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Define the term factors of production.
The factors of production are inputs into the transformation process of a business, namely land, labour, capital, and enterprise.
Define the term adding value.
Adding value occurs in a transformation process when outputs are produced that are worth more than the inputs brought in to provide them.
Define the term tertiary sector.
The tertiary industry provides services, as well as operational frameworks for business operations.
Define STEEPLE analysis.
STEEPLE analysis is a strategic planning tool used by businesses to evaluate external factors that could impact their operations, growth, and long-term strategy. It is an acronym for Social, Technological, Economic, Environmental, Political, Legal, and Ethical factors.
Define the term sole trader.
A self-employed individual who owns and runs their own business, where the owner and the business are legally the same entity.
True or False:
A mission statement should be clearly defined and unachievable as it is only aspirational.
False
An organization intends to achieve its mission statement over time
True or false:
A company uses child labour in order to minimise production costs and to lower prices for the final consumer of the good or service is an example of corporate social initiative.
False
Exploiting child labour is an example of unethical business behaviour.
Complete the text:
A business can achieve _____________________ usually by means of a merger, acquisition (takeover), joint venture, or strategic alliance with at least one other business.
inorganic growth
Complete the text:
A ________ happens when two or more businesses agree to integrate by forming a larger entity with the intention of creating a larger combined company.
merger
Benefits arising to large-scale businesses due to factors beyond the control of the business are known as …
A. External diseconomies of scale
B. External economies of scale
C. Internal diseconomies of scale
D. Internal economies of scale
B: External economies of scale
Explain one advantage and one disadvantage of being a private limited company.
Advantages:
Limited liability
Perpetual succession
Separate legal entity
Disadvanatges:
Higher set-up and running costs
Restrictions on selling shares
Limited access to capital
Define the term social enterprise and give 3 examples.
A social enterprise is a business with a social or environmental mission that reinvests its profits to achieve that goal. It operates like a traditional business by selling goods and services to generate revenue, but its primary purpose is to address social, environmental, or community problems.
Red Cross
"Otrā elpa"
The News Literacy Project
1. Which of the following is not an internal growth strategy used by businesses?
A. Franchising
B. Hiring more employees
C. Opening new branches
D. Producing better quality products
A. Franchising
Which of the following tools is used to resolve stakeholder conflict?
A. Gantt charts
B. Stakeholder mapping
C. STEEPLE analysis
D.The Ansoff matrix
B. Stakeholder mapping
True or false:
Corporate social responsibility is based on a firm’s values and actions towards its various stakeholders, including the local community and environment.
True
Explain two factors that can influence whether businesses like The Body Shop act in a socially responsible manner.
The following are possible factors why The Body Shop acts in a socially responsible manner:
• Whether the board of directors and other key stakeholders are supportive of CSR.
• The costs associated with being socially responsible, and the compliance costs of ethical business practices.
• The legal and political framework of the country in which the company operates, such as equal opportunities legislation and anti-discrimination laws.
• The corporate culture of the company, e.g., since 1976, The Body Shop has used “ethically-sourced ingredients to create a range of naturally-inspired beauty products.”
• The extent to which the news media are vocal about the negative impacts caused by the operations of companies in the industry.
Name two internal stakeholders of Tesla.
• Shareholders of Tesla
• The CEO, Elon Musk
• Executives (directors)
• Managers
• Employees
Name two ways in which the size of a business can be measured.
• Market share (%)
• Total sales revenue ($)
• The total size of the workforce
• Capital employed
• Profits
Explain two reasons why businesses seek to grow.
•To benefit from economies of scale. As the business expands on a larger scale, it reduces the average cost of production, thereby giving the firm a competitive advantage.
• To diversify risks as it expands in new markets and/or adds more products to its portfolio.
• To increase market share and market power. This would further allow the business to profit from higher sales and the ability to charge higher prices.
• To strengthen the brand name and consumer loyalty. Large businesses operate in many segments, markets, and product categories. This attracts new customers and provides existing customers with greater product choices.
Explain two positive impacts that multinational companies can have on host countries.
Possible reasons could include:
• Multinational companies create employment opportunities and training programmes to improve the quality and efficiency of people in local communities in overseas countries.
• The business operations of MNCs bring in foreign currency and the host country would benefit from using the money to import necessary goods and services.
• Local businesses also benefit from supplying inventory (stocks) and services to the multinational company, helping them to benefit from additional revenues and further job creation.
Laos Electronix (LE) is a market leader for the supply of high-end computers, laptops, and tablet computers in Laos. Recently, LE received the distribution rights for selling its products in Cambodia and decided to create franchise opportunities for local dealers that would trade using the franchise name Cambodia Electronix (CE). The management of LE spent a lot of time to create the mission statement for the franchisee in Cambodia. The mission statement reads as: “To be the leader in sales and distribution of high-end IT products and services where we operate.”
