Business studies Unit 2 revision GCSE

The business organisation

-How and why businesses change when they get bigger and how it influences decisions such as where to locate and what to aim for. Expanding a business Introduction to growth -Business can grow through -INTERNAL GROWTH (organic growth)-selling more of its own products -EXTERNAL GROWTH (integration) joining with another business -SSELLING FRANCHISES-involves selling the rights to the businesss name and products to another business -Internal growth tends to be slower than external growth but more manageable. - The reason why external growth is hard to manage is because their size changes suddenly and it can be difficult to manage new staff and different ways of dongs things. External growth -2 types -A MERGER (occurs when two or more business join together to form a new business) - The shareholders of the businesses will become shareholders in the new, bigger business. -A TAKEOVER (occurs when one business gains control of another) Types of integration -HORIZONTAL INTEGRATION (occurs when one firm joins with another firm at the same stage of the same production process) -VERTICAL INTEGRATION (occurs when one firm joins with another firm at a different stage of the same production process) - can be considered backward vertical integration, when a firm joins with its suppliers or forward, when a firm joins with its distributers. -CONGLOMERATE INTEGRATION (occurs when one firm joins together with another firm in a different type of production process) Economies of scale Occurs when the cost per unit falls as the business expands Diseconomies of scale Occurs when the cost per unit increases as a business expands

Advantages of Integration Disadvantages of integration Horizontal integration can lead to economies of scale as Diseconomies of scale involve problems with controlling, more of the same type of output is produced. communicating and motivating staffs in a bigger business. Vertical integration ensures control of its supplies and Culture clashes may occur because firms are used to distribution. Can help improve quality, reliability and doing things in different ways. Can lead to arguments reduce costs. and inefficiency. Conglomerate integration can spread risks as a firm Conglomerate integration may be risky as the business operates in more than one market. may not have more experience on the new market.

Franchises
-occurs when one business sells the right to another business to use its name and sell its products. A franchise sells these rights and provides training and advice to the franchisee of the franchise. Advantages of selling a franchise The franchisor gets a royalty payment from the franchisee which is a percentage of the franchises profits. Franchisee provides most of the set up cost for the new outlet. Overall business can grow faster than if it had to provide all the money for the new stores. The franchisee takes a majority of the profits. Motivated to do well to increase profits. Helps overall business do better and make more money. All franchisers can help finance marketing campaign for brand awareness. More efficient than one outlet providing all the cost. Disadvantages of selling a franchise Original entrepreneurs no longer own entire business. Less profits for the entrepreneurs than franchisees. Quality problem with one franchise can affect other franchises.

Growth and Stakeholders

Advantages of growth for the stakeholders TO EMPLOYEES Employees have more job security and greater rewards if business is growing and doing well. Proud to work for a successful business, stays longer. Greater chance for promotion and new challenges as business grows. TO SUPPLIERS Suppliers get more orders and more opportunities to supply the bigger business. they may grow as well Disadvantages of growth for the stakeholders TO EMPLOYEES Employees fell unvalued. Only one of thousands and dont count as individuals. Communication can be difficult. Employees may not feel properly informed on what is going on.

TO LOCAL COMMUNITY If business has more funds to invest, may recruit people locally, therefore, help community grow. TO GOVERNMENT Higher income taxes by employees. Pay fewer benefits since lower rate of unemployment. Government will be in a better financial position.

TO SUPPLIERS Suppliers may be bullied by much bigger firms. Big firm may demand owner prices because of the mass orders. Suppliers may rely hugely on the business they cannot refuse. TO LOCAL COMMUNITY The business may not invest in the community.eg. Switching production to overseas where production is cheaper. TO GOVERNMENT No benefit to government if it relocates its production overseas or expand by opening stores overseas.

How can stakeholders protect their interest?

