• Why do businesses exist?

• What do they do?

• How do they do this? 

• Businesses exist to satisfy the needs and wants of their customers by selling goods and services, usually in return for profit.

• They do this by combining human, physical and financial resources to create goods and services to satisfy the needs and wants of individuals and societies. 

• The nature or purpose of business activity is to generate added value. (it becomes more valuable to customers)

• Customers are the people or organisations that purchase the products whereas consumers are the people who actually use the product. 

• Sole trader is a self-employed person who owns and runs their own business as an individual. 

• Sectors: primary, secondary, tertiary and quaternary sectors

Activity

C. Cafe serving traditional food and drink items

Challenges: 

• Finding a supplier that has traditional ingredients 

• Clientele is small and your products don’t sell enough

• Choosing the right location that fits your needs 

• Finding employees that know their stuff 🧐

Opportunities:

• Getting to be your own boss

• People getting closer to the culture / community with traditional products

• Business experience

• Getting to build and shape your own brand since the business is new

Steps of making a business plan:

1. Define your vision (vision and mission)

2. Set your goals and objectives for business

3. Define unique selling proposition

4. Know your market

5. Know your customer

6. Research the demand for your business

7. Set your marketing goals 

8. Define your marketing strategy 

1. Sole trader

• Easy to start, being your own boss

• Unlimited liability (you are personally responsible for losses and debts)

• Hard to raise financial capital

• Can be hard to find skilled labour

• Limited managerial experience (easier to make mistakes)

2. Partnership

• (limited or equal)

• Easy to start

• No extra taxes

• Share expertise 

• More likely to get loans

• unlimited liability

• Responsible for others actions

• Conflicts on how the business should be run

3. Privately held companies

4. Publicly held companies

For profit social enterprises 

1. Private sector companies are companies that use ethical business practises to achieve their social aims related to the needs of local communities and societies. Unlike charities that rely on donations, private sector for profit enterprises need to earn financial surplus to survive and operate as a sustainable business.

2. Public sector companies are state-owned enterprises run in a commercial way. These public sector companies are owned either partially or fully by the government. For example some national airline carriers and airport authorities. 

3. Cooperatives are for-profit social enterprises owned and run by their members such as employees and customers with a common goal of creating value for their members by operating in a socially responsible way. For example, financial services, childcare services. 

• Non-profit social enterprises are businesses run in a commercial-like manner but without profit being the main goal. Instead non-profit organisations use their surplus revenues to achieve their social goals rather than distributing the surplus as dividends to its shareholders or owners. For example, public libraries and state schools. 

1. Growth refers to the increase in a company's size, revenue, market share, and profitability over time. 

2. Profit is the money you have left after paying for business expenses. 

3. Protecting stakeholders value means keeping growth of stocks stable so the shareholders get dividends. 

4. Ethical objectives are the moral compass that guides a company's actions, decisions, and interactions with its stakeholders. 

• Labour turnover measures the rate of change of human resource within an organisation, per period of time. The more people who leave the organisation per time period, the higher the labour turnover rate.

• The Ansoff matrix is a strategic decision-making tool, used to devise product and market growth strategies for an organisation.

• Employees

• Managers and directors

• Shareholders

2. External stakeholders

• Customer

• Suppliers

• Financiers

• Pressure groups

• Competitors

• Governments 

1. The meaning of economies of scale is the cost advantage experienced when the company raises the prices of their products. Example… bulk purchasing

2. The average cost is the cost per unit of output. Example. It costs £78,000 to produce 10 000 t-shirts, so the cost of one is £7.80. 

3. Diseconomies of scale are the result of higher unit costs as a firm continues to increase in size. Therefore the business becomes outsize and inefficient so the average cost of production begins to rise. 

4. How might the notion of economies and diseconomies of scale be shown on a diagram?

5. Optimal size of a business is the scale at which the business can operate most efficiently before it reaches the tipping point where the costs of production start to increase. 

6. Main types of internal economies of scale are technical, financial, managerial, specialisation, marketing, purchasing and risk-bearing economies.   

7. Main types of external economies of scale are technological progress, improved transportation networks, skilled labour and regional specialisation. 

8. Internal diseconomies of scale can arise from technical issues of production or organisational issues within the structure of a firm or industry. External diseconomies of scale can occur when there is an increase in the average cost of production when a firm grows beyond its control. Such problems affect the whole industry. 
   

