UB

• 1.1 Adding Value

  Increasing the difference between the unit cost and selling price by making a product/service more appealing to consumers. This can be achieved using:Secto
• 1.1 Sectors of Industry

  primary - extraction of raw materials/exploiting natural resources eg mining, farming

  
  

  secondary - manufacturing, taking natural resources and producing goods with them eg car production

  
  

  tertiary - businesses providing a service eg hotel, bank

  
  

  quaternary - providing knowledge and information based services eg business consultancy and research & development
• 1.1 Sectors of Economy

  Private - organisations owned and run by private individuals whose main concern is to make a profit.

  
  

  Public - organisations owned by the government, controlled by the government, funded by the taxpayer whose main concern is to provide a service within a set budget

  
  

  Third/Voluntary sector - non-profit organisations, charities & social enterprise operate within this sector.
• 1.2 Public Limited Company (PLC)

  Ownership - Shareholders

  
  

  Control - Board of Directors

  
  

  Finance - Sales of shares

  
  

  Objectives - Dominate the market and increase market value
• 1.2 Public Sector Organisation

  Ownership - Government

  
  

  Control - Government either local or national

  
  

  Finance - Taxes

  
  

  Objectives - Provide a quality service and work within a set budget
• 1.2 Private Limited Company (Ltd)


  Shareholders own the company; shares not sold on the stock exchange, but privately to selected shareholders. Controlled by Board of Directors.

  
  

  A - Has limited liability to shareholders/owners

  - Control is still not lost to compete outsiders

  - Experience and skills can be gained from shareholders

  
  

  D - Profits shared between shareholders

  - Complicated legal process

  - Financial Statements shared with companies house so profits dont remain private.
• 1.2 Public Limited Company (PLC)

  Shareholders own the company; shares not sold on the stock exchange, but privately to selected shareholders. Controlled by Board of Directors

  
  

  A- Shares can be sold on the stock exchange meaning large amounts of finance can be raised.

  - PLCs often dominate their market meaning they can force smaller organisations out of business to dictate market prices.

  - Investors will have limited liability meaning PLCs will find it easier to attract shareholders.

  
  

  D - There is a large amount of legislation which must be complied with or the company may be fined have legal action taken against them.

  - PLCs have no control over who buys shares which might mean investors can plan a hostile takeover.

  - PLCs are required by law to publish annual accounts which will be costly to produce.
• 1.2 Franchise


  A business agreement where one business can operate under the name of another business. This gives them access to the franchisor's products, branding, and knowledge. The franchisee pays the franchisor an upfront fee, a percentage of the annual sales or profits, or a set fee each year to obtain a licence.

  
  

  Franchisor - this is who owns the original business

  
  

  Franchisee - this is who has bought the right to use the original business name and enter into business, selling the products of the franchisor.
• 1.2 Advs and Disadvs of a Franchisee

  A - Using an established name/brand reduces the risk of failure in the marketplace

  - Franchiser will provide training

  - Franchiser will advertise nationally

  Product innovation is shared

  
  

  D- Royalties are paid to the franchiser from profits

  - Franchiser can demand exactly how a business operates

  - Bad publicity can affect the whole franchise
• 1.2 Advs and Disadvs of a Franchisor

  A - Entrepreneurs may improve franchises with new ideas that employees would not have been motivated to find.

  - Risk of capital assumed by franchisee.

  - Opportunity to expand market share

  
  

  D - Reputation at risk as franchised stores cannot be managed as closely.

  - Confidential information shared to franchisee's may leak.
• 1.2 Multinational Company (MNC)

  Organisation with operations in at least 2 countries and has a distinct home base country

  
  

  A - An organisation may be given grants from governments to locate in that country

  - Organisations will become larger which may result in them being safer from takeovers

  - Increased sales as there is access to a wider target market.

  - Economies of Scale

  - Ability to employ cheaper staff

  
  

  D - Legislation may be different in other countries which may require the organisation to alter its product/service

  - Cultural differences will mean that organisations have to be sensitive to different countries cultures eg siesta

  - Language barriers
• 1.2 Public Sector

  - organisations owned by the government, controlled by the government, funded by the taxpayer whose main concern is to provide a service within a set budget

  
  

  - NHS, BBC (public corporation), and RBS (nationalised company)
• 1.2 Third/Voluntary Sector

  - Not-for-profit organisations, charities, & social enterprises operate within this sector.

  
  

  - Charities are set up to help a particular cause. Charities are not owned by a specific individual, they are usually set up as trusts and control is taken by the board of trustees. Charities are financed by donations from the public, private companies, and the government.