LOBBY GOVERNMENT -Stakeholders can get the government to force business to change polcies.eg changing the law. -employees/suppliers use LOBBY GOVERNMENT when business becomes too big. BOYCOTT THE PRODUCTS -if business behaves badly, customers can stop buying the products; forces business to change policies. -can begin when employees abroad are treated badly or if business abuses power by charging too much. STRIKE -when employees stop working and bring production to halt. -may occur when employees fell badly treated or underpaid. COMPLAIN -Employees/suppliers/the community/government can complain to business or media;if argue foog enough, stakeholders can get business to change its approach. Eg. Expanding in a certain location because of traffic or creation of noise. VOTE OR SELL THEIR SHARES -shareholders can vote against businesses at the AGM(Annual General Meeting) if they dont like some of the businesses decisions. OR -they can sell their shares to drive price down to put pressure on directors to keep shareholders happy.

Choosing the right legal structure for the business

-as company grows, owners may decide to be a PLC (public limited company) than an LTD (private limited company). -LTD AND PLC BOTH HAVE LIMITED LIABILITY Difference between PLC and LTD -A LTD cannot publicly advertise its shares for sale and is often owned by family. LTD can place restriction on who shares can be sold. - A PLC can advertise its shares and can be listed on the stock exchange. Must have a share capacity of 50,000. An LTD cannot sell shares on the stock exchange.

-FLOTATION occurs when a LTD becomes a PLC and has shares listed on the stock exchange. -STOCK EXCHANGE- A market for shares of PC. Shares are bought and sold on the stock market.

Advantages of becoming a PLC (Public limited company) -PLC can advertise shares to general public. Greater number of access to potential investors than a LTD. Can raise large sums of money by selling shares. Can use to expand business. -attracts more media coverage since more shareholders. Provides a cheap form of publicity. -PLC thought as higher status, impresses customers.

Disadvantages of becoming a PLC (Public limited company) -cannot control who buys shares. Risk of competitor buying shares and takes over.

-Media coverage can be bad. more likely to cover stories of a LC who made a mistake or does something wrong than a LTD. -PLC is more regulated has more law against them than a LTD. Eg. Must produce detailed information on its finances each year to shareholders. Expensive and gives information away to competitors and media. -becoming a PLC brings more outside investors. Clash of views and objectives.

-Investors willing to buy shares as it is easy to sell. Many shares in PLC an traded regularly, easy to find someone to sell shares.

Share ownership -Private limited companies only want to be a public limited company for more outside investors. Needs to be sure their will be demand for their shares for the price they set. Cannot guarantee demand. Depends on what investors think the business will earn in future. Divorce between ownership and control -owners of a company=shareholders -people who control the company and make decisions everyday are managers. In LTD, shareholders are managers. In PLC they are different groups of people. Creates a divorce of ownership and control .owners and managers may have different objectives.

Other forms of company Holding company -holds shares in other companies. Dont produce anything itself and control what these firms do. Subsidiary company -a business that is owned by another.

Changing business aims and objectives

Why do aims and objectives change? -already achieved some of the objectives, need to set new ones. -realising some original aims were not realistic. GROWTH -once business is established, owners will want business to get bigger. -To achieve this, may have to spend money on new equipment or new premises. -bigger firms are more powerful in their market thus, they can get cheaper materials because it is an important customer. -big companies are better known. Helps launch new products as shops are more willing to stock the products and customers are more willing to try the products. -getting bigger will lower risks of takeovers as they are worth more and expensive to buy over. -investors keen to grow due to sense of achievement. -You can grow organically or externally. MARKETSHARE -Part of growth objective; to have a higher market share. -being a market leader gives you more power over suppliers/distributors/other firms in industry -firms follow product price of your company to avoid conflicts. INNOVATION -start-up businesses have limited range of products and services. -may set target to increase the number of new products on the market. -may give advantage over competitive boosting sales and profits over time. -in fast-paced industries, important to constantly develop new ideas to be ahead of competition. DIVERSIFICATION -Occurs when a firm moves into a new market. -e.g. mars producing mars bars and kit Kats but also pet food (Pedigree Chum) -diversifying spreads risks. Problem in one market can offset gains in another. Managing many markets is difficult because of the different challenges and decisions involved. GOING INTERNATIONAL -most businesses start of selling within country or region. -as they expand, receive ore overseas orders. ADVATNAGES OF GOING INTERNATIONAL: -gives additional potential customers -offer a growing market. Gives opportunities to sell in a faster growing market to sell at a faster rate. -allows growth of business when growing in the region/country is a problem. Eg. High land price. -may reduce risks. That country that they only ell products in can have problems which may cause problems to the business. Selling in many countries spreads risks. ETHICAL AND ENVIRONMENTAL CONCIDERATIONS -More customers/employees/investors interested in the ethical decisions of a business. -we want to know how the products were made, what was used in the production process, where it was made and how suppliers/employees were treated. -can increase cost to comply with laws such as the minimum wage law. BUSINESS ETHICS-refers to whether a business decision is seen as morally right or wrong. And ethical decision is based on the basis of what you think is right.
Environmental considerations are questions based upon recycling, conservation of energy and control of emission levels.