There are several ways how the size or a business can be measured

• Market share

• Total sales revenue

• Size of the workforce

• Profit

• Capital employed 

External growth methods

• Mergers and acquisitions

• Takeovers

• Joined ventures

• Strategic alliances

• Franchising 

Descriptive statistics:

• Mean average: average calculated

• Modal average: most common one repeating

• Medial average: put in order: middle one

• Bar charts

• Pie charts

• Infographics: visual tool to represent information 

• Quartiles: dividing the data set into quartiles

Benefits of growth: 

p. 73

• Economies of scale

• Lower prices

• Brand recognition

• Brand reputation

• Value-added services

• Greater choice

• Customer loyalty

Reasons of staying small as a business p. 74

• Cost control

• Loss of control

• Financial risks

• Government aid

• Local monopoly power

• Personalised services

• Flexibility

• Small market size

Advantages of MNCs:

• Wealth for countries

• Introduce new goods to markets

• Improves the GDP

• The spreading of ideas

• Increased customer base

• Cheaper production costs

• Economies of scale

• Avoid protectionist policies

• Spreak risks

Disadvantages:

• Can drive out small businesses 

• The ability to manipulate laws and taxes in order to generate more profit 

Activity (video)

1. List reasons why Tesla decided to open a gigafactory in Shanghai, China?

• The factory will have capacity to 5000 vehicles per day so efficiency 

• Huge market in China

• The factory will be able to operate independently

• Lower production costs

Why not?

• Having to share inventions with chinese partners

• Harder to navigate bureaucracy in china

• Local competition

2.  What are the other factors why Tesla would want to start manufacturing in China

• Cheaper material costs available as China holds mineral dominance 

• A host country is any nation that allows multinational companies to set up in its country.

• The impact on host countries can be beneficial or harmful.

Positive impacts of being a host country:

• Job creation

• Higher national income

• Knowledge and technology transfer

• Benefits

• Job creation

• Increased competition to incentivize local firms to be more efficient

Negative impacts:

• Job losses

• Repatriation of profits

•  Vulnerability

• Social responsibilities

• Competitive pressures

How did KFC succeed in China?

• Localization of menu

• First mover advantage

• Leadership style

• Threats created by demographic changes in the USA are e.g. more people are retiring leading to higher demands on social security and healthcare and the country becoming more diverse, leading to possible social and political tensions.

• Business opportunities created by demographic changes in the USA are e.g. growth potential for healthcare services and increase in multicultural services and products.

7.2.

(i) Growth strategy is a plan which is meant to help companies expand in a specific aspect.

(ii) Part-time employees are workers in a business, who work less hours than full time employees. This usually means they work less than 35-40 hours a week.

Costs and benefits of flexible work structures to Mcdonalds

Costs

Benefits

Challenges in operating

Higher administrative costs

Increased employee retention

Improved productivity

Costs and benefits of flexible work structures to Mcdonalds employees

Costs

Benefits

Income variability

Reduced social interaction

Better balance between life and work

Increased satisfaction

Consequences of flexible work practises on the human resource planning recruitment and training at Mcdonalds are e.g. troubles in scheduling and training, although recruitment improves by attracting more people who value flexibility.

1. The Ageing population refers to a shift in the age distribution of the population towards an older age. It is caused by a decrease in the total fertility rate and a simultaneous decrease in the mortality of adults and elderly people.

2. Threats created by demographic changes in the USA are e.g. that more people are retiring leading to higher demands on social security and healthcare and the country becoming more diverse, leading to possible social and political tensions. 

3. Business opportunities created by demographic changes in the USA are e.g. growth potential for healthcare services and increase in multicultural services and products. 

7.2.

1. (i) Growth strategy is a plan which is meant to help companies expand in a specific aspect.

(ii) Part-time employees are workers in a business, who work less hours than full time employees. This usually means they work less than 35-40 hours a week. 

2. Costs and benefits of flexible work structures to Mcdonalds 

Costs

Benefits 

• Challenges in operating

• Higher administrative costs

• Increased employee retention

• Improved productivity 

Costs and benefits of flexible work structures to Mcdonalds employees

Costs

Benefits 

• Income variability

• Reduced social interaction

• Better balance between life and work

• Increased satisfaction

3. Consequences of flexible work practises on the human resource planning  recruitment and training at Mcdonalds are e.g. troubles in scheduling and training, although recruitment improves by attracting more people who value flexibility. 