  
  

  - Social enterprise - These businesses are driven by a social/environmental mission. They run as a normal business, though aim to use profits to support a cause

  
  

  - Some funding/grants/support is only available to social enterprises

  
  

  - Attract customers who appreciate the good causes they help

  
  

  - Attract good quality staff who want to help the social cause
• 1.3 Objectives

  Profit maximisation - when a firm aims to make as much profit as possible.

  
  

  Sales maximisation - selling as many units as a good/service as possible without making a loss.

  
  

  Satisficing - aiming for satisfactory result rather than the best possible outcome

  
  

  Survival - keep the business operating; important for small firms or during recession.

  
  

  Growth - to have more outlets, staff and higher turnover, increased market share

  
  

  Provide quality service - deliver a fit-for-purpose product/service that meets customer expectations.

  
  

  Working within a set budget -controlling costs within areas of the firm to stay under budget.

  
  

  Managerial objectives - managers pursuing objectives which they may believe improve their status.
• 1.3 Public Sector Objectives

  - Operate within a budget

  - Provide a service

  - Meet local/ national priorities

  - Social Responsibility
• 1.3 Corporate Social Responsibility

  Aiming to act in an ethical way in order to benefit the environment or society.

  
  

  A - Attracts high quality staff with similar values

  - Develops a good reputation that can attract consumers

  
  

  D - Can increase costs that may require an increase in price or fall in profit margin
• 1.4 Organic/Internal Growth

  - Growth of a business from its own internally generated resources eg firms open more stores

  
  

  A - Less risky than taking over other businesses.

  - Can be financed through internal funds, e.g. retained profits.

  - Builds on a business's strengths, e.g. brands, customers.

  
  

  D - Growth may be dependent on the growth of the overall market.

  - Slower method of growth — shareholders may prefer more rapid growth.
• 1.4 Inorganic/External Growth

  Merger - where 2 firms join together on agreed terms

  
  

  Takeover/acquisition - where one firm purchases another firm and takes control. Takeover could be hostile but only if shares are traded publicly

  
  

  Franchising

  
  

  Becoming Multinational
• 1.4 Horizontal Integration

  Firms (in the same sector) producing the same type of product/service join together.

  
  

  A - dominate the market

  - obtain cheaper supplies due to economies of scale (bulk-buying)

  
  

  D - Mergers may breach competition rules.

  - Job losses due to duplication of roles.
• 1.4 Backward Vertical Integration

  A firm takes over a business in an earlier stage of production, such as a supplier.

  
  

  A - Guaranteeing supply of stock

  - Control over price and quality of stock.

  
  

  - Focusing on new activity may affect focus on core activity.

  - Lack of experience could worsen quality of input.
• 1.4 Forward Vertical Integration

  A firm takes over a business in a later stage of production. such as a retailer.

  
  

  A - Control of distribution is possible.

  - Control of marketing/sales.

  
  

  - Monopolising markets may have legal repercussions

  - Lack of experience in running business in sector.
• 1.4 Lateral Integration

  Business acquires/merges with a business in the same industry but does not provide the exact same product.

  
  

  A - The business can target new markets and therefore increase sales.

  - Can spread risk; firm still profit if one market struggles

  
  

  D - Lack of knowledge in the market may impact quality.

  - Different work culture between different firms may cause unrest in staff.
• 1.4 Conglomerate Integration

  Conglomerate Integration

  When a firm decides to merge with or takeover a business in an unrelated market

  
  

  A - Overcome seasonal fluctuations in markets.

  - Spreads risk; if one market fails, profit acquired elsewhere.

  
  

  D - The business may become too large to manage (diseconomies of scale).

  - Lack of knowledge in the market may impact quality.
• 1.4 Outsourcing

  organisation could contract out some of their procedures

  
  

  A - Allows firm to concentrate on core activities

  - High quality work from outsourced business as it has the expertise and specialist equipment

  
  

  D - Sensitive information shared with outsourced business could get into the hands of competitors

  - Clear communication required to ensure exact specifications met

  - Firm's reputation is still held responsible if poor performance by the outsourced firm.
• 1.4 Demerger

  A single business splits into two or more components

  
  

  A - New components can concentrate on core activities, increasing efficiency.

  - New components can be divested to meet regulations.

  
  

  D - Customers may dislike the idea, and use other firms.

  - Significant costs in terms of rebranding, marketing, etc.
• 1.4 Divestment

  Selling off part of an organisation, such as a subsidiary or one of its brands.

  
  

  A - Can focus on more profitable areas of the business.

  - Sale can raise capital to fund other priorities.

  
  

  D - Loss of a business area which may have seen success in future.

  - May impact reputation if previous employees lose their jobs.
• Deintegration

  Selling off part of an organisation that had previously been purchased

  
  

  A - Can focus on more profitable areas of the business.

  - Sale can raise capital to fund other priorities.

