UNIT 1. MANAGEMENT
LEARNING OBJECTIVES
After you have read and studied this unit, you should
be able to

Explain the five functions of management.

Discuss what makes a good manager.

Explain the differences between a manager and
a leader.
KEY TERMS
Management: The process used to accomplish organizational goals through planning,
organizing, leading, and controlling people and other organizational resources.
Manager: An individual who is in charge of a certain group off tasks, or a certain area
or department of a business.
Chief Executive Officer: The most senior manager responsible for the overall
performance and success of a company.
Planning: A management function that includes anticipating trends and determining
the best strategies and tactics to achieve organizational goals and objectives.
Organizing: A management function that includes designing the structure of the
organization and creating conditions and systems in which everyone and everything
work together to achieve the organization’s goals and objectives.
Leading: Creating a vision for the organization and guiding, training, coaching, and
motivating others to work effectively to achieve the organization’s goals and objectives.
Controlling: A management function that involves establishing clear standards to
determine whether or not an organization is progressing toward its goals and
objectives, rewarding people for doing a good job, and taking corrective action if they
are not.
LEAD- IN
- Which business leaders do you admire for their managerial skills? What are these
skills?
- Do managers have a good reputation in your country? Or are they made fun of in
jokes, cartoons, and television series? If so, why do you think this is?
- Which of the famous managers below do you find the most interesting and
impressive?
Elon Reeve Musk is a business magnate and investor. He is the
founder, CEO, and Chief Engineer at SpaceX; angel investor, CEO,
and product architect of Tesla, Inc.; founder of The Boring Company;
and co-founder of Neuralink and OpenAI. With an estimated net worth
of around US$262 billion as of September 10, 2022, Musk is the
wealthiest person in the world according to both the Bloomberg
Billionaires Index and Forbes' real-time billionaires list.
Mark Elliot Zuckerberg is an American business
magnate,
internet
entrepreneur,
and
philanthropist. He is known for co-founding the
social media website Facebook and its parent
company Meta Platforms (formerly Facebook,
Inc.), of which he is the chairman, chief executive
officer, and controlling shareholder.
Timothy Donald Cook is an American business executive and
engineer who has been the chief executive officer of Apple Inc. since
2011. Cook previously served as the company's chief operating
officer under its co-founder Steve Jobs. Cook joined Apple in March
1998 as a senior vice president for worldwide operations, and then
served as the executive vice president for worldwide sales and
operations. He was made the chief executive on August 24, 2011.
Mary Teresa Barra is an American businesswoman who has been
the chair and chief executive officer of General Motors since
January 15, 2014. She is the first female CEO of a 'Big Three'
automaker In December 2013, GM named her to succeed Daniel
Akerson as CEO. Prior to being named CEO, Barra was executive
vice president of global product development, purchasing, and
supply chain.
READING 1
THE DIFFERENCE BETWEEN A MANAGER AND A LEADER
What is a manager?
A manager is a person in an organization who is responsible for carrying out the four
functions of management, including planning, organizing, leading and controlling. You
will notice that one of the functions is leadership, so you might ask yourself if it would be
safe to assume that all managers are leaders. Theoretically, yes - all managers would be
leaders if they effectively carry out their leadership responsibilities to communicate,
motivate, inspire and encourage employees towards a higher level of productivity.
However, not all managers are leaders simply because not all managers can do all of
those items just listed. An employee will follow the directions of a manager for how to
perform a job because they have to, but an employee will voluntarily follow the directions
of a leader because they believe in who they are as a person, what they stand for and for
the manner in which they are inspired by their leader. A manager becomes a manager
by virtue of their position, and subordinates will follow the manager because of his or her
job description and title.
Because managers are responsible for carrying out the four functions of management,
their primary concern is to accomplish organizational goals. Managers get paid to get
things done in organizations. As such, the manager is accountable for themselves as well
as the behavior and performance of his or her employees. A manager has the authority
and power to hire, promote, discipline and fire employees based on those behaviors and
performance. Management is about efficiency and getting results though systems,
processes, procedures, controls and structure.
What is a leader?
Perhaps the greatest separation between management and leadership is that leaders do
not have to hold a management position. That is, a person can become a leader without
a formal title. Any individual can become a leader because the basis of leadership is on
the personal qualities of the leader. People are willing to follow the leader because of
who he or she is and what the leader stands for, not because they have to due to the
authority bestowed onto him or her by the organization. The leader will show passion and
personal investment in the success of his or her followers reaching their goals, which may
be different from organizational goals.
A leader has no formal, tangible power over their followers. Power is awarded to the
leader on a temporary basis and is contingent upon the leader's ability to continue to
motivate and inspire followership. Notice the shift in terminology here: managers have
subordinates, while leaders have followers. Subordinates do not have a choice but to
listen to the demands and wishes of their managers, but following is (and always will be)
a voluntary choice for those who follow a leader. Those who no longer wish to follow the
leader will simply stop. That is, if an employee initially sees his or her manager as a leader
and eventually ceases to be inspired by that manager, the employee will still obey the
manager, but only because the employee is required to do so, not because he or she
wants to.
Leadership is about effectiveness through trust, inspiration and people. Leaders often
challenge the status quo that managers spend much of their time upholding to bring
innovation to organizations. Leadership is visionary, change-savvy, creative, agile and
adaptive. Managers are concerned with the bottom line, while leaders spend time looking
at the horizon.
1. How can a leader lose power?
A. If the leader fails to motivate and inspire his/her followers
B. If the leader is too personally invested in his/her cause
C. If the leader takes his/her position too seriously and devotes too much time to it
D. If the leader takes the time to invest in his/her followers
2. How are managers awarded their power and authority?
A. By virtue of their position
B. As a result of their education and training
C. By their personal qualities
D. As a result of their personality
3. Which of these statements is relevant for the relationship between subordinates and
managers?
A. Managers' main objectives are ensuring efficiency and getting results through
systems, processes, procedures, controls and structure.
B. Subordinates will follow managers because of their job description and title.
C. Managers are accountable for themselves as well as the behavior and
performance of their employees.
D. All of these answers are correct.
4. Individuals become leaders based on their _____.
A. personal qualities
B. education and training
C. position in a company
D. professional qualifications
5. Which of these describes the primary concern of a manager?
A. Increasing personal gain
B. Ensuring subordinates are happy
C. Building a strong network of employees
D. Accomplishing organizational goals
READING 2
The role and functions of management
All organizations, including businesses, have managers. They may not be called
managers because different titles can be used - leader, director, head teacher, and so
on. Whatever their title the tasks of all managers are very similar, no matter what the
organization. If you are a student in a school or college or if you are in full-time
employment, the managers of your organization will, at some time, have to fulfil the
following functions.
Planning
Planning for the future of the organization involves setting aims or targets, for example:
'The school will aim to increase its sixth form to over 200 students in two years' time' or
'We should plan to increase sales of our new fruit juice range by 50 per cent in three
years'
These aims or targets will give the organization a sense of direction or purpose. There
will be a common feeling in the organization of having something to work towards. It is a
poor manager who does not plan for the future at all.
In addition to these aims, a manager must also plan for the resources which will be
needed. For example: 'To achieve our aim of increasing student numbers in the sixth
form, we will need to build a new sixth form center' or 'Increased advertising expenditure
will be needed to increase sales of our fruit juices' These are two examples of strategies
which are designed to help the organization achieve the aims set for it.
Organizing
A manager cannot do everything. Tasks must be delegated to others in the organization.
These people must have the resources to be able to do these tasks successfully. It is
therefore the manager's responsibility to organize people and resources effectively.
An organizational chart can help to show who has the authority to do different jobs. It also
helps to make sure that specialization occurs and that two people do not end up doing
the same task. An effective manager will organize people and resources very carefully
indeed.
Coordinating
Coordinating means 'bringing together'. A manager may be very good at planning and
organizing but may have failed to 'bring people in the organization together. This is a real
danger with the functional form of organization. Different departments can be working
away in their own specialist area without making contact with people from other
departments. For example, there is no point in the Marketing department planning the
launch of a new product unless they have worked with (coordinated with) the Operations
department. It is the Operations department that will have to produce the product at the
right time, in the right quantities.
A good manager will therefore make sure that all departments in the organization work
together to achieve the plans originally set by the manager.
In the example above, this could be done by regular meetings between people in the
different departments. Alternatively, a project team could have been set up to develop
and launch the new product. The team would be made up of people from different
departments.
Commanding
Many people think that this is all managers do! In fact, the task of management is more
concerned with guiding, leading and supervising people than just telling them what to do
- although this may be important too. Managers have to make sure that all supervisors
and workers are keeping to targets and deadlines. Instructions and guidance must be
provided by managers and it is also their responsibility to make sure that the tasks are
carried out by people below them in the organization.
Controlling
This is a never-ending task of management. Managers must try to measure and evaluate
the work of all individuals and groups to make sure that they are on target. There is little
point in planning and organizing if managers then fail to check that the original aims are
being met. If it seems that certain groups are failing to do what is expected of them, then
managers may have to take some corrective action. This is not necessarily disciplining
staff - although that might be important. There might be reasons for poor performance
other than inefficient workers - it is the manager's job to find out why targets are not being
met and then to correct the problem.
Do you now have a clearer idea of what managers do? Management is not easy to define,
but the list of tasks above helps to demonstrate the varied and important work that good
managers should be doing.
From studying the list of points above, it should also become clear why management is
necessary to any organization. Without clear and effective management, a business is
going to lack a sense of control and direction, coordination between departments, leading
to wastage of effort » control of employees, organization of resources, leading to low
output and sales. In short, without management to take the business forward, the
business will drift and eventually fail.
1. Read the text and complete the following notes about the role of a manager.
A manager has responsibility for resources and decision making. The role of managers
includes:
Planning
Setting (1) ………………… and (2) ……………. for the organization. E.g. to increase
market share by 2%.
Organizing
Managing people and (3) ……………….. effectively towards achieving the aims of the
organization
Making sure staff do not perform overlapping (4) ……………………….
Coordinating
(5) …………….. people and departments together so that they (6) ……………….
towards (7) ………………… aims.
Commanding
Managers are more like to (8) …………….., lead and supervise people than just tell
them what to do .
Controlling
Checking that the (9) ………………………. are being met and appraising (10)
…………….
CASE STUDY 1
Naomi is a student at a sixth form college. She recently took part in a work shadowing
exercise to find out what it is like to be a manager. Work shadowing means that a student
follows a manager for a day or more to experience the work that they do. Naomi
'shadowed' Sabrina Choolun, who is the manager of the sportswear section in Suresave
plc, a large department store. Naomi kept the following diary for one day.
08:30 Attended meeting with other departmental heads and Chief Executive to agree
targets for the next two years. Departmental heads told to plan their own strategy to meet
these goals.
09:15 Two staff members failed to turn up for work. Sabrina asked other staff to cover
these absences by working longer shifts today 10:00 Meeting with Sales Manager from
big sports manufacturer. Sabrina discussed the range of goods she may purchase next
year to meet the store’s targets.
11:00 New member of staff did not cope well with awkward customer. When customer
had gone, Sabrina reminded the shop assistant of the correct procedure that should be
followed. Asked worker always follow company policy in these matters
14:30 Computer printouts of individual staff sales figures were studied. One worker in
particular has failed to meet sales targets and it was agreed with him that further product
training was necessary.
16:00 Email received from Sabrina’s line manager. There was a problem with another
department selling clothing including sports clothes. It was now possible for customers to
find the same goods in the store in two departments at different prices! Sabrina needed
to meet with the other departmental manager to agree on a common policy.
For each of the tasks that Sabrina carried out, identify whether it was concerned
with: planning, organizing, coordinating, commanding or controlling.
CASE STUDY 2
Umeel is retiring after 25 years of managing his own restaurant. It is a very successful
business. He employs 25 trained staff and needs to recruit a new manager. After
advertising the job, he must decide between two applicants. He has gathered the
following information about them:
On the basis of this information, which person would you choose for the
manager’s job? Justify your answer.
VOCABULARY
EXERCISE 1. Match up the following words and definitions.
1 consultant
2 crisis
3 innovation
4 objective (noun)
5 promotion
6 public sector
7 strategy
8 subordinate
A. a plan for achieving success
B. a new idea or method
C. a person with a less important position in an
organization
D. a person who provides expert advice to a company
E. a situation of danger or difficulty
F. something you plan to do or achieve
G. the section of the economy under government
control
H. when someone is raised to a higher or more
important position
EXERCISE 2. Use the word combinations below to complete the sentences.
allocate resources
deal with crises
make decisions
perform tasks measure performance
set objectives
supervise
subordinates
1. After an organization has ……………., it has to make sure that it achieves them.
2. Managers have to find the best way to ……………... all the human, physical and
capital available to them.
3. Some people ………………. better on their own while others work better in teams.
4. Managers ………………
abilities.
the work of their ……………… and try to develop their
5. Managers …………… the …………….
reaching their targets.
of their staff to see whether they are
6. Top managers have to be prepared to ……………. if they occur and then have to
……………. quick …………………
EXERCISE 3. Complete the text using these verbs.
analyze
improve
select
communicate
measure
train
contribute
commercialize
understand
Form, Perform ,
use, divide, risk
work out
What is management?
You want me to explain what management is? Well, I guess I can manage that! Actually,
management as we (1) …………… it today is a fairly recent idea. Most economists in the
eighteenth and nineteenth centuries, for example, wrote about factors of production such
as land, labor and capital, and about supply and demand, as if these were impersonal
and objective economic forces which left no room for human action. An exception was
Jean-Baptiste Say, who invented the term “entrepreneur”, the person who sees
opportunities to (2) ……………. resources in more productive ways.
Entrepreneurs are people who are alert to so-far undiscovered profit opportunities. They
perceive opportunities to (3) …………………… new technologies and products that will
serve the market better than it is currently being served by their competitors. They are
happy to (4) ……………. their own or other people’s capital. They are frequently
unconventional, innovative people. But entrepreneurship isn’t the same as management,
and most managers aren’t entrepreneurs.
So, what’s management? Well, it’s essentially a matter of organizing people. Managers,
especially senior managers, have to set objectives for their organization, and then (5)
…………. how to achieve them. This is true of the managers of business enterprises,
government departments, educational institutions, and sports teams, although for
government services, universities and so on we usually talk about administrators and
administration rather than managers and management. Managers (6) ………………. the
activities of the organization and the relations among them. They (7) ……………. the
work into distinct activities and then into individual jobs. They (8) ……………… people to
manage these activities and perform the jobs. And they often need to make the people
responsible for performing individual jobs (9) ………………. effective teams.
Managers have to be good at communication and motivation. They need to (10)
……………. the organization’s objectives to the people responsible for attaining them.
They have to motivate their staff to work well, to be productive, and to (11)
…………………. something to the organization. They make decisions about pay and
promotion.
Managers also have to (12) …………………. the performance of their staff, and to ensure
that the objectives and performance targets set for the whole organization and for
individual employees are reached. Furthermore, they have to (13) ………………….
and develop their staff so that their performance continues to (14) ………………….
Some managers obviously (15) …………………. these tasks better than others. Most
achievements and failures in business are the achievements or failures of individual
managers.
UNIT REVIEW
1. What is a manager?
2. What can a manager do with the subordinates when considering their performance,
and behaviors?
3. What is a leader?
4. Why is it possible for anyone to become a leader?
5. How is a manager different from a leader?
6. What are the five common roles of a manager? Explain them briefly.
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc
Graw Hill Education.
4. Mackenzie, I., 1997. Management and Marketing, Thomson.
UNIT 2. WORK AND MOTIVATION
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Discuss the importance of motivation.

Compare and then summarize various theories of motivation.

Know how to motivate people in specific situations.
KEY TERMS
Motivation: factors that influence the behavior of workers towards achieving business goals.
Motivation can be increased by:
a. monetary rewards
b. non-monetary rewards
c. introducing ways to give job satisfaction.
Job satisfaction: The enjoyment a worker gets from feeling that they have done a good job.
There are three ways to motivate workers to be more committed to their job and work more
effectively:
Job rotation (swapping workers round and only doing a specific task for a limited time
before swapping round again).
Job enlargement (extra tasks are added to the job to make it more interesting)
Job enrichment (adding tasks that require more skill and/or responsibility)
Theory X: The average person does not like work. Workers must be constantly supervised so
they will work. Motivation is from external factors, e.g. pay schemes where the workers are
paid more for increased output.
Theory Y: The average person is motivated by internal factors. To motivate workers, you need
to find ways to help workers take an interest in their work, e.g. give rewards, incentives.
Maslow's hierarchy of needs: A theory of motivation which states that five categories of
human needs dictate an individual's behavior. Those needs are physiological needs, safety
needs, love and belonging needs, esteem needs, and self-actualization needs.
Frederick Herzberg’s motivation theory: Humans have two sets of needs: one is for the basic
needs, which he called hygiene factors or needs, and the second is for a human being to be able
to grow psychologically, which he called motivational needs or motivators.
Hygiene factors: The factors that must be present in the workplace to prevent job
dissatisfaction.
LEAD- IN
One of the most important responsibilities of a manager is to motivate the people who
report to him. But how? What kinds of things motivate you?
Which of the following factors would be important for you in your choice of a job?
Classify them in order of importance.
o good remuneration (salary, commission, bonuses, perks) good working
relations with your line
manager and colleagues
good working conditions (a large, light, quiet office; efficient secretaries)
job security
the possibility of promotion
a challenging job
responsibility
contact with people
a belief in what the organization does a job in which you can make a
difference
o opportunities to travel (business class!)
o long holidays/vacations
o
o
o
o
o
o
o
o
Discussion: Attitudes to work
Which of the following statements do you agree with?
1. People dislike work and avoid it if they can.
2. Work is necessary to people's psychological well-being.
3. People avoid responsibility and would rather be told what to do.
4. People are motivated mainly by money.
5. Most people are far more creative than their employers realize.
6. People are motivated by fear of losing their job.
7. People want to be interested in their work and, given the right conditions,
they will enjoy it.
8. Under the right conditions, most people will accept responsibility and will
want to realize their own potential.
READING 1
Theory X and Theory Y
The statements on the previous page can be separated into two groups reflecting two very different
ways in which employers can treat their employees. Douglas McGregor, an American expert on
the psychology of work, summarized these two approaches and named them Theory X and Theory
Y. Read the text below and classify the statements according to which theory they support.
Statement 1
Theory
2
3
4
5
6
7
8
In The Human Side of Enterprise, Douglas McGregor outlined two opposing theories of work and
motivation. What he calls Theory X is the rather pessimistic approach to workers and working
which assumes that people are lazy and will avoid work and responsibility if they can.
Consequently, workers have to be closely supervised and controlled, and told what to do. They
have to be both threatened, for example with losing their job, and rewarded with incentives,
probably monetary ones such as a pay rise or bonuses. Theory X assumes that most people are
incapable of taking responsibility for themselves and have to be looked after. It has traditionally
been applied, for example, by managers of factory workers in large-scale manufacturing.
Theory Y, on the contrary, assumes that most people have a psychological need to work, and given
the right conditions - job security, financial rewards - they will be creative, ambitious and selfmotivated by the satisfaction of doing a good job. Theory Y is probably more applicable to skilled
professionals and what Peter Drucker called “knowledge workers” - managers, specialists,
programmers, scientists, engineers - than people in unskilled jobs.
McGregor's two theories are based on Abraham Maslow's famous “hierarchy of needs”. Theory
X relates to the basic, lower order' needs at the bottom of the hierarchy, such as financial security,
while Theory Y relates to “higher order” needs such as esteem (achievement, status and
responsibility) and self-actualization (personal growth and fulfilment) that can be pursued if basic
needs are satisfied.
McGregor is widely considered to have laid the foundations for the modern people-centred view
of management. However, Maslow spent a year studying a Californian company that used Theory
Y, and concluded that there are many people who are not looking for responsibility and
achievement at work. There will always be people with little self-discipline, who need security
and certainty and protection against the burden of responsibility, so it is impossible to simply
replace the “authoritarian” Theory X with the “progressive” Theory Y.
Comprehension
Read the text again and answer these questions.
1. According to Theory X, why do employees have to be closely controlled?
2. According to Theory Y, why should employers give their workers responsibilities?
3. Why did Maslow criticize Theory Y?
READING 2
'Satisfiers' and 'motivators'
Another well-known theorist of the psychology of work, Frederick Herzberg, has argued that good
working conditions are not sufficient to motivate people. Read the text and find out why.
It is logical to suppose that things like good labour relations, good working conditions, job
security, good wages, and benefits such as sick pay, paid holidays and a pension are incentives
that motivate workers. But in The Motivation to Work, Frederick Herzberg argued that such
conditions - or 'hygiene factors' - do not in fact motivate workers. They are merely 'satisfiers' - or,
more importantly, 'dissatisfiers' where they do not exist. Workers who have them take them for
granted. As Herzberg put it, 'A reward once given becomes a right.' 'Motivators', on the contrary,
include things such as having a challenging and interesting job, recognition and responsibility,
promotion, and so on. Unless people are motivated, and want to do a good job, they will not
perform well. However, there are and always will be plenty of boring, repetitive and mechanical
jobs, and lots of unskilled workers who have to do them.
How can managers motivate people in such jobs? One
solution is to give them some responsibilities, not as
individuals but as part of a team. For example, some
supermarkets combine office staff, the people who fill the
shelves, and the people who work on the checkout tills into
a team and let them decide what product lines to stock, how
to display them, and so on. Other employers encourage job
rotation, as doing four different repetitive jobs a day is better
than doing only one. Many people now talk about the
importance of a company's shared values or corporate
culture, with which all the staff can identify: for example
being the best hotel chain, or hamburger restaurant chain, or
airline, or making the best, safest, most user-friendly, most ecological or most reliable products in
a particular field. Unfortunately, not all the competing companies in an industry can seriously
claim to be the best.
Comprehension
1. Are these sentences TRUE or FALSE?
a. Herzberg argued that ‘hygiene factors’ motivate workers.
b. Challenging jobs and responsibility are hygiene factors.
c. Some unskilled jobs will always be boring and repetitive.
d. Workers might be motivated by having responsibilities as part of a team.
e. Job rotation can make a day’s work more interesting.
f. You can always motivate workers by telling them that they work for the best company in the
field.
2. Find the words in the text that mean the following.
a. interactions between employers and employees, or managers and workers
b. knowing that there is little risk of losing one's employment
c. money paid (per hour or day or week) to manual workers
d. advantages that come with a job, apart from pay
e. things that encourage people to do something
f. to be raised to a higher rank or better job
g. without any particular abilities acquired by training
h. regularly switching between different tasks
i. a company’s shared attitudes, beliefs, practices and work relationships
CASE STUDY 1
Patel Fashions is a retail business which sells women's clothes. It employs 15 sales
staff who work in the shop and five more who work in the offices.
There is one shop manager who is in charge of the business. Each of the sales staff
has a specific job and they only do this one task. For example, some just serve
customers at the pay desk, some look after the fitting room, and others look after the
clothes on display. Employees keep leaving and the shop manager regularly has to
advertise for new employees. 'I do not like having to spend so much time interviewing
applicants for sales assistant jobs. I wish the employees would not keep leaving,' said
Marie, the shop manager.
a. Discuss the different financial and non-financial benefits the store manager could use to improve
motivation at the shop, in order to prevent workers from leaving so regularly. Which would be the
best method for her to employ and why?
b. Would job rotation be the best method for Marie to use in order to increase job satisfaction?
Explain your answer.
c. State which management style you would suggest for Theory X managers and Theory Y
managers. Explain your choice.
CASE STUDY 2
The senior managers of Farook Fashions (FF) are concerned about the fall in
productivity at one of its factories - Factory A. The company’s Fluman Resources
Director has produced the following data for last year.
Factory A
Average weekly productivity per worker
Average number of days’ absence per
worker
The number of workers left
Average weekly wage
220
19
Average for FF’s
other factories
350
8
40
$126
18
$125
Factory A employs 500 workers and is the oldest of FF’s factories. Workers in Factory
A have often complained to the factory manager about their poor working conditions
compared to workers in FF’s other factories.
In a recent meeting when this issue was raised again, the factory manager said: ‘I do
not understand why you keep complaining about working conditions. You all have
well-paid jobs. All factories are noisy and dirty places, this one is no different.’ This
was a typical comment from a manager who was not very well liked by the workers.
Fie never showed any interest in them. The only time he spoke to them was to give
orders or to tell them off for breaking one of the many rules he had introduced when
he became manager 20 years ago.
1. Identify two factors that suggest workers in Factory A are less well motivated than in FF’s
other factories.
2. Calculate the percentage of workers who left Factory A in the last year.
3. Do you think that money is the cause of poor motivation at Factory A? Justify your answer.
4. How might the senior managers at FF use Herzberg’s two-factor theory to improve
productivity at Factory A?
VOCABULARY
EXERCISE 1. Complete the text using the verbs in the box:
achieve
actualize
avoid
earn
exist
expect
maximize
perform
pursue
require
reward
set
One of the most important elements of any manager’s job is to motivate his or her subordinates to
do their jobs well and to be productive. Two very well-known theories of motivation among
managers are those of Abraham Maslow and Frederick Herzberg.
In Motivation and Personality (1954), Maslow identified what he considered to be a hierarchy of
basic human needs and classified them under five headings. First come physiological needs such
as food, water, air and sleep. If these needs are not satisfied, people will not (1) ……………….
other needs. The second category is security needs: clothing, shelter, the necessity to be free from
danger and physical pain, and - most relevant to management - to be free from the threat of losing
one’s job.
Where these first two categories of needs are satisfied, people feel social needs: to belong to a
group, to be liked and loved and accepted by others. Next come esteem needs: people do not only
want to be accepted, they want to have self-respect and to be esteemed by others. Maslow believes
that people all (2) ……………….
power and status, respect and self-confidence.
The fifth and highest category concerns self-actualization needs: the desire to develop as a person,
to (3) ………………. one’s potential, and to (4) ………………. the goals one has (5)
………………. for oneself. According to Maslow, employees will only be motivated if they are
able to realize their goals (concerning creativity, responsibility or whatever) through their work.
As a need is satisfied, it becomes less important. For example, the more money one has, the less
motivating it is to (6) ………………. more - although of course this doesn’t stop people wanting
it! In fact, pay becomes a social or psychological matter rather than an economic one. When needs
are satisfied, their capacity to (7) ………………. and to act as an incentive diminishes. In Work
and the Nature of Man (1966), Frederick Herzberg argued that things like good salaries and fringe
benefits, job security, status, good company administration and labor relations, cannot motivate
workers. They are merely “satisfiers” or, more importantly, “dissatisfiers” where they do not (8)
………………. “Motivators”, on the contrary, include things such as having a challenging or
interesting job, recognition, responsibility, promotion, and so on.
Clearly, not everybody in manufacturing industry or routine service industry jobs can (9)
………………. challenging and interesting work or promotion to the highest positions of
responsibility. For this reason, many people have disputed Maslow’s theory. For example, selfrealization and self-actualizing needs are probably far more prominent among university graduates
and at higher levels of a company than at lower levels, where social and security needs, and even
a desire to (10) ………………. responsibility, might be dominant. Not everybody can (11)
………………. himself or herself at work. Yet even workers who cannot be, or do not want to be,
involved in planning, decision-making, controlling and organizing, can be given a variety of tasks,
rather than be expected to (12) ………………. the same boring, repetitive, mechanical task eight
hours a day or more.
According to the text, are the following statements TRUE or FALSE?
1. The possibility of losing their job generally motivates people to work harder.
2. Workers need to be accepted and respected by their colleagues and superiors.
3. After a certain point, people are no longer motivated by money.
4. According to Maslow, a good working environment will motivate and fulfil employees.
5. According to Herzberg, providing good working • conditions is unnecessary.
6. Educated people are more likely to want to achieve things in their jobs.
7. Managers have to ensure that everybody has an interesting job.
8. Switching among several boring, repetitive tasks is better than doing only one.
EXERCISE 2. Read the text then answer the questions below.
The work of Maslow and Herzberg has been developed info the theory of 'job enrichment'.
This theory states that there are five characteristics affecting an individual's motivation and
performance:
1. Skill variety. The extent to which a job demands different skills.
2. Task identity. The degree to which a job has a visible outcome.
3. Task significance. The degree to which a job has an impact on the work of others.
4. Autonomy. The degree of freedom and choice that people have in scheduling work and
determining procedures.
5. Feedback. The amount of direct and dear information that is received about
performance.
The first three factors above contribute to the meaningfulness of the job. The fourth gives a
feeling of responsibility. The fifth contributes to a feeling of achievement and recognition. Job
enrichment tries to maximize the above five factors Within the constraints of the organization.
It also includes two specific strategies:

