Uploaded by Aahil Shah


BU111 Exam Review Notes
-Economic Factors
-Technological Factors
-Social Factors
-Political Factors
Economic Factors
-Inflation/ deflation
-Interest Rates
-Employment Rates
-Exchange Rates
-Balance of Trade
-Business Implication: affect costs, sales, financial uncertainty
-WHY? Affect economic growth (measures: aggregate output, GDP, GNP, economic
stability, employment)
-Is a contract- a promise by the issuing company or organization to pay the
bondholder a certain amount of money (the principal) on a specified date, plus
interest in return for use of the investor’s money?
-Represents debt for issuing corporation and government
-Borrowing money/ lending money
-Legal, binding agreement (is a loan)
-Fixed rate of return (often paid semi annually)
-Fixed Term: principal repaid at maturity (day that you get paid back, stop earning
interest and then you get principal plus interest back)
-You receive a series of coupon payments (these are interest payments for lending
your money) = annuity
-You receive a principal payment (one lump sum) upon maturity, you get back what
you loaned to the borrower= single payment
-Priority over stockholders
-Secured vs. Unsecured (debentures)
-Secured: specified agreement of bond and maturity date
-Unsecured: unspecified agreement
-Canadian Savings Bonds are known as debentures
-Registered vs. Bearer
-Registered: one where the borrower knows who the bondholder is
(registered with the company)
-Bearer: whoever holds the bond gets to cash it in, no name completely
-Bonds that require bondholder to clip coupons from certificates and send
them to the issuer to receive interest payments
-Callable: can be paid of before its maturity date
-Lose out on interest
- Unattractive to consumers
-Flexibility to recall bands and reissue new bonds at the lower rate
-Attractive feature for companies
-Serial: Less risky which interests more investors and customers
-Can spread out maturity dates at different times, which spread out the
burden of the company (1,5,10 years, etc.)
-Convertible: Allow you to convert from a bond to a preferred stock
-If you see company growing, have the ability to switch to a stock, which will
allow you to gain more
Determinate’s of Bond Value
What impacts the Coupon Rate at Bond Issue?
-Prevailing interest rates: interest rates in the general economy
-Risk vs. Return Tradeoff: high risk= higher return, makes the risk worth while
-Credit rating of issuer
What Impacts Bond Price When Traded
-Coupon rate+ prevailing interesting rates of interest
-Interest rates change
-Changes in credit rating
-Better coupon rate- more interest (vice a versa)
-Company specific factors
-Economic/ Market Risk
-Environment factors
-Environment factors
Concept of Yield
-Percentage return on any investment
-Help us to compare investments
Yield 
What you made
Interest + Capital Gain
 x%
What you paid
What you paid
For a bond:
Interest = coupon rate x face value
Capital gain = face value – purchase
-For exam, always use a face value of $1000 for bonds
Approximate Yield to Maturity
-Percentage return on any investment
-This formula to be used only when figuring out the approximate yield value
annual bond interest  annual capital gain
price paid for bond
face value - price paid
time to maturity
price paid
coupon rate x face value 
-Only thing that can change is price paid
-When expected yield goes up, price goes down
-When excepted yield goes down, price goes up
Bond Pricing
-Three scenarios to consider
1. You pay less than face value (<$1000) for the bond then “Priced as a discount”
2. You pay more than the face value (>$1000) for the bond “Priced at a premium”
3. You pay face value (=$1000) for the bond “Priced at a bar”
-Represent equity/ capital for issuing company
-Voting rights
-No fixed terms
-No maturity date of stock
-Variable Return
-No promise of returns
-Discretionary Payment (Dividends)
-Owners entitled to a share of profits
-Board of directors can decide to distribute profits to shareholders
-Can also reinvent made back into business
-Higher risk then bonds and high losses possible
Common Stocks vs. Preferred Stocks
Common Stock
Voting rights
Not necessarily
Price Volatility
Paid after preferred
Most volatile
More shares, larger
Pre-emptive rightpurchase more share at a
set price
Other Features
Preferred Stock
No- unless number of
dividends unpaid- in
Yes- fixed %
-After interest paid on
debt but before common
Paid after debt holders
Less volatile (dividends)sensitive to interest rates
Thinner market
Redemption-Company can
but back
Convertibility- to common
Participation Feature
-Companies issue more common shares then preferred shares
-Preferred stock affected more by interest rates
What Impacts Price of Stock
-Demand and supply of stock due to negative or positive perception/facts
-Primary Factors
-Earnings: above or below expectations, rumors
-General Market Conditions- Bull vs. Bear Markets, economy, interest,
(especially preferred)
-Speculation: bought of sold on belief price will soon move