  
  

  D - Loss of a business area which may have seen success in future.

  - May impact reputation if previous employees lose their jobs.
• 1.4 Asset Stripping

  Taking over another firm with the intention of selling their assets for profit.

  
  

  A - Can be done in the case of a firm which is no longer profitable, realising the most realistic return on investment.

  - Could gain customers/brand name, while also stripping assets.

  
  

  D - Can damage reputation, as tends to happen after hostile takeover and causes job losses.

  - Could have been more profitable in the long-run if the firm was better managed.
• 1.4 Retained Profits

  Money made in previous years which was not made to shareholders, and can be reinvested into the firm.

  
  

  A - No short-term cost or interest to be repaid.

  - Can increase value of firm to keep money on balance sheet.

  
  

  D - Limited by the profits made previously.

  - Must find balance between retained profit and dividends to maintain shareholder satisfaction.
• 1.4 Management buy-in

  External managers purchase a controlling stake in the firm.

  
  

  A - Likely to be experienced in the industry, so can make profitable changes.

  - Employees could become motivated at prospect of change

  
  

  D - May not have full knowledge of internal culture and reasons for poor performance

  - Employees could become overwhelmed at scale of change
• 1.4 Management buy-out

  Current managers purchase a controlling stake in the firm.

  
  

  A - Have knowledge of internal culture and processes, making for a seamless transition

  - Can maintain confidentiality

  
  

  D - Likely to be trained in company processes, so may not have creative solutions to issues

  - May struggle with transition from management to ownership
• 1.5 Political (PESTEC)

  Government actions such as changing the law eg government changing rate of tax , increasing the minimum wage, economic & competition policy
• 1.5 Competition Policy

  Competition Policy - policies that a government introduces to ensure industries are competitive. It covers various areas for eg blocking mergers if it leads to a 'substantial lessening of competition' in any market, cannot use market power to pay unfairly low prices to suppliers, May be fined for anti-competitive behaviour.
• 1.5 Political Factors and Impacts

  Changing Tax rates

  P - A decrease in corporation tax would increase the firm's profits.

  N - An increase in income tax would give consumers less to spend.

  
  

  Spending on Infrastructure

  P - Improved roads can mean more efficient transport of goods.

  N - A decision to spend less on education could create a less skilled workforce.
• 1.5 Fiscal Policy (Political)

  Fiscal Policy; the tax or government spending enacted by the government.

  
  

  Expansionary fiscal policy aims to increase economic growth.

  A fall in income tax puts more money in consumers' pockets as they pay less to the government; increased sales for firms.

  
  

  A fall in VAT allows firms to reduce prices as they pay less tax on goods sold. This increases units sold, potentially increasing profit.

  
  

  A fall in corporation tax leaves a firm with more profit; this can be used for expansion plans.

  
  

  An increase in government spending - building more schools, hiring more doctors, build new roads - all leads to job creation, which gives consumers more to spend.
• 1.5 Contractionary Fiscal Policy (Political)

  Contractionary fiscal policy aims to slow economic growth.

  
  

  Flip all of the fiscal policy notes.
• 1.5 Monetary Policy (Political)

  the interest rate charged by the Bank of England.

  
  

  Expansionary monetary policy aims to increase economic growth by reducing interest rates.

  
  

  Reduced interest rates means people are paying less on their mortgage. This leaves more disposable income, which can be used to purchase goods and services. Firms experience increased demand.

  
  

  Reduced interest rates also lessen the reward for borrowing. This discourages saving, encouraging consumers to spend more. Again, firms should expect increased demand.
• 1.5 Contractionary Monetary Policy (Political)

  Contractionary monetary policy aims to slow economic growth by increasing interest rates.

  Flip the notes on monetary policy.
• 1.5 Economic (PESTEC)

  Government tries to control the economy through its economic policy. They do this through fiscal policy (concerned with tax and public spending) and monetary policy (supply of money in the economy e.g. Bank of England changing interest rates).

  
  

  Factors that affect how much money people spend eg Recession, Unemployment, interest rates
• 1.5 Economic Factors

  Interest Rates

  P - A drop in interest rates reduces mortgage repayments, increasing consumer spending.

  N - A rise in interest rates makes consumers more likely to save, reducing sales revenue.

  
  

  Inflation

  P - low and stable inflation (2%) gives consumers confidence, increasing spending.

  N - High inflation means consumers have less real income. reducing how much they are willing to spend.

  
  

  Economic Growth

  P - A growing economy suggests consumers have more income, increasing sales revenue.

  N - A growing economy means more resources are used, harming the environment.

  
  

  Unemployment

  P - Low unemployment means more consumers have money to spend, increasing sales revenue.

  N - Low unemployment reduces the supply of workers, increasing wage rates and, therefore, cost of production.