job enlargement -- combining a series of tasks into one challenging and interesting
assignment

job rotation - moving employees from one job to another.
Find a word in the text which means:
1. making something better and more enjoyable ____________
2. result ____________
3. power to make independent decisions ____________
4. quality of being serious, useful and important ____________
5. making something bigger ____________
6. piece of work that you must do as part of your job or course of study ____________
EXERCISE 3. Study the collocations related to decision making. Check any
unknown words in a dictionary.
achieve, define, establish, fail in, fall short of, fulfil,
an objective
identify, meet, reach, set
address, cause, clear up, create, deal with,
a problem
give rise to, handle, overcome, resolve, solve, tackle
accept, agree to / with, come up with, make, offer, put
a suggestion
forward, reject, rule out, take up, turn down
arrive at, come to, defer, make, overrule, overturn,
a decision
postpone, put off, reach, reverse, take
collective, critical, crucial, difficult, hard, important, joint,
decision
key, major, tough, unanimous
anticipated, desirable, eventual, expected, favorable,
final, likely, satisfactory, successful
outcome
Now divide the words in each box into three groups, based on their meaning.
achieve, meet,
reach, fulfill
define, identify,
establish, set
fail in, fall short of
an objective
a problem
a suggestion
a decision
decision
outcome
UNIT REVIEW
1. What is a motivation?
2. What are the most common ways to increase a worker’s motivation? Give examples of
monetary and nonmonetary rewards.
3. What is job satisfaction?
4. How can companies raise job satisfaction of their workers?
5. Distinguish Theory X and Theory Y
6. What are hygiene factors?
7. Describe briefly Maslow’s Hierarchy of Needs.
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc
Graw Hill Education.
4. Emmerson, P, 2007, Business English Handbook Advanced, Macmillan
Education.
5. Mackenzie, I, 1997, Management and Marketing, Thomson.
UNIT 3. COMPANY STRUCTURE
LEARNING OBJECTIVES
After you have read and studied this unit, you should
be able to



discuss the different ways of organizing work.
discuss potential conflicts between different
departments in a company.
compare the differences between large and small
companies
KEY TERMS
Organizational structure: The levels of management and division of responsibilities within
an organization.
Hierarchy: The levels of management in any organization, from the highest to the lowest. A
level of hierarchy refers to managers/ supervisors, other employees who are given a similar
level of responsibility in an organization.
Chain of Command: The structure in an organization which allows instructions to be passed
down from senior management to lower levels of management.
Span of Control: The number of subordinates working directly under a manager.
Directors: Senior managers who lead a particular department or division of a business.
Line managers: People who have responsibility for people below them in the hierarchy of an
organization.
Supervisors: Junior managers who have direct control over the employees below them in the
organizational structure.
Staff managers: Specialists who provide support, information and assistance to line managers.
Delegation: Giving a subordinate the authority to perform a particular task.
Decentralization: Taking decision away from the centre of an organization- way from the Head
Office.
LEAD- IN





Which department - production, finance, accounting, marketing, sales, human resources, etc.
- of an organization do you think is the most interesting to work in?
What reasons can you think of for why departments get into conflict with each other?
Is it better to have one immediate boss or to work for more than one manager?
Do you prefer to work alone or in a team?
Is it more motivating to be responsible to someone for your work, or responsible for people
who report to you?
READING 1
W ikinom ics and the future of com panies
Experts are forecasting that in the future companies will use the Internet and the 'wikinomics'
principle (from wiki, the Hawaiian word for 'quick', and economics). This means collaborating
with people outside the traditional corporate structure, letting people around the world cooperate
to improve an operation or solve a problem, and paying them for their ideas. This is an extension
of the trend of outsourcing: transferring some of the company's internal functions or operations or
jobs to outside suppliers, rather than performing them 'in-house'. In other words, companies will
no longer need to get all their knowledge from their own full-time employees.
Here are two examples from Don Tapscott and Anthony D. Williams' book Wikinomics: How
Mass Collaboration Changes Everything:
Red Lake, a Canadian gold mine, wasn't finding enough gold and was in danger of closing
down. Then its chief executive heard a talk about Linus Torvalds, the inventor of Linux, the
open-source computer operating system. He decided to put the company's secret geological data
on the Internet, and offered prize money to experts outside the company who could suggest
where undiscovered gold might lie. People around the world recommended 110 targets, and
80% of them turned out to contain gold. The company's value has risen from $ 100 m to $9 bn.
If Procter & Gamble is looking for a new molecule to clean red wine off a shirt, it can use its
own scientists. But there are 1.5 million other scientists around the world. The company can
offer a payment for a successful solution, and see if a scientist somewhere comes up with one.
Read the text and answer the following questions.



How is the world of organized work changing?
In what ways could your organization, company or business school use the wikinomics
principle?
What do you think are the disadvantages of the wikinomics principle?
Before reading about traditional company organization, check your understanding
of some basic terms by matching up the following words and definitions.
autonomous
to delegate
function
hierarchy or chain of command
line authority to report to
1. …………………… a system of authority with different levels, one above the other e.g. a series
of management positions whose holders can make decisions, or give orders and instructions.
2. …………………… a specific activity in a company, e.g. production, marketing finance.
3. …………………… independent, able to take decisions without consulting someone at the
same level or higher in the chain of command.
4. …………………… the power to give instructions to people at the level below in the chain of
command
5. …………………… to be responsible to someone and to take instructions from them.
6. …………………… to give someone else responsibility for doing something instead of you.
READING 2
The chain of com m and
Traditionally, organizations have had a hierarchical or pyramidal structure, with one person or a
group of people at the top, and an increasing number of people below them at each successive
level. This is sometimes called line structure. There is a clear chain of command running down
pyramid. All the people in the organization know what decisions they are able to make, who their
line manager (or boss) is (to whom they report), and who their immediate subordinates are (over
whom they have line authority and can give instructions to).
Functional structure
Yet the activities of most organizations are too complicated to be organized in a single hierarchy.
Most large manufacturing companies, for example, have a functional structure, including, among
among others, specialized production, finance, marketing, sales, and human resources
departments. This means, for instance, that the production and marketing departments cannot take
financial decisions without consulting the finance department. Large organizations making a range
of products are often further divided into separate operating divisions.
A disadvantage of functional organization is that people re often more concerned with the success
of their own department than that of the company as a whole, so there are conflicts between, say,
finance and marketing or marketing and production over what the objectives are.
Flattening hierarchies and delegating responsibility
A problem with very hierarchical organizations is that people at lower levels can't take important
decisions, but have to pass on responsibility to their boss. However, the modern tendency is to
reduce the chain of command, take out layers of management, and make the organization much
flatter. Advanced IT systems have reduced the need for administrative staff and enabled
companies to remove layers of workers from the structure. Many companies have also been forced
to cut back and eliminate jobs in recessions.
Typically, the owners of small firms want to keep as much control over their business as possible,
whereas managers in larger businesses who want to motivate their staff often delegate decision
making and responsibilities to other people.
Matrix management
Another way to get round hierarchies is to use matrix management, in which people report to more
than one superior. For example, a product manager with an idea could deal directly with the
managers responsible for a certain market segment and for a geographical region, as well as
managers in the finance, sales and production departments. Matrices involving several
departments can become quite complex, so it is sometimes necessary to give one department
priority in decision making.
Teams
A further possibility is to have wholly autonomous, temporary groups or teams that are responsible
for an entire project, and are split up as soon as it is successfully completed. But teams are not
always very good at decision making, and usually require a strong leader.
Comprehension
1.
2.
3.
4.
5.
6.
7.
What is the main advantage of a chain of command?
Why is it not usually possible to organize a large organization in a single hierarchy?
In what ways can dividing a business functionally cause problems?
What factors might lead companies to flatten their hierarchies?
According to the text, what kind of managers might not want to delegate decision making?
What is the potential disadvantage of matrix management systems?
Under what circumstances might teams not be effective?
The text mentions the often incompatible goals of the finance, marketing and
production (or operations) departments. Classify the following strategies
according to which department would probably favor them.
1. a factory working at full capacity
2. a large advertising budget
3. a large sales force earning high commission
4. a standard product without optional features
5. a strong cash balance
6. a strong market share for new products
7. generous credit facilities for customers
8. high profit margins
9. large inventories to make sure that products are available
10. low research and development spending
11. machines that give the possibility of making various different products
12. self-financing (using retained earnings rather than borrowing)
CASE STUDY 1
Yuan’s business has grown rapidly in three years. Setting her flower business
up as a sole trader, Yuan had made all of the important decisions. Now she
has three flower shops and a home delivery service. She employs an
accountant, managers for the shops, and a transport manager. The current
organizational structure is shown below:
1. What is the span of control of shop manager A?
2. How many levels of hierarchy are there in this business?
3. If shop A expands and four more staff are employed, the manager’s span of control will increase.
a. Explain one advantage of this.
b. Explain one disadvantage of this.
4. How do you think the organizational structure of Yuan’s business might change if it continues
to grow? Explain your answer.
CASE STUDY 2
Read the case study below and complete the follow-up tasks.
Mustafa was bored with his work. He was a telephone operator in a large
telephone banking firm. The business received calls from customers who
wanted to use banking services but did not have time to go to a bank branch.
Mustafa worked in a team, called Team A, with other colleagues, Hammed and
Asif. They were supervised by Aziz, who was under the authority of
Mohammed. There were two other groups of telephone operators, Team B and
Team C. These two teams were the same size as Team A. They also had their
own supervisors who reported to Mohammed.
All calls were recorded and supervisors could listen in to make sure that all
workers were polite and helpful to customers. Telephone operators were only
allowed to do certain tasks for customers. Other jobs, such as transfers of
large sums of money, had to be referred to a supervisor or manager. Telephone
operators had to aim to answer 20 calls each hour. No wonder Mustafa was
bored with his work!
a. Draw the organisation chart for this telephone business.
b. What is the span of control of the supervisors?
c. What would be the advantages and disadvantages of removing the supervisors altogether?
Your answer should include references to: chain of command, delegation, span of control.
VOCABULARY
EXERCISE 1. Sentences 1 to 9 make up a short text about different ways in which
companies can be structured. Complete each sentence, by taking a middle part
from the second box and an end from the third box.
1. Most organizations have a hierarchical or pyramidal structure,
2. A clear line or chain of command runs down the hierarchy,
3. Some people in an organization have an assistant who helps them;
4. Yet the activities of most large organizations are too elaborate
5. Large companies manufacturing a wide range of products, e.g. General Motors,
6. Businesses that cannot be divided into autonomous divisions with their own markets
7. An inevitable problem with hierarchies is that people at lower levels
8. One solution to this problem is matrix management, in which people report to more than
one superior:
9. Another, more recent, idea is to have a network of flexible groups or teams.
a. are normally decentralized into separate operating divisions,
b. are unable to make important decisions, but are obliged to pass on responsibility to their
boss,
c. can simulate decentralization, setting up divisions that use
d. instead of the traditional departments, which are often at war with each other;
e. so that all employees know who their superior or boss is, to whom they report,
f. e.g. a brand manager with an idea can deal directly with
g. this is an example of a staff position: its holder has no line authority,
h. to be organized in a single hierarchy, and require functional organization,
i. with a single person or a group of people at the top,
j. and an increasing number of people below them at each successive level.
k. and is not integrated into the chain of command.
l. and who their immediate subordinates are, to whom they can give instructions
m. each with its own engineering, production and sales departments.
n. internally determined transfer prices when dealing with each other
o. the appropriate managers in the finance, manufacturing and sales departments.
p. they are formed to carry out a project, after which they are dissolved and their members
reassigned.
q. unless responsibilities have been explicitly delegated.
r. usually with production or operations, finance, marketing and personnel departments.
Sentence 1: .........
Sentence 4: .........
Sentence 7: .........
Sentence 2: .........
Sentence 5: .........
Sentence 8: .........
Sentence 3: .……..
Sentence 6: .........
Sentence 9: .........
EXERCISE 2. Read the whole text and then complete the organization chart:
I think we have a fairly typical organization for a manufacturing firm. We’re divided into Finance,
Production, Marketing and Human Resources departments.
The Human Resources department is the simplest. It consists of two sections. One is responsible
for recruitment and personnel matters, the other is in charge of training.
The Marketing department is made up of three sections: Sales, Sales Promotion, and Advertising,
whose heads are all accountable to the marketing manager.
The Production department consists of five sections. The first of these is Production Control,
which is in charge of both Scheduling and Materials Control. Then there’s Purchasing,
Manufacturing, Quality Control, and Engineering Support. Manufacturing contains three sections:
Tooling, Assembly, and Fabrication.
Finance is composed of two sections: Financial Management, which is responsible for capital
requirements, fund control, and credit, and Accounting.
EXERCISE 3. Complete each phrase 1-10 with an ending a) - j).
1. Operational planning translates general goals
2. It is usual to divide an organization
3. Some companies are organized according
4. The Board gets involved
5. Senior-managers set
6. Middle managers develop detailed plans based
7. First-line managers implement plans
8. First-line managers are also responsible
9. A cross-functional team brings
10.
Subordinates work
a. a direction for the company.
b. developed higher up the hierarchy.
c. for assigning employees to specific jobs.
d. in major strategy issues.
e. into functional departments.
f. into more concrete objectives.
g. on the overall strategy.
h. to geographical regions.
i. together staff from different parts of the company.
j. under the supervision of a first-line manager.
UNIT REVIEW
1. What is an organizational structure?
2. Define a chain of command.
3. What is the main advantage of a chain of command?
4. Describe briefly a functional organizational structure.
5. In what ways can dividing a business functionally cause problems?
6. Describe briefly a matrix organization.
7. What is the potential disadvantage of matrix management systems?
8. What is centralization?
9. Why is it not usually possible to organize a large organization in a single hierarchy?
10. What factors might lead companies to flatten their hierarchies?
11. Under what circumstances might teams not be effective?
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc
Graw Hill Education.
4. Emmerson, P, 2007, Business English Handbook Advanced, Macmillan
Education.
5. Mackenzie, I, 1997, Management and Marketing, Thomson.
UNIT 4. MANAGING ACROSS CULTURE
LEARNING OBJECTIVES
After you have read and studied this unit,
you should be able to

Explain the importance of cultural
differences for people working across
cultures.

Discuss the conflict between
globalization and localization

Explain the concepts of high-context
culture, low-context culture, and power
distance.
KEY TERMS
Glocalization is a combination of the words "globalization" and "localization." The term
is used to describe a product or service that is developed and distributed globally but
is also adjusted to accommodate the user or consumer in a local market.
Culture is defined as the complex system of values, traits, morals, and customs shared
by a society.
Context refers to the stimuli, environment, or ambience surrounding an event.
The Lewis Model was developed by linguist and leading cross-cultural specialist
Richard D. Lewis. The model divides humans into 3 clear categories, based not on
nationality or religion but on BEHAVIOUR, namely, Linear-active, Multi-active and
Reactive.
High-context culture is a culture by which the rules of communication are primarily
and dominantly transmitted through the use of contextual elements. These include
specific forms of body language, the social or familial status of an individual, and the
tone of voice employed during speech. High-context cultures usually do not have rules
that are explicitly written or stated.
Low-context culture refers to a culture whereby most communications take place
through verbal language and rules are directly written out or stated for all to view.
Power distance is the distribution of power among individuals within a culture and how
well unequal levels of power are accepted by those with less power.
LEAD- IN
1. What is culture? Choose the four factors that you think are the most important in
creating a culture. Give your reasons.
2. Why is cultural awareness important for businesspeople? Give examples.
3. To what extent is the culture of your country similar enough to those of neighboring
countries? Do they have very different attitudes to work, hierarchy, organization? If so,
what are these differences?
READING 1
Managing across cultures
Richard Lewis is well known in the field of cross-cultural communication and the author of When
Cultures Collide: Managing Successfully Across Cultures and The Cultural Imperative: Global
Trends in the 21st Century. Read about his model of three types of cultures, and answer the
questions.
Managing a global multinational company would obviously be much simpler if it required only
one set of corporate objectives, goals, policies, practices, products and services. But local
differences - cultural habits, beliefs and principles specific to each country or market - often make
this impossible. The conflict between globalization and localization has led to the invention of the
word “glocalization”. Companies that want to be successful in foreign markets have to be aware
of the local cultural characteristics that affect the way business is done.
Richard Lewis has classified different cultures according to three “poles” representing different
types of behavior. Businesspeople in 'linear-active' cultures such as Britain, the USA and Germany
are generally organized and rational, try to act logically rather than emotionally, plan in advance,
and like to do one thing at a time. They believe in respecting rules, regulations and contracts, and
so are what the Dutch theorist Fons Trompenaars calls 'universalists' - they think rules apply to
everybody. They are not afraid of confrontation but will compromise when necessary to achieve
a deal. They are essentially individualist.
'Multi-active cultures' in Southern Europe, Latin America and Africa attach more importance to
feelings, emotions and intuition, and relationships and connections. People like to do many things
at the same time; they are flexible, good at changing plans and happy to improvise. They believe
in social or company hierarchy, and respect status. They are essentially collectivist, and also what
Trompenaars calls “particularist” - they believe that personal relationships and friendships should
take precedence over rules and regulations.
People in 'reactive cultures' in Asia
prefer to listen to and establish the
other's position, and then react to it.
They try to avoid confrontation, and
don't want to 'lose face' or cause
someone else to. They rarely interrupt
speakers and often avoid eye contact.
They try to formulate approaches
which suit both parties.
Other countries have cultures which
show combined characteristics of two
of these poles, and can be represented
along the sides of a triangle.
Comprehension
1.
2.
3.
4.
Why is it important for companies to be aware of local cultures?
What are the differences between individualists and collectivists?
Who is more likely to think: “I’ll let them speak first.”
Who is more likely to say, about other people: “They can’t be trusted because they will
always help their friends or family” - universalists or particularists?
5. Who is more likely to say: “Oh, you can't trust them; they wouldn't even help a friend”?
READING 2
Understanding Culture and Communication
Even when communicators share the same culture, comprehending the verbal and nonverbal
meanings of a message can be difficult. When different cultures come together, special sensitivity
and skills are necessary. Global business, communication technologies, and social media span the
world, reducing distances.
Culture may be defined as the complex system of values, traits, morals, and customs shared by a
society. Culture is a powerful operating force that molds the way we think, behave, and
communicate.
High and Low Context
Context is probably the most important cultural dimension and also the most difficult to define. In
a model developed by cultural anthropologist Edward T. Hall, context refers to the stimuli,
environment, or ambience surrounding an event. Hall arranged cultures on a continuum, from low
to high in relation to context.
Communicators in low-context cultures (such as those in North America, Scandinavia, and
Germany) depend little on the context of a situation and shared experience to convey their
meaning. They assume that messages must be explicit, and listeners rely exclusively on the written
or spoken word. Low-context cultures tend to be linear, analytical, and action oriented. Business
communicators stress clearly articulated messages that they consider to be objective, professional,
and efficient. Words are taken literally.
Communicators in high-context cultures (such as those in China, Japan, and Middle Eastern
countries) assume that the listener does not need much background information. High-context
cultures are more likely to be intuitive and contemplative. Communicators in these cultures pay
attention to more than the spoken or written word. They emphasize interpersonal relationships,
nonverbal expression, physical settings, and social context. For example, Japanese communicators
might say yes when they really mean no. From the context of the situation, the Japanese speaker
would indicate whether yes really meant yes or wheter it meant no. The context, tone, time taken
to answer, facial expression, and body cues would convey the meaning of yes. Thus, in highcontext cultures, communication cues tend to be transmitted by posture, voice inflection, gestures,
and facial expression.
Power Distance
One important element of culture is power distance, which was first introduced by influential
social psychologist Geert Hofstede. The Power Distance Index measures how people in different
societies cope with inequality- in other words, how they relate to more powerful individuals. In
high-power- distance countries, subordinates expect formal hierarchies and embrace relatively
authoritarian, paternalistic power relationships. In low- power-distance cultures, however,
subordinates consider themselves as equals of their supervisors. They confidently voice opinions
and participate in decision making. Relationships between high-powered individuals and people
with little power tend to be more democratic, egalitarian, and informal. As you have probably
guessed, in most Western cultures, people are more relaxed about social status and the appearance
of power. Deference is not genergally paid to individuals merely because of their wealth, position,
seniority, or age. In many Asian cultures, however, these charateristics are important. A strict topdown management structure allows for faster decision making, but it also prevents subordinates
from speaking up due to fear or resignation, researchers say. Employee silence can be costly. For
example, it has been blamed for such disasters as the Sanlu milk poweder scandal in China and
the Fukushima nuclear power plant explosion in Japan.
Comprehension
1. What is culture? What factors are likely to be governed by cultures?
2. What is context?
3. What are some of the most striking features of communication in low-context cultures?
4. What factors are more important than linguistic inputs in high-context culture when it comes
to communication?
5. How are communication cues conveyed in high-context cultures?
6. What does Power Distance Index measure?
7. How do subordinates in low-context cultures and high-context cultures treat their supervisors?
8. What are the disadvantage and advantage of top-down management structure?
Decide if the following statements are TRUE or FALSE?
1. The Power Distance Index measures the gap between people in high- powered positions and
their subordinates.
2. In high-power- distance cultures, the low-ranking people tend to pay more respect and show
obedience to their supervisors.
3. In low-power- distance countries, it is inappropriate for the subordinates to voice their
objection to their managers.
4. Workers in high-power- distance cultures are more empowered than their counterparts in the
low- power- distance cultures.
5. Decisions can be made faster when the subordinates are involved in the decision-making
process.
6. Worker silence is considered a good sign since fewer conflicts occur in workplace.
CASE STUDY 1
You work in a multinational organization. You have been given the responsibility
of mentoring two American colleagues who are coming to work in your office.
You have been asked to help them settle in to their new workplace by preparing
a short document outlining the general practices they can expect to find when
they are living and working in your country.
The document could include information about working practices in your office,
as well as practical information about your city or country, including advice
about transport, and conventions such as tipping in taxis and restaurants.
In groups discuss what should go in this document and then present these ideas
to the rest of the class.
CASE STUDY 2
A group of managers is attending an informal briefing about the business culture of
your country.
Background
You work for Better Business Communications, a company which prepares
business people who are visiting your country for the first time. A group of top
managers will shortly be visiting your country in order to decide on the location
of an overseas subsidiary. During their visit, the managers will attend meetings
with a number of business people, and be entertained at their homes or in
restaurants. They also plan to do some social visits and excursions. You will run
an informal business culture briefing for the management group, informing them
about aspects of business culture in your country and answering their
questions.
Discuss what kind of topics you could include in your briefing about the
business culture of your country.
VOCABULARY
Exercise 1. Read the following text and fill in the blank with a suitable word or
phrase.
dimensions
distant
low-power distance
hierarchical
high-power distance
forms of address
accessible
remote
A company’s culture depends to a large extent on the country it is based in.
Geert Hofstede is a world-famous expert on cultural differences. Powerdistance is one of the important cultural (1) _______________ that he identified.
Sweden is a(2) _______________ culture. Managers are (3) ____________ and
approachable and there is a tradition of employees being involved in decisionmaking as part of a team of equals - everyone’s opinion is treated equally.
France is a (4) ______________ culture. Managers are usually more distant and
remote.
Employees may feel quite (5) ______________ from their managers and show a
lot of deference - respect - to them, following decisions but not participating in
them.
Now have a look at these organigrams:
This Swedish company is not very (6)_______________, with only three
management layers - different levels
French companies are on the whole far more hierarchical than Swedish ones,
with more management layers.
Deference and distance may be shown in language. Some languages have
many (7)________________ that you use to indicate how familiar you are with
someone. In English, whether first names or surnames are used can show
distance.
Exercise 2. Which word combination with “CULTURE” relates to each of the
following?
Exercise 3. Match the words in the box with the definitions below.
collectivist compromise confrontation
connections eye contact
glocalization improvise
interrupt
intuition logic lose face
status
1. an invented word combining worldwide and regional concerns
2. thought based on reason and judgement rather than feelings and emotions
3. a face-to-face disagreement or argument
4. reducing demands or changing opinions in order to agree
5. understanding or knowing without consciously using reason
6. people of influence or importance with whom you are associated
7. to do something when necessary without having already planned it
8. respect, prestige or importance given to someone
9. believing that the group is more important than the individual
10. to be humiliated or disrespected in public
11. to cut into someone else’s turn to speak
12. looking directly at the people you are talking or listening to
UNIT REVIEW
1. Why is it important for companies to be aware of local cultures?
2. Describe the characteristics of businesspeople from Multi-Active, Reactive, and, LinearActive cultures.
3. What is culture? What factors are likely to be governed by cultures?
4. What is context?
5. Describe the major features of low- context and high-context cultures and give example of
countries adopting low-context and high-context cultures.
6. What does Power Distance Index measure?
7. Indicate the differences in the relationship between subordinates and their supervisors in
low-context cultures and high-context cultures.
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K., Stimpson, P., 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G., McHugh, J.M., McHugh, S.M., 2019, Understanding Business, Mc
Graw Hill Education.
4. Mackenzie, I., 1997. Management and Marketing, Thomson.
5. Mascull, B., 2017, Business Vocabulary in Use Intermediate, Cambridge
University Press.
6.Cotton, D., 2010, Market Leader Intermediate, Pearson Education Limited.
UNIT 5. RECRUITMENT
LEARNING OBJECTIVES
After you have read and studied this unit, you
should be able to