-Price of a security is a collective expression of all opinions of those who are buying
and selling
-Undervalued Issue: offers higher return that stocks of similar risk
-Stock whose price is below what it should be
Market Conditions
-Bull Market: market is increasing and rising (going long)
-Beat Market: market is decreasing and falling (short selling)
Other Investment Vehicles
Blue Chip Stocks
-High quality, low risk, companies that have been around for a while, low return
Small Cap Stocks
-Cap= capitalization
-Growing company and not worth a lot currently
-More volatile it is when in the growth stage
-Riskier but higher returns
Penny Stocks
-Stock is trading at a price bellow a dollar
-Expensive stock that is now worth nothing
-Stock that isn’t worth that much
Canadian Savings Bonds- CSBs
-Government bonds
Guaranteed Investment Certificates- GICs
-If you have money you want to save for the long term (1 year +)
-Not going to touch money and want to earned interest on money invested
-Very low risk
Treasury Bills- T Bills
-Government bonds
-90 day maturity
-By below face value
-Difference between what you pay and when it mature is all interest
Mutual Funds
-Portfolio of different stocks complies into one
-Professional investment management
-Draw back: have to pay investment manager/ mutual fund manager
Stocks vs. Bonds Investors Perspective
Stock vs. Bonds- Company’s Perspective
-Dividends are more expensive then interest payments for a company
-Disadvantages with bonds is you eventually have to pay them back and you have to
pay interest
Margin Buying
-Engaging in a transaction whose value is greater than the actual dollar amount you
have available
-Creates potential to make a larger return or loss than indicated by the investment
you have made, make a larger return
-Short selling: deposit 50% of value of transaction
-Buying on margin: invest part of value of transaction (margin requirement, broke
lends the rest)
Margin Buying Rules
-Must quality for margin account
-Must sign ‘hypothecation’ agreement (Margin Account Agreement Form)- pledging
of securities as collateral for loan
-Must pay interest on loan
-There investors % of equity (margin) in the margined stock must always be > then
the minimum margin requirement
-Going Long: expecting the stock to go up in value (buy low, sell high)
Margin Buying Summary
-What is the maximum profit you can make?
-Infinite in theory
-Stock can keep rising and rising
-What is the maximum loss?
-Price paid for stock
-Risks/ Costs
-Interest expense
-Margin calls
-What happens with money paid on margin call?
-Broker uses the money to reduce your loan
Interest Calculation
=Margin x interest rate x 12 months (or divide amount of months held by 12 if not
held for a year)
Short Selling
-Buy low, sell high is the going long
-Sell high, buy low is for short selling
-Deposit must be 150% of CMV at start
-Maintenance margin must be met = 125-140%
-Agreement may be terminated by either part at any time- forced to cover/buy in
-Dividends declared are the responsibility of the seller
Short Selling Summary
-What is the maximum profit you can make?
-Price of short
-What is the maximum loss?
-Anything goes; price can rise infinitely
-Unlimited losses
-Forced to cover short as disadvantageous price
-Dividends may be declared that you must cover
-Short calls
-What happens with money paid on a margin call?
-Broker adds the money to your account= increases deposit
Time Value of Money
-Is $1 one year from today worth the same $1 today?
-No it’s worth less because of:
-Real Interest
-Concept important to leases, mortgages, bonds, retirement’s contributions, stocks,
valuation, project selection
-Annuity: multiple but equal payments made over equal periods of time
-Ordinary Annuity: payment does not start today
-Assume its ordinary annuity unless stated otherwise
-Annuity Due: payment starts today
-Annuity that does on forever
-Example; dividends on a preferred share
Payment & Compounding Periods
-Payment and interest periods must be the same
-N= years x ‘p’ number of payments per year
-Adjust compounding rate to match payment frequency (this is now your new r)
Interest and Payment Periods Same but More than Once a Year
-N= years x ‘p’ number of payments per year
-Divide r by p number of payments per year
Interest and Payment Periods Don’t Match
Technological Factors
-Internet: affects buying, selling and communication
-Information technologies affect information access and inter firm cycle times
-Not limited to computers and information
-Business Implication: affects what we produce/ what it can do, affects how we
procure and how we sell
-WHY? Demands constant learning and scanning, creates significant change and
What is Technology?
-Advancements in equipment and its uses
-Often substitutes for/ magnifies human efforts
-Includes human knowledge, work methods, equipment, business process
-Includes information technology
-The various devices for creating, storing, exchanging and using information
-Consumers use it daily
-Companies use it to gather and share information and execute activities
Where does it come from?
