company buys all or the majority of shares of another company with general approval, also considered “hostile takeover”. - Takeover: Where a company, without the welcome notion of the other, acquires it by purchasing all or the majority of its shares. ALL OF THESE CREATE A BIGGER BUSINESS. Types of integration: Horizontal: Where two businesses, at the same stage of the chain of production, join together. Vertical: Where two businesses, at different stages of the chain of production, join together. - Backwards vertical integration: Where a business integrates with another at an earlier stage of the chain of production to, in most cases, ensure its supply chain. - Forwards vertical integration: Where a business integrates with another at a later stage of the chain of production. Conglomeration: Also known as diversification, is when two unrelated businesses integrate. BENEFITS: - Economies of scale. - Complementary activities. - Control of chain of production. - Market share. ALL OF THESE ARE COSTLY. Other types of growth: Joint venture: Where two businesses join for a specific goal and create a separate new business. Strategic alliance: Where two or more businesses join for a specific goal but independently and there is not a new business created. Franchising: A type of expansion by distributing goods or services, where a franchisor produces the products and sells the right to a franchisee to sell it under the brand’s name, who has to also pay a fee to run the franchise. The franchisee must ensure to replicate the original business, but, in exchange, the franchisor must provide the franchisee with the supplies to run it properly. Benefits to the franchisee: - Status, popularity, - A format already exists. - Set-up costs established. - Have stock. - Are granted help. Disadvantages to the franchisee: - Unlimited liability over the franchise. - Pays royalties to the franchisor. - Has no control over the supplies and what to sell. Benefits to the franchisor: - Expansion. - Gains market share. - Not liable at all of the franchise. - More profits. - Makes the majority of decisions and spreads knowledge. Disadvantages: - Loses control on the daily running of the business. - Sees its image suffer if the franchise fails. - Has to supply the franchisee. 1.6 Globalisation: Process where the world integrates in economic, social, cultural, political, technological and other aspects in a progressive way. Post-national businesses: When businesses have a home office legally registered in one country. Transnational businesses: When businesses do not have a host country. Globalisation’s impact on domestic businesses’ growth:  - Increases competition: They seek to construct improvement to satisfy the customers in regards to others for various choices customers are presented. - Greater brand awareness: Domestic businesses have to compete with big brand names so they have to create their unique selling points (USP). - Skills transfer: Big businesses must use some local knowledge, including from local workers. - Closer collaborations: New business and negotiations opportunities. Multinational businesses (MNC’s): Companies that are legally registered and operate in two or more countries, and are considered the biggest type of business. Factors of rapid growth: - Improved communications. - Dismantling of trade barriers. - Deregulation of the world’s financial markets. - Increasing economic and political power of MNC’s. Impact on host countries: Advantages: - Economic growth: Boosts the economy by more job positions, taxes and capital injections. - New ideas: New ways of business and interactions. - Skills transfer: Help develop employee’s skills, allowing them to start new businesses with their learnings. - Greater choice of products: More variety. - Short-term infrastructure projects: For example, roads and schools. Disadvantages: - Profits being repatriated because, despite there being taxes, MNC’s keep most of their profits for themselves. - Loss of cultural identity: Appeal of domestic products, ways of business and cultural norms get affected. - Brain drain as high skilled local employees may look to work in other countries. - Loss of market share: MNC’s take more of the domestic market, so local producers lose part of their market share. - Short-term plans: MNC’s may not intend to stay for a long time, so there are less investments in the country.