• salary

• wages

• commission

• performance related pay

• profit related pay

• employee share ownership schemes

• fringe payments

Non-financial rewards

• job enrichment

• job rotation

• job enlargement

• empowerment

• opportunity to make a difference

• teamwork

Types of training:

• induction training

• on-the-job training

• off-the-job training

Induction training

• This is training that is aimed at introducing new employees to the organization.

Benefits

• Establishes clear expectations and working habits from the start.

• Help new recruits understand the corporate culture of the firm.

• Settling in quickly means new recruits can contribute to the firm more promptly.

• Morale boost from new staff feeling welcomed and confident in being competent in their new jobs.

Drawbacks

• Time consuming to plan, delivery and oversee an induction program

• Disruptive to trainers’ own work

• information overload is common and counterproductive for new staff

• Induction programs can be too long and tiresome for new employees eager to start working.
  

On the job training

• This is training that is carried out whilst at the workplace. Examples of on-the-job training include induction training and mentoring.
  

Off the job training

• This is training that is carried out off-site (e.g. at a tertiary college or hotel conference room).

Traditional business models

• Traditional business models (a.k.a. linear business models) are only concerned about the financial costs of using resources.

• The focus is on producing, selling, using and throwing away products.

• There is no consideration of the environmental impacts of business activities.

Circular business models

• CBMs are decision-making tools that focus on the environmental impacts of business activities.

• Unlike linear business models, they emphasize the importance of sustainability related to all aspects of a firm’s operations.
  

Types of circular business models

• Circular supply models

• Resource recovery models

• Product life extension models

• Sharing models

• Product service system models

Circular supply

models

• Circular supply models focus on replacing finite natural resources with renewable, recyclable and biodegradable resources in a sustainable way.

• In the long-run, this can be more profitable for businesses as the earth’s resources become more expensive due to dwindling supplies.

Resource recovery models

• Resource recovery models aim to re-use (or ‘recover’) resource outputs by re-processing waste materials into new and usable resources.

• Examples of resource recovery models include:

• Cradle-to-cradle (C2C) design and manufacturing.

• Closed-loop recycling.

• Industrial symbiosis.

Benefits of resource recovery models

•  Preservation of the planet’s finite and natural resources.

• Minimizing risks associated with damage to the environment.

• Save landfill space reserved for waste that has no recycling option.

• Reduces land, water and air pollution.
  

Cradle-to-cradle design and manufacturing

• C2C design and manufacturing refers to the design and production of products in such a way that at the end of their product life cycle, they can be re-processed into new resources.

• This CBM imitates nature’s cycle where everything is either recycled, or returned to the earth.

• Schüco, a supplier of window, door and façade systems, has incorporated C2C design and manufacturing in Germany’s first major C2C project.

Closed-loop recycling

• This involves processes to collect, recycle and reproduce waste to make something new.

• ChopValue uses closed-loop recycling to turn used disposable chopsticks into furniture and home furnishings.

Industrial symbiosis

• In this process one industry’s by-products or waste are turned into the raw materials for another industry.

• Rugsal Trading uses coconut waste to create cooking fuel.
  

Product life extension models

• This is based on the extension of the life cycle of products in order to reduce the use of finite resources needed to produce them.

• Businesses can prevent products being thrown away as well as reduce the need to use even more scarce resources in the production process.

Sharing models

• This offers services where customers share products rather than owning such items for themselves.

• These models rely on the sharing of products that would otherwise have a low ownership and/or usage rate.

• Examples include:

• Airbnb – the world’s largest provider of short-term rental accommodation relies on existing properties being shared by owners on the platform instead of building their own real-estate.

• Uber – the world’s largest ride-shareprovider relies on drivers using their own existing vehicles to provide taxi services.
  

Product service system models

• Product service systems models (a.k.a. servitization) offers the function of a product rather than the physical product itself.
  

• This creates incentives for businesses to use environmentally friendly product designs that are more efficient to use.

  
  

•  Examples include:

  • Spotify – offers online music streaming services instead of customers purchasing CDs and vinyl records.

  • Google Drive – offers cloud file hosting and storage services which reduce the need for storage drives in physical computers, laptops, external hard drives and hardware accessories.

  • Netflix – offers media streaming services instead of customers purchasing DVDs and DVD players.

  • Michelin – one of the world’s largest tire manufacturers sells tires as a service rather than a physical product. Customers do not own the tires. However, Michelin is responsible for tire maintenance.