UNIT 1

1.1 intro

Economic sectors
Primary sector – firms/industries that extract natural resources that can be used and processed by other
firms

Secondary sector – firms that manufacture and process predicts from natural resources (including;
computers, brewing, baking, clothing, and construction)

Tertiary sector – forms that provide services to consumers and other businesses (including; transport,
retailing, insurance, banking, hotels, tourism, and telecommunications)

Quaternary sector – focuses on information technology (IT)and information service providers (including;
research and development, business consulting, and information gathering)

Entrepreneur - someone’s who takes the financial risk of starting and managing a new venture

Intrapreneur – someone within a large corporation who takes direct responsibility for turning an idea into a
profitable product. Do not risk their own capital and the consequences of failure as accepted by the
organization that they work at.

1.2 types of organizations

Private sectors – businesses owned and controlled by individuals or groups of individuals

Public sectors – organizations accountable to and controlled by central or local government (advantages
and disadvantages table below)

Privatization – sale of public sector organizations to the private sector

For-profit organizations For-profit social enterprises

Sole traders – a business where one person provides Social enterprise - a business with social
permanent finance, and in return has full control of the objectives that reinvests most of its profits
business and is able to keep all of the profits into benefiting society rather than maximizing
returns to owners.
Partnerships – a business formed by 2 or more people
Cooperatives - a group of people acting
to carry on a business together, with shared capital
together to meet the common needs of its
investment and shared responsibilities
members, sharing ownership, and making
decisions democratically.
Limited companies (private limited, public limited)
Non-profit social enterprises
- Private limited company: small to medium sized
business owned by shareholders who are often family Non- profit organizations - any organization
members, this company cannot sell shares to the that has aims other than making and
general public. distributing profit and which is usually
governed by a voluntary board.
- Public limited companies: a limited company, often a Non-governmental organizations (NGOs) -
large business, with legal rights to sell shares to legally constituted body with no participation
general public; its share price is quoted on the national or representation of any government which
stock exchange has specific aim and purpose

Cooperatives – owned and operated by its members.

1.3 Organizational objectives

Mission statements - stamens of the business’s core aims, phrased in a way to motivate
employees and to stimulate interest by outside groups

Vision statements - statement of what the organization would like to achieve in the long-term

Effectiveness
- quickly inform groups outside what the central aim and vision are
- they help motivate employees
- help guide and direct individual employee behavior at work

On the other hand,

- too vague and general

- based on a public relations exercise to make stakeholders ‘feel good’ about the organization
- lacking specific detail, so it is common for 2 completely different businesses to have similar
mission statement

Corporate aims - long-term goals which a business hoped to achieve

Operational objectives (SMART) Common corporate aims SWOT analysis

1) Profit maximization (Tip: analyst case study in
S- Specific 2) Profit satisficing exam using this )
M- Measurable 3) Growth S - Strengths
A- Achievable 4) Increasing market share W- Weaknesses
R- Realsitic 5) Survival O - Opportunities
T- TIME 5) Maximizing short-term sales revenue T - Threats
7) Maximizing shareholder value

CSR ( corporate social responsibility )

This concept applies to businesses that consider the interests of society
by taking responsibility for the impact of their decisions and activities on
customers, employees, communities, and the environment

Ansoff’s Matrix
A model used to show the degree of risk associated with the four growth
strategies
1) Market penetration
2) Market development
3) Product development
4) Diversification
1.4 Stakeholders
 1.5 External Environment
STEEPLE analysis
Framework for analysis the external environment factors
affecting business objectives and strategies

S - Social
T - Technological
E - Economic
E - Environmental
P - Political
L - Legal
E - Ethics

1.6 Growth and Evolution

Scale of operation - the maximum output that can be achieved using the available inputs

Economies of scale - reductions in a firms average unit costs of production from an increase in
the scale of operations
1) Purchasing economies (bulk-buying, suppliers offering discounts for large orders)
2) Technical economies
3) Financial economies
4) Marketing economies
5) Managerial economies

Diseconomies of scale - factors that cause average costs of production to rise when scale of
operation is increased
1) Communication problems
2) Alienation of the workforce
3) Poor coordination and slow decision-making

SMALL BUSINESSES LARGE BUSINESSES

Advantages: Advantages:

- managed and controlled by the owners - Can afford to employ specialist professional
- able to adapt quickly to meet changing customer managers
needs - Benefit from cost reductions associated with
- offer personal service to customers large-scale productions
- easier and closer relationship with workers, many - Able to set prices that other firms have to follow
staff prefer smaller businesses - Hvae access to several different markets and
- average costs may be low due to no products, risks are spread
diseconomies of scale and lower overheads - Likely to be able to afford research and
- easier communication with workers and development into new products and processes
customers
Disadvantages:
Disadvantages:
- May be difficult to manage, esp if geographically
- may have limited access to sources of finance spread
- owners may find it too much of a responsibility - May have potential cost increases associated
- may not be diversifies, there are greater risks of with large-scale
negative impact of the external change - May suffer from slow decision-making and poor
- unlikely to benefit from economies of scale communication due to structure of large orgs
- May suffer from divorce between ownership and
control that can lead to conflicting objectives
Business Growth