Consider the main stages in recruitment and
selection of employees
 Compare between internal recruitment and
external recruitment
 Explain the importance of training to business
and employees
 Discuss the benefits and limitations of
induction training, on-the-job training and
off-the-job training
KEY TERMS
Recruitment - the processfrom identifying that the business needs to employ someone up to the
point at which applications havearrived at the business.
Employee selection - the process of evaluating candidates for a specific job and selecting an
individual for employmentbased on the needs of the organisation.
A job analysis - identifies and records the responsibilitiesand tasks relating to a job.
A job description - outlines the responsibilities and duties to be carried out by someone employed
to do a specific job.
A job specification - a document which outlinesthe requirements, qualifications, expertise, physical
characteristics, etc., for a specified job.
Internal recruitment - when a vacancy is filled by someone who is an existing employee of the
business.
External recruitment - when a vacancy is filled by someone who is not an existing employee and
will be new to the business.
Induction training - an introduction given to a new employee, explaining the business’s activities,
customs and procedures and introducing them to their fellow workers.
On-the-job training - occurs by watching a moreexperienced worker doing the job.
Off-the-job training - involves being trained away from the workplace, usually by specialist trainers.
LEAD - IN



How long do you think recruiters in a Human Resources department spend looking at the
average CV or resume for a junior position?
If 100 young people with very similar experience and qualifications apply for a job, which
elements in a CV or resume make a difference, and might lead to a job interview?
How many times do you expect to apply for a new position during your career? How many
times do you expect to change jobs?
READING 1
Recruiting and selecting employees
Businesses need to start the process of recruitment and selection when:
» an employee leaves their job and they need to be replaced
» it is a new business starting up and needs employees
» it is a successful business and wants to expand by employing more people.
The recruitment process gives the business an opportunity to assess the role ofemployees, the nature of
their jobs and future workforce requirements.
In a large business this process of recruiting and selecting staff is usually undertaken by the Human
Resources department. Small businesses do not recruitenough people to make it worthwhile having a
separate Human Resources department – often the managers who will be supervising the employee will
deal with recruitment for their department. For example, in a hotel a restaurantmanager might recruit the
employees who serve customers in the restaurant.
The more important the job is to the business – the more technical and senior the position – the more
careful and time-consuming the recruitment and selectionprocess will be.
The recruitment process is summarised in the diagram below.
2. Job
3. Job
4. Job
arises
5. J ob
filled
and
selection
forms and
media
Comprehension
When employees 'give notice', i.e. inform their employer that they will be leaving the company as soon
as their contract allows, in what order should the company carry out the steps listed below? Complete the
chart opposite with the Letter A-I.
A. Either hire an employment agency (or for
a senior post, a firm of headhunters), or
advertise the vacancy
B. Establish whether there is an internal
candidate who could be promoted (or
moved sideways) to the job
C. Examine the job description for the post,
to see whether it needs to be changed (or
indeed, whether the post needs to be
filled)
D. Follow up the references of candidates or
applicants who seem interesting
E. Invite the shortlisted candidates for an
interview
F. Make a final selection
G. Receive applications, curricula vitae /
resumes and covering letters, and
make a preliminary selection (a
shortlist)
H. Try to discover why the person has
resigned
I. Write to all the other candidates to
inform them that they have been
unsuccessful
The first stage of the recruitment process is to carry out a job analysis to studythe tasks and activities to
be carried out by the new employee. If the business is recruiting an employee to fill an existing position,
an outline of the duties for the new employee will be easy to draw up, and may already exist. If the new
employee is needed due to the business expanding or because the business has identified skills no one in
the business has, more thought will have to go into the analysis of the job.
Job analysis and description
Once the job has been analysed, a job description
will be produced. A job description has several
functions:
» It is given to the applicants for the job so they
know exactly what the job entails.
» It will allow a job specification to be drawn up,
to see if the applicants ‘matchup to the job’, so that
people with the right skills will be employed.
» Once someone has been employed, it can show
whether they are carrying outthe job effectively. If
a dispute occurs about the employee’s tasks, the
job specification can be referred to in order to
settle these questions.
The exact structure and content of a job
description varies from business to business.
Job descriptions often also contain
about:
information
» the conditions of employment – salary, hours of
work, pension scheme andstaff welfare
» training that will be offered
» opportunities for promotion.
Activity 1: Write the “key duties” section for the job description for the job: “Sales and
Marketing Executive”
Job specification
Once a job description has been drawn up, the qualifications and qualities necessary to undertake the job
can be specified. This list of desirable and essential requirements for the job is called a job, or person,
specification. The requirements will usually include:
» the level of educational qualifications
» the amount of experience and type of experience
» special skills, knowledge or particular aptitude
» personal characteristics, such as type of personality.
Activity 2: Write for a job specification for the job: “Sales and Marketing Executive”
Internal Recruitment
The post could be filled from inside the organisation – internal recruitment. Thevacancy may be advertised
on a company noticeboard or, if the business is large,in a company newspaper which may be electronically
available to all employees. This method of recruitment would be suitable for an employee who seeks
promotion within the business and when a business is happy to recruit someone from its existing workforce.
External Recruitment
If a business decides that none of its current employees has the necessary skills or expertise to fill
a vacancy, or they want to increase the choice of candidates for a job, then they will use external
recruitment. This does not mean that current employees cannot apply for the job and might even
be successful in getting the job. Businesses that are growing rapidly, or who have a high labour
turnover will frequently use external recruitment to fill job vacancies.
Discussion:
1. What are the advantages and disadvantages of internal recruitment?
2. What are the advantages and limitations of external recruitment?
Advertising a job
Once the job description and person specification have been produced the business needs to
advertise the vacancy.
If the job is to be filled using internal recruitment, then the advertisement could be placed on the
staff notice board, emailed to all staff, or included in a workplace newsletter.
If external recruitment is being used, then the advertisement could be placed in local or national
newspapers and specialist magazines. The choice of whether to use local or national newspapers to
advertise job vacancies will often depend on the nature of the job. If it is for middle and senior
management jobs, or jobs requiring a specialist skill, then advertising nationally will probably
attract more, better quality, applicants than local advertising. Unskilled or semi-skilled job
vacancies will probably be filled from the local population, so there is no need to advertise
nationally. This is an important decision to make because advertising in national newspapers is
always much more expensive and would be a waste of money if the job is likely to be filled by a
local applicant.
Many businesses now include details of any job vacancies on their website.
In some countries there are government-run job centres where vacancies can be advertised, usually
for free. There are also a number of job websites such as Seek in New Zealand and JobsDB in
Malaysia.
Some businesses might also use specialist recruitment agencies such as Candor Group (pvt) Ltd in
Pakistan. These agencies often provide a complete recruitment service, which saves the time of
managers in the business with the vacancy. However, they can be expensive to use.
The advert must be designed so that it attracts the right applicants and provides all the information
they need about how to apply for the post.
Sending out application forms and job details
Once the job has been advertised then the business will need to send out further details and
application forms to people who have shown an interest in applying.
Those who decide to apply will complete and return an application form or send a curriculum vitae
- known as a CV - whichever the employer requests.
A CV contains the person's name, address and other contact details; the education and qualifications
obtained; history of their employment; other skills and experiences they have that might be relevant
to the job; hobbies and interests; and the name and contact details of people who will provide
references.
Receiving applications and shortlisting applicants
The Human Resource Department and manager of the department where the vacancy exists will
look through all the applications. They will compare the information on the application forms or
CV with the job description and person specification to produce a shortlist of applicants for
interview.
Interviewing shortlisted candidates
Shortlisted candidates will be invited to attend for interview. The interview may just be a question
and answer session with one or two people interviewing each candidate, or there may be a panel
of interviewers. Usually the more senior the position, the more people are likely to be involved
in the interview process.
Candidates may be asked to complete tests. These may include aptitude tests; for example
someone applying for a car mechanics job may be asked to fix a problem on a car, watched by
the interviewer. Other tests may involve team activities or in- tray exercises, such as reading
typical letters that the business receives and deciding on the best course of action to take in
response.
Selecting the right candidate
Following the interviews and results of any test, the interview panel will select who they think is
the best applicant for the job.
The applicant will receive a formal job offer in writing, although they might first receive a phone
call offering them the job. Once they start work, they will be given a contract of employment and
induction training.
Activity 3: Complete this job advertisement with appropriate words from the box. The first one
has been done for you.
annum
commission
leading
salary
applicant
covering
motivate
team
attractive
CV
package
vacancy
basic
drive
post
benefits
experience
qualified
colleagues
increment
rewards
(1) Leading manufacturing company APB has a (2)___________ for the
(3)___________ of
Sales manager
to begin work in our busy Manchester office from this September.
The successful (4)___________ will be suitably (5)___________ and should have had
extensive (6)___________ in sales management. They will be able to work as part of a
(7)___________, and should have (8) ___________ and the ability to (9)___________ and
inspire their (10)___________.
In return, we can offer an (11)___________ (12)___________ (13)___________, which
includes a (14)___________ (15)___________ of £20K per (16)___________, 10%
(17)___________ on all sales, a guaranteed annual (18)___________ of £1K, and other
(19)___________ such as a company car and free meals.
If you are interested in working for this us, send your (20)___________ with a
(21)___________ letter to:
APB Ltd, Norton Towers, Blackberry Way, Whittersley, WH8 4RT
APB is an equal opportunities employer
Activity 4: Complete the following table with relevant information.
Method of advertising job vacancies
Examples of jobs suitable for this method
Internal:
Noticeboard at the company (or company newspaper)
External:
Local newspapers
National newspapers
Specialist magazines
Online recruitment sites
Recruitment agencies
Government-run Job Centres
READING 2
TRAINING
There should be clear objectives for training employees. Training is important to a business as it may be used
to:
» introduce a new process or new equipment
» improve the efficiency of the workforce
» provide training for unskilled workers to make them more valuable to thecompany
»Decrease the supervision needed
» Improve the opportunity for internal promotion
» decrease the chances of accidents.
Employees should be clear about the benefits of the training or they will not workhard or take the training
seriously.
Training is usually trying to achieve one or more of the following:
» To increase skills.
» To increase knowledge.
» To improve employees’ attitudes to encourage them to accept change and raiseawareness, for example, a need
to improve customer service.
There are three main types of training:
» induction training
» on-the-job training
» off-the-job training.
Induction training
This is carried out when an employee is new to the job. When a new employee starts at a company, they will not
know where anything is or who people are or what is expected of them. The induction programme will last
sometimes for a day,sometimes for several days – it depends on the company and the particular job.
When a person starts a new school, they are shown round, introduced to teachersand told about their lessons –
this is the same type of information you would need to know if you had just joined a new company.
On-the-job training
This is where a person is trained by watching a
more experienced worker doing the job. They
are shown what to do. This method of training
is only suitable for unskilled and semiskilled jobs.
Off-the-job training
This is where the worker goes away from the
place where they work. This may be to a
different part of the building or it may be at
a different place altogether, such as a
college or specialist training centre.
The techniques used to train workers are
more varied and can involve more complex
tasks. Off-the-job training often involves
classroom learning, using lecture, role play,
case studies or computer simulations.
Activity 1: Complete the following table with relevant information
Method of training
Advantages
Disadvantages
Induction training
On-the-job training
Off-the-job training
CASE STUDY 1
1. Which advert would have appeared in a national newspaper and which would have been in a local
newspaper? Explain your choice.
2. Design your own advertisement for the job for which you drew up a job description and job
specification. Where would you place this advertisement, and why?
3. Compare your advert with that of the other students inyour group. Which would be most likely to
attract the best people to apply for the job and why?
CASE STUDY 2
1. Suggest three reasons why employees might leave their job.
2. If a lot of employees left every year, why might this be a problem for the business?
3. Why do businesses carry out induction training?
4. The Royal Garden is a hotel in the centre of a city. It employs many workers in the restaurant and
the department which cleans and services rooms. Most of these workers have few skills. In the
restaurant there are also trained employees who work in the kitchens preparing food.
i) The Royal Garden wants to increase the number of restaurants it has and therefore needs to
employ more staff to work in the kitchens. Discuss whether it should use internal or external
recruitment for the new chefs to work in the restaurants.
ii) The Royal Garden has recruited several waiters and waitresses to work in the new
restaurants. What type of training would you suggest the management use to train them? Justify
your choice.
VOCABULARY
EXERCISE 1.
This text about the recruitment process below has been divided into three parts. Complete each part
with the words and expressions in the boxes. The first answer for each part has been done for you.
Part 1
affirmative
recruitment
discrimination
internally
qualifications
applicants
appointments
benefits
description
disabilities
equal
opportunities
job centres
experience
externally
increments
journals
leave
institutional
agency
personal
qualities
recruitment
agency
rewards
situations
vacant
private
recruitment
agency
vacancy
When a company or organisation has a 1. vacancy for a new member of staff, it usually advertises
the post. It does this 2._____________ (for example, in the company magazine or on a company
notice board) or 3._____________, either in the 4._____________ or 5._____________ section
of a newspaper, in specialist trade 6._____________ or through a 7._____________ which helps
people to find employment. There are two main types of agency. The first of these is the
8._____________, usually found in a school or university.
These work closely with employers to let potential employees know about the jobs that are on
offer (also included in this category are 9._____________, which are provided by the state, and
which can be found in most main towns in Britain and other countries). The second is the
10._____________, which are independent companies, and employers have to pay these agencies
for each employee they successfully provide.
A job advertisement has to give an accurate 11._____________ of the job and what it requires
from the 12._____________ (the people who are interested in the post). These requirements
might include 13._____________ (academic, vocational and professional), work
14._____________ in similar lines of work, and certain 15._____________ (for example, it
might say that you need to be practical, professional and have a sense of humour). The
advertisement will also specify what 16._____________ (basic salary, commission, regular
17._____________, etc) and 18._____________ (paid 19._____________, free medical
insurance, company car, etc) the company can offer in return. The advertisement must be careful
it does not break employment laws concerning sex and racial 20._____________: some
companies emphasise in their job advertisements that they are 21._____________ employers (or
22._____________ employers in the USA), which means that they will employ people regardless
of their sex, skin colour, religion, 23. _____________, etc.
Part 2
application
CV
one-to-one
aptitude
board
group-situational in-basket
pre-selection
psychometric
candidates
introduction
short-list
covering
medical
turn down
The job advertisement will usually ask people interested in the post to send their 1. CV with a
2._____________ letter or a letter of 3._____________, or they will ask people to write or call for
an 4._____________ form. The managers of the company will look at these, and go through a
5._____________ procedure, where they choose or 6._____________ applicants. They then
prepare a 7._____________ of possible 8._____________: these are the people who will then be
invited for an interview. Interviews usually take one of two forms. The first is the
9._____________ interview, with one applicant and one employer talking together. The second is
the 10._____________ interview, with one applicant being interviewed by several people at once.
There may also be tests to see whether the applicant is suitable for the post. There are several of
these, including 11._____________ tests (which look at psychological traits of the applicant),
12._____________ tests, which test the applicant's skills and knowledge, and his / her potential
for acquiring more skills and knowledge), 13._____________ tests (where several applicants are
put into an imaginary situation and decide how to deal with it), and 14._____________ tests (in
which an applicant has to deal with a number of imaginary tasks similar to those s/he would face
in the job). Applicants may also have to go for a 15._____________ test to see whether they are
healthy enough for the work.
Part 3
appearance
circumstances disposition
fixed-term
follow-up
intelligence
references
interests
seven-point
plan
open-ended
temporary
potential
offered
skills
induction
programme
probationary
Many employers use a 1. seven-point plan when they recruit for a new post. They look at different
aspects of the applicant to decide whether or not s/he has the correct 2._____________ for the
job. These include physical 3._____________ (for example, is the applicant smart and wellpresented?), educational qualifications, general 4._____________, special 5._____________,
hobbies and outside 6._____________, mental and emotional 7._____________ and family
8._____________.
If a candidate gets through the above stages, s/he will be asked to provide 9._____________ from
people who know him / her, and if these are positive s/he is then 10._____________ the post.
Before s/he actually starts working, s/he may go through an 11._____________ to learn more about
the company and the post. Sometimes, s/he may be given a 12._____________ contract and have
to complete a 13._____________period, where the employers make sure that s/he is suitable for
the job before being offered an 14._____________ or 15._____________ contract. After s/he has
been with the company for a while, there might be a 16_____________ session, to assess how s/he
is getting on in the post.
EXERCISE 2. Choose the correct alternatives to complete the text below.
Employees who leave a company are not always replaced. Sometimes the company examines the
(1) _____________ for the post, and decides that it no longer needs to be filled. On other occasions
the company will replace the person who resigns with an internal candidate who can be (2)
_____________ (or moved sideways) to the job. Or it will advertise the position in newspapers or
trade journals, or engage an employment (3) _____________ to do so. For junior management
positions, employers occasionally recruit by giving presentations and holding interviews in
universities, colleges and business schools or senior positions, companies sometimes use the
services of a firm of (4) _____________ who already have the details of promising managers.
People looking for work or wanting to change ther job generally read the (5) _____________
advertised in newspapers. To reply to an advertisement is to (6) _____________ for a job; you
become an (7) _____________ or a candidate. You write a/an (8) _____________or fill in the
company's application form, and send it, along with your (9) _____________ (GB) or résumé
(US). You are often asked to give the names of two people who are prepared to write a (10)
_____________ for you. If you have the right qualifications and abilities, you might be (11)
_____________, ie. selected to attend a/an (12) _____________.
it is not uncommon for the (13) _____________department or the managers responsible for a
particular post to spend eighty or more working hours on the recruitment of a single member of
staff. However, this time is well-spent if the company appoints the right person for the job.
1. a. job description
b. job satisfaction
c. job security
2. a. advanced
b. employed
c. promoted
3. a. agency
b. centre
c. company
4. a. headhunters
b. headquarters
c. headshrinkers
5. a. openings
b. opportunities
c. vacancies
6. a. apply
b. applicate
c. candidate
7. a. appliance
b. applicant
c. application
8. a. appliance
b. application
c. demand
9. a. job history
b. curriculum vitae (CV)
c. life story
10. a. reference
b. report
c. testimony
11. a. appointed
b. employed
c. short-listed
12. a. examination
b. interview
c. trial
13. a. personal
b. personnel
c. resources
UNIT REVIEW
1. What are the different stages of the recruitment and selection process?
2. How do you draw up a job description and job specification?
3. How do you choose suitable ways of advertising a vacancy – either internally or externally?
4. How important is training? And what are different types of training?
5. What are induction training, on-the-job training and off-the-job training?
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
4. Rawdon Wyatt, 2005, Check Your English Vocabulary for Human Resources, Bloomsbury
Publishing PLC
5. Mackenzie, I, 1997, Management and Marketing, Thomson.
UNIT 7. CLASSIFICATION OF BUSINESSES
LEARNING OBJECTIVES
After you have read and studied this unit, you
should be able to