-Comes from human ingenuity
-Formal and informal research and development
-Basic R&D- knowledge without focus
-Applied R&D-specific problem in mind
-Technology Transfer: out of lab and into the world
Technology Shifts
-Allowed to use to work longer and increase productivity
-Allowed to contrast new things
Trains and Ships
-Enhance trade
-Move things from one country to another
-Access to new resources
-Give more value to our resources
-Populate new parts of the world
-Changes habitation and where people live
Assembly Line
-Mass production possible
-Change the face of what the world looked like
Internal Combustion
-Autos, mass transit
Mass Media
-Change sharing of information
-Obtaining, sharing and using information
-Movies, radio, television
-Extended later into telecommunications and then the Internet
Smart Products/ Internet Things
-Currently in this phase
-Not only information-based products
-Products that can make decisions for us
-Internet of things takes smart products to the next level where the products can
think and act for themselves
Opportunities of Technology
Products- innovation, uniqueness value
-Innovation: many things to put intro products to make them more powerful
-Uniqueness: produce products in a highly efficient matter
-Value: making products that consumers find value to
Management and Organizational Process
-Instant access to information
-Used to achieve financial performance
-Allow us to meet customer needs
-Employees are in powered and can do their jobs better and can understand
where they fit in the organization
-Better service through coordination
-Serve customers better with the efforts that are happening at other stores
-Leaner Organization
-Don’t need as many humans to do the same job
-Smaller organization form human resources perspective
-Smaller the team the more agile and more quickly can respond to changes in
the environment
-Costs less
-Better able to meet customer’s needs
-Improved operations efficiency
-Way you operate your system, which connects people and jobs
-Computer Assistant Design (CAD): used to design and develop new
products, design everything on the computer
-Enterprise Resource Planning (ERP)- organization use this software which
acts as a master system that keeps track of companies shopping list, activity
list, and what it needs (also used to create efficiency)
-Greater Independence of Company & workplace
-Achieving financial performance, building quality goods and services
-Creating a barrier of where you work and where your company is
-Gaining employee commitment as can do work at home and go into officer at
other hours
-Make productive use of their time even when at home
-Achieving financial performance: paying employees and they maximize their
-Technology creates barriers to entry
-Cooperation with other firms
-Allow you to cooperate with the best companies instead of just the closest
-Allow you to be more innovative
-Build better quality products and services
-Reduce cycle times
-How long it takes to complete a business process
-Build better quality products and services
-Make employees more engaged and feel more valued
Communication and Collaboration
-Within firm and with customers
-Being able to talk to each other as employees and your customers
-If talk to customers better, customer more happy
-Within firms is where relationships happen, innovation happens
-Technology has allowed us to mass-produce and still customize and meet
customer’s needs
-Still able to build quality products and services
-Not possible in the year 2000
-Has come about in the law few years
-Able to customize and build thing sin mass customize
-Point where you can customize on max for relatively good price
Threats of Technology
-Information costly to develop but cheap to share
-Examples: movies, t.v shows, music
New Technologies in Unfamiliar Areas
-Disruptive technologies challenge the value of organizational capability and
Unpredictable Evolution
-Vhs vs. Betamax
-Blue Ray vs. DVDs
-Technology Standards: important whenever one product has to cooperate with
another product to work (have to be compatible)
Need for Constant Learning and Scanning
-Takes constant effort and learning
Information Overload
Greater Independence of Company & Workplace
Technology and Marketing
Important Technology Concepts
Complementary Goods
-Needed for value
-Creates vicious cycle
-Important because they create additional value for your good
-Hard for a company to product all the complementary goods but rely on other
businesses to make them
-Example: Apple relies on other companies to make phone cases and headphones
for IPhones
Technology Standards
-Requires compatibility of complementary goods
-Find or make compatible complementary good
Installed Base
-# Of users
Lock In
-Size in investment
-Not only dollars but can be time and learning in addition to money
-Larger= greater resistance to switch
-Lock in through relationships
-When you’re invested it gives the company higher bargaining power
Switching Costs
-Costs of moving
-Entry barrier: makes lock in worse
-Compatibility, alliances/ incentives with complementary goods, suppliers, build
-Lower switching costs, offer leap in performance
Network Effect
-Value depends on users
Small installed
Less appealing
Sustaining Technology
-Presents improvements to existing products in expected ways
-Sustaining Technologies: in a way that’s predictable
-Whole purpose is to achieve higher margins as they chase customers
-At some point product becomes so good and exceeds customer expectations
-Provides mainstream, high margin customers with enhancements in product
-Existing firms normally win
Disruptive Technology
-Developing somewhere else and then when they get good jump into a new market
-When first come along not very good, lower performance but doesn’t cost a lot
-Not very food performance wise
-Example: Digital imaging
-Improve at a faster rate then sustaining technology
-Enter the mainstream market
-Does the same job, either at a low price or same price but does the job way better
Tactics for Small Companies to Succeed
