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Unit 1: Business and its Environment - Coggle Diagram
Unit 1: Business and its Environment
Chapter 1: Enterprise
1.1 The Nature of Business Activity
Purpose of Business Activity
consumer
consumer goods
customer
consumer services
entrepreneur
The Factors of Production Needed by Businesses
4 Factors of Production
Labor
Capital
Land
Enterprise
Capital Goods
Enterprise
Concept of Adding Value
added value
branding
adding value
Opportunity Cost
Reasons Why Some Business Fail
Lack of Cash
Poor Management Skills
Poor record-keeping
Local, National, and International Business
multinational business
1.2 The Role of Entrepreneurs and Intrapreneurs
Qualities of Successful Entrepreneurs/Intrapreneurs
Multi-Skilled
Leadership Skills
Commitment and Self-Motivation
Self-Confidence and an Ability to Bounce Back
Innovation
Risk-taking
Barriers to Entrepreneurship
Competition
Lack of a Customer Base
Cost of Good Locations
Obtaining Sufficient Capital
Lack of Business Opportunity
intrapreneurs
Role of Enterprise in Economic Development
Innovation and Technological Change
Exports
Business Survival and Growth
Personal Development
Economic Growth
Increased Social Cohesion
Employment Creation
The Role of Intrapreneurship
Create Competitive Advantage (by creativity and innovation)
Keep would-be entrepreneurs within the business
Innovation and Creativity
1.3 Purpose and Key Elements of Business Plans
business plan
Pros/Cons of Business Plans
Cons
Entrepreneurs don't grab opportunity because hesitate to deviate from plan
Costs time and money to make
Entrepreneurs stick to the plan even though real life circumstances change
Pros
Forces entrepreneur to make a forecast, which can be used as a guide
Shows investors that entrepreneur has done a lot of research
Makes the entrepreneur really think through the business idea
Business plan is demanded by banks before giving a loan and by investors before buying shares
Chapter 2: Business Structure
2.1 Economic Sectors
Primary, Secondary, Tertiary, and Quaternary Sectors
secondary sector business activity
tertiary sector business activity
primary sector business acitvity
quaternary sector business activity
Changes in Relative Importance of Economic Sectors
Pros/Cons of Industrialization
Cons
Mass Migration to Cities cause issues
Middle-Income Trap
Less Jobs in Primary Sector
Pros
More Jobs in Secondary / Tertiary Sectors
More Value-Added Goods and Services
Increase in GDP and Standard of Living
Public and Private Sectors of the Economy
mixed economy
free-market economy
private sector
command economy
public sector
public corporation
Pros/Cons of Public Corporations
Cons
Waste taxpayer money to subsidize inefficient corporations
Government political interference
Not as efficient as private sector
Pros
Can Subsidize Loss-Making Industries
Source of Finance for the Government
Also Aims for Social Objectives
2.2 Business Ownership
Sole Trader
sole trader
unlimited liability
Pros/Cons of Being Sole Trader
Cons
Huge risk to the owner
Lack of financing
Unlimited liability
Pros
100% control by the owner
Easy to set up
100% profit goes to owner
Public Limited Companies
initial public offering (IPO)
Pros/Cons of Public Limited Companies
Cons
Shareholders disagree when making decisions
Decisions made by short-term thinking to appease investors
More complex and expensive to set up and operate
Pros
Limited Liability
Easy to buy and sell shares
More finance
public limited company
Legal Formalities in Setting Up a Company
memorandum of association
articles of association
Private Limited Companies
private limited company
Pros/Cons of Private Limited Companies
Cons
Owners and shareholders can disagree
Have to send financial reports to the government
More difficult to set up and operate
Pros
Limited liability
Original owners still has control
More finance
Cooperatives
cooperatives
Pros/Cons of Cooperatives
Cons
Lack of funding
Slow decision-making
Management skills (depends)
Pros
Collaboration
Shared profit incentive
Can buy in bulk
Limited Companies
share
shareholder
limited liability
Franchises
franchiser
franchisee
franchise
Pros/Cons of Franchises
Cons
Franchisor takes a percentage of revenue/profit every year
Strict control over product, pricing, and layout
Initial costs are high
Pros
Franchisor provides advice and training to franchisee
Franchisor will have checked the quality of the suppliers
Brand and products already well established
Partnership
partnership
Pros/Cons of Partnership
Cons
Have to share profits
Have to share control
Unlimited liability
Pros
Easy to set up
Joint workload
Both partners contribute to financing
Joint Ventures
joint ventures
Pros/Cons of Joint Ventures
Cons
Decision making can be difficult
Failure of one business will bring the other down with it
Mistakes may damage reputation of both firms
Pros
Each business brings different expertise to the Joint Venture
Market and product knowledge can be shared
Reduces risk for each business and cuts costs
Social Enterprise
social enterprise
Chapter 3: Size of Business
3.2 Significance of Small Businesses
Benefits of Small Businesses to the Economy
Run by entrepreneurs with new ideas
Can compete with and has the potential to become a large business
Creates new jobs
Pros/Cons of Being a Small Business
Cons
If one person is absent, the business may not be able to operate
Little economies of scale
Owner has a lot of responsibility with no managers to delegate to
Pros
Offers personalized service leading to greater customer loyalty
Quicker to adapting to customer needs
Less risk of losing control
Pros/Cons of Being a Family Business
Cons
Informaility
Conflict
Succession / Continuity Problem
Pros
Reliability and Pride
Knowledge Continuity
Commitment
3.3 Business Growth
Reasons Companies Seek Growth
Increased Economies of Scale
Owners and directors could achieve wealth and fame
More Profit
Organic Growth
organic growth
External Growth
external growth
merger
takeover
Types of Integration
Horizontal
horizontal integration
Pros/Cons of Horizontal Integration
Cons
Government investigates for being a monopoly
Less choice for customers
Rationalization may lead to bad publicity
Pros
Eliminates competition
Increased power over suppliers