Consider the different sectors of the economy.
Discuss how business enterprises are classified
into the private sector and the public sectors in
a mixed economy.
Analyse the difference between the public
sector and private sector in mixed economies.
Describe the different types of business
organizations and their advantages and
disadvantages.
KEY TERMS
The primary sector of industry extracts and uses the natural resources of Earth to produce raw
materials used by other businesses.
The secondary sector of industry manufactures goods using the raw materials provided by the
primary sector.
The tertiary sector of industry provides services to consumers and the other sectors of industry.
A mixed economy has both a private sector and a public (state) sector.
Public sector: the sector of the economy in which organisations are owned and controlled by the
state (government)
Private sector: The sector of the economy in which organisations are owned and controlled by
individuals.
Privatisation: The sale of state-owned assets such as public corporations to the private sector.
Sole trader: a business owned and operated by one person.
Limited liability: the liability of shareholders in a company is limited to only the amount they
invested.
Unlimited liability: the owners of a business can be held responsible for the debts of the business
they own. Their liability is not limited to the investment they made in the business.
Partnership: a form of business in which two or more people agree to jointly own a business.
Shareholders: the owners of a limited company. They buy shares which represent part-ownership
of the company.
Private limited companies: businesses owned by shareholders but they cannot sell shares to the public.
Public limited companies: businesses owned by shareholders but they can sell shares to the public and
their shares are tradeable on the Stock Exchange.
LEAD - IN
Identify the most prominent features in these photographs, which illustrate various important
elements of the infrastructure of a modern industrialized country.
READING 1
Stages of economic activity
As you read this book you are probably sitting at a desk or table. Most tables are made of wood. How many
different types of businesses might have been involved in converting the wood into a finished table ready to be
sold to a final consumer?What stages of production has the wood passed through to arrive at the finished table?
The diagram below shows the most likely stages in the production and sale of a wooden table.
Stage
Activity
Business involved
Primary
Woodcutter
Secondary
Furniture maker
Tertiary
Retailer
You will notice that there are three main stages from the cutting down of the timber to the sale of the
completed table. These stages are typical of nearly all production and they are called the levels of economic
– or business – activity.
Stage 1 is called the primary stage of
production. This stage involves the Earth’s natural
resources. Activities in the primary sector of
industry include farming, fishing, forestry and the
extraction of natural materials, such as oil and
copper ore.
Stage 2 is called the secondary stage of
production. This stage involves taking the
materials and resources provided by the primary
sector and converting them into manufactured or
processed goods. Activities in the secondary
sector of industry include building and
construction, aircraft and car manufacturing,
computer assembly, bread baking.
Stage 3 is called the tertiary stage of production.
This stage involves providing services to both
consumers and other businesses. Activities in the
tertiary sector of industry include transport,
banking, retail, insurance, hotels and hairdressing
Comprehension:
1. Classify the 18 following activities from the passage according to which sector they belong to
advertising products
calculating prices
distributing added value
marketing products
packaging products
smelting iron
building
digging iron ore
maintenance
mining Coal
pumping oil
welding metal
assembling
cutting metal
laying cables
milling metal
pressing metal
transportation
2. Indicate with a tick which sector of industry each business is in.
Business
Primary
Secondary
Tertiary
Insurance
Forestry
Coal mining
Computer assembly
Travel agent
Bakery
Car showroom
The quaternary sector
Some people now describe the economy as having a quaternary sector, consisting of information
services such as computing, ICT (information and communication technologies), consultancy
(offering advice to businesses) and R&D (research and development, particularly in scientific
fields). Broader definitions add the news media, libraries, universities and colleges, and other
intellectual activities including culture generally.
Discussion: In what ways have the activity in the box in Comprehension 1. above been changed
by information technology?
Mixed Economy
Nearly every country in the world has a mixed economy with private sector and a public sector:
Private sector – businesses not owned by the government. These businesses will make their own decisions
about what to produce, how it should be produced and what price should be charged for it. Most businesses
in the private sector will aim to make a profit. Even so, there are likely to be some government controls over
these decisions.
Public sector – government (or state) owned and controlled businesses and organisations. The government,
or other public sector authority, makes decisions about what to produce and how much to charge consumers.
Some goods and services are provided free of charge to the consumer, such as state health and education
services. The money for these comes not from the user but from the taxpayer.
In recent years, many governments have changed the balance between the private sector and the public sector
in their economies. They have done this by selling some public sector businesses – owned and controlled
by government – to private sector businesses. This is called privatisation.
Types of Business Organisation
There are several main forms of business organisation in the private sector. These are:
» sole traders
» partnerships
» private limited companies
» public limited companies
» franchises
» joint ventures.
Sole trader is the most common form of business organisation. It is a business owned and operated by just one
person – the owner is the sole proprietor. One of the reasons it is such a common form of organisation is because
there are so few legal requirements to set it up.
A partnership is a group or association of at least two people who agree to own and run a business together.
In some countries, such as India, there is a maximum limit of 20 people. The partners will contribute to the
capital of the business, will usually have a say in the running of the business and will share any profits made.
Companies are jointly owned by the people who have invested in the business. These people buy shares in the
company and they are therefore called shareholders. These shareholders appoint directors to run the business. In a
private limited company, thedirectors are usually the most important or majority shareholders.
This form of business organisation is most suitable for very large businesses. Most large, well-known
businesses are public limited companies as they have been able to raise the capital to expand nationally or
even internationally.
Franchising is now an extremely widespread form of business operation. The franchisor is a business with a
product or service idea that it does not want to sell to consumers directly. Instead, it appoints franchisees
to use the idea or product and to sell it to consumers. Two of the best known international examples of a
franchise are McDonald’s restaurants and The Body Shop.
A joint venture is when two or more businesses agree to start a new project together, sharing the capital, the
risks and the profits. Many European companies have set up joint ventures in China with Chinese
businesses, as the local managers will have good knowledge of market needs and consumer tastes.
Discussion: What are the advantages and disadvantages of these types of businesses?
READING 2
Manufacturing and services
Read the following statements about manufacturing and services in advanced countries.
Which of them are in support of manufacturing in advanced countries, and which are in support
of services?
Which of them do you find the most convincing, and why?
Vocabulary
Find words in the statements above that mean the following:
1. products sold to other countries
2. property: buildings such as offices, houses, flats (BrE) or apartments (AmE)
3. work done in return for money
4. to move your factories to another region or country
5. to use other companies to do work your company previously did itself
CASE STUDY 1
The main airline in Country X, Airco, is owned and managed by the central government.
a) The government decides to privatise this airline. Explain what this means.
b) Which sector of industry is this business in? Justify your answer.
c) Briefly analyse one argument for and one against the privatisation.
CASE STUDY 2
Rashid has just left school. He wants to set up his own business as a gardener. Rashid wants to be
able to control his own working life. He has very few savings - just enough to buy tools. He
believes that he will need extra finance.
a) Briefly explain two benefits that Rashid could gain from setting up his own business.
b) What form of business organisation would you recommend Rashid to use? Explain your answer.
c) Outline two other sources of finance that Rashid could use apart from his own savings.
d) After several months, Rashid has too much work! His business has been very successful in
attracting new customers. He also has much work to do in his office such as keeping accounts and
ordering supplies. A friend of Rashid's, Salman, is keen to become a partner and is taking
accounting examinations, but he does not enjoy manual work. Salman has offered to invest some
of his savings into the business so that some modern garden machinery can be bought. This would
save Rashid a lot of time on some jobs.
Would you advise Rashid to take Salman as a partner in his business? Justify your answer.
VOCABULARY
EXERCISE 1.
Match the following questions and answers
1. What do we mean by the primary sector of the economy?
2. What happens to the food extracted in the primary sector?H Thieu answer
3. So what's the secondary sector?
4. So people in the secondary sector make things?
5. And the tertiary sector?
6. Why is the number of people working in the primary sector regularly declining?
7. And why is the secondary sector getting smaller in many of these countries?
8. But not tertiary services?
a. Because agricultural methods are always becoming more efficient. Western Europe and the USA
already produce too much food with only 3% of the population working on the land.
b. Because much manufacturing can be carried out more cheaply in low-wage economies, for example
in East and South-East Asian countries like China, Hong Kong, Taiwan, South Korea, Malaya and
Vietnam.
c. Agriculture and the extraction of raw materials from the earth (coal-mining, drilling for oil) or the
sea (fishing).
d. lt includes the commercial services that enable industry to produce and distribute goods to their final
consumers (trade, banking, insurance, warehousing, transport, communications, advertising, and so
on), as well as activities like education, health care and tourism.
e. It involves the transformation of raw materials into finished products.
f. Not if the activities require a lot of training, education, know-how and technology.
g. Only some of them. Manufacturing companies also employ finance and marketing managers,
administrative staff, maintenance staff, and so on.
Add verbs in the correct form to the following sentences.
1. Raw materials are _________from the ground and then either ________, or ________ into finished
goods.
2. Before finished goods are sold they often have to be __________ etc.
EXERCISE 2. Complete the text using the words in the box
Bankruptcy
shares
losses
prospectus
corporations
liability
partnership
sole trader
creditors
registered
TYPES OF BUSINESS
The simplest form of business is the individual proprietorship or (1) _________: for example, a shop
(US = store) or a taxi owned by a single person. If several individuals wish to go into business
together they can form a (2) _________; partners generally contribute equal capital, have equal
authority in management, and share profits or (3) _________. In many countries, lawyers, doctors
and accountants are not allowed to form companies, but only partnerships with unlimited (4)
_________for debts - which should make them act responsibly.
But a partnership is not a legal entity separate from its owners; like sole traders, partners have
unlimited liability: in the case of (5) _________, a partner with a personal fortune can lose it all.
Consequently, the majority of businesses are limited companies (US = (6) _________), in which
investors are only liable for the amount of capital they have invested. If a limited company goes
bankrupt, its assets are sold (liquidated) to pay the debts; if the assets do not cover the debts, they
remain unpaid (i.e. (7) _________ do not get their money back.)
In Britain, most smaller enterprises are private limited companies which cannot offer (8) _________
to the public; their owners can only raise capital from friends or from banks and other ire capital
institutions. A successful, growing British business can apply to the Stock Exchange to become a
public limited company; if accepted, it can publish a (9) _________ and offer its shares for sale on
the open stock market. In America, there is no legal distinction between private and public limited
corporations, but the equivalent of a public limited company is one (10) _________by the Securities
and Exchange Commission Venture.
1.
2.
3.
4.
UNIT REVIEW
What are the different stages of economic/ business activities?
What business activities are included in the quaternary sector?
How different is the private sector from the public sector in mixed economies?
What are the features of different forms of business organisations: Sole traders, Partnerships,
Private and Public Limited Companies, Franchises, and Joint Ventures? What are their
advantages and disadvantages
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
4. Ian Mackenzie, 1991, Financial English, Thomson.
5. Mackenzie, I, 1997, Management and Marketing, Thomson.
UNIT 8. PRODUCTION
LEARNING OBJECTIVES
After you have read and studied this unit, you should
be able to



Identify what is the production and operation
management
Discuss what lean production is and how it can be
achieved.
Consider the benefits and limitations of different
production methods
KEY TERMS
Production: the process of converting inputs such as land, labour and capital into saleable
goods, for example shoes and cell phones.
Inventories: the stock of raw materials, work-in-progress and finished goods held by a
business.
Lean production: the production of goods and services with the minimum waste of resources.
Job production: the production of items one at a time.
Batch production: the production of goods in batches. Each batch passes through one stage of
production before moving onto the next stage.
Flow production: the production of very large quantities of identical goods using a
continuously moving process.
Just-in-time (JIT) is a production method that involves reducing or virtually eliminating the need
to hold inventories of raw materials or unsold inventories of the finished product.
LEAD- IN
-
What do production and quality managers do?
What particular skills do you think production and operations managers require? Do you think
you have these skills yourself?
Would you like to work in this field?
What do you think the objectives of a production department usually are?
READING 1: Production and Operation Management
Manufacturing companies require three basic functions: finance, production or operations, and
marketing. Finance raises the capital to buy the equipment to start the business, production or
operations makes the product, and marketing sells and distributes it. Operations management is also
of crucial importance to service companies.
The objectives of the production department are usually to produce a specific product, on schedule,
at minimum cost. But there may be other criteria, such as concentrating on quality and product
reliability, producing the maximum possible volume of output, fully utilizing the plant or the work
force, reducing lead time, generating the maximum return on assets, or ensuring flexibility for
product or volume changes. Some of these objectives are clearly incompatible, and most companies
have to choose between price, quality, and flexibility. There is an elementary trade-off between low
cost and quality, and another between low cost and the flexibility to customize products or to deliver
in a very short lead time.
Production and operations management obviously involves production plants and factories or
service branches, and the equipment in them, parts (raw materials or supplies), processes (the steps
by which production or services are carried out), and planning and control systems (the procedures
used by management to operate and monitor the system). But it also involves people - the personnel
or human resources, who will always be necessary in production and operations, despite increasing
automation. People are particularly important in organizations offering a service rather than making
a product. Such organizations exist to serve the customer, but it can also be argued that they have
to serve their workforce, because workers will often treat the public the same way that management
treats them, so staff training and motivation are clearly important.
Manufacturing companies all have to decide how much research and development (R&D) to do.
Should they do fundamental or applied research themselves, or use research institutes, universities,
and independent research laboratories, or simply license product or service designs from other
organisations as necessary? Companies are faced with a 'make or buy' decision for every item,
process or service.
Decisions about what products to make or what services to offer have to take into account a
company’s operational capability, and labour, capital and equipment requirements. Introducing
products obviously requires accurate sales forecasting. If it is necessary to construct a new plant or
facility, decisions have to be made concerning its location, its size or capacity, the floor layout , the
hiring of staff, the purchase of equipment, the necessary level of inventory of parts and finished
products, and so on.
Comprehension
1.
2.
3.
4.
5.
I. Decide if these statements are TRUE or FALSE
Production or operations management is important to all businesses.
Production departments usually concentrate on quality, quantity, and flexibility.
Workers who are treated well will probably be more productive.
Large companies are generally obliged to do their own research and development.
Decision-making concerning new products or the building of new production facilities follows
sales forecasting.
II. Match up these words to make collocations
1. human
2. lead
3. manufacturing
4. operations
5. raw
6. research
7. return
8. staff
a.
b.
c.
d.
e.
f.
g.
h.
companies
laboratories
management
materials
on assets
resources
time
training
III. Match up the following verbs and nouns
1. do
2. make
3. forecast
4. hire
5. purchase
6. raise
7. serve
a.
b.
c.
d.
e.
f.
g.
capital
customers
a plant
a product
research
sales
staff
8. utilize
h. raw materials
READING 2
Lean production covers a variety of techniques used by businesses to cut down on waste of resources,
including time, and therefore increase efficiency. It aims to reduce the time it takes for a product to be
developed and become available in the shops for sale. Lean production cuts out any activities which do not
add valuefor the customer and this can apply to services as well.
There are seven types of waste that can occur in production:
» Overproduction – producing goods before they have been ordered by customers. This results in high storage
costs and possible damage to goods while in storage.
» Waiting – when goods are not moving or being processed in any way, waste isoccurring.
» Transportation – moving goods around unnecessarily causes waste and is not adding value to the product.
Goods may also be damaged when they are beingmoved around.
» Unnecessary inventory – if there is too much inventory then this takes upspace, may get in the way of
production and costs money.
» Motion – any actions, including bending or stretching movements of the bodyof the employee, wastes
time. It may also be a health and safety risk for the employees. This also applies to the movement of machines
which may not be necessary.
» Over-processing – if complex machinery is being used to perform simple tasksthen this is wasteful. Some
activities in producing the goods may not be necessary and may be because the design of the product is
poor.
» Defects – any faults require the goods being fixed and time can be wasted in inspecting the products
Lean production can be achieved by using the following methods:
Kaizen means ‘continuous improvement’ in Japanese and its focus is on the elimination of waste. The
improvement does not come from investing in new technology or equipment but through the ideas of the
workers themselves. Smallgroups of workers meet regularly to discuss problems and possible solutions. This
has proved effective because no one knows the problems that exist better than the workers who work with
them all the time, so they are often the best ones to think of ways to overcome them.
Kaizen eliminates waste, for example, by getting rid of large amounts of inventory or reducing the amount
of time taken for workers to walk between jobsso that they eliminate unnecessary movements. When Kaizen
is introduced, the factory floor is reorganised by repositioning machines tightly together in cells, in order
to improve the flow of production through the factory. The floor will be open and marked with colour-coded
lines which map out the flow of materials through the production process.
Just-in-time or JIT is a production method which focuses on reducing or virtuallyeliminating the need to
hold inventories of raw materials or components and on reducing work-in-progress and inventories of the
finished product. The raw materials or components are delivered just in time to be used in the production
process, the making of any parts is undertaken just in time to be used in the nextstage of production and the
finished product is made just in time to be delivered to the customer.
» All this reduces the costs of holding inventory, as no raw materials and components are ordered to keep in
the warehouse just in case they are needed.
» Warehouse space is not needed, again reducing costs.
» The finished product is sold quickly and so money will come back to thebusiness more quickly, helping its
cash flow.
To operate just-in-time, inventories of raw materials, work-in-progress and finished products are run down
and no extra inventory is kept. The business therefore needs very reliable suppliers and an efficient system of
ordering rawmaterials or components.
Cell production is where the production line is divided into separate, self- contained units (cells), each
making an identifiable part of the finished product,instead of having a flow or mass production line. This
method of production improves the morale of the employees and makes them work harder so they become
more efficient. The employees feel more valued and are less likely to strike or cause disruption.
Comprehension
1. Complete this text about 'Kaizen' using the words in the box.
Competitors
marketplace
culture
metrics
cycle
process
improvement
resistance
Kaizen is a term used in lean manufacturing to mean continuous (1)_______. It describes a
corporate (2) _______ where everyone works proactively (= taking action before a problem
develops) to improve the manufacturing (3) _______. This is essential in today's changing
(4)_______ - someone is going to come up with a better, faster or cheaper way, and it will either
be you or your (5) ______.
How can you know if continuous improvement is happening? You establish a system of
monitoring key (6)________ (= variables that can be measured). For example, average (7) ______
times, or the time it takes to successfully complete a changeover. And employees must be
involved, otherwise there will be a lot of (8)_________.
Match the words in the box with the definitions below:
delivery
obsolescence
opportunity cost production run
shortages
storage
discounts
theft
inventory
1. a business's stock of raw materials, component parts, supplies, work in process, or finished
product:
2. a period of producing one particular product without adapting the production equipment
3. becoming out of date; being replaced by something newer and better or more fashionable
4. keeping things for use in the future
5. taking something that belongs to someone else; stealing thing
6. supplying the customer with something that has been ordered
7. the benefits or advantages lost by spending money in one way rather than another
8. price reductions
9. insufficient supply to meet demand
2. Complete the text using the words in the box above.
There are obviously advantages to having a large (1)________ of raw materials and component
parts. It gives you protection against temporary price rises, and delays in the (2) ________ of raw
materials due to (3) ________, strikes, orders that get lost, incorrect or defective shipments, and
so on. You can also take advantage of quantity (4) ________ in purchasing. Having a large
inventory of finished goods allows you to meet variation in product demand, and to be more
flexible in product scheduling, with longer production lead times and reduced costs because of
larger (5) ________ with fewer set-ups. If you have a long delivery lead time there is always a
risk that some customers may go to other suppliers, or that new competitors will enter the market.
On the other hand, keeping an inventory involves various costs. (6) ________ requires
warehousing facilities, handling goods involves labour costs, and unsold goods have to be insured.
All this money could perhaps be more profitably spent in other ways: it is always necessary to
consider the (7) ________ of the capital involved.
Furthermore, there is always a risk of (8) ________, especially for high-tech products with a short
life cycle and of (9) ________ or breakage. If an inventory of finished goods gets too large, it may
be necessary to reduce prices to stimulate demand.
All these disadvantages led to the development of the just-in-time (J1T) production system, which
does away with inventories.
Match the responses on the right with the questions on the left:
1. So what's Just-In-Time production, then?
2. What do you mean, exactly?
3. And this is a Japanese idea?
4. And components are delivered just when
they're needed, so there's no inventory?
5. Isn't that dangerous? I mean, if just one
supplier doesn't deliver on time, or delivers
defective components ...
6. Are there other advantages, apart from
reduced inventory costs?
7. So why don't we do it in Europe and the
States?
a. American companies have developed
versions of JIT, which they call lean
production, or stockless production, or
continuous flow manufacture. But over
here there's always the risk of strikes or
other problems, so companies prefer to
keep reserve inventories. Not so much justin-time as just-in-case ...
b. It's a system in which products are 'pulled'
through the manufacturing process from
the end, rather than 'pushed' through from
the beginning.
c. Several. There's no risk of overproduction
if demand falls, or of idle workers waiting
for work-in-process to arrive. It shortens
throughput
time,
which
increases
productivity. And it probably means that
defects or quality problems are noticed
more quickly.
d. d. Sure, but the big Japanese manufacturers
have large networks of subcontractors, and
the whole system is based on long-term
relationships and mutual trust.
e. That's the idea. JIT regards inventories as
avoidable costs, rather than as assets.
f. f. Well, nothing is bought or produced until
it is needed. Each section of the production
process makes the necessary units only
when they are required by the next stage of
the manufacturing process, or by
distributors or customers
g. 4. Yes. The system is usually credited to
Taiichi Ohno at Toyota in the early 1950s,
but he said he got the idea from looking at
American supermarkets.
Methods of production
Job Production: This is where products are made specifically to order, for example, a customer would order
a particular dish and the producer would make it. Each order is different, and may or may not be repeated.
Other examples include: specialist machinery manufacturers that will produce a machine for another
business to meet a particular specification, bridges, ships, made-to-measure suits, cinema films, orindividual
computer programs that perform specialised tasks.
Batch Production: This is where similar products are made in blocks or batches. A certain number of one
product is made, then a certain number of another product is made, and so on. The producer made a batch of
one type of dish and then made a batch of another type of dish, and so on. Other examples include: a small
bakery making batches of bread, several houses built together using the same design, furniture production
(a certain number of tables are made, then a certain number of chairs), or clothing (a batch of a particular
size of jeans is produced and then a batch of another size).
Flow Production: This is when large quantities of a product are produced in a continuous process. It is
sometimes referred to as mass production because of the large quantity of a standardised product that is
produced.
It is called flow production because products look as if they are flowing down the production line (they move
continuously along a production line). The basic ingredients are put together at one end of the production
line and then the product moves down and more parts are added, and so on, until the product is finished and
packaged ready for sale. Large numbers of identical products are made and the costs of production are low
(the business will gain from economies of scale). Examples of products produced in this way include: cars,
cameras, televisions, packaged foods and drinks; in fact any mass produced, standardised product which is
sold to a mass market will be produced in this way.
Comprehension
What are the benefits and limitations of these methods of production?
CASE STUDY
Sita Ltd produces clothes for babies. It has been in business for ten years and has seen sales
increase rapidly throughout this time. It employs 50 production workers who use sewing machines.
The production manager wants to introduce new sewing machines that are twice as fast as the old
ones. It will allow the business to produce higher quality baby clothes as well as gain from other
benefits of new technology. The average selling price of an item of clothing is $10 with material
costing $1. However, with new machines it will allow the selling price to increase to $15 and
material will only cost $2.
a) Why might the production manager want to introduce new technology at Sita Ltd?
b) Sita Ltd uses batch production in the production of baby clothes.
i)
What is meant by batch production?
ii)
Why does Sita Ltd use batch production and not flow production?
VOCABULARY
EXERCISE 1.
Complete each sentence 1 – 15 with two words to make an expression connected with production
and operations. The first word should come from the left-hand box, and the second word should
come from the right-hand box. Each sentence is followed by a definition of the expression you need.
Use each word once only.
assembly capacity finished lead manufacturing allocation capacity chain costs defects goods
offshore optimum planned product purchasing line materials obsolescence planning power
random raw resource supply zero
production recall sampling
time
1. Unless our supplier reduces its ______ ______, we will have to radically change the way we
operate. (the length of time that lapses between placing an order for something and receiving it)
2. The recession has led to a drop in overall ______ ______ , which means that we will have to
reduce output on some of our less popular lines. (the quantity of goods or services which can be
bought by a group of people, a sector, an organization, etc)
3. We are currently operating at________ _______ , which means that we can afford to keep prices
lower for our clients. (the most efficient level of production or output, with the result that production
costs are kept to a minimum)
4. She works on an ______ _______ in a factory that makes electronic goods. (a production system
where a product moves slowly through a factory as new parts are added to it)
5. We do not allow visitors to come onto the factory floor, but you can view our range of ______
______ in the showroom. (complete products that are ready to sell)
6. The company had to put out a ______ ______ to its customers when several potentially dangerous
faults were discovered. (the removal from sale of an item that might be dangerous to the people
who have bought it)
7. We will be unable to compete successfully in the domestic market unless we reduce our costs by
taking advantage of ______ ______. (the manufacture of goods in another country for import to
the domestic market)
8. Our company builds ______ ______ into most of its electronic products, so that our customers
are forced or obliged to update them more often. (designing products so that they have a limited
lifespan and so need to be replaced more often)
9. We make packaging for frozen food, and are an important part of the ______ ______ for the
industry. (the manufacturers, wholesalers, distributors, etc, who make, deliver and sell products to
customers)
10. None of our products are allowed to leave the factory unless there are ______ ______ present.
(having no faults)
11. Without effective ______ ______ , we will not be able to produce enough goods to keep up
with demand. (assigning people and machines to projects in a way that optimises production and
results)
12. The manufacture of most items relies on a reliable source of ______ ______ such as wood, iron
ore or crude petroleum. (basic items which have to be treated in some way before they can be used)
13. If ______ ______ can be kept to a minimum, we can keep market prices at a minimum. (the
money needed to make a product)
14. We don't check every item before we send it for sale. We usually find that ______ ______ gives
us a good idea of quality. (testing a few items from one batch of products before they are sent for
sale)
15. Our company takes ______ ______ very seriously: we never start a project without working
out how many people it will need, and the equipment they will require. (measuring the amount of
work that can be done within a certain amount of time, and how many people, machines, etc, it will
need)
EXERCISE 2.
Read about the relationship between WIP (work-in- progress) and different types of production
process. As you read, imagine an example for each one.
1. In a continuous process there is a network of complex, capital-intensive machinery through which
WIP flows without interruption. One example would be __________.
2. In a mass process, there is an assembly line where WIP moves along the line past workstations
carrying out fixed operations. One example would be __________.
3. In a batch process, machinery and equipment are located in 'cells around the plant, and WIP
moves in groups to different cells; in each cell a variety of specialized operations can be carried
out. One example would be __________.
4. In job production, there is a fixed position layout where the WIP does not move, instead
operations are scheduled in sequence on it. One example would be __________.
5. In a large-scale project, the WIP is often off-site, or at the Customer's own premises. One example
would be __________.
Now complete each paragraph with the most appropriate example: construction of a building, an
automobile plant, aircraft manufacture, clothing manufacture, steel making.
EXERCISE 3.
Match up the half – sentences below, which define some basic terms.
1. Inventory (AmE and BrE) or stock (BrE) is a
company's reserves
2. A component is any of the pieces or parts
3. Capacity is the (maximum) rate of output
4. Plant is a collective word for all the buildings,
machines, equipment,
5. Location means the geographical situation
6. A supply chain is a network of organizations
7. Outsourcing means buying products or
processed materials
8. Economies of scale are the cost savings
9. Lead time is the time needed to perform an
activity
A. and other facilities used in the production
process.
B. arising from large-scale production.
C. from other companies rather than
manufacturing them.
D. involved in producing and delivering goods
or a service.
E. of a factory or other facility.
F. of raw materials, parts, work in process, and
finished products.
G. such as manufacturing a product or
delivering it to a Customer.
H. that can be achieved from a production
process.
I. that make up a product or machine.
UNIT REVIEW