-Enter with a totally different product in a market that large firms wont be
interested in
-Not their mainstream- not interested or motivated
-Not what they are good at or can easily adjust to
-Margins are too small or market too small
-Once you are strong, move up in the market
Why do Large Firms Sometimes Fail
-Organization structure and capabilities slow response time/ ability and influence
-Do the best job in the one where meets all the factors of the diamond e
-Organizational processes weed out ideas that do not address current customer
-Managers focus on satisfying mainstream customers
-Ignore new technologies that don’t initially meet needs of mainstream
-Move ‘up market’ to higher margin opportunities
-Avoid small, uncertain, unfamiliar markets
-Niche markets, small and financially unattractive
-Growth potential uncertain
-Lower profit margins
-Greater risk of being criticized if you fail managerial risk aversion
Tactics for Large Companies to Avoid Failure
-Design products based on task they are intended to serve rather then the customer
who buy them
-Monitor outside of your own industry and mainstream customer
-Partner with young firms- strategic alliances
-Establish ventures units that are independent of parent organization
-Understanding the job, more likely to see when there are things that are changing
Social Factors
-Very different attitudes depending where you live
-Demographic characteristics
-study of human characteristics and population
-Business Implication: affects how we live, work, consume and produce
-WHY? Affect customer preferences and worker attitudes and behaviors, standards
of business conduct, and corporate social responsibility
Ethics: individual standards/ beliefs regarding what is right and wrong or good and
-Vary based on person
-What each of you believe affects your business or managerial ethics
-Carry those personal beliefs and values with you into the business
Business or Managerial Ethics: standards of behavior that guide individual
managers in their work
-Ethical or unethical behaviors by a manager or employee of an organization
-Personal ethics affect the decision you make in the organization and your business
Corporate Social Responsibility (CSR)
-CSR is ethics at the corporation level
-Example: is the company going to make charitable donations, get involved in
charity events, volunteer, etc.
How to Influence Managerial Ethical Preferences
hiring criteria
role modeling
code of conduct
ethics booklets
& training
on criteria &
Hiring Criteria
-Employee’s views will be a big part in the decisions you make
-Easier to hirer someone who is right for the job rather than constantly changing
employees over
-Employees that have values and ethical standards that are consistent with the
-Criteria that includes ethical standards
Managerial Role Modeling
-Teach by example approach
-New employees to be able to see what a good ethical decision looks like
-What we believe in as a good CSR choice and standard
-New employees understand based on learning from other employees
Mission Statement/ Code of Conduct
-Communicates in writing the expectations that we have of our employees and our
decision makers
-What we value as an organization
-Want example to be consistent with the words
Ethics Booklets & Training
-Helpful to train employees how to behave under certain conditions (ethical
-Teach how to make good decisions
Goals/ Evaluation Criteria & Rewards
-Make sure this ethical standard are reflected in how you evaluate them
-Gives you a chance to adjust if not meeting those standards
-Spend your time on things that give you the greatest reward
Employee Protection Mechanism
-Whistle Blowing
-Company is doing something unethical and employees within the company report
the wrongdoing
-Employees should be protected if they report something in the company and not be
at risk of getting fired and losing their job
Who are they?
-Groups, individuals, and other organizations that are significantly affected by the
organizations activities
-They provide business with the capacity to operate and rightfully expect something
in return
-Stakeholder’s importance depends on situation and the issue
-Affect willingness and opportunity to act
-Challenge: stakeholders may have varying and conflicting expectations of an
-How you balance them depends on your managerial ethics and approach to CSR
Importance of Stakeholders
-Stakeholder importance is determined by:
-Its ability and willingness to act
-Its relative power/ dependence or interdependence
-Stakeholders can be:
-Threatening: willing and able to create uncertainty
-Cooperative: willing and able to support
How to Strategically Manage Stakeholders
-Identify key organizational stakeholders
-Diagnose them along two critical dimensions of potential for threat and potential
for cooperation- categorize them
-Formulate appropriate strategies both to enhance or change current relationships
with those key stakeholders and to improve the organizations overall situation
-Effectively implement these strategies
Strategic Stakeholder Categories
Potential Cooperation
Potential for Threat
Stakeholder Management Strategies
Marginal Stakeholders: monitoring- satisfying needs and/ or demands of
stakeholders; no need to involve or collaborate with them
Non-Supportive Stakeholders
-Reduce interdependence
-Use media to promote/ defend your actions
-Encourage supportive stakeholder to voice their support
Supportive or Mixed Blessing Stakeholders
-Collaborate or involve
Stakeholder Type
Customers & Suppliers
Activist Groups
Suggested Techniques for Collaborating/ Involving
Involve in product design
Joint R&D, Joint Market Development
Invite involvement in setting safety/ technical
Appoint to Board of Directors
Appoint to Board of Directors, seek input, consult
Invite involvement in Joint Committees, appoint to
board of directors, profit sharing
-Stakeholders watch out for other stakeholders
-Stakeholders can move form supportive to non-supportive on behalf of/ in defense
of other stakeholders
Corporate Social Responsibility (CSR)
What is it?