Internal growth - expansion of a business, opening new branches, shops or factories (organic growth)

External growth - business expansion achieved by merging with or taking over another business, from
either the same or different industry

Merger - agreement between shareholders and managers of two businesses to bring both firms together
under a common board of directors with shareholders in both businesses owning shares in the newly
merged business

Takeover - when a company buys over 50% of the shares of another company and becomes the
controlling owner (acquisition)

Types of integration

Horizontal integration:
Integration with firm in same industry and same stage of production

Forward vertical integration:

Integration with a firm in same industry but a customer of existing
business

Backward vertical integration:

Integration with a business in same industry but a supplier of
existing business

Conglomerate integration:
Merger with or takeover of a business in a different industry

Joint venture - 2 or more businesses agree to work together on a protect and create a separate
business division

Strategic alliance- agreements between businesses where each agrees to commit resources to
achieve and agree set of objectives

Franchise - a business that uses the name, logo and trading system of an existing successful
business

Globalization
The growing integration of countries through increased freedom of global movement of goods, capital and
people

Free trade
No restrictions or trade barriers exist that might prevent or limit trade between countries

Protectionism
Using barriers to free trade, such as tariffs and quotas, to protect the country’s own domestic industries

Multinational businesses
Business organization that has its headquarters in one country, but with operating branches, factories and
assembly plants in other countries
 3.1 Sources of Finance UNIT 3
Working capital - capital needed to pay for raw materials, day to day running costs and credit offered to
customers
Working capital = currents assets - current liabilities

Sources of finance

Internal finance - raises from the business own assets or from profits left in the business (retained profits)

1) Personal funds (for sole traders)

Sole traders and partners usually use personal finds from their pwn savings to finance their start-up
businesses

2) Retained profit
The surplus funds that are re-invested into the business, instead of distributing to the owners

3) Sale of assets
Selling off fixed asset in need of cash

External finance
- comes from outside the business, due to higher costs, external finance is only used when a
business is unable to get suffeinet funds from internal sources

1) Bank overdrafts
Bank agrees to a business borrowing up to an agreed limit as and when required

2) Trade credit
Enables a business to obtain goods/services but pay at a later date

3) Debt factoring
Selling of claims over debtors to a deft factor in exchange for immediate liquidity ; only a
proportion of the value of the debts will be received as cash

4) Share capital
Finance raised through the issuing of shares via a stock exchange

5) Leasing
Obtaining use of equipment or vehicular and paying a rental or leasing charge over a fixed
period. Avoids the need for the business to raise long-term capital to buy the asset.

6) Owners capital
Money invested by the owners of the business

7) Venture capital
Financing from investors to provide to startup companies and small businesses who are
believed to have long-term growth

8) Grants
Financial aids paid s from government, which does not need to be repaid

9) Loans
Borrowed funds fro financial leaders, such as commercial banks (short term and long term)

10) Mortgages
Ends money at interest in exchange for taking title of debtor’s property

11) Business angels

Individual investors who put in their own money in a variety of businesses, seeking a better
return that they would obtain from conventional investments

12) Subsidies
Financial benefits given by the governments to a businesss to reuse costs and encourage
increased production
3.5 Profitability and liquidity ratio analysis 3.2 Costs and revenues

Profitability ratios Fixed costs - costs that do not change with

Profit margin rations the level of output, e.g loan repayments

Gross profit margin and net profit margin ratios Variable costs - cost that change with the level
are used to assess how successful the of output, eg. raw materials and packaging
management of a business has been at costs
converting sales revenue into both gross
profit and net [Link] are used to measure Semi-variable costs - costs that have fixed
the performance of a company and its
and variable features, e.g power and electricity
management team.
Direct costs - costs that clearly associated
with the output or sale of a certain good/
service or business operation, e.g raw
materials

Indirect costs - there costs aren’t easily

identifiable with the sale or output of a specific
service or business operation

Revenue - income received from the sale of a

product

Total revenue - total income from the sale of all

(Gross profit margin is always more than the net profit margin) units of the product
= quantity x price

Revenue stream - income that an organization

ROCE (Return On Capital Employed)
gets from a particular activity
Measures a firm’s efficiency and profitability in relation to its
size (as measured by the value of the organizations capital
employed)

ROCE = EBIT/capital employed

EBIT - earnings before interest and tax

= (FA+CA)- CL
Or
= FA + Net current assets

Current Ratio Acid Test ratio (quick ratio)