What is the production and operation management?
What is lean production? How can lean production be achieved?
What is job production, batch production and flow production?
 What are the benefits and limitations of different production methods?
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc
Graw Hill Education.
4. Mackenzie, I., 1997. Management and Marketing, Thomson.
5. Paul Emmerson, 2007, Business English Handbook Advanced, Macmillan
UNIT 8. PRODUCTION
LEARNING OBJECTIVES
After you have read and studied this unit, you should be
able to

Compare different strategies for stock control and
manufacturing

Discuss potential supply chain risks
KEY TERMS
Logistics ‐ the marketing activity that involves planning, implementing, and controlling the physical
flow of materials, final goods, and related information from points of origin to points of consumption
to meet customer requirements at a profit.
Inbound logistics ‐ the area of logistics that involves bringing raw materials, packaging, other goods
and services, and information from suppliers to producers.
Materials handling ‐ the movement of goods within a warehouse, from warehouses to the factory
floor, and from the factory floor to various workstations.
Outbound logistics ‐ the area of logistics that involves managing the flow of finished products and
information to business buyers and ultimate consumers (people like you and me).
Reverse logistics ‐the area of logistics that involves bringing goods back to the manufacturer because
of defects or for recycling
LEAD- IN
In a manufacturing or retail business, what are the advantages and disadvantages of:
- simply satisfying current demand
- planning to meet (possible) future demand?
READING 1: Pull and Push Strategies
You are going to read about pull and push strategies for stock control and manufacturing. But
first, match the words and definitions below.
1 accurate
2 agile
3 estimate (n.)
4 forecast (n.)
5 lean (adj.)
6 logistics
7 manual (adj.)
8 replenish
A. a guess of what the size or amount of something might be
B. a statement of what is expected to happen in the future
C. able to move quickly and easily
D. Correct, exact and without any mistakes
E. designing and managing the flow of goods, information
and other resources
F. done with the hands
G. (of production) using small quantities and avoiding any
waste
H. to fill something up again
These eight paragraphs make up a text about inventories, pull and push strategies, and Just-In-Time
(JIT) production. Put them in the right order to make a logical text. Two have already been done.
Manufacturing companies can produce according to pull or push strategies. (1)
Historically, Kanban was a manual system in which cards were placed in component bins in warehouses
as a signal that items needed replenishing; today, of course, advanced software is used. ( )
Apart from JIT, other names for pull strategies include lean production, stockless production,
continuous flow manufacture and agile manufacturing. In all these systems, nothing is bought or
produced until it is needed. ( )
This replenishment strategy was famously developed as Just-In-Time (JIT) production by Toyota in
Japan in the 1950s. The most common JIT system is called Kanban, a Japanese word approximately
meaning 'visual card’. ( )
Supplies are scheduled to meet expected demand, but because demand forecasts are not always
accurate, push strategies often incorporate safety stocks and safety lead times. ( )
In other words, this is a replenishment strategy: both production and suppliers are constantly reacting
to the actual consumption of components, rather than planning ahead. ( )
With a pull strategy, a company manufactures according to current demand, which is satisfied from
(a small) inventory. When pieces are removed from stock, replacements are automatically ordered
from suppliers. ( )
With a push strategy such as Manufacturing Resources Planning (MRP), on the contrary, production
is based on estimates of future demand, and begins according to the planned production lead time.
(7)
Comprehension
Match up the following half-sentences.
1. Pull strategies are based on
2. Pull systems only buy or produce
3. Kanban systems signal
4. Push strategies are based on
5. Push strategies often allow for
A. current demand.
B. estimated future demand.
C. safety stocks and lead times.
D. that items need to be replaced.
E. things when they are needed.
READING 2
Wal-Marts are large, discount department stores in the US. At the time of writing, Wal- Mart had
the largest revenue of any company in the world, and was the world's largest private employer.
Read the extract. What is Friedman's overall impression of the operation?
I had never seen what a supply chain looked like in action until I visited Wal-Mart headquarters
in Bentonville, Arkansas. My Wal-Mart hosts took me over to the 1.2-million-square-foot
distribution center, where we climbed up to a viewing perch and watched the show. On one side
of the building, scores of white Wal-Mart trailer trucks were dropping off boxes of merchandise
from thousands of different suppliers. Boxes large and small were fed up a conveyor belt at each
loading dock. These little conveyor belts fed into a bigger belt, like streams feeding into a powerful
river. Twenty-four hours a day, seven days a week, the suppliers trucks feed the twelve miles of
conveyor streams, and the conveyor streams feed into a huge Wal-Mart river of boxed products.
But that is just half the show. As the Wal-Mart river flows along, an electric eye reads the bar
codes on each box on its way to the other side of the building. There, the river parts again into a
hundred streams. Electric arms from each stream reach out and guide the boxes ordered by
particular Wal-Mart stores - off the main river and down its stream, where another conveyor belt
sweeps them into a waiting Wal-Mart truck, which will rush these particular products onto the
shelves of a particular Wal-Mart store somewhere in the country. There, a consumer will lift one
of these products off the shelf, and the cashier will scan it in, and the moment that happens, a
signal will be generated. That signal will go out across the Wal-Mart network to the supplier of
that product- whether that supplier is in coastal China or coastal Maine. That signal will pop up
on the supplier's computer screen and prompt him to make another of that item and ship it via the
Wal-Mart supply chain, and the whole cycle will start anew. So no sooner does your arm lift a
product off the local Wal-Mart's shelf and onto the checkout counter than another mechanical arm
starts making another one somewhere in the world. Call it 'the Wal-Mart Symphony' in multiple
movements with no finale. It just plays over and over 24/7/365: delivery, sorting, packing,
distribution, buying, manufacturing, reordering, delivery, sorting, packing ...
Comprehension
1. Fill in the gaps, and then put the following sentences in the correct order. The first one has been
done for you.
______ A customer buys a product.
______ A machine reads the (a) _________ on each box
___1___ A Wal-Mart (b) _________ picks up (c) _________ at a supplier’s factory or warehouse
______ Electric arms guide the boxes off the main (d) _________ onto another smaller one.
______ The boxes are placed on a small conveyor belt
______ The cashier (e) _________ the product, which sends a (f) _________ to the (g) _________
to produce another one.
______ The goods are unloaded at Wal-Mart's distribution centre.
______ The products are (h) _________ to the (i) _________that ordered them.
______ The small conveyor belt joins a larger one.
______ This belt leads to another bay where the boxes are (k) _________ onto Wal-Mart trucks.
2 What are the three main metaphors that Friedman uses in this passage? Why does he use them?
READING 3: Manufacturing supply chain work flow
Look at this flowchart for a typical manufacturing supply chain, and number the sentences below
in the order that they happen.
_ 1___ The sales department identifies a need for a product, and tells the marketing department
about it.
____ As stock has now been used the computer system generates a request for new stock.
____ Customer services take orders and input them to the computer system.
_10___ Customers place orders through customer services.
____ Finished goods are put into inventory in a warehouse awaiting orders, and the company
computer system is updated.
____ Suppliers receive orders and despatch raw materials and components to the manufacturing
site on agreed dates.
____ The marketing department researches the project, and forwards a detailed business plan to
the Business Unit Manager.
____ The plan is approved and passed to the analysts to prepare and implement the manufacturing
process.
____ The analysts pass details of raw materials and components to purchasing.
____ The order is sent to the warehouse
____ The product is manufactured.
____ The purchasing, logistics and transport departments plan the purchase of materials and their
delivery to the manufacturing plant.
____ The re-order process generates a request to the purchasing department to place new orders
with the suppliers.
____ The senior business managers make a decision on the project.
____ The transport company collects the consignment and delivers it to the customer.
CASE STUDY: Risk analysis
Companies might choose not to use suppliers from a country if they are unsure about its future
political or financial stability, or about future industrial relations (the possibility of strikes, etc.),
or the condition of its infrastructure (roads, railways, power supplies, etc.), or possible changes in
the climate, etc.
In small groups, try to identify the potential supply chain risks for the following businesses. How
could these risks be minimized?
-
A car factory in the UK that gets components from British, continental European and Asian
suppliers
The fruit and vegetable department of a national supermarket chain
A tourist industry company that hires seasonal workers for different tasks at different times
of the year
VOCABULARY
EXERCISE 1.
Complete the passage below with the words from the box below.
service
chain
technology
origin
outbound
activities
operational
Logistics management is that part of supply (1) ________ management that plans,
implements, and controls the effective forward and reverse flow and storage of goods,
services and information between the
point of (2)________ and the point of
consumption. Logistics management activities usually include inbound and (3)_________
transportation management, fleet management, warehousing, materials handling, order
fulfilment, logistics network design, inventory management, supply/demand planning, etc.
The logistics function also includes sourcing and procurement, production planning and
scheduling, packaging and assembly, and customer (4)_______. It is involved in all levels
of planning and execution – strategic, ( 5)
and tactical. Logistics management is an
integrating function, which coordinates all logistics (6)
, as well as
integrating logistics activities with other functions including marketing, sales
manufacturing, finance, and information (7)
.
EXERCISE 2.
Match the following terms with their definitions.
1. Logistics
a) A network of facilities that performs the function of procurement of
materials, transformation of these materials into finished products, and
the distribution of these products to customers
2. Supply chain
b) all operations related to the reuse of products and materials
3. Logistics
management
c) goods carried by a ship, aircraft, or other vehicle
4. Customs
clearance
d) the management of the flow of goods, information and other
resources, between the point of origin and the point of consumption
5. Cargo
e) someone whose business is to supply a particular service or commodity
6. Logistician
f) that part of supply chain management, which plans, implements, and
controls the flow and storage of goods between the point of origin and
the point of consumption
7. Provider
g) a specialist in logistics
8. Reverse
Logistics
h) the act of passing goods through customs so that they can enter or leave
the country
EXERCISE 3.
Complete the text about logistics using the words in the box.
Balancing ensuring linking negotiating forecasting handling selecting warehousing
"Logistics' is a term that is used in many different ways. Using a broad definition it can include
all of the following:
Customer service
(1)________ the right product is at the right place at the right time.
Demand (2) _________ and planning
Determining the quantity of goods that need to be ordered in the future.
Inventory management and materials (3) _________
Keeping the supply chain flowing, with no bottlenecks, by (4) ________ the quantity of items at
different locations and different stages in the process.
Communication technology
(5) _________ the organization to its suppliers with IT, for example to provide information about
demand patterns to facilitate Just-In-Time delivery.
Transportation
(6) ________ the best means of transportation (ie air, rail, ship, truck).
Purchasing
(7) _______ with suppliers about price, availability, quality, etc.
(8) _______
Locating and designing facilities that allow efficient storage and distribution.
All the above activities must be coordinated properly. Inevitably there will be trade-offs - less of
one thing and more of something else - in order to achieve the best outcome overall.
UNIT REVIEW





What is logistics?
What is supply chain?
What is inbound logistics?
What is outbound logistics?
What is logistics management?
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
3. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
4. Mackenzie, I., 1997. Management and Marketing, Thomson.
5. Paul Emmerson, 2009, Business Vocabulary Builder, Macmillan
UNIT 10 - QUALITY
LEARNING OBJECTIVES
After you have read and studied this unit, you should be
able to
 discuss the terms quality and total quality management
 explain how companies ensure quality
 explain quality control and quality assurance
KEY TERMS
Quality: to produce a good or a service which meets customer expectations.
Quality control: the checking for quality at the end of the production process, whether
it is the production of a product or service.
Quality assurance: the checking for quality standards throughout the production
process, whether it is the production of a product or service.
Total Quality Management (TQM): the continuous improvement of products and
processes by focusing on quality at each stage of production.
LEAD- IN
Quality can mean a lot of different things. If you were talking about quality in relation to these
products and services, what would you mean?
A car
A laptop computer
A raincoat
A mobile phone
An insurance company
A bookself
READING 1
What is quality?
The word ‘quality’ has an everyday meaning that has to do with features, reliability, perfornance,
durability, aesthetics, value for money and conformance to requirements.
Quality control and quality assurance
Quality control is about detecting defects after they happen. It involves random sampling, spot
checks, inspection and testing. Quality assurance is about prevention rather than detection. If a
failure happens, then it's isolated, the causes are analyzed, and there is a redesign of the process or
of the parts to make sure it doesn't happen again. The aim is zero defects, to get things right first
time.
Quality management
Total quality management (TQM) is a philosophy that was very popular in the 1980s and 90s. It
aims to put an awareness of quality at the heart of all organizational processes (eg customer
service) and not just production. It puts an emphasis on a continual increase in customer
satisfaction combined with lowering costs by eliminating waste. It is similar in many ways to the
ideas of these models: SCM, Toyota Production System, Lean Manufacturing, Kaizen, etc.
The impact of total quality management on business
This approach to quality requires the involvement of all employees in a business. Total quality
management is based on the principle that everyone within a business has a contribution to make
to the overall quality of the finished product or service.
TQM often involves a significant change in the culture of an organisation. Employees can no
longer think that quality is someone else's responsibility. The search for quality must affect the
attitudes and actions of every employee. When adopting this concept, every worker needs to think
about the quality of the work they are performing as another employee is, in effect, their internal
customer. Every department is obliged to meet the standards expected by its internal customer(s).
These departmental relationships are sometimes known as quality chains. All businesses can,
therefore, be described as a series of supplier and customer relationships. Examples include:


A truck driver who drops off supplies to retailers is the internal customer of the team
loading the vehicle. Goods must be handled carefully and loaded in the right order. The
truck driver has to face the retailer if goods are damaged or the wrong ones are delivered.
A computer assembly team is the internal customer of the teams producing the individual
components. A fault with any component means the assembled computer will not meet
quality standards
The TQM concept has revolutionised the way workers view quality. To be effective, the concept
must be fully explained and training given to all workers. TQM is not a technique - it is a
philosophy that quality is everyone's responsibility. The aim is to make all workers at all levels
accept that the quality of the work they perform is important. Workers should be empowered with
the responsibility of checking this quality level before passing their work on to the next production
stage.
This approach fits in well with the Herzberg principles of job enrichment. In addition, TQM should
almost eliminate the need for a separate quality control department with inspectors separated from
the production line itself. TQM aims to cut the costs of faulty or defective products by encouraging
all workers to 'get it right first time' and to achieve zero defects. With TQM, if quality is improved
and guaranteed, then reject costs should fall and the demand for the products will rise over time.
TQM will only work effectively if everyone in the business is committed to the idea. It cannot be
introduced into one section of a business if defective products coming from other sections are not
reduced. The philosophy requires a commitment from senior management to allow the workforce
authority and empowerment. TQM will not operate well in a rigid and authoritarian structure.
Summarises the TQM approach
Read the text and decide if the following statements are True or False.
1.
2.
3.
4.
5.
TQM concerns production and customer service personnel.
TQM involves maximizing output and reducing costs.
TQM guarantees zero defection production and no waste.
TQM will only be successful if everyone in the company is dedicated to the idea.
TQM stops when the company have their perfect product.
READING 2
A variety of approaches
Quality is a topic that occurs under the umbrella of many different philosophies. This is good
news for the army of consultants called in to explain and implement the latest management fad.
But certain things are common to all the approaches: measuring and systematizing processes;
reducing variation, defects and cycle times; and employee involvement and teamwork. The
differences between the approaches (and others, like Six Sigma) are related to which tools,
checklists, measurements and training they use.
Quality costs
Quality isn't free ‐ it comes with a cost. But if there are no quality procedures, then the cost
is much higher: continuing problems with the product, a loss of confidence in the brand and
fewer sales as a result. Here are just some of the ways that companies have to spend money
and time to ensure quality:
Engineers have to spend time with marketers during the development of new products
to facilitate design‐for manufacture. There have to be supplier capability surveys to make
sure that suppliers can achieve the quality levels that they claim. There have to be
regular meetings, education and training about quality improvement.
The company has to inspect and test incoming material, material that is being processed,
and the finished product. There is also the cost of buying and servicing any equipment
used for measuring and testing.
There may be scrap, rework, re‐inspection, re‐testing, etc. If these continue at a high level,
then perhaps there will be a fundamental review of suppliers and materials.
Time is needed to process customer complaints, to process customer returns, to deal with
warranty claims and to handle product recalls.
Read the text and find a word that matches each definition below.
1. How long various activities take to complete (eg one production run).______________ (2
words)
2. Looking at how easy it is to make a new product, not just the features._______________
3. Asking questions to find out if your suppliers are able to meet quality standards.
____________ (3 words)
4. Materials or small parts that are no longer useful. _____________
5. The return of products, for example because they’re faulty or dangerous. _____________
(2 words)
CASE STUDY 1
High prices, high quality?
The operations manager at Athletic Shoes is proud of the quality standards his business achieves.
‘Our sports shoes have a retail price of $25. They are not the best or most stylish on the market.
However, only 4 customers returned shoes because of serious problems over the last 12 months
when we sold 50 000 pairs. All our workers are accountable for the products reaching minimum
standards of quality at each stage of production. There are better shoes available, but our customers
know what they are getting.’
The customer service manager at the Exclusive Footwear shoe shop is returning a pair of handmade
leather fashion shoes to their producers at Ital Fashion Shoe. The manager explained, ‘The retail
price of these is $400 a pair. Customers paying such high prices expect a perfect product every
time. Even the smallest scratch or imperfection means the customers reject them. Even though Ital
checks every shoe at each stage of production, a few minor blemishes are sometimes missed.’
1. Analyse what a quality product means to each of these businesses.
2. Evaluate ways a business could improve the quality of its products.
CASE STUDY 2
Quality assurance at the hairdressers
The Kuala Lumpur branch of Hairazor had the worst record of all the company’s branches for
customer satisfaction. The number of complaints received at head office about this branch and the
quality of its haircutting and styling services was much greater than for any other location.
Revenue fell and the number of repeat customers was just 15% of overall customers. A rival
business nearby, with 30% higher prices, was always full. This branch of Hairazor spent more on
advertising for new customers than any other. The revenue per customer was also low as high
addedvalue services (such as colouring and perming) were avoided by customers.
A new manager was appointed to the branch last year. She immediately set quality targets for each
stage of the customer experience. These include:






maximum time for the phone to ring
maximum waiting time for an appointment
maximum time between a hair wash and when cutting begins
all customers to be offered refreshments
minimum time spent by stylists with each customer
feedback forms completed by 20% of clients, with stylists discussing answers with clients.
Each employee is given responsibility for at least one of these targets. A record is now kept of the
branch’s success in meeting these targets. At first, branch costs increased as an additional worker
was recruited to help meet the quality standards. After two months, the number of repeat clients
reached 36% and the branch was able to reduce its advertising expenditure. After four months,
revenue had risen by 28%. The branch has just achieved third place in the company league table
for customer satisfaction. The competing hairdressing business has reduced many of its prices by
15%.
1. Analyse the benefits to this service business of improving quality.
2. Evaluate whether the manager was right to introduce these quality targets.
VOCABULARY
EXERCISE 1. Match up the following words and definitions.
1 benchmarking
A. a fault or imperfection or deficiency
2 defect
B. a promise that goods will meet a certain specified quality level, or
be repaired or replaced
3 durability
C. customers' satisfaction with and loyalty to a company
4 goodwill
D. ease of maintenance and repair
5 reliability
6 to scarp
E. going outside the firm to see what excellent competitors are doing,
and adopting the best practices
7 serviceability
F. performance over a long period of time
8 warranty
G. regular performance according to specification
H. to sell defective goods for the price of the recyclable materials
they contain
EXERCISE 2. Complete these sentences using given words.
Leading indicators
ISO 9000
Key performance indicators (KPI)
Lagging indicators
Nonconformance
Benchmarking
Tolerance
Six sigma
1. ________________ is measuring your performance against other companies that are best in
class and then using the information to improve.
2. ________________ is the amount by which a parameter (eg. size) can vary from the norm
before the piece becomes a defect.
3. ________________is a set of international standards of quality. Companies can be audited for
compliance with one of the standards, and then publicly state that they're ‘________________-certified’
4. ________________ is when a requirement has not been met. It does not need to be a serious
defect, it could be a simple mark on the surface that spoils the appearance.
5. ________________ is the name of a well-known quality methodology. It takes a highly
disciplined approach to eliminating defects in manufacturing. This term originally comes from
statistics.
6. ________________ are statistical measures of how well an organization is doing in particular
areas. The term is particularly common in production and operations, but is used throughout
business.
7. ________________ are those that a future outcome. For example, predict levels of staff
satisfaction are often a leading indicator of quality. A more motivated workforce will make
fewer mistakes.
8. ________________ are those that show a result. For example, warranty claims are a lagging
indicator of quality. Fewer claims mean that earlier actions to improve quality are now
working. (A ‘lag’ is a delay between two events).
EXERCISE 3. Complete the text using these words.
relationships
expenses
quality
aspects
guarantee
individualistic
costly
variations
defects
resented
permanent
stress
In production and operations management, over the past few decades, there has been increasing
(1)____________ on quality, as defined by the consumer, in terms of features offered, appearance,
reliability, durability, serviceability, and so on.
An important concept has been Total Quality Management (TQM), according to which
management should ensure that quality extends throughout the organization in everything it does,
or at least in all (2)____________ of products and services that are important to the customer.
Rather than aiming for the best quality compatible with low unit costs, the company should aim
for the highest quality level possible, because a lack of quality can be more (3)____________ than
achieving high quality. As the production theorist Philip Crosby puts it, quality is free.
What he means is that there are many (4) ____________ that result from production that is not
100% perfect: inspecting, testing, identifying the causes of defects, implementing corrective
action, training or retraining personnel, redesigning a product or system, scrapping, reworking or
repairing defective products, replacing products in accordance with a (5) ____________, dealing
with complaints, losing customers or their goodwill, and so on. Quality theorists such as Joseph
Juran, W. E. Deming, and Crosby have shown that prevention is usually much cheaper than
failures. Every extra dollar spent on prevention might save $10 spent on inspection and failure
costs. Furthermore, even if the current (6) ____________ level appears perfect, the company
should still continuously look for product improvement, and aim to be the best in the industry.
Companies should always engage in benchmarking.
Although management is responsible for designing and installing an overall system which
excludes (7) ____________ and low quality, everyone within that system, in the entire supplierproducer customer chain, should be responsible for quality. In TQM, every worker is a quality
inspector for his or her own work, trying to get it right the first time, aiming for zero defects. This
approach, often described as "quality at the source," removes the need for the kind of "over the
shoulder" inspection that is usually (8) ____________ by workers. Of course this often requires
training, and depends on a co-operative attitude.
Many large Japanese companies - especially those guaranteeing (9) ____________ employment have been able to attain high quality, because of the motivation of their staff, and the long-term
nature of nearly all the (10) ____________ among employees, suppliers, distributors, owners and
customers. The Japanese invented quality circles: voluntary groups of six to twelve people, who
are usually given training in problem-solving, analysis, and reporting methods, and who then meet
once a week, during paid hours, to discuss their department and the problems they are
encountering. If there are problems with quality (11) ____________, the group will try to identify
their sources, find solutions to eliminate them, and propose these to management. There are an
estimated one million quality circles with ten million members in Japan. Quality circles have been
less successful in the more (12) ____________ individualistic cultures of America and Europe.
UNIT REVIEW
1.
2.
3.
4.
5.
What does the word ‘quality’ mean to you? Brainstorm as many ideas as possible.
What are quality control and quality assurance?
What is TQM?
How does TQM affect business?
How do companies spend time and money to ensure quality?
REFERENCES
Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
Mackenzie, I., 1997. Management and Marketing, Thomson.
Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
UNIT 12 - MARKETING
LEARNING OBJECTIVES
After you have read and studied this unit, you should
be able to
 discuss the term marketing
 consider the product life cycle and market
research
 discuss marketing strategies, market segments
KEY TERMS











market: the set of all actual and potential buyers of a good or service; the place where
people buy and sell; the people who trade in a particular good; to make goods available
to buyers and to encourage them to buy them
market leader: the company with the largest market share
market nicher: a small company that concentrates on one or more particular niches or
small market segments
market research (GB) or marketing research (US): the collection, analysis and
reporting of data relevant to a specific marketing situation (e.g. a proposed new
product)
market segment: part of a market; a group of customers with specific needs, defined
in terms of geography, age, sex, income, occupation, life-style, etc.
market segmentation: the act of dividing a market into distinct groups of buyers who
have different requirements or buying habits
market share: the sales of a company (or brand or product) expressed as a percentage
of total sales in marketing - the process of identifying and satisfying consumers' needs
and desires
marketing channel: the set of intermediaries a company uses to get its goods to their
end users
marketing mix: the set of all the various elements in a marketing programme, and the
way a company integrates them
marketing strategy: a plan or principle designed to achieve marketing objectives
product life cycle: the standard pattern of sales of a product over the period that it is
marketed
LEAD- IN
Here are four definitions of marketing. Which do you prefer, and why?