Economies of Scale
Vertical
Forward
Pros/Cons of Forward Vertical Integration
Cons
Lack of experience in the chain of production
Consumers can suspect uncompetitive motives
Pros
Can block competing products
Can set pricing / promotion of its own products
forward vertical integration
Backward
backward vertical integration
Pros/Cons of Backward Vertical Integration
Cons
Lack of experience in the chain of production
Complacency of having guaranteed customer
Pros
Can supply to competitors
Control over supply to itself
Conglomerate
conglomerate integration
Pros/Cons of Conglomerate Integration
Cons
Lack of experience in the chain of production
Lack of focus / direction
Pros
Diversification
Economies of Scale
synergy
Problems of Growth Through Mergers / Takeovers and Strategies to Overcome Them
Problem: Managerial - Communication and coordination issues
Solution: Decentralization and delegation
Problem: Marketing - Difficulty in managing many brands in different countries
Solution: Pan-global marketing; global localization
Problem: Loss of control - Original owners may lose ownership / control through external growth
Solution: Original owners need to negotiate terms well and try to remain in the board of directors
Problem: Financial - Business growth can be expensive
Solution: Sources of finance (e.g. bank loan, share issues)
strategic alliance
3.1 Measurements of Business Size
Capital Employed
capital employed
Market Capitalization
market capitalization
Revenue
revenue
Market Share
market share
Number of employees
Other measurements specific to each industry
Chapter 4: Business Objectives
4.1 The Importance of Business Objectives
Objectives of Businesses
Growth
Increasing Market Share
Profit Satisficing
Survival
Profit Maximization
Corporate Social Responsibility (CSR)
corporate social responsibility (CSR)
pressure group
triple bottom line
SMART objectives
business objective
Factors that Determine Business Objectives
size and legal form of business
private sector or public sector
business culture
Number of years the business has been operating
business aim
mission statement
Pros/Cons of Mission Statements
Cons
Cheesy
Too vague and general
Pros
Motivate employees and provide direction
Inform external stakeholders
Objectives, Strategies, and Tactics
business strategy
tactic
annual (company) report
4.2 Objectives and Business Decisions
budget
ethical code
target
Pros/Cons of Ethical Codes
Cons
Can lose business contracts (failure to be corrupt)
Lost revenue (e.g. not engaging in harmful marketing)
Costs (e.g. paying fair wages)
Pros
Ethical practice can lead to good publicity for customers and employees
Ethical companies may be more likely to be selected for government contracts
Can mitigate potential lawsuit expenses
Chapter 5: Stakeholders in a Business
stakeholders
External Stakeholders
external stakeholders
Types
Local Community
Rights: Be consulted whenever major changes could affect it
Responsibilities: Cooperate with the business, where reasonable to do so
Role: Provide labor services required by the business
Pros/Cons of Responsibilities to Local Community
Cons
Work with local suppliers
Minimize environmental damage
Hire locals
Pros
May only give contracts to businesses with a record of community involvement
Local government more likely to give planning permission
More likely to let negative effects caused by business to slide (e.g. pollution)
Local Government
Rights: Make sure the businesses don't harm the community
Responsibilities: Meet reasonable requests from businesses (e.g. fix roads)
Role: Provide local services and infrastructure, allowing businesses to operate
Customers
Rights: Buy products that meet local safety standards and work as supposed to; to be offered compensation if not
Responsibilities: To not steal; to not make false claims about the product
Role: Purchase goods and services
Pros/Cons of Responsibilities to Customers
Cons
Can't take advantage of vulnerable customers (children and elderly)
Can't false advertise
Product must be well made at a reasonable price
Pros
Good publicity
Attract more customers
Lead to customer loyalty
Government
Rights: Expect businesses to follow the law and pay taxes
Responsibilities: Treat businesses equally under the law; prevent unfair competition; allow for trade with other countries
Role: Pass laws that restrict businesses; provide law and order
Pros/Cons of Responsibilities to Government
Cons
Seek export markets
Complete government statistical forms
Pay taxes
Pros
Receive government contracts
More likely to be given subsidies
Government more likely to give planning permission
Suppliers
Rights: To be paid on time; to not be exploited by the customer business
Responsibilities: To supply goods and services in good condition
Role: Supply goods and services to other businesses
Pros/Cons of Responsibilities to Suppliers
Cons
Must satisfy supplier's aims and requirements
Must offer long-term contracts
Pros
Reasonable credit terms
More likely to meet deadlines and special order requests
Supplier loyalty
Lenders
Role: Provide finance
Responsibilities: Provide the agreed amount of finance on the agreed date for the agreed time period
Rights: Be repaid on the agreed date; be paid finance charges (interest on loans)
Internal Stakeholders
internal stakeholders
Types
Managers
Rights: Have contract of employment
Responsibilities: Report to stakeholders; act legally and ethically
Roles: To control, command, and direct resources
Owners / Shareholders
Rights: Receive share of profits; receive reports on business performance
Responsibilities: Set targets for managers; Give managers adequate time and resources to meet target
Roles: To provide finance
Employees
Rights: Be offered an employment contract; be paid as described in the contract; be allowed to join a trade union (in some countries)
Responsibilities: Meet requirements as described in the contract; cooperate with management within reason; observe the ethical code of conduct
Roles: Provide labor to the business
Pros/Cons of Responsibilities to Employees
Cons
Pay wages above the minimum wage
Good working conditions
Provide training
Pros
Easier to recruit good workers
Higher motivation
Employee loyalty
trade union
stakeholder concept