Choosing The Best Locations

Introduction to changing location -Changing location involves large sums of money. Involves high risks. If demand is low, wastes bigger/additional premises and the costs related to it. When making location decisions, you should consider The costs involved -includes cost of about, other resources, taxes by the government, cost of relocating e.g. moving equipment. The Possible impact on revenues -depends upon how much the location attracts customers. -The availability of resources -depends upon how much the new location off the necessary skills and the costs of it.

Overseas location Advantages of locating overseas Disadvantages of locating overseas -cheaper labour. Wages are lower in some countries -different rules and regulations in other countries. than another. Affects the treatment of staffs/advertising of products/safety tests. -manager must understand the differences but expensive to change. -more accessible to raw materials in some countries than -customers may have different tastes. Products may another. need to be changed to suit different markets which can be expensive. -more financial incentives from foreign government such as lower taxes. -avoids protection from foreign countries protecting their own businesses over foreign competition. (protectionist measures) -E.g. limiting the number of goods allowed in the country. -by locating in the country, a business can avoid these barriers therefore finding it easier to sell in that country. -market overseas growing faster than the country the market in the business is located in. -puts a hold on efficiency of growth.

-when talking about locating overboard, consider how different stakeholders are affected.

Marketing
Introduction to promotion Promotional activities-different ways a firm communicates with the customers. Firms communicate because
-to let customers know about their business. -to persuade customers to buy their products. -remind customers of the benefits of the product.

Types of promotional activities Advertising Appear on television, magazines, newspaper. Paid for. Sales promotions Includes discounts, BOGOF, competitions and coupons. Public relations activities Arranging free media coverage on your business. Eg. Putting a big show on new opening of a franchise. DISSADVANTAGE Cannot control what is being said about your business Personal selling A businesss own sales team to help promote products. might visit different stores telling them why they are better compared to competitors.

Factors influencing the promotional activities of a growing business Costs The amount of money a business has, affects what form of promotion it can afford. Eg. local newspaper is a cheap form. Television is more expensive. However, in a growing business it would normally have more finance than a small business therefore, more options on method of promotion. Target Audience Depends on the size of audience that needs to communicated to, need to know the target audience(what it does, what they read, what they watch, what do they listen to).need to understand their habits to know what method Is best to reach them. Method of communication -Depends on what you want to communicate. Images, videos etc -Different method needs different type of media eg. Television for videos, newspaper for images and text. -when choosing promotional activities consider. - The coverage of a promotion - The quality of the promotion - The cost - The different media options

Using the Marketing Mix-PLACE Place-the way in which the product is distributed The distribution channel (chain of distribution)-how the ownership of the product passes from the producer to the final customer. The distribution channel may include Producers -supplies goods or services. Wholesalers -buys from producers in bulk, sells to retailers in small quantities. -products displayed for retailers to choose from. -offer advice and transportation to retailers. Retailers -Shops that sell goods and services to the final customers. -products are more expensive as they go down the distribution channel.

Connecting the distribution channel Direct marketing- A direct link from the producer to the customer without anyone acting between them such as wholesalers, retailers. Mail-order business -produce catalogues for customers to order from. Do not have physical outlets. Telesales -sell products over the phone. -telephone people to persuade them to buy their products or to take orders. Online selling -no physical shop. A website where orders can be made.