Selling means you sell what you make; marketing means you make what you can sell.
Marketing means the right product, in the right place, at the right price, and at the right time.
Marketing means identifying customers, defining and developing the products or services
they want, and making and distributing them.
Marketing means anticipating and creating needs: producing useful things customers didn't
know they wanted until you produced them.
READING 1
What is Marketing?
What does the term marketing really mean? Many people mistakenly think of it as advertising and
selling. Given the number of commercials on television, in magazines and newspapers and all the
signs and offers in and around the shops this is not surprising. However, advertising and selling
are only two of several marketing functions, and not necessarily the most important ones.
The most basic concept underlying marketing is that of human needs. We have many needs
including ones such as affection, knowledge and a sense of belonging as well as the physical need
for food, warmth and shelter. A good deal of our lives is devoted to obtaining what will satisfy
those needs. Marketing can thus be defined as any human activity which is directed at satisfying
needs and wants by creating and exchanging goods and value with others.
Marketing has become a key factor in the success of western businesses. Today's companies face
stiff competition and the companies which can best satisfy customer needs are those which will
survive and make the largest profits.
Marketing begins with 'the four Ps': product, place, promotion and price. These combine to form
the marketing mix for any one product or service. Elements of 'the four Ps' are shown in the table
below:
Product
Place (Distribution)
 features and associated benefits
 retailer
 branding (ie product identity)
 wholesaler
 packaging (eg there may be a bag
 B2B distributor
inside a box)
 agent
 label (eg printed on the package)
Promotion
Price
 advertising
 external factors (eg elasticity of
demand, customer expectations,
 sales promotions (eg special
competitor’s products)
offers, discounts)
 internal factors (eg profit
 public relations
required, market share required)
The Product Life Cycles
The sales of most products change over time, in a recognizable pattern which contains distinct
periods or stages. The standard life cycle includes introduction, growth, maturity and decline
stages.
The introduction stage, following a product's launch, generally involves slow growth. Only a few
innovative people will buy it. There are probably no profits at this stage because of the heavy
advertising, distribution and sales promotions expenses involved in introducing a product onto the
market. Consumers must be made aware of the product's existence and persuaded to buy it. Some
producers will apply a market-skimming strategy, selling the product at as low price as possible,
in order to attain a large market share. There is always a trade-off between high current profit and
high market share.
During the growth period, early adopters' join the 'innovators' who were responsible for the first
sales, so that sales rise quickly, producing profits. This generally enables the producer to benefit
from economies of scale. Competitors will probably enter the market, usually making it necessary
to reduce prices, but the competition will increase the market's awareness and speed up the
adoption process.
When the majority of potential buyers have tried or accepted a product, the market is saturated,
and the product reaches its maturity stage. Sales will stabilize at the replacement purchase rate, or
will only increase if the population increases. The marketing manager has to turn consumers' brand
preference into brand loyalty.
Most products available at any given time are in the maturity stage of the life cycle. This stage
may last many years, and contain many ups and downs due to the use of a succession of marketing
strategies and tactics. Product managers can attempt to convert non-users, search for new markets
and market segments to enter, or try to stimulate increased usage by existing users. Alternatively,
they can attempt to improve product quality and to add new features, sizes or models, or simply to
introduce periodic stylistic modifications. They can also modify the other elements of the
marketing mix, and cut prices, increase advertising, undertake aggressive sales promotions, seek
new distribution channels, and so on, although here additional sales generally come at the cost of
reduced profits.
A product enters the decline period when it begins to be replaced by new ones, due to advances in
technology, or to changes in fashions and tastes. When a product has clearly entered its decline
stage, some manufacturers will abandon it in order to invest their resources in more profitable or
innovative products. When some competitors choose to withdraw from a market, those who remain
will obviously gain a temporary increase in sales as customers switch to their product.
Not all products have this typical life cycle. Some have an immediate rapid growth rather than a
slow introductory stage. Others never achieve the desired sales, and go straight from introduction
to maturity, although of course this should have been discovered during test marketing before a
full-scale launch. Fads and gimmicks - for example, toys people buy once and once only to stick
on car windows - have distinct life cycles, both rising and declining very quickly.
Read the text and decide if the following statements are True or False.
1.
2.
3.
4.
5.
6.
7.
8.
Advertising is a part of marketing.
Selling is the most important function of marketing.
A sense of belonging is a physical need.
Satisfying customer needs is a key to success.
The introduction stage of a new product is not usually profitable.
During the introduction stage, marketers are trying to create brand preference.
A producer seeking maximum profits will apply a market-penetration strategy.
The entry of competitors onto the market will make more consumers aware of the product
and stimulate them to try it.
9. At the maturity stage, producers begin to benefit from economies of scale.
10. The maturity stage is generally the longest.
11. Once the maturity stage is reached, marketers concentrate on finding new customers.
12. A product enters the decline stage when it begins to become obsolete.
13. A product can experience temporary sales increases during its decline stage.
14. Gimmicks and fads have a particularly long-life cycle.
READING 2
A company's marketing strategies - sets of principles design to achieve long-term objectives
obviously depend on its size and position in the market. Other determining factors are the extent
of the company's resources, the strategies of its competitors, the behaviour of the consumers in the
target market, the stage in the product life-cycle of the products it markets, and the overall macroeconomic environment.
The aim of a market leader is obviously to remain the leader. The best way to achieve this is to
increase market share even further. If this is not possible, the leader will at least attempt to protect
its current market share. A good idea is to try to find ways to increase the total market. This will
benefit everyone in the field, but the market leader more than its competitors. A market can be
increased by finding new users for a product, by stimulating more usage of a product, or by
exploiting new uses, which can sometimes be uncovered by carrying out market research with
existing customers.
To protect a market share, a company can innovate in products, customer services, distribution
channels, cost reductions, and so on; it can extend and stretch its product lines to leave less room
for competitors; and it can confront competitors directly in expensive sales promotion campaigns.
Market challengers can either attempt to attack the leader, or to increase their market share by
attacking various market followers. If they choose to attack the leader, market challengers can use
most of the strategies also available to market leaders: product innovation, price reductions,
cheaper or higher quality versions, improved services, distribution channel innovations,
manufacturing cost reduction, intensive advertising, and so on.
Market followers are in a difficult position. They are usually the favourite target of market
challengers. They can reduce prices, improve products or services, and so on, but the market leader
and challenger will usually be able to retaliate successfully. A market follower that takes on a
larger company in a price war is certain to lose, given its lesser resources.
In many markets, market followers fall in the middle of a V-shaped curve relating market share
and profitability. Small companies focusing on specialised narrow segments can make big profits.
So can the market leader, with a high market share and economies of scale. In between come the
less profitable market followers, which are too big to focus on niches, but too small to benefit from
economies of scale.
One possibility for followers is to imitate the leaders' products. The innovator has borne the cost
of developing the new product, distributing it, and making the market aware of its existence. The
follower can clone this product (copy it completely), depending on patents and so on, or improve,
adapt or differentiate it. Whatever happens, followers have to keep their manufacturing costs low
and the quality of their products and services high.
Small companies that do not establish their own niche - a segment of a segment - are in a vulnerable
position. If their product does not have a "unique selling proposition," there is no reason for anyone
to buy it. Consequently, a good strategy is to concentrate on a niche that is large enough to be
profitable and that is likely to grow, that doesn't seem to interest the leader, and which the firm
can serve effectively. The niche could be a specialised product, a particular group of end-users,
geographical region, the top end of a market, and so on. Of course unless a nicher builds up
immense customer goodwill, it is vulnerable to an attack by the market leader or another larger
company. Consequently, multiple niching - developing a position in two or more niches - is a much
safer strategy.
Read the text and decide if the following statements are True or False.
1. If a market leader succeeds in increasing the size of the total market, its competitors’ benefit.
2. The size of a market can be increased without attracting any new consumers.
3. Market challengers generally attack the leader and market followers.
4. Market challengers cannot use the same strategies as leaders.
5. Market leaders generally win price wars.
6. Market challengers can attack leaders by way of any of the four P's of the marketing mix.
7. Market followers generally achieve cost reductions through economies of scale.
8. The most profitable companies are logically those with medium or high market share.
9. For a market nicher, product imitation can be as profitable as product innovation.
10. A market nicher is never safe from an attack by a larger company.
CASE STUDY 1
The personal computer market has seen many changes over the last few years. The standard
desktop computer is becoming a thing of the past in many offices, where a laptop has taken its
place. In the home this has also been true. However, the introduction of the netbook and then the
Apple iPad has changed the market again.
Predictions for the future of the personal computer market are that mobile devices will become
market leaders in terms of global sales, followed by tablets and netbooks. Home computers are
seen as becoming a smaller and smaller share of the global market.
Discussion points
• How has the market for personal computers changed?
• Why have these changes happened?
• How should businesses in the personal computer market respond to these changes?
CASE STUDY 2
Toyota produce a range of cars aimed at different market segments. They even own a separate
company, called Lexus, whose cars are aimed at particular market segment.
Toyota Yaris Hatchback
Toyota Land Cruiser VX 4.6
Lexus RX350
Toyota Camry RZ
 Look at the photographs of the Toyota range of cars and identify what characteristics the
consumers of these models are likely to have. The characteristics you identify might
include income (socio-economic group), age, gender, use of the product, lifestyle.
 Explain the benefits to Toyota of producing a large range of cars aimed at different market
segments.
VOCABULARY
EXERCISE 1. Match up words in the box to the definitions.
distribution channel
market opportunities
market skimming
product differentiation
market segmentation
product features
market penetration
sales representative
price elasticity
wholesaler
1. all the companies or individuals ('middlemen') involved in moving goods or services from
producers to consumers
2. an intermediary that stocks manufacturers' goods or merchandise, and sells it to retailers and
professional buvers
3. dividing a market into distinct groups of buyers who have different requirements or buying
habits
4. making a product (appear to be) different from similar products offered by other sellers, by
product differences, advertising, packaging, etc.
5. possibilities of filling unsatisfied needs in sectors in which a company can profitably produce
goods or services
6. setting a high price for a new product, to make maximum revenue before competing products
appear on the market
7. someone who contacts existing and potential customers, and tries to persuade them to buy goods
or services
8. the attributes or characteristics of a product, such as size, shape, quality, price, reliability, etc.
9. the extent to which supply or demand (the quantity produced or bought) of a product responds
to changes of price
10. the strategy of setting a low price to try to sell a large volume and increase market share
EXERCISE 2. Complete the text with the words in the box.
advertising budgets
early adopters
similar offerings
consumer tastes
differentiate products
making a loss
reaches saturation
withdrawn from the market
The classic product life cycle is Introduction, Growth, Maturity and Decline. In the Introduction
stage the product is promoted to create awareness. It has low sales and will still be
(1)_____________. If the product has few competitors, a skimming price strategy can be used (a
high price for (2)_____________ which is then gradually lowered). In the Growth phase sales are
rising rapidly and profits are high.
However, competitors are attracted to the market with (3) _____________. The market is
characterized by alliances, joint ventures and takeovers. (4) _____________ are large and focus
on building the brand.
In the Maturity phase sales growth slows and then stabilizes. Producers attempt to (5)
_____________ and brands are key to this. Price wars and competition occur as the market (6)
_____________. In the Decline phase there is a downturn in the market. The product is starting to
look old- fashioned or (7) _____________ have changed. There is intense price-cutting and many
products are (8) _____________.
EXERCISE 3. Make phrases and then complete the text below.
1.
2.
3.
4.
5.
6.
7.
carrying out
gaps in the
consumer
published
a representative
statistically
the activity
sample of people
a survey
of competitors
needs
market
sources
reliable
Market research is the process by which a company collects information about (1)_____________
and preferences. The information helps to identify market trends and spot (2) _____________.
The easiest data to collect is that from existing (3) _____________ such as government reports
Other valuable information can be obtained by studying consumer behaviour in more developed
markets, on looking at (4) _____________ (benchmarking).
Primary data, collected for the first time, is more difficult to obtain. First, (5) _____________ has
to be carefully chosen - it has to be large enough to be (6) _____________ and also checked for
factors such as age, sex, occupation. Common research methods include (7) _____________ using
a questionnaire, or face-to-face interviews with existing customers.
EXERCISE 4. Complete the text using the correct form of these verbs:
anticipate
modify
divide
offer
fill
share
influence
sell
involve
understand
A market can be defined as all the potential customers (1)_____________ a particular need or
want. Marketing is the process of developing, pricing, distributing and promoting the goods or
services that satisfy such needs. Marketing therefore combines market research, new product
development, distribution, advertising, promotion, product improvement, and so on. According to
this definition, marketing begins and ends with the customer. Truly successful mataeting (2)
_____________ the customer so well that the product or service satisfies a need so perfectly that
the customer is desperate to buy it. The product almost (3) _____________ itself. Of course this
will only happen if the product or service is better than those of competitors.
Companies are always looking for marketing opportunities - possibilities of (4) _____________
unsatisfied needs in areas in which they are likely to enjoy a differential advantage, due to their
particular competencies. Marketing opportunities are generally isolated by market segmentation (5) _____________ a market into submarkets or segments according to customers’ requirements
or buying habits. Once a target market has been identified, a company has to decide what goods
or services to (6) _____________, always remembering the existence of competitors.
Marketers do not only identify consumer needs; they can (7) _____________ them by developing
new products. They will then have to design marketing strategies and plan marketing programmes,
and then organize, implement, and control the marketing effort. Once the basic offer, for example
a product concept, has been established, the company has to think about the marketing mix - the
set of all the various elements of a marketing programme, their integration, and the amount of
effort that a company can expend on them in order to (8) _____________ the target market. The
best-known classification of these elements is the 4P's: Product, Price, Promotion and Place.
Aspects to be considered in marketing a product include its quality, its features, style, brand name,
size, packaging, services and guarantee, while price includes consideration of things like the basic
list price, discounts, the length of the payment period, and possible credit terms. Place in a
markering mix includes such factors as distribution channels, coverage of the market, locations of
points of sale, inventory size, and so on. Promotion groups together advertising, publicity, sales
promotion, and personal selling
The next stage is to create long-term demand, perhaps by (9) _____________ particular features
of the product to satisfy changes in consumer needs or market conditions.
Marketing can also involve the attempt to influence or change consumers' needs and wants.
Companies try to do chis in order to sell their products; governments and health authorities
sometimes try to change people's habits for their own good or for the general good. In other words,
markering also (10) _____________ regulating the level, timing and character of demand.
UNIT REVIEW
1.
2.
3.
4.
What is marketing?
What are four stages of a product life cycle?
Discuss marketing strategies.
Discuss market segments.
REFERENCES
Borrington, K, Stimpson, P, 2018, Business Studies, Cambridge University Press.
Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
Mackenzie, I., 1997. Management and Marketing, Thomson.
Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
UNIT 13. ADVERTISING
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Analyze the different kinds of sales promotions

Discuss what makes a successful advertising campaign
KEY TERMS

Advertorial: A paid-for advertisement which includes editorial content; normally
identified in a print magazine with the word "Advertisement" printed as a head
across the top of the page to distinguish it from genuine (in theory unbiased)
editorial content

Advertising agency: The organization that takes care of advertising for clients.

Advertising campaign: A time-limited set of ads - campaigns may run across
different media, and for one month or ten years, but can be categorized together as
they are the execution of a central idea

Demographics: Describing an audience by age, gender, ethnicity, or location – i.e
the facts about them

Focus Groups: Small, select groups representing a target audience who are paid to
answer questions at the behest of a market research organization

Product Placement: The practice of paying for a branded product to be used by a
character in a movie – e.g James Bond driving a BMW Z3

Product Positioning: Establishing the market niche of a product - which may not
be as the brand leader - and advertising to the appropriate segment of the audience

USP: Unique Selling Proposition/Point - a highlighted benefit of a product which
makes it stand out from all rival brands.
LEAD- IN

To what extent do you think your purchases are influenced by advertising?

How many advertising messages do you think you see or hear on an average day?

How many times do you think you have to see an ad or a brand name before you remember
it?

When has advertising ever persuaded you to buy things you don't need or even things you
don't want?
READING 1: Read the text below and on the next page and decide which paragraphs
should be given the following headings:
A. Advertising spending and sales
B. How companies advertise
C. Word-of-mouth advertising and viral marketing
D. Potential drawbacks of advertising
Advertising and viral marketing
____________ Advertising informs consumers about the existence and benefits of products and
services and attempts to persuade them to buy them. Most companies use advertising agencies to
produce their advertising for them. They give the agency a statement of the objectives of the
advertising campaign, known as a brief, an overall advertising strategy concerning the message to
be communicated to the target customers, and a budget. The agency creates advertisements (often
abbreviated to adverts or ads) and develops a media plan specifying which media - newspapers,
magazines, the Internet, radio, television, cinema, posters, mail, etc. - will be used and in which
proportions.
____________ It is always difficult to know how much to spend on advertising. Increased ad
spending can increase sales, but many companies just spend a fixed percentage of current sales
revenue, or simply spend as much as their competitors (the comparative-parity method). On the
other hand, lots of creative and expensive advertising campaigns, including television
commercials that lots of people see and remember, and which win prizes awarded by the
advertising industry for the best ads, don't lead to increased sales.
____________ Advertising is widely considered to be essential for launching new consumer
products. Combined with sales promotions such as free samples, price reductions and
competitions, advertising may generate the initial trial of a new product. But traditional advertising
is expensive, it doesn't always reach the target customers, and it isn't always welcome if it does
reach them. People might choose to look at posters in the street or on public transport (and virtual
ones in computer and video games) or look at the ads in newspapers and magazines, but many
other ads interrupt them when they're trying to do something else, like read a web page, listen to
the radio, or watch a TV programme or a film.
____________ This is why the best form of advertising has always been word-of-mouth
advertising: people telling their friends about good products and services. For example, at the end
of the last century, more and more people were saying to their friends Have you used Google? It's
great. Today, word-of-mouth has developed into viral marketing: companies succeed in getting
people to spread commercial messages, like a virus, via peer-to-peer (P2P) networks on the
Internet. The classic example is Hotmail, which added a little advertisement for itself at the bottom
of every email sent using a Hotmail address. In the mid-1990s, the number of users increased from
500,000 to 12 million within a year. More and more companies are trying new strategies like
setting up blogs or online forums, commenting on other people's blogs and social networking
websites, making podcasts, and putting videos on YouTube, and hoping that people will use the
'Share' function to send a link to all their contacts. Viral marketing allows companies to inform
and persuade, and create a buzz', so that an idea spreads very quickly, at very little cost.
Comprehension: Read the text again and answer these questions.
1. What are the two functions of advertising?
2. What is the role of advertising agencies?
3. What three different methods of determining advertising spending are mentioned?
4. What does the text describe as the disadvantages of traditional advertising?
5. What ways of using the Internet to advertise are mentioned?
Vocabulary: Find the words in the text that mean the following:
1. companies that design advertising for clients
2. the advertising of a particular product or service during a particular period of time
3. the statement of objectives that a client works out with an advertising agency
4. a defined set of customers whose needs a company plans to satisfy
5. the amount of money a company plans to spend in developing its advertising and buying media
time or space
6. the choice of where to advertise in order to reach the right people
7. choosing to spend the same amount on advertising as one's competitors
8. a small amount of a product given to customers to encourage them to try it
9. free advertising, when satisfied customers recommend products to their friends
10. trying to get consumers to forward an online marketing message to other people
READING 2:
A. Read the article and choose the best headline.
a) Honda predicts record sales as advert breaks new ground
b) Honda skydivers push limits of TV adverts
c) Viewers tune out of normal TV advertising; Honda responds
A new kind of campaign
In a new definition of a publicity stunt. Channel 4 and Honda have turned to a team of skydivers
to tackle the problem of viewers tuning out of traditional television advertising.
On Thursday night, the broadcaster was due to devote an entire 3 minute 20-second break in the
middle of Come Dine With Me, its dinner party programme, to a live skydiving jump in which 19
stuntmen spelt out the carmaker's brand name. Described as the first live advertisement in modern
times, the campaign is the latest attempt by advertisers and broadcasters to find alternatives to the
30-second spot.
The development of digital video recorders such as Sky+ and Tivo, which allows ads to be
skipped, has forced advertising agencies and channels' sales teams to collaborate on more
innovative attempts to keep the viewer's attention.
“We wanted to create something unmissable,” said Andy Barnes, the broadcaster's Sales Director.
"This concept breaks the boundaries of TV advertising,” he added, highlighting a Channel 4
campaign called 'innovating the break'.
The campaign follows initiatives such as LG's 'Scarlet' campaign, in which the television
manufacturer ran advertisements appearing to trail a glamorous new television show. which turned
out to be a promotion for the design features of its “hot new series” of screens.
Thursday night’s live advertisement, while designed to demonstrate the power of television
advertising, was backed up by a complex multimedia and public-relations campaign.
The campaign's developers- including Channel 4's in-house creative team, Wieden + Kennedy,
Starcom, Collective and Hicklin Slade & Partners spent more than a month pushing the Honda
slogan of “difficult is worth doing” before Thursday night's slot.
A poster campaign, a series of television “teaser” advertisements and a website have been backed
up by digital advertising and press coverage. All are building up to a traditional 30-second
advertising campaign, starting on June I, said Ian Armstrong, Marketing Manager of Honda UK.
“The 30-second ad is alive and well,” Mr Barnes said. pointing to data released this week which
showed that commercial television had enjoyed its best April in five years.
For Honda, however, the elements surrounding the core 30-second campaign are designed to
generate the intangible buzz of word-of-mouth advertising, Mr Barnes added.
Thursday night’s skydive would almost certainly go on YouTube, Mr Amstrong predicted.
“Commercially, that's a fantastic result, as it means our marketing investment becomes more
efficient because consumers are doing our marketing for us.”
B. Read the article again and answer the questions.
1. Why did Honda need a new publicity stunt with skydivers?
2. Why was the Honda advert unique?
3. Why are Sky+ and Tivo a problem for advertisers?
4. What happened in the Honda advert?
5. What happened in LG's 'Scarlet' campaign?
6. What did the Honda campaign's developers do?
7. What different types of advertising did Honda use?
CASE STUDY 1: Focus Advertising
Background
Focus, a large advertising agency based in Paris, has a reputation for creating imaginative and
effective campaigns. At present, Focus is competing for several contracts. It has been asked to
present ideas for advertising campaigns to the management of the companies concerned. Concepts
are required for the following advertising campaigns.
A chain of eight restaurants in your country

The restaurants are in prime locations.

Low-fat and vegetarian dishes served in a clean, simply furnished, non-smoking
environment.

Reasonably priced, but not attracting enough customers.

Target consumer: health-conscious people of all ages.

Aim: A creative campaign to improve sales.
A perfume

An upmarket perfume.

Produced by a well-known fashion house.

Will be endorsed by a famous personality.

Target consumer: aged 25-40 who enjoy luxury and sophistication.

Aim: Launch the perfume in an English-speaking country.
A sports car

A high-priced, hand-finished model with a classic design.

Originally popular in the 1950s and 60s.

Available in both coupé and soft-top versions.

Target consumer: high-income executives with a sense of fun and style.

Aim: An international press and TV campaign.
You are a member of an advertising team at Focus. Prepare an advertising campaign for
one of the products or services, Use the Key questions below to help you.
KEY QUESTIONS (ADVERTISING TEAM)

What is the campaign's key message?

What special features does the product or service have?

What are its USPs (Unique Selling Points)?

Who is your target audience?

What media will you use? Several, or just one or two?
If you use:
an advertisement - write the text and do rough artwork.
a TV commercial - use a storyboard to illustrate your idea.
a radio spot - write the script, including sound effects and music.
other media - indicate what pictures, text, slogans, etc., will be used.

What special promotions will you use at the start of the campaign?
CASE STUDY 2
A. Tribes Travel
Core business: fair trade, ecotourism and responsible travel

We use a Fairtrade travel mark for all our eco-tourism. This involves: paying people a fair
wage for the services they provide, making sure these people aren't exploited, and ensuring
our tourism (and money generated from this) has a positive effect on local people and the
environment.

We promote learning about each other's cultures through local guides and involve local
people in the trips.