-The idea that a business should balance its commitments to individuals and groups
that are directly affected by the organizations activities
-Organizational Stakeholders:
-Groups, individuals, and organizations that are directly affected by the
practices of an organization and that therefore have a stake in its
-What the organization does to and for the stakeholders
-How business defines ethical conduct at the organizational level
-How business balances its commitments to stakeholders
Why focus on CSR?
Make environment more manageable
-Avoid adverse actions/ increases support by stakeholders
-Uncertainty is created when stakeholders are unhappy with the company
-Promotes favorable legislation
-If you take initiative and do something good might become the standard that
forces everyone else to follow you
-Example: Johnson& Johnson mission to produce safe products for
consumers and the ones that initiated tamper proof seal after people died
from buying Tylenol bottles that have been tampered with
-Became a distinctive competitive advantage for J&J and everyone else in
the industry had to follow?
-IF government mandated, would have had a competitive advantage that
is enforced by the law
-Especially in todays digital media environment, allows you to complain
about everything and anything, so if you make a choice society doesn’t
approve of everyone will hear about it
-Very easy to mobilize a negative feeling towards your company
Affects ability to meet critical success factors
-Improves profitability
-Distinctive competitive advantage= increase in profitability
-Improves trust and loyalty of customer and employees
-If customer believe you are selling a safer, better, more reliable product that
will serve them better they will be loyal to you
-Few people want to work for an organization that are damaging to
customers (unsafe working conditions, dishonest)
-Promotes higher levels of operating efficiency
-If produce good quality good, treat employees well, then not worrying about
constantly replacing employees (not worrying about disposable employees
or products)
-Fewer products coming back that need repairs
-Encourages continuous improvement and innovation
-To be better with employees and customers requires innovation and
-Can be a source of distinctive competitive advantage
Five Areas of CSR
1. Responsibility Towards the Natural Environment
Areas: air, water, and land pollution
Why are we focusing on it?
a) Paradigm Shift in management thinking
-Managers trained to think beyond bottom line
b) Quantification of impact
-Dollar value towards environment now given a reason to pay attention
c) Change in societal attitudes
-Society has changed and societies view on pollution and global warming has
-Societies attitudes have changed
a) Paradigm Shift in Management Thinking
1987: Bruntland defines sustainable development: “meets the needs of the
present without comprising the ability of future generations to meet their own
-What you are leaving for the future and your children
1994: J. Elkingotn extended concept of ‘sustainable development’ to ‘Triple
Bottom Line’
-Before this time only focusing on bottom line: profit
-Equity, environment and economy
-People, plant and profit
-Successful business and society doesn't just look at today but looks at
tomorrow as well
-Shift thinking from just thinking about bottom line to thinking about the human
b) Quantification of Economic Impact
-2012: “Clime Vulnerability Monitor: A guide to the Cold Calculus of a Hot Planet”
states that climate change is costing $1.2 trillion (U.S) per year and reducing
global GDP by 1.6 per cent
c) Social Attitude Shift
-Dominant paradigm was take, make, and waste
-Everything was disposable (cellphones, electronics, cars, etc.)
-Compared with 20 years ago, twice as many Americans recycle (58%), buy green
products (29%), and commute in an environmentally friendly manner (185)
-Business may be the primary cause of the problem but it will also likely be the
Action: increase “corporate Greening” NOT green washing
-Corporate greening involves trying to make all aspects of the product more
environmentally friendly
-Green washing: when you don’t really become more environmentally friendly but
you pretend you do
-Marketing ploy rather then legitimate improvement
-Example: cleaning products
2. Responsibility Towards Society
Areas: poverty, health, education
-Improving wealth, health, and education
-Wealth: consumers have more money to spend
-Health: a healthier employee
-Education: better employees, better educated is a more productive employee
-A healthier employee leads to creativity and innovation of products
-Human Development Index (HDI)
-Analyzing Economic Growth- does everyone benefit?
-Looking beyond aggregate figures and considering income inequality
-Growth is not always good
Why are we focusing on it?
-Diffuse the issues of social decay, political chaos, terrorism and further
environmental degradation
-Affect human capabilities (ability to be innovative and creative)
-Societal attitude shift (what we believe today, cant just pretend things aren’t
occurring in other parts of the world)
Action: Innovative business models and leveraging business kills can contribute to
social development
-Social Entrepreneurship (Example: SOS)
-Companies encourage employees to go volunteer during their paid time
-Do this because gives back to the community and benefits their local
-Bigger business and community partnership
3. Responsibility Towards Customers
Areas: pricing, advertising, rights
-How we price our products, what we say in our advertisement, which we advertise
to and how we advertise to people
-Consumer rights
Why we Focus on it?