Levels of distribution Intermediaries- a thing acting as a link between something. Zero Level -no intermediaries between producers and the customers. -maker of products directly to final buyer. One Level -1 intermediary between producer and customers. -e.g. Business sells to retailer before customers. Two Level -2 intermediaries between producer and the customers. -e.g. business sells to wholesaler then retailer then customers

Intermediaries Advantages of using intermediaries Disadvantages of using intermediaries -a producer can access more customers as retailers -intermediaries want to make profit, increase price of distribute to their own stores which then sells to many products at each stage. Bad for customers. customers. -by selling to other customer stores, enables customers -by selling it to someone else, you loose control. to compare what is on offer. Avoids having to set up a Intermediary can promote produce as they want, shop for only your product which can be expensive. producer may not approve their way of advertising.

Selecting the right channel of distribution Costs -how does the cost of distributing to intermediaries compare to selling directly. Lack of control -The way the business presents the product may be harmed -might want to sell through own stores than handing it over to someone else. -depends on type of business. Chocolate bar, does not matter much. Exclusive fashion label, matters more. Product -type of products affects how far customers are willing to travel to purchase the product. -convenient goods needs to be distributed widely in a lot of shops. -some products are speciality items, customers do not buy often, expensive, not widely available. Customers will travel some distant to get the product. -special item shop needs good staff and presentable shops.

Importance of getting distribution right -can influence success of business because it can affect Sales -if products are not available where and when customers want, they may buy something else instead. Image -if sold in the wrong place, damage brand and affect sales over time. -e.g. Chanel wont sell products at Superdrug, cheapens brand image Costs -affects costs and the final price. More intermediaries, higher final price. More firms involved to make profit.

Internet and distribution -can order anywhere in the world, 24/7.

-makes direct distribution easier. -cheaper for business. No rent etc..

Finance
Sources of finance- The places from which a business can find money it needs are called sources of finance. -To grow into a large business, managers of a smaller firm have to raise finance to pay for the items that will be needed to grow. -Will need finances for -new property such as offices, shops or factories. -Machinery, equipment and vehicles -recruiting and training new employees. Advertising campaigns -raw materials Reasons for a large business to raise finance -developing new goods and services -developing a new product for the market is expensive. May have to pay for scientific research, market research and advertising. -Introducing new methods of production -a business may decide to introduce new technology into its production may help reduce cost of production. Changing the method of production may require to train employees on the new techniques of production such changes are expensive and require business to raise finance. -To pay for a major marketing campaign Used when there is a huge fall in one of their major products used to boost sales. Need to raise finance to pay for the marketing campaign and in-store promotions. Bank loan- a sum of money given by a bank to a business. The money is repaid in instalments each month over a period of several years. Mortgages-loans from banks and building socieites that are used to buy land and buildings such as offices and shops. Retained profits-profits made in earlier years and kept by the business and used for a variety of reasons inclucding paying for growth.

Sources of finance for a large business Retained profits The profit made by the business earlier.

Advantages Business will not have ot pay interest as it is not borrowing any money. May be available immediately. Disadvantages It is only available to successful qbusiness that has made a profit. Company shareholders may be disappointed that profit is kept within businesses and not paid to them as dividends.

Selling assets -can provide businesses with large amounts of money, depending on what is sold. -can be sold in 2 ways: -Selling assets such as buildings for cash -Selling an asset and leasing it back so it is still available for use. -selling assets can provide money without having to pay interest charges. Disadvantages are that the business may sell an asset they need later. If it sells the asset and eases it back, the business will have to pay a sum of money regularly to the new owner. May reduce long-term profits. Asset-something that is owned by a business.eg. land, building, vechicles. Interest-a payment made in order t borrow money. It means a business pays back more than it borrows. Collateral-An asset that a bank holds as security for the repayment of a loan. Bank loans and mortgages New share issues Choosing a suitable source of finance