Explain how CE’s commitment to achieving its mission statement could enable the franchisee to be successful in Cambodia.
The mission statement displays the overall purpose of Cambodia Electronix, i.e., why it exists as an organization. It shows CE’s ambition to be the market leader in the countries that it operates. The mission statement enables different stakeholders of the company to focus on specific aspects of the organization’s overall ambition. CE’s success can be attributed to its position as market leader in the development of franchises and distribution rights in Laos and Cambodia. Having a clear mission statement could also be helpful in the future recruitment of the company, helping to inspire the workforce to achieve the organization’s goal of being the market leader in terms of sales and distribution.
Al Sahba (AS) is a Saudi Arabian agricultural engineering company that makes innovative equipment for farmers. The company’s production processes and tools are highly advanced. AS exports the majority of its highly sophisticated equipment to the Middle East, Europe, and Africa. These products enable large-scale production to be done by machines. The introduction of new technology has resulted in most work being done by machines so has cut the number of low-cost workers needed. Combined with a recession in Europe, this has led to a significant number of redundancies. AS has acquired several ailing agricultural companies as part of its growth strategy. However, sales taxes have increased recently in several markets that AS serves and some stakeholders have expressed concerns about human rights issues in the region.
Using appropriate examples (at least 2), explain how AS could benefit from economies of scale.
As the size of AS grows, the company could benefit from economies of scale in terms of:
• Labour (better use of specialized labour).
• Capital equipment (specialist equipment).
• Bulk buying - purchasing economies of scale will result due to discounts for bulk purchases of raw materials and component parts.
• Financial economies of scale from having access to lower cost of finance as a larger and more reputable company.
• Marketing economies of scale as AS can advertise at a relatively low cost in relation to the volume of sales.
Yum! Brands Inc., headquartered in Louisville, Kentucky USA, was created as a result of a demerger from PepsiCo in 1997. With KFC, Pizza Hut, and Taco Bell in its portfolio, Yum! Brands Inc. has over 53,400 stores. In March 2002, Yum! Brands Inc. acquired Yorkshire Global Restaurants (YGR), a restaurant chain founded in Lexington, Kentucky. In 2016, Yum! China Holdings Inc., headquartered in Shanghai, was split from Yum! Brand Inc. In China, Yum! China Holdings Inc. is one of the largest restaurant chains, with restaurants in over 12,100 locations and a workforce of over 450,000 employees.
Explain two ways the demerger could have benefited PepsiCo.
PepsiCo could have benefited by being able to focus more on its core competencies/core business functions. Also, with the demerger from Yum! Brands Inc., PepsiCo split off management responsibility, making it unaffected from any possible poor financial performance or crises faced by Yum! Brands Inc.
Fashionable Juuta (FJ) is a well-known franchise company which sells a wide range of fashionable shoes in Hyderabad and Mumbai in India. The franchisor focuses on supplying high quality and stylish shoes, targeted at the growing affluent middle class. FJ has a well-established customer base, although faces intense competition. In addition, without having a policy on corporate social responsibility (CSR), FJ has recently been accused by local pressure groups of using suppliers who employ child labourers.
Explain two advantages of operating as a franchisee of FJ.
Potential advantages of operating as a franchisee include:
• Benefits of having an already established brand name and business model.
• FJ provides supplies and shop décor to the franchisee (although the latter pays for this).
• FJ is responsible for providing marketing support to the franchisee.
• FJ is responsive and receptive to constructive feedback / criticism for improvements.
Ppuncheay Marino (PM) is a medium-sized textile business based in Quito, Peru, employing 300 staff. PM imports quality denim and manufactures these into high-quality jeans, which it sells at premium prices. Customers value the high-quality clothing and new fashion designs from PM. Due to competition and higher production costs, Carlos Ivcher, the owner of PM, has been considering franchising and has examined the marketing and legalities of this growth option. In addition, Carlos is contemplating a proposal made by a large clothing wholesale company for a possible merger. The employees are anxious about the proposed changes.
Outline two reasons why PM’s employees are “anxious about the proposed changes”.
Employees at PM might be anxious or fearful for any of the following reasons:
• Concerns about the unknown, i.e., anxieties about their future at PM.
• A possible cut in their salary and financial remuneration as PM is facing higher production costs.
• Possible redundancies if the merger with the large clothing wholesale company goes ahead.
• Greater demand and expectations in the workplace following the change in the organization, be it through a merger or franchising.
• Changes in employees’ routine, work structures, teams, and/or the working environment following the merger or franchise.
• Threats to the individual worker’s status / job role / job security.