-Purchase goods and services thereby providing business with revenue
-Avoid adverse actions
-Avoid increased regulation
-Consumerism, Respect
-Right to safe products (not okay to produce and sell products that you know
are not safe)
-Right to be informed (side effects, hazards, contents)
-Right to be heard
-Right to choose
-Right to courtesy
-Right to education
-Fair pricing
-Ethics in advertising
-Truth, no counterfeits brands
-Giving the trust about your product and what it does
4. Responsibility Towards Employees
Areas: hiring, promotion, compensation, training
-Give access to training so they can do their job well and have future prospects
-Compensation: make sure employees are getting paid the right amount for the
work they do
Why we focus on it?
-Provide business with talent, skills and labour
-If don’t focus on it automatically lose employee commitment
-Responsible for hiring and promotion
-Not being bias of discriminatory in hiring
-Safe working conditions
-Employees work better when in safe conditions and are more productive
-If not safe, expose yourself to lawsuit
-Opportunities for advancement
-gives opportunities to be promoted
-Protection of whistleblowers
-Employee protection mechanisms
-Sends the message what is important based on ethical standards
-Sends message to employee that their observations and contributions
5. Responsibility Towards Investors
Areas: financial management, reporting
-Report honestly with financial performance of the company
Agency Problem
-Shareholders allocate decision-making authority to managers via Board of
Directors because they are not qualified to manage company and/ or don’t have
time or incentive
-But can lead to conflict of interest and shirking
-Managers (and board) may be tempted to act in their own best interest
rather then the shareholders
Why we focus on it?
-Investors provide businesses with capital
-New regulations due to repeated irresponsibility
-More independence, new practices, new disclosure rules
-Different social attitude- Canadian Coalition for Good Governance
-Legal action against directors and managers
-Focus on long term return on investment (ROI)
-Responsible management reporting and transparency
-No inside trading
Four Approaches to CSR
1. Obstructionist Stance
-A company that does as little as possible to solve social or environmental problems
-Do as little as possible
-May breach what is legal
-Do the bare minimum
-Don’t offer employees more than the minimum
-Don’t make charitable donations
-Offer bare minimum for what is safe for employees to work in
-Bare minimum of what is legally required to sell to a customer
2. Defensive Stance
-An organization that does only what is legally required and nothing more
-Legally required only
-Only do what is legally required of you to do
3. Accommodative Stance
-A company that meets all of its legal and ethical requirements and in some cases
even goes beyond what is required
-Goes further in some areas
-Might make donations
-Might pay employees a little more then minimum wage
-Might give customer a little more than what they ask for
-But only do these things if you are asked and have to be asked to do something
-Doing more than is legally required
4. Proactive Stance
-An organization that actively seeks opportunities to be socially responsible
-Looks for opportunities
-Do more than minimum requirement, goes above and beyond
-Don’t wait to be asked
-Study of human populations
Why Is It Important to Business?
-Powerfully predictor of human behavior/ trends
-Certainty and simplicity of age data
-Change in relative proportions and participation rates of age groups have
significant impact on business environment
Understanding Demographics
-Key factors in predicting behavior
-Size of cohort= # of people in each age group
-Activity participation rate
-Factors affecting size of cohorts
-Fertility rate: average number of children/women
-Birth rate: total number of births/ size of population
Canadian Demographic Trends: Aging Boomers, fewer youth
-Aging baby boomers most influential demographic force shaping marketplace but
-Shrinking youth group in comparison
-Population no longer reflects traditional pyramid
-Increased paid and unpaid elder care
-Increased number of vulnerable seniors
Large and Influential Echo
-Echo generation= children of boomers= relatively large group
-More disposable income because parents provide essentials
-Increasingly influence family purchases
-Market impact of echo
Changing Households
-One-person households growing faster then one family households
-Highest among seniors
-Lose economies of scale in living, shopping; aging seniors living alone+
smaller young cohort= will have smaller support network
-Lone Parent families Increase; two earner families face time constrains
-Increased demand for time saves
Changing Ethnic Composition
-Immigration increasing over past decade
-Immigrants are younger and more likely to live in city than average Canadian
-Interacting with marketplace difficulty
-Increased demand for multilingual consumer support/ services/ goods
Geographic Distribution
-Increasing urban concentration- four areas: Golden Horseshoe, Montreal, B.C.