A short-term liquidity ratio used to calculate the ability
of an organization to meet debts (within next 12 Short-term liquidity ratio used to measure an
months of balance sheet data) organizations ability to pay its short-term debts
(within 12 months of balance sheet data),
however without the need to sell any stock
(inventory)

Accounts advise business to aim for current ratios between

1.5-2
Results below are viewed with
Current ratios over 2 might suggest there are too many funds caution, as it means the business
tied up in unprofitable inventories, debtors and cash might has less than $1 of liquid assets to
need to be better places in profitable assets, like equipment to pay each $1 of short-term debt
increase efficiency
4.1 Role of marketing UNIT 4
Marketing - links the business to the customer by identifying and
meeting the needs of customers profitably - by getting the right product
at the right price to the right place at the right time

Market characteristics

Market size - total level of sales of all producers within the same market

Market growth - the percentage change in the total size of a market

(volume and value) over a period of time

Ease of entry - lack of barriers for the establishment of new competitors

in a new market

Homogeneous products - goods that are physically identical or viewed

as identical by consumers

Segmentation Consumer good - tangible

Dividing a market into groups of consumers who share common tastes physical product marketed to
and requirements consumers

Consumer service - intangible

Target marketing - focusing marketing activity on certain segments of provisions of an activity to
the market consumers

Mass marketing - selling to the whole market using standard products

and same marketing activities

Marketing approaches

Marker orientation - outward-looking approach product decision

on consumer demand, as established by market research

Product orientation - inward-looking approach that focus on

making products that can be made-or have been made for a
long time- and then trying to sell them

Market share and market leadership

Market leadership - when a business has the highest

market share compared to all the businesses in the
same market

Importance of market share and leadership

- Can be used in advertising and promotional material. Can be a confusing argument that can inflict
customers to buy it
- Market leaders have a strong bargaining position with supplies and retailers.
- Recruitment of high-class employees is often easier for market-leading businesses
- Financing could be easier if investors and banks become convinced that the status of being
market leader with the highest market share adds to the stability and profit potential of the business
 4.2 Marketing planning

Marketing planning
The process of formulating strategies and preparing marketing activities to meet marketing objectives

Marketing Mix Different consumer groups

Key decisions that must be taken in the effective
marketing of a product 1. Geographic differences
2. Demographic differences
3. Psychological factors
4P’s -

1) Product
2) Price
3) Promotion
4) Place

Market segment - sub-group of a market made up of

consumer with similar characteristics

Target market - the market segment that a particular

product is aimed at

Market segmentation - identifying different segments in

a market and targeting different product or services to
them

Consumer profile - picture of sinners of a firms

products, showing proportions of age groups, income
levels, location, gender, and social class

Niche market - small and specific part of larger market

Niche marketing - identifying and exploiting a small segment of larger market

by developing products to suit it

Mass market - market for products that are often standardized and sold in
large quantities

Mass marketing - selling the same products to the whole market with no
attempt to target groups within it
Product positioning map
A graph that analyses consumer perceptions of each of a group of competing products in respect of
two product characteristics

Examples of characteristics
- price / quality of materials
- perceived image / level of comfort (hotels)

Unique selling point (USP)

A factor that differentiates a product from its
competitors, e.g lowest price, highest quality, first
ever product of its kind
( What do you have that competitors don’t )

4.5 4 P’s

Product life cycle - pattern of sales recorded by a product from launch to withdrawal from the market

1) Introduction
When the product is launched after development and testing. Sales are low but increase slowly.

2) Growth
If effectively promoted, sales should grow significantly. This stage doesn’t last forever.

3) Maturity / saturation
Sales fail to grow, they do not decline significantly either. This stage can last for years
 Boston Consulting Group matrix - product portfolio analysis

Low market growth – high market share:

product A ‘cash cow’

High market growth – high market share:

product B ‘star’

High market growth – low market share:

product C ‘problem child’

Low market growth – low market share:

product D ‘dog’

Branding

Brand - an identifying symbol, name, image or trademark that distinguishes a product from its competitors

Brand awareness - extent to which a brand is recognised by potential customers and is correctly
associated with a particular product – can be expressed as a percentage of the target market

Brand loyalty - the faithfulness of consumers to a particular brand as shown by their repeat purchases
irrespective of the marketing pressure from competing brands

Brand development - measures the infiltration of a product’s sales, usually per thousand population; if 100
people in 1000 buy a product, it has a brand development of 10

Brand value (or brand equity) - the premium that a brand has because customers are willing to pay more
for it than they would for a non-branded generic product
Pricing strategies
4.8 E-Commerce

Types of E-commerce

1- B2B (business to business)

Transactions conducted directly between a supplying business and a purchasing business

2- B2C (business to consumer)

Transactions conducted directly between a company and consumers who are the end-user of its
products/services

3 - C2C (consumer to consumer)

Business model based on e-commerce that create a facility that allows consumers to trade with each
other