Our tourist groups are small to ensure minimum impact on the wildlife, environment and
local communities. We have an affiliated charity which supports poverty reduction,
education, cultural preservation and conservation projects within areas affected by tourism.
B. Ben & Jerry's Ice Cream
Core business: selling ice cream
The company’s mission is to inform the public about and assist in ethical and environmental
matters.
Our projects are

the Climate Change College (being run in many countries) - to inform about changing
climate

UK: working with the Fairtrade Foundation to buy sugar from Paraguay and vanilla from
India for vanilla ice cream

global warming project: plant in the Netherlands uses renewable energy for manufacturing
(wind, sun, water, biomass); factories in Vermont have invested in wind energy and plan
to reduce C0 emissions by 10% in the next three years

buying 'climate tickets' to fly our businesspeople to counteract the effect of flying on the
environment.
Discussion
1. Who are the likely target customers for each of the products? What kinds of things matter to
these customers?
2. How do the companies' activities promote their ethical position?
VOCABULARY
EXERCISE 1. Complete the sentences with the best word.
1. If a celebrity ________ a product, they say how good it is in advertisements.
a) persuades
b) launches
c) endorses
2. Billboards, those large signs used for advertising, are often called “________” in British
English.
a) leaflets
b) slogans
c) hoardings
3. Manufacturers of toiletries and cosmetics frequently offer free ________ for customers to try
out their new products.
a) samples
b) commercials
c) posters
4. Advertising done at the place where a product is sold is called “________ advertising”.
a) public
b) point-of-sale
c) eye-catching
5. ________ of sports or arts events can be a powerful method of advertising.
a) Research
b) Endorsement
c) Sponsorship
6. If you hear about a new product from a friend or relative, this is called “________
advertising”.
a) word-for-word
b) mouth-to-mouth
c) word-of-mouth
7. Outdoor advertising is growing rapidly because the cost of TV ________ has risen
dramatically.
a) commercials
b) publicity
c) research
EXERCISE 2. Select the correct alternatives to complete the text.
Advertising informs consumers about the existence and benefits of products and services and
attempts to persuade them to buy them. The best form of advertising is free (1) ____________
advertising, which occurs when satisfied customers recommend products or services to their
friends, but very few companies rely on this alone.
Large companies could easily set up their own advertising departments, but they tend to hire the
services of a/an (2) ____________. A contract to produce advertisements for a specific company,
product, or service is known as a/an (3) ____________. The client company generally decides on
its advertising (4) ____________ the amount of money it plans to spend in developing its
advertising and buying media time or space. It also provides a (5) ____________, or a statement
of the objectives of the advertising, as well as an overall advertising strategy concerning what (6)
____________ is to be communicated. The choice of how and where to advertise (newspapers and
magazine ads, radio and television commercials, cinema ads, posters on hoardings (GB) or
billboards (US), point-of-purchase displays in stores, mailings of leaflets, brochures or booklets,
and so on), and in what proportions, is called a (7) ____________. The set of customers whose
needs a company plans to satisfy, and therefore to expose to an advertisement are known as the
(8) ____________ market. The advertising of a particular product or service during a particular
period of time is called an advertising (9) ____________.
Favourable mentions of a company's products or services, in any medium read, viewed or heard
by a company's customers or potential customers, that are not paid for, are called (10)
____________.
1. a. mouth-to-mouth
b. mouth-to-ear
c. word-of-mouth
2. a. advertising agency
b. advertising company
c. public relations company
3. a. account
b. arrangement
c. deal
4. a. campaign
b. budget
c. effort
5. a. brief
b. dossier
c. message
6. a. facts
b. message
c. opinions
7. a. medium plan
b. medias plan
c. media plan
8. a. aimed
b. segmented
c. target
9. a. campaign
b. mix
c. plan
10. a. promotions
b. publicity
c. public relations
EXERCISE 3. Match the terms on the left with the definitions on the right
1. brand-switcher
2. brand image
3. brand loyalty
4. free sample
5. industrial buyer
6. initial trial
7. loss leader
a. a certificate offering consumers a price reduction on a
particular product
b. a consumer who shows no loyalty to a particular brand, but
changes among competing products
c. a popular product sold with no profit, in order to attract
customers to a store
d. a small amount of a new product given to consumers to
encourage them to try it
8. price-conscious (adjective)
9. purchasing cycle
e. someone who purchases goods or services that will be used
in the production or supply of other goods or services
10. redeemable coupon
f. strongly influenced by the price when goods or services
g. the average length of time between a consumer's repeat
purchases of the same product
h. the commitment of consumers to a particular brand
i. the first time a consumer buys a product to see what it's like
j. the public's beliefs and perceptions about particular product
UNIT REVIEW
1. What do you think makes an advertisement memorable: humour? originality? the use of
famous actors or personalities? endless repetition? nudity? other elements?
2. Do you find the advertisements on television generally: informative? persuasive? amusing?
well made? artistic? worth watching? an annoying interruption to the programmes? sometimes
better than the programmes?
3. Give examples of ads that you have enjoyed.
4. Give examples of ads that have persuaded you to buy the product.
5. Have you ever passed on advertising material by email or discussed products in blogs or
online forums, thereby helping advertise an organization's products or services?
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Stimpson, P., & Farquharson, A, 2021, Business for Cambridge International AS&A level,
Cambridge University Press.
3. Mackenzie, I., 1997. Management and Marketing, Thomson.
4. Cotton, D., Falvey, D., Kent, S., 2016, Market Leader Intermediate, Pearson.
5. Duckworth, M., Turner, R., 2008, Business Result, Oxford University Press.
UNIT 14. BANKING
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand banking products and services and different types of banks

Discuss the subprime crisis and microfinance
KEY TERMS

deposit - to place money in a bank; or money placed in a bank

liquidity - available cash, and how easily other assets can be turned into cash

collateral- anything that acts as a security or guarantee for a loan

A mortgage - a type of loan used to purchase or maintain a home, land, or other
types of real estate. The borrower agrees to pay the lender over time, typically in a
series of regular payments that are divided into principal and interest. The property
then serves as collateral to secure the loan.

Overdraft- Something that occurs when you make a purchase with your debit card
or write a check for an amount that exceeds your checking account’s available
balance. Many bank accounts offer overdraft protection to help avoid overdraft
fees. Some banks don’t charge overdraft fees at all.

A current account - an account at a bank against which checks can be drawn by
the account depositor; a checking account.

A savings account - a deposit account that generally earns higher interest than an
interest-bearing checking account. Savings accounts limit the number of certain
types of transfers or withdrawals you can make from the account each monthly
statement cycle.

A deposit account - a bank account maintained by a financial institution in which
a customer can deposit and withdraw money.

Solvency- When banks have enough money to cover potential losses. Banks are
expected to maintain a sufficient level of capital to remain solvent and avoid
failure. The FDIC and other federal regulators work with banks to maintain
standards for solvency.

Maturity date: This is the date of expiration for the contractual obligation of a
financial instrument. For example, certificates of deposit have a maturity date that
depends on the length of the CD term. When the CD matures, you have the option
to withdraw the money. Some banks and credit unions also allow you to roll it into
a new CD or enable the CD to renew automatically.
LEAD- IN
Which of the following banking products or services do you find the most useful or necessary?
- a current account (BrE) or checking account
(AmE)
- buying or selling foreign currency for
travelling (BrE) or travelling (AmE)
- a savings or deposit account (BrE) or time
or notice account (AmE)
- a mortgage (a loan to buy property (BrE) or
real estate (AmE)
- cashpoints (BrE) or ATMs (Automated
Teller Machines, AmE)
- a chequebook (BrE) or checkbook (AmE)
- an overdraft (the possibility to borrow
money by spending more than you have in
your bank account)
- a credit card
- investment advice
- a debit card
- Internet banking (payments, transfers)
- a loan
- telephone banking (payments, transfers)
What other banking services do businesses use?
READING 1:
The Goldsmith bankers were an early example of a financial intermediary.
A financial intermediary is an institution that specializes in bringing lenders and borrowers
together.
A commercial bank borrows money from the public, creating them with a deposit. The deposit is
a liability of the bank. It is money owed to depositors. In turn the banks lend money to firms,
households, or governments wishing to borrow.
Banks are not the only financial intermediaries. Insurance companies, pension funds, and building
societies also take in money in order to relend it. The crucial feature of banks is that some of their
liabilities are used as a means of payment, and are therefore part of the money stock.
Commercial banks are financial intermediaries with a government license to make loans and issue
deposits, including deposits against which cheques can be written. We begin by looking at the
present-day UK banking system. Although the details vary from country to country, the general
principle is much the same everywhere.
In the UK, the commercial banking system comprises about 600 registered banks, the National
Giro-bank operating through post offices, and about a dozen trustee savings banks. Much the most
important single group is the London clearing banks. The clearing banks are so named because
they have a central clearing house for handling payments by cheque.
A clearing system is a set of arrangements in which debts between banks are settled by adding up
all the transactions in a given period and paying only the net amounts needed to balance inter–
bank accounts.
Suppose you bank with Barclays but visit a supermarket that banks with Lloyds. To pay for your
shopping you write a cheque against your deposit at Barclays. The supermarket pays this cheque
into its account at Lloyds. In turn, Lloyds presents the cheque to Barclays which will credit
Lloyds’ account at Barclays and debit your account at Barclays by an equivalent amount. Because
you purchased goods from a supermarket using a different bank, a transfer of funds between the
two banks is required. Crediting or debiting one bank’s account at another bank is the simplest
way to achieve this.
However, on the same day someone else, call her Joan Groover, is probably writing a cheque on
a Lloyd’s deposit account to pay for some stereo equipment from a shop banking with Barclays.
The stereo shop pays the cheque into its Barclay’s account, increasing its deposit. Barclays then
pay the cheque into its account at Lloyds where Ms Groover’s account is simultaneously debited.
Now the transfer flows from Lloyds to Barclays.
Although in both cases the cheque writer’s account is debited and the cheque recipient’s account
is credited, it does not make sense for the two banks to make two separate inter-bank transactions
between themselves. The clearing system calculates the net flows between the member clearing
banks and these are the settlements that they make between themselves. Thus, the system of
clearing cheques represents another way society reduces the costs of making transactions.
Read the passage and decide if the following statements are T (True), F (False), or NG (Not
given):
1. The role of a financial intermediary serves as a bridge to link lenders and borrowers
2. Banks are the biggest financial intermediaries.
3. Commercial banks are not allowed to lend and issue deposits.
4. Besides banks, there are other types of financial intermediaries, among which are insurance
companies.
5. In a clearing system, debts between banks are settled by adding up all the transactions.
6. Settlements made between member clearing banks are calculated by the clearing system.
7. Society can benefit from the system of clearing cheques as it makes the costs of transactions
lower.
8. Because you used a separate bank to pay for your grocery purchases, a money transfer between
the two banks is necessary.
Fill in the blanks with suitable words
Lender of last resort, Fixed, Transfer, Bankruptcy, Target, Stability, Cheques
1. A ________________ of funds between the two banks is required if you purchased goods
from a supermarket using a different bank.
2. A lot of small companies are in danger of ________________ because of the worse economic
situation in the country and in the world.
3. For processing ________________ as payment, the clearing banks have a central clearing
house.
4. When prices are ________________ by the government, it means that the market mechanism
is not working.
5. The government sets an inflation ________________ and the Bank’s Monetary Policy
Committee tries to meet it by raising or lowering the official interest rate when necessary.
6. The Bank sometimes acts as ________________ to financial institutions in difficulty, to
prevent panic or a loss of confidence spreading through the whole financial system.
7. In addition, the ESCB contributes to the smooth conduct of policies relating to the supervision
of credit institutions and the ________________ of the financial system.
READING 2: Insert the names of the following types of financial institutions in the spaces
in the text.
Banks and financial institutions
commercial banks
hedge funds
investment banks
Islamic banks
non-bank financial intermediaries
stockbrokers
private banks
Retail banks or (1) _______________ (often called High Street banks in Britain) receive deposits
from and make loans to, individuals and small companies. (2) _______________ work with big
companies, giving financial advice, raising capital by issuing stocks or shares and bonds, arranging
mergers and takeover bids, and so on. They also generally offer stockbroking and portfolio
management services to rich corporate and individual clients. Wealthy individuals can also use (3)
_______________ which provide them with banking and investment services, and (4)
_______________, which are private investment funds for wealthy investors (both individuals
and institutions) that use a wider variety of (risky) investing strategies than traditional investment
funds, in order to achieve higher returns.
In the USA, where many banks went bankrupt following the Wall Street Crash in 1929, a law was
passed in 1934 (the Glass-Steagall Act) that separated commercial banks and investment banks or
stockbroking firms. For the rest of the 20th century, there were regulations in the US, Britain and
Japan that prevented commercial banks from doing investment banking business. In other
countries, including Germany and Switzerland, large banks did all kinds of financial business. But
starting in the 1980s, many rules were ended by financial deregulation, and Glass- Steagall was
repealed in 1999. Large banks became international conglomerates offering a complete range of
financial services that were previously provided by banks, (5) _______________ and insurance
companies.
(6) _______________, in Islamic countries and major financial centres, offer interest-free
banking. They do not pay interest to depositors or charge interest to borrowers, but invest in
companies and share the profits (or losses) with their depositors.
Some car manufacturers, food retailers and department stores now offer products like personal
loans, credit cards and insurance. Technically these are not banks but (7) _______________.
Vocabulary: Find the words or expressions in the text which mean the following:
1. money placed in a bank
2. a sum of money borrowed from a bank
3 the money invested in a business
4. certificates representing part-ownership of a company
5. certificates of debt issued by governments or companies to raise money
6. when one company combines with another one
7. when one company offers to buy or acquire another one
8. buying and selling stocks or shares for clients
9. all the investments owned by an individual or organization
10. the profits made on investments
11. unable to pay debts or continue to do business
12. the ending or relaxing of legal restrictions
13. a group of companies, operating in different fields, which have joined together
14. the price paid for borrowing money, paid to the lenders
CASE STUDY 1:
Jill and Zuki are two friends who want to open a new beauty salon. They are both skilled
hairdressers, but they have not owned their own business before. They are applying for a large
bank loan to help with 'set-up' costs.
1. What 'set-up' costs will need to be paid before the business starts to trade? State two examples.
2. State three questions that the bank manager is likely to ask Jill and Zuki before giving the loan.
Briefly explain why each question is important.
3. Jill and Zuki decide to draw up a business plan. Will this convince the bank manager to give a
loan? Explain your answer.
CASE STUDY 2
The directors of a public limited company are planning to double the size of the existing factory.
This will cost $5m. The company already has substantial long-term loans. The directors still
control just over 50% of the shares between them. They are considering four possible sources of
finance: new share issue, long-term loan, overdraft, and retained profits.
Advise the directors on the most suitable method of financing this expansion. Give reasons for
your answer.
VOCABULARY
EXERCISE 1. Put the correct word in each space.
account
Coin
change
banknotes
lent
earn
Currency
salary
spend
win
note
wages
waste
borrowed
Sum
back
1. In the USA, "quarters" (25 cents) and "dimes" (10 cents) are types of _______________.
2. In the United Kingdom, "a tenner" means a ten pound _______________.
3. The US dollar, the Yen and the Euro are types of _______________.
4. Hundred dollar bills and twenty-pound notes are _______________.
5. 2,000,000 Swiss francs is a large ______________ of money.
6. I need to ______________ Some Euros into Australian dollars.
7. My friend ________________ a hundred pounds from me.
8. I ________________ a hundred pounds to my friend. When she can, she'll pay me
_____________.
9. I buy a lottery ticket every week, but I never ______________.
10. Most dentists ____________ at least f30,000 a year.
11. _____________ are paid to employees weekly. _____________ are paid to employees
monthly.
12. In business, you have to ____________ money to make money.
13. A: Do you have a bank ____________.
B: Yes. I bank with the Bank of Scotland. anything.
14. In my opinion, eating in expensive restaurants is a ______________ of money.
EXERCISE 2. Choose the correct word.
1. Spain now uses the euro. Pesetas are no longer ____________.
a. good money
b. legal money
c. legal tender
2. I bought a TV which doesn't work. I'll take it back to the shop to get ____________.
a. my money returned
b. a refund
c. a repayment
3. In a shop, to get a refund, you usually have to show the ____________.
a. receipt
b. recipe
c. payment ticket
4. I'm paying for my new car in 36 monthly ____________.
a. instalments
b. pieces
c. parts
5. l earn a lot of money, but I have a lot of ____________.
a. payouts
b. expenses
c. paying
6. Famous paintings are usually sold by____________.
a. bid
b. highest price
c. auction
7. In an auction, the item is sold to the person who makes the highest ____________.
a. bid
b. price
c. offer
8. In Japan, the US dollar is ____________.
a. foreign money
b. strange money
c. a foreign currency
9. In Britain, it's not usual to discuss your personal ____________
a. money
b. finances
c. money arrangements
10. You can ____________ a house and ____________ a car.
a. hire / rent
b. hire / hire
c. rent /rent or hire
11. Here's the fifty dollars I ____________
a. owe you
b. pay you back
c. must return
12. The best things in life are ____________
a. free
b. not for sale
EXERCISE 3. Complete the text using these words:
c. not bought and sold
accounts
current account
lend
overdraft
return
bank loan
debt
liabilities
salary
transfer
cheque
depositors
liquidity
spread
wages
customers’
deposits
optimize
standing order
withdraw
Commercial banks are businesses that trade in money. They receive and hold (1)
____________, pay money according to (2) ____________ instructions, (3) ____________
money, etc.
There are still many people in Britain who do not have a bank (4) ____________
Traditionally, factory workers were paid (5) ____________ in cash on Fridays. Non-manual
workers, however, usually receive a monthly (6) ____________ in the form of a cheque or
a (7) ____________ paid directly into their bank account.
A (8) ____________ usually pays little or no interest, but allows the holder to (9)
____________ his or her cash with no restrictions. Deposit accounts pay interest. They do
not usually provide (10) ____________ facilities, and notice is often required to withdraw
money. (11) ____________ and direct debits are ways of paying regular bills at regular
intervals.
Banks offer both loans and overdrafts. A (12) ____________ is a fixed sum of money, lent
for a fixed period, on which interest is paid, bank usually require some form of security or
guarantee before lending. An (13) ____________ is an arrangement by which a customer
can overdraw an account, i.e. run up a debt to an agreed limit; interest on the (14)
____________ is calculated daily.
Banks make a profit from the (15) ____________ or differential between the interest rates
they pay on deposits and those they charge on loans. They are also able to lend more money
than they receive in deposits because (16) ____________ rarely withdraw all their money
at the same time. In order to (17) ____________ the return on their assets (loans), bankers
have to find a balance between yield and risk, and (18) ____________ and different
maturities, and match these with their (19) ____________ (deposits). The maturity of a loan
is how long it will last; the yield of the loan is its annual (20) ____________ – how much
money it pays – expressed as a percentage.
UNIT REVIEW
1. Which of the banking facilities do you use?
2. What services do commercial banks offer in your country?
3. What changes have there been in personal banking recently?\
4. Give the definition of a commercial bank.
5. Give the definition of an investment bank.
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Stimpson, P., & Farquharson, A, 2021, Business for Cambridge International AS&A level,
Cambridge University Press.
3. Mackenzie, I., 1997. Management and Marketing, Thomson.
4. Marks, J., 2007, Check your English vocabulary for banking & finance, A & C Black
Publishers Ltd.
5. Stimpson, P., Borrington, K., 2005, IGCSE Study Guide for Business Studies, Cambridge
University Press.
UNIT 19. ACCOUNTING AND FINANCIAL STATEMENTS
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand different types of accounting and financial statements

Discuss a company’s financial results
KEY TERMS

Cost accounting - calculating all the expenses involved in producing something,
including materials, labour, and all other expenses

Tax accounting - calculating how much an individual or a company will have to
pay to the local and national governments (and trying to reduce this to a minimum)

Auditing - inspecting and reporting on accounts and financial records

Accounting - preparing financial statements showing income and expenditure,
assets and liabilities

Managerial or management accounting - providing information that will allow a
business to make decisions, plan future operations and develop business strategies

“creative accounting” - using all available accounting procedures and tricks to
disguise the true financial position of a company

Bookkeeping - writing down the details of transactions (debits and credits)

Cash flow statement - a statement giving details of money coming into and leaving
the business, divided into day-to-day operations, investing and financing

Income statement (or Statement of income, Profit and loss statement, or Profit
and loss account) - a statement showing the difference between the revenues and
expenses of a period

Balance sheet (or Statement of financial position) - a statement showing the value
of a business's assets, its liabilities, and its capital or shareholders' equity (money the
business has that belongs to its owners)
LEAD- IN

What is accounting?

What skills do you think accountants need?

Do you think you have these skills? (What are your assets and liabilities?)

if you have not yet chosen a career, could it be accountancy?
READING 1: Google Inc. Balance sheet
Look at the balance sheet, and answer these questions.
1. Which lines on the balance sheet do the definitions below it refer to? (Two have been done as
examples.)
2. Which two figures have to be the same (to balance), by definition?
3. How much money had the company already paid in advance for goods and services, on the date
of the 2008 balance sheet?
4. At the 2008 balance sheet date, which is greater, the amount of capital the shareholders have
paid into the company, or the amount of profit that has not been spent?
5. At the 2008 balance sheet date, which total is higher - the money Google currently owes or the
money that it is owed?
a. all the money belonging to the company's owners
b. assets whose value can only be turned into cash with difficulty (e.g. reputation, patents,
trademarks, etc.)
c. capital that shareholders have contributed to the company above the nominal or par value of
the stock
d. expenses such as wages, taxes and interest that have not yet been paid at the date of the
balance sheet
e. money owed by Customers for goods or services purchased on credit
f. money owed to suppliers for purchases made on credit
g. money paid in advance for goods and services
h. profits that have not been distributed to shareholders
i. tangible assets such as offices, machines, etc.
j. the difference between the purchase price of acquired companies and their net tangible assets
k. the total amount of money owed that the company will have to pay out
READING 2: Read HSBC's 2007 and 2008 income statements and decide whether these
statements are true (T) or false (F). Correct the false ones. Indicate the line(s) in the
statement that gives you the answer.
1. In 2008, the total operating income increased slightly from the previous year.
2. Interest expenses fell by a larger amount than the fall in interest from savers' accounts, so the
net figure actually went up on the previous year.
3. Trading income rose significantly from the previous year.
4. Employee salaries and bonuses are deducted from the operating profit.
5. The banking group sold off some German regional banks in 2008.
6. The bank's tax bill in 2008 was lower than in the previous year.
7. Earnings per share were significantly reduced from the previous year.
Vocabulary: Match these words and phrases from the income statement (1-6) with their
meanings (a-f).
1. operating income
2. depreciation
3. goodwill
4. dividend
5. operating profit
6. operating expense
a) A part of the profits of the company for a particular period of
time that is paid to shareholders for each share that they own
b) Money earned from a company's normal activities, not
including exceptional items
c) The value that a company has in addition to its assets, such as
a good reputation with its customers
d) Profit relating to a company's normal activities of providing
goods or services, before tax is deducted
e) Costs relating to a company's normal activities of providing
goods or services
f) The gradual loss in value of a fixed asset that wears out over a
number of years or needs to be replaced regularly
CASE STUDY 1:
Table 1: Financial information about City Café Ltd ($000)
2004
2005
Sales revenue
200
250
Net profit
25
15
Current liabilities
20
20
Current assets
50
20
Capital employed
300
300
a) State and explain two ways in which the owners of City Café Ltd might use the net profits of
the business.
b) Using figures from Table 1 and a ratio, analyze the liquidity of the company.
c) Using the figures in Table 1 and ratio analysis, evaluate the performance of City Café Ltd
between 2004 and 2005.
CASE STUDY 2
The 2005 accounts for Titan Tankers plc have just been published. Groups of stakeholders
in the business have been waiting to analyze these.
a) identify two of the main accounts that will appear in these published accounts.
b) Explain what one of these accounts contains.
c) Table 1 contains a list of stakeholders in Titan Tankers plc who want to use and analyze the
company accounts. Copy the table and fill in the "Useful for' column with one of the options
below:
Table 1: The users of published accounts
Stakeholders:
Useful for:
Shareholders
Trade union
Government
Creditors
Options:
i)
ii)
iii)
iv)
seeing what the level of dividends will be this year
analyzing whether the business has sufficient liquidity
seeing whether the business plans to expand or reduce the labour force
assessing whether the business seems to be making excess profits.
VOCABULARY
EXERCISE 1. Which basic accounting words are defined below?
1. all the money received from business activities during a given period
A. assets
B. income
C. transactions
2. all the money that a business spends on goods or services during a given period
A. debts
B. expenditure
C. liabilities
3. a financial operating plan showing expected income and expenditure
A. account
B. budget
C. financial statement
4. anything owned by a business - cash, buildings, machines, equipment, etc.
A. asset
B. income
C. revenue
5. all the money that a company will have to pay to someone else in the future, including debts,
taxes and interest payments
A. debts
B. expenditure
C. liabilities
6. an entry in an account, recording a payment made
A. credit
B. debt
C. debit
7. an entry in an account, recording a payment received
A. credit
B. debit
C. income
8. adjective describing something without a material existence, which you can't touch
A. current
B. intangible
C. tangible
9. adjective describing a liability which has been incurred but not yet invoiced to the company
A. accrued
B. deferred
C. receivable
10. delayed or postponed until a later time
A. deferred
B. payable
C. retained
EXERCISE 2. Here are four accountancy specialisms. Match these words and phrases
from the article (1-4) with their meanings (a-d).
1. auditing
2. tax accounting
3. insolvency
4. forensic accounting
a) when a company's financial records are officially checked
because the illegal activity is suspected
b) an accountant working in this area acts for a person or
company that is no longer able to pay its debts or a company
whose liabilities exceed its assets
c) preparing a person's or company's financial information in
order to calculate the proportion of their profit that they must
pay to their government
d) checking an organization's activities or performance or
examining a person's or organization's accounts to make sure
that they are true and honest
EXERCISE 3. Match the terms with their definitions.
1. Revenue
a. stands for Earnings Before Interest, Tax, Depreciation and
2. Cost of goods sold
Amortization.
b. may also include 'marketable securities' (= shares intended
for disposal within one year).
c. are those where an expense has been incurred, but the money
is not yet paid.
3. EBITDA
4. Operating expenses
5. Retained profit
6. Intangible assets
7. Inventory
8. Current assets
9. Fixed assets
10. Accrued items
d. income / turnover / sales / the top line
e. (= direct costs) includes manufacturing costs, salaries of
manual (= blue-collar) workers etc.
f. the value of raw materials & stock.
g. may also include long-term financial investments.
h. include patents, trademarks & 'goodwill' (reputation,
contacts and expertise of companies that have been bought).
i. is transferred to the Balance Sheet, where it joins the
amounts from previous years.
j. (= indirect costs/overhead) include salaries of sales and
office staff, marketing costs, utility bills etc.
UNIT REVIEW
1.
2.
3.
4.
What is management’s responsibility for the financial statements?
What are the limitations of the balance sheet?
Why is the cash flow statement useful to the users of the financial statements?
What is financial statement articulation?
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Stimpson, P., Borrington, K., 2005, IGCSE Study Guide for Business Studies, Cambridge
University Press.
3. Helm, S., 2010, Market Leader- Accounting and Finance, Pearson.
UNIT 23. THE BUSINESS CYCLE
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand the causes of the business cycle

Discuss whether governments can or should influence the business cycle
KEY TERMS

Business cycle model: a model showing the increases and decreases in a nation’s
real GDP over time; this model typically demonstrates an increase in real GDP over
the long run, combined with short-run fluctuations in output.