Lower mainland+ Vancouver, Calgary- Edmonton
-Donut Effect
-Rural living predominates in Atlantic Canada, Saskatchewan, and territories
-Next exodus of youth form rural areas
-Affects median age in rural area and access to goods and services
Political Factors
-Laws and regulations
-Trade agreement or conditions
-Political system
-Political stability
Business Implication: affects uncertainty, risk, and constraints/ costs faced by firms
WHY? Protection of consumers, support for and protection and regulation of
domestic businesses, opportunity creation in foreign markets
How Governments Influences Business
-Customer- buys products & services
-Competitor- compete through Crown Corporations (hybrid entities between a
government body and a private enterprise) such as Canada Post
-Regulator/ Law Marker
-Regulate many aspects of business activity through administrative boards,
tribunes and commissions
-Regulates business activity; influences technology standards
-Promotes competition – Competition Act, small business support
-Promotes innovation – intellectual property rights
-Protects consumers – i.e. Hazardous Products Act
-Achieve social goals – i.e. universal health care, education
-Protect the environment – Canada Water Act, Fisheries Act
-Taxation Agent
-Collected by all three levels of government
-Types business and personal
-Approaches- progressive, regressive, restrictive
-Progressive: levied at a higher rate on higher income taxpayers and a lower
rate on lower income taxpayers
-Regressive: are levied at the same rate regardless of a person income
-Restrictive: are levied partially for the revenue they provide but also
because legislative bodies believe that the products in question should be controlled
-Provider of incentives & financial assistance
-Subsidies, tax breaks, support services for small and large businesses,
research funding
-Government steps in and saves a company fro going bankrupt
-Government does this ass it saves jobs
-Provider of essential services
-Highways, armed forces, police & fire dept., hospitals, education
Intellectual Property
What: legal rights that result from intellectual activity in the industrial, scientific,
literary and artistic fields
-Grants exclusive rights to creator
-Most common types are patents, copyright, and trademarks
-Why? Creates incentives to innovate and be unique by allowing you to benefit form
your innovation/ creation
-A word(s), a design, or a combination of these used to identify the goods or services
of one person or organization
-Protection for 15 years; renewable
-Legislation= trade mark act
-Can be a symbol/ shape/ and or words
-Why? Establishes and protects reputation and brands, can be one of your most
valuable assets and facilitates licensing of your trademark
-Any original literary, dramatic, musical or artistic work
-Subject to copyright from the moment it is create (no registration needed)
-Owner is creator of the work
-Created while at work= owned by employer
-Duration- life of owner + 50 years
-Becomes public domain after
-Caution: doesn’t cover ideas, only for form in which they are expressed in (music,
play, art)
-Why? Receive credit and royalties for your work
-Government grants that give investors exclusive rights to their inventions
-Must be new (first in the world), useful (functional and operative) and show
ingenuity (ex. is not obvious to someone skilled in that area)
-Can be a product, composition, apparatus, process, or improvement of any of these
-Protection- 20 years
Why? Provides protection for owner, can license/ receive royalties, provides
valuable information and inspiration for further research and innovation
-Details disclosed to the public after 18 months
Business Influence over Government
-Hired to represent company’s/ groups interest with the government officials
-Lobbying act: must register and follow rules
-Trade associations: small businesses/ individuals join and lobby as an industry
lobby group
Collaboration with government/ decision input
-CRTC consults with industry members
-Corporations influence voters
Forms of Business Ownership
-Traditional Ownership:
-Sole Proprietorship
-Public vs. Private Corporations
-Other Forms: Co-operatives
-An organization that is formed to benefit its owners in the form of reduced
prices and/or distribution of surpluses at year-end
-Forms of ownership will likely change over life of business
Sole Proprietorship
-Owned and operated by one person who is responsible for all of its debts?
-Business and owner= one legal entity
-Important to understand in the eyes of the law the business and the owner are
considered one legal entity, no distinction
-Government supports and gives lots of free advice to new businesses
-If business is experiencing losses and gets sued they can come after personal assets
since no distinction between personal and business
-Difficult to evaluate and determine the value of the business
-Two or more owners
-Business with two of more owners who share in the operation of the firm and in
financial responsibility for the firms debts
-Business & Owners= one legal entity
-Government gives lots of support and advice
-Now you have two people to get opinions and bring money
-Slightly easier to borrow money
-Hard to transfer partnership, difficult to calculate and hard to find a new partner
Types of Partnership:
General Partnership:
-Al partners have joint and several liabilities for the obligations of the business
-Joint Liability: Together share liability
-Several liabilities: one may be liable for all
Limited Partnership
-Limited partners liability= investment
-A type of partnership with at least one general partner (who has unlimited liability)
and one or more limited partners. The limited partners cannot participate in the
day-to-day management of the business or they risk the loss of their limited liability
-Cannot lose more money then what you invested
-Do not have unlimited liabilities
-Limited partners cannot be active in management
-At leas one general partner
-A business considered by the law to be a legal entity separate from its owners with
many of the legal rights and privileges of a person; a form of business organization
in which the liability of the owners is limited to their investment in the firm
-Separate entity from owners (shareholders)
-Public, Starts with IPO
-Interests represent by Board of Directors
-Inside directors
-Outside directors
Private Corporation
-Shares not publicly traded, <50 shareholders, owners & business= separate entities
-A business whose stock is held by a small group of individuals and is not usually
available for sale to the general public
-In theory have limited liability since it is limited to anything you put into the
-If you put personal assets into the business then you can lose those
Public Corporation
-A business whose stock is widely held and available for sale to the general public
-Several owners, share publicly available, business& owners= separate entities
-Can not come after you for private assets, limited liability
-Never lose anything more than your investment
-Just because owners change does not change the business, does not matter who
the owners are
-Incredibly easy to transfer ownership
-Go to the stock exchange and sell your stocks
-Easy to raise money since you have stocks, bonds and have access to the public
since you are already big
-If you are a big company is easier to get bigger
-Unlimited share holders
-Profits get taxed once
-Most costly form of ownership
-Make sure shareholders are protected
-Lots of rules to financial disclosures
-Lack of secrecy
-Single interdependent system
-Selling it in another market other then the domestic market
-Globalization is a result of increasing trade agreements
-Greater awareness of benefits
-Technology makes it easier, faster, cheaper
-Competitive pressure
Forms of Competitive Advantage
Absolute Advantage
-Cheaper/ better then other countries
-National Level: when you produce better or cheaper than anyone else in the world
Comparative Advantage
-Better then other goods; lower opportunity cost
-What does the country have an advantage in, what are they more productive at in
comparison to other countries
-Makes sense to produce in what you have a comparative advantage in and then buy
what you’re not as good at producing
National Competitive Advantage
-Need all 4 to have comparative advantage
Considerations in Going International
-First step: environment
-Second step: Social factor
-Third Step: economic factor
-Fourth Step: Diamond E Capabilities
-If yes to all the above considerations, go international
-If no then stay domestic
Barriers to International Trade
Social and Cultural Differences
-Adapting to customer needs
-Is the kind of product you’re offering something people around the world would
-Language barriers
-If firms do not understand cultural differences in foreign market they will not be
-Knowledge of local dos and don’ts is important in international business activity
Economic Differences
-Exchange rates
-Comparison to Canadian dollars
Legal and Political Differences
-Quotas, tariffs, subsidies
-Quota: number of products that can be exported into a particular market
-Once the quota is met product isn’t allowed or taxed at a higher rate
-Tariffs: tax put on the import to make the import more expensive
-Subsidies: a government payment to help domestic business compete with
foreign firms
-Make it difficult for foreign companies to compete and make import
products more expensive
-Any action or policy the government takes to protect local firms
-Protecting domestic business at the expense of free market competition
-Local Content Laws
-Laws requiring that products sold in a particular country be at least partly
made in that country
-What percentage of domestic products needs to be produced from Canadian
-Business Practice Laws: cartel and dumping
-Most cartels not legal decide where they set the price and control quantity
off output
-Cartel: any association of producers whose purpose is to control supply of
and prices for a given product
-Dumping: Selling a product for less abroad than in the producing nation
Overcoming Trade Barriers
-Government support through free trade treaties
-Employing firm strategies for next market entry
-Government work actively to open their markets up
-Have to open the door to your market for open countries to open their doors to
their markets
Firms Strategies for Entering Foreign Markets
Alliances with local firms- overcome S, E but will the partnership work?
-Company finds a partner in a foreign country where it would like to conduct
-Each party agrees to invest resources and capital in a new business
-Help with local barriers and exchange rate problems
-Help you be on the inside
-Benefit from partners knowledge and they are familiar with the rules and the laws
Establishment of foreign subsidiaries (buy or build)
-Buying or establishing tangible assets in other countries
-Overcome E and P (if allowed)
-Do you know social factors?
-Do you know the social context well enough?
-Big investment
-Manufacturing operations there, going in completely alone
-Costs a lot of money and have to know a lot stuff to be able to be successful
-Overcome tariffs, duties, and exchange rates but do you know enough about that
market to be successful
-Establishing an entire company
Branch Offices
-A location that an exporting firm establishes in a foreign country to sell its
More efficiently
-Low risk; marketing control; overcome S?
-Doesn't help with P or E since you are exporting
-Compromise: manufacture in domestic market but set up sales office in foreign
market and send employees to develop distribution network, and you just export
-Complete control over marketing
-If employees aren't familiar with foreign market might not overcome these barriers
-All setting up is the sales office
Local Agents - marketing know how (overcome S) & low risk but oddest help
-Is a foreign individual or organization that agrees to represent an exporters
interest in foreign markets
-Hire local people to run the company
-Local experts
-Renting out the capabilities from local employees
-Doesn’t have with exchange rate and doesn't help with quotas and duties
Licensing- overcome S, E, P, but lower marketing control
-Agreement in which firms choose foreign individual or organizations to
Manufacture or market their products in another country
-Someone can undermine your brand
-Benefit as already familiar with the given market and will produce things that will
sell in the foreign market
-Overcome exchange rate, tariffs, duties, quotas,
-Don’t have to set up own subsidiary
-Damage could occur as you loss marketing control, as you don't know that the
manufacturer won’t undermine the quality of products you produce
Critical Success Factors
Creating a
and sercies
Diamond-E Framework
Porters Five Forces
Random flashcards
Arab people

15 Cards


20 Cards


30 Cards

Create flashcards