Expansion: the phase of the business cycle during which output is increasing

Recession: the phase of the business cycle during which output is falling

Depression: a deep and prolonged recession

Peak: the turning point in the business cycle between an expansion and a
contraction; during a peak in the business cycle, output has stopped increasing and
begins to decrease.

Trough: the turning point in the business cycle between a recession and an
expansion; during a trough in the business cycle, output that had been falling during
the recession stage of the business cycle bottoms out and begins to increase again.

Recovery: when GDP begins to increase following a contraction and a trough in the
business cycle; an economy is considered in recovery until real GDP returns to its
long-run potential level.

Potential output: the level of output an economy can achieve when it is producing
at full employment; when an economy is producing at its potential output, it
experiences only its natural rate of unemployment, no more and no less.

Growth trend: the straight line in the business cycle model, which is usually
upward-sloping and shows the long-run pattern of change in real GDP over time

Positive output gap: the difference between actual output and potential output when
an economy is producing more than full employment output; when there is a positive
output gap, the rate of unemployment is less than the natural rate of unemployment
and an economy is operating outside of its PPC.

Negative output gap: the difference between actual output and potential output
when an economy is producing less than full employment output; when there is a
negative output gap, the rate of unemployment is greater than the natural rate of
unemployment and an economy is operating inside its PPC.
LEAD- IN

How well is the global economy doing at the moment?

How well is the economy doing in your country?

When was the last significant change to the economy, and what was the most probable
cause?

When do you expect the economic situation to change, and why?

What are the main causes of the alternate periods of growth and contraction of the
business cycle?
READING 1:
Vocabulary: Before reading the text, match up the words and definitions below.
The business cycle:
balance of payments
gross domestic product (GDP)
consumption
demand
supply
upturn
save
expectations
downturn
1. a decline in economic activity
2. an increase in economic activity
3. beliefs about what will happen in the future
4. purchasing and using goods and services
5. the difference between the funds a country receives and those it pays for all international
transactions
6. the total market value of all the goods and services produced in a country during a given period
7. the willingness and ability of consumers to purchase goods and services
8. the willingness and ability of businesses to offer goods or services for sale
9. to put money aside to spend in the future
Reading text: Read the text and fill in the gaps with words from the exercise above.
What causes the business cycle?
The business cycle or trade cycle is a permanent feature of market economies: (1)
_______________ alternately grows and contracts. During an (2) _______________ parts of the
economy expand to the point where they are working at full capacity, so that production,
employment, business investments, profits, prices, and interest rates all tend to rise. A long period
of expansion is called a boom. But at some point, there will inevitably be a (3) _______________.
The economy will hit a peak and start to contract again, the demand for goods and services will
decline and the economy will begin to work at below its potential. Investment, output,
employment, profits, commodity and share prices, and interest rates will generally fall. A
downturn that lasts more than six months is called a recession; one that lasts for a year or two is
generally called depression or a slump. Eventually, the economy will bottom out, and there will
be a recovery or an upturn.
The most probable cause of the business cycle is people's spending or (4) _______________
decisions, which in turn are based on (5) _______________. A country's output, investment,
unemployment, (6) _______________,and so on, all depend on millions of decisions by
consumers and businesses on whether to spend, borrow or (7) _______________.
When economic times are good or when people feel confident about the future, they spend and
run up debts. At a certain point, spending has to slow down and debts have to be paid. If interest
rates unexpectedly rise, a lot of people find themselves paying more than they anticipated on their
mortgage or rent, and so have to consume less. Similarly, if people are worried about the
possibility of losing their jobs in the near future, they tend to start saving money and consuming
less, which leads to a fall in (8) _______________ and consequently a fall in production and
employment. Investment is closely linked to consumption and only takes place when demand is
growing. As soon as demand stops growing, investment in new factories, machines, etc. falls,
which contributes to the downturn. But if (9) _______________ exceeds demand, prices should
fall, and encourage people to start buying again. Eventually, the economy will reach a trough or
bottom out, and there will be a recovery or an upturn.
This is the internal (or endogenous) theory of the business cycle; there are also external (or
exogenous) theories, which look for causes outside economic activity, such as scientific advances,
natural disasters, elections or political shocks, demographic changes, and so on. The economist
Joseph Schumpeter believed that the business cycle is caused by major technological inventions
(e.g. the steam engine, railways, automobiles, electricity, microchips), which lead to periods of
'creative destruction' during which radical innovations destroy established companies or
industries.
Comprehension: Complete the following sentences.
1. A downturn begins when...
2. People spend, and borrow money, when
3. People tend to spend less when
4. When interest rates rise ...
5. Companies only invest while ...
6. Creative destruction means that
READING 2:
Vocabulary: Fiscal and monetary policy
Task 1: Before reading about the government and the economy, match up the following
words and definitions.
1. equilibrium
2. deficit
3. surplus
4. fiscal policy
5. monetary policy
6. money supply
7. Keynesianism
A. an amount of money that is smaller than is needed (e.g. when
spending exceeds revenues)
B. an excess: a quantity that is larger than is needed
C. a state of balance, for example when supply is the same as demand
D. government or central bank actions concerning the rate of growth of
the money in circulation
E. government actions concerning taxation and public expenditure
F. the economic theory that government monetary and fiscal policy
should stimulate business activity and increase employment in a
recession
G. the total amount of money available in an economy at a particular
time
Task 2: Match up the words below into pairs with similar meanings.
boost
expand
decrease
depression
expenditure
production
recovery
spending
stimulate
grow
reduce
surplus
excess
output
slump
upturn
expand
exogenous
Task 3: Match up the words below into pairs with opposite meanings.
boom
peak
contract
save
demand
spend
depression
supply
endogenous
trough
Reading text: Keynesianism and monetarism
Read the following text and decide which paragraphs could be given these headings:
A. Countercyclical policies don't work until too late
B. Keynesianism returns
C. The Keynesian argument
D. The lesson of the 1930s
E. The monetarist argument
__________ The great depression of the 1930s demonstrated that, at least in the short term, the
market system does not automatically lead to full employment. John Maynard Keynes argued that
market forces could produce a durable equilibrium with high unemployment, fewer goods being
produced, fewer people employed, and reduced rates of income and investment.
The classical economic theory stated that in the long run, excess savings would cause interest rates
to fall and investment to increase again; Keynes famously riposted that “In the long run, we are
all dead”.
__________ He, therefore, recommended governmental intervention in the economy, to
counteract the business cycle. During an inflationary boom, governments could decrease their
spending or increase taxation. During a recession, on the contrary, they could increase their
expenditure, decrease taxation, or increase the money supply and reduce interest rates, so as to
boost the economy and increase output, investment, consumption and employment.
___________ In the 1950s and 1960s, monetarist economists, most notably Milton Friedman,
began to argue that Keynesian fiscal policy had negative effects in the long term. They insisted
that money is neutral, meaning that in the long run, increasing (or inflating) the money supply will
only change the price level (lead to inflation) and have no effect on output and employment. They
argued that governments should abandon the attempt to manage the level of demand in the
economy. On the contrary, they should try to make sure that there is constant and non-inflationary
growth in the money supply.
____________ Monetarists and believers in free markets argue that since governments aren't able
to foresee a coming recession any more quickly than the companies that make up the economy,
their fiscal measures usually only begin to take effect when the economy is already recovering,
and simply make the next swing in the business cycle even greater.
____________ By the beginning of the 21* century, the argument that free markets and
competition are efficient, and should be allowed to operate with a minimum of governmental
intervention, seemed to be dominant. But when the subprime crisis occurred in 2008, and financial
institutions and large automobile companies began to go bankrupt, Keynesianism suddenly came
back into fashion. Governments around the world poured huge amounts of money into the
economy. Monetarists were outnumbered but continued to argue that this would inevitably lead to
massive inflation in the future.
Comprehension: Match up the following half-sentences.
1. Keynes argued that left to itself, the free
market system
2. In classical theory, if consumption and
investment fall, excess savings should
3. Keynesians argue that during an inflationary
boom governments should
4. Keynesians argue that during an economic
downturn governments should
5. Monetarists argue that in the long run,
6. Monetarists also believe that Keynesian
fiscal measures
7. There was a revival in Keynesian policies
and government intervention
A. cause interest rates to fall and investment to
increase again.
B. decrease their spending or increase taxation
C. does not guarantee full employment.
D. in 2008, when major financial institutions
began to go bankrupt.
E. increase their spending or the money
supply.
F. increasing the money supply merely leads to
inflation.
G. only begin to take effect too late, when an
upturn is already beginning.
CASE STUDY 1:
The graph below shows a business cycle for Country Z
Which of the following most likely describes what Country Z experiences as it moves from
point A to point B? Choose 1 answer:
A. An increase in unemployment and an inward shift of its PPC
B. Rising output and a fall in cyclical unemployment
C. Rising unemployment and a movement from a point on its PPC to a point inside its PPC
D. A negative output gap and an increase in the natural rate of unemployment
E. Falling unemployment and a movement from a point inside its PPC to a point closer to its
PPC
CASE STUDY 2
Abe’s Best Cycles
Abe’s Best Cycles (ABC) produces
motorbikes in country X. The company
was set up 50 years ago. The motorbikes
are designed to meet the needs of lowincome consumers in country X. It has
been a very successful company and has
increased its output each year. The share
price of ABC has been rising and
dividends are paid each year.
ABC employs 500 skilled workers in its factory and uses capital-intensive production. 90% of all
the motorbikes are sold in country X. There are several other motorbike manufacturers in country
X but more than half of the motorbikes sold in country X are imported. The competitors of ABC
import all of their components whilst ABC imports only half of the components it needs. It buys
the rest from local suppliers.
The economy of country X has been growing rapidly after being in a recession. However, inflation
is starting to increase and become a problem. The government is considering different ways to
reduce inflation. The currency used in county X is the dollar ($), and the average exchange rate of
the $ against other currencies has been appreciating.
1. Identify the four stages of the business cycle.
2. Outline two effects on ABC of rising inflation.
3. Explain two problems for ABC caused by high levels of economic growth in country X.
4. Do you think falling unemployment will always benefit ABC? Justify your answer.
5. Outline two effects on ABC if the government of country X increases import tariffs on all
imported goods.
VOCABULARY
EXERCISE 1. Complete the text about dealing with the business cycle with the phrases in
the box.
government debt
policy-makers
labour market
new borrowing
side-effects
tax cuts
What can central bankers and government (1) __________________ do? Can they prevent a
contraction from turning into a recession? What tools are available to them? The following three
are the most important:
Interest rate adjustments
The strongest and fastest tool in a weakening economy is the Central Banks' ability to cut interest
rates. For companies and individuals with existing bank loans, repayments are reduced; for others,
(2) __________________ becomes less expensive. Most Central Banks drop rates by quarterpoints or, at crucial times, half-points. Lowering rates still takes two or three quarters to benefit
an economy, and it does also have unfortunate (3) __________________.
The negative consequences are that it weakens a nation's currency and that any growth it causes
may be inflationary.
Economic stimulus
A national government can choose to spend money - usually money it must borrow - on all sorts
of projects in order to stimulate the economy. This puts money back into people's pockets so that
they can buy goods and services to boost the economy. (4) __________________are another way
of achieving the same effect. The problem arises when these measures lead to high levels of (5)
__________________. Eventually, that debt will have to be repaid.
Regulatory reforms
A country can implement reforms to the law in order to stimulate growth. These include measures
to enhance competition, to liberalize the (6) __________________, to make it easier to start a new
business, etc.
EXERCISE 2.
2.2 Match each sector of the economy 1-10 with an industry group a-j.
1. Basic materials
a. hotels, restaurants
2. Capital goods
b. steel, chemicals
3. Commercial services
c. employment agencies, auditing
4. Consumer discretionary
d. machinery, equipment
5. Consumer staples
e. household goods, food retailing
6. Energy
f. banking, insurance
7. Financials
g. software, communications equipment
8. Technology
h. oil production, gas production
9. Transportation
i. electricity, water
10. Utilities
j. airlines, logistics
EXERCISE 3. Underline the correct words in italics. Check any unknown words in a
dictionary.
1. The consumer discretionary sector of the economy starts to recover when interest rates are high
/low, and just before the general economy picks up / turns down.
2. Investors favour the consumer staples sector at the beginning/end of the growth cycle, just as
the markets are picking up / turning down.
3. If a government or company wants to borrow money, it can issue a bond/ an obligation.
Investors receive a fixed/ variable rate of interest over a fixed period of time and then get their
original investment back at the end.
4. A rise in interest rates makes borrowing cheaper / more expensive. This cools/ stimulates the
economy.
5. Central Banks lower interest rates if they think the economy is likely to grow/ contract and will
act aggressively if they think there is a danger of a boom/ recession.
6. Stock markets tend to anticipate/ move in line with/ react to changes in the real economy.
7. Interest rates tend to bottom out before/ after both the stock markets and the real economy.
8. A rising market is called a bear/ bull market. People who think that a particular market is going
to rise in the future are described as being bullish/ bull-like on that market.
UNIT REVIEW
1. Why does unemployment rise during the recession phase of the business cycle?
2. What is the difference between a recession and a depression?
3. If a country is producing beyond its production possibilities curve, what phase of the business
cycle is it most likely experiencing?
4. During a downturn, to what extent should the government intervene in the economy, by creating
demand or jobs? How could it do these things?
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Borrington, K., Stimpson, P., 2018, Cambridge IGCSE and O Level Business Studies,
Holder Education.
3. Emmerson, P., 2009, Business Vocabulary Builder, Macmillan Publishers Limited
UNIT 24. CORPORATE SOCIAL RESPONSIBILITY
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand the responsibilities of business.

Discuss the ethics of various business practices.
KEY TERMS

ethical standard: a rule for moral behaviour in a particular area

Ethical behaviour: doing things that are morally right

Ethical lapse: temporary failure to act in the correct way

Ethical dilemma: a choice between two actions that might both be morally wrong

Ethical stance: a stated opinion about the right thing to do in a particular situation

Ethical issue: an area where moral behaviour is important

Business Ethics: Standards of business behaviour that promote human welfare and
“the good.”

Corporate Social Responsibility (CSR): A company’s commitment to improving
or enhancing community well-being through discretionary contributions of
corporate resources. There are five dimensions of CSR: Environment, Social,
Economic, Stakeholder, and Volunteerism.
LEAD- IN

What words do you associate with 'corporation'? Write down five words.

What companies/brands do you like? Why?

Do you know companies that have bad reputations? What for?

Are there products you won't buy for ethical reasons? If so, what are they?

Do you think that a company must have responsibilities to its suppliers, its customers, its
employees, the local community and society in general as well as its holders?
READING 1: Four of the views expressed in the illustration on the previous page are
referred to in the following text. Which are they?
PROFITS AND SOCIAL RESPONSIBILITY
Pure free market theorists argue that the function of a business is to make profits. Milton Friedman,
for example, argued that any corporate action inspired by “social responsibility”, rather than the
attempt to maximize profits, is “unbusinesslike”. In an article called “The social responsibility of
business is to increase its profits”, he argued that people who say that business has “responsibilities
for providing employment, eliminating discrimination, avoiding pollution”, and so on, are
“undermining the basis of a free society”. For Friedman, “only people can have responsibilities”,
and not corporations:
In a free enterprise, private-property system, a corporate executive is an employee of the
owners of the business. He has direct responsibility to his employers. That responsibility
is to conduct the business in accordance with their desires, which generally will be to make
as much money as possible, while of course conforming to the basic rules of the society,
both those embodied in law and those embodied in ethical custom.
Therefore, “to say that the corporate executive has a "social responsibility" in his capacity as a
businessman” is to say that “he is to act in some way that is not in the interest of his employers”.
Because if an executive makes 'social' expenditures he is:
spending someone else's money ... Insofar as his actions in accord with his “social
responsibility” reduce returns to stockholders, he is spending their money. Insofar as his
actions raise the price to customers, he is spending the customers’ money. Insofar as his
actions lower the wages of some employees, he is spending their money.
Furthermore, such actions are “undemocratic” as they involve corporations taking on
responsibilities that should be the government's: taxation and expenditure, and solving social
problems. If the elected government is not taking certain actions, it is because the voters did not
want it to do so. Any such action “harms the foundations of a free society” and reveals an
unfortunate “suicidal impulse” in businessmen.
Friedman does not seem to consider the possibility that stockholders might prefer to receive lower
dividends but live in a society with less pollution or less unemployment and fewer social problems.
An alternative view to the “stockholder model” exemplified by Friedman's article is the
stakeholder model. According to this approach, business managers have responsibilities to all the
groups of people with a stake in or an interest in or a claim on the firm. These will include
employees, suppliers, customers and the local community, as well as the stockholders. Proponents
of the stakeholder approach argue that all these groups should be represented on a company's board
of directors.
Comprehension questions
1. According to Friedman, why should business executives only seek to maximize profits?
2. Who are the employers of corporate executives?
3. In what negative way do 'socially responsible' actions affect stockholders, customers, and
employees?
4. According to Friedman, in what way are “socially responsible” actions by businesses
“undemocratic”?
5. According to the text, what other desires might stockholders have, apart from making as much
money as possible?
6. What is a “stakeholder”?
Vocabulary: Find words in the text that mean the following:
1. treating some people in a worse way than you treat other people
2. making something weaker
3. an economic system in which anyone can raise capital, form a business, and offer goods or
services
4. complying with or following (rules, etc.)
5. expressed, given a material form
6 according to generally accepted beliefs based on morals
7. a usual way of behaving
8. to the degree or extent that
9. causes damage to
10. supporters, people who argue in favour of something
READING 2: Read the text below about the future of corporate philanthropy. Choose the best
sentence from the list to fill each of the gaps and mark a letter a) – h). Do not use any letter more
than once. There is an example at the beginning, (0).
The future of corporate philanthropy
Some of the biggest and most powerful companies in the world today are becoming almost as well
known for their high-profile corporate social responsibility initiatives as for their products and
services. Some are cynical about the motivations for this. (0)_____E_____. He maintains that
corporate social philanthropic activities have become “heavily promoted story tools that present a
deliberately over-inflated image of corporate citizenship”. What is more worrying still is that all
this activity has effectively served as a smokescreen to hide a significant fall off in corporate
charitable contributions worldwide. (1) ______________ Business charitable deductions now
only average about 0.7% of pre-tax earnings.
As ‘real’ contributions to charitable causes diminish, Hindery laments the fact that so many CEOs
have failed to understand the fact that an effectively managed contribution program can deliver
strong returns to a corporation. He maintains that if company donations are directed to nonprofit
groups closely aligned with the interests of the corporation's business objectives and the
community context in which it operates, they can become a powerful business tool. (2)
______________ Examples of this kind of ‘strategic’ corporate philanthropy would include, for
example, financial literacy programs supported by financial institutions, or health and wellness
programs funded by pharmaceutical companies (3) ______________ Moreover, the kind of
multiple-stakeholder participation in such initiatives require and generate can become a powerful
social force and an agent for positive change.
(4) ______________ Contributions that are purely selfish in their intent, for example, that are
designed only to bolster the bottom line, or to support pet projects of senior managers or board
members, do not, again according to Hindery, “satisfy the requirements of good corporate
citizenship.” (5) ______________ In other words, when a business gets too ‘strategic’; in its
giving, this will often result in it cutting its overall contribution rather than, for example, deciding
to focus on one or two strategic causes.
Then there are those who would advocate the abolition of corporate philanthropy altogether. (6)
______________ They would argue that because corporations are constantly pushing against the
limits imposed by society in pursuit of profits they will never make good citizens and should not
be treated as citizens. (7) ______________ Given the bottom-line-driven world we live in, it seems
unlikely that the current state of corporate giving is unlikely to change any time soon.
A. Without any additional promotional effort by the company concerned, such programs often end
up elevating awareness of the brand to the same degree as for the cause.
B. There is also the danger that strategic philanthropy is actually at the root of the downward trend
in contributions to charity.
C. Of course, for acts of corporate philanthropy to become solely about advancing the interests of
the company, would be a contradiction in terms
D. They should not be regulated or boycotted into doing the right thing.
E. Leo Hindery Jr, Chairman of the Smart Globalization Initiative at the New America Foundation
believes that, increasingly, companies exploit their corporate social responsibility initiatives for
promotional purposes.
F. Whereas 25 years ago, businesses allocated on average 2% of their pre-tax profits in gifts and
grants, today companies are only one-third as generous.
G. In such cases a donation, of, for example, 1% of pretax earnings, begins, as Hindery says to
“take on the look and feel of an investment, not a handout.”
H. They include, for example, the acolytes of Friedman who continue to believe that a company
should only be responsible to its shareholders.
CASE STUDY 1
Businesses must ensure that any environmental claims they make are genuine. Making misleading
or untrue claims is called greenwashing, which often results in bad publicity. Some critics suggest
that CSR (Corporate Social Responsibility) environmental activities are just attempts to get
governments to impose fewer legal controls and restrictions on powerful multinational firms. A
business might invest in CSR projects to distract attention away from environmental damage
caused by its other activities. However, if found out, this is likely to backfire badly on the business.
Virgin’s environmental policies: genuinely green or just greenwash?
The Virgin Atlantic jumbo jet that flew between London and Amsterdam using a proportion of
biofuel was a world first. This fuel was derived from Brazilian babassu nuts and coconuts and was
less polluting than ordinary jet fuel. Airline boss Sir Richard Branson hailed this as a vital
breakthrough for the industry. Other well-publicized environmentally friendly measures used by
the airline have included towing aircraft to runways for take-off (not using aircraft engines) and
offering first-class passengers train tickets to the airport instead of chauffeur-driven cars. Very
few passengers have taken up this last offer and aircraft towing has been stopped as it causes
damage to the undercarriage.
Greenpeace has labelled these efforts to make air travel more environmentally friendly as ‘high
altitude greenwash’ and stated that less air travel is the only answer to the growing problem of
climate-changing pollution caused by air travel. A Friends of the Earth spokesman said that
biofuels do little to reduce emissions and large-scale production of them leads to higher food
prices.
1. Analyze why Virgin Atlantic is making efforts to be more environmentally friendly.
2. Evaluate the impact of groups such as Greenpeace and Friends of the Earth on business
decisions.
CASE STUDY 2: Imagine yourself in the following situations. In each case, you can either
agree to the suggested action or refuse. After you choose, compare your choice with the list
provided by the teacher.
1. Everybody expects the government to change at the next election. The Chairman suggests that
all the members of the board should start 'wining and dining' politicians expected to form the next
government - i.e. inviting them for expensive restaurant meals, in order to explain to them the
company's situation and problems.
Agree > k
Refuse > f
2. Someone suggests that the easiest way to find out what competitors are doing is secretly to pay
one of their staff to take pictures of their production processes.
Agree > d
Refuse > h
3. The manager of a foreign subsidiary explains that to get quick planning permission to build a
new factory it is necessary to give a few cash 'presents' to local officials. $10,000 will save a year
of bureaucratic difficulties.
Agree > g
Refuse > r
4. Whenever there's a north wind, foul-smelling sulphur dioxide emissions from one of your
factories pollute a nearby town. The local authorities ask you to fit filters on your chimneys, but
this will cost at least $300,000, the equivalent of six months' profit.
Agree > c
Refuse > n
5. You could save 15% of your production costs by closing a factory in a small town where you
are a major employer and relocating to a cheaper developing country. This would result in 1500
people losing their jobs in one town, and 1200 jobs being created in another.
Relocate > e Remain > p
6. You discover that one of your suppliers in a developing country employs children as young as
nine years old in its factory, in appalling working conditions. They say that if you cancel your
orders they will have to close the factory and the whole village will lose this major source of
income.
Cancel > m
Continue > a
7. Your products are now of a such high quality that they last for at least ten years, and your sales
are consequently lower than they used to be when your products were less durable. Someone
suggests using cheaper components that won't last quite so long.
Agree > i
Refuse > q
8. You have produced a huge quantity of toys under an exclusive contract to tie in with a major
new
Hollywood movie. But just before the film is released, you discover that pieces of the toy can be
broken off and that young children could swallow them and even choke to death.
Sell the toy > b
Withdraw the toy > j
9. Your major competitor is about to manufacture a product using a revolutionary new production
process. Someone suggests advertising for a Production Manager, even though the job is not
available, hoping your competitor's staff might apply, and give you some useful information in an
interview.
Agree > o
Refuse > l
VOCABULARY
EXERCISE 1. Match the two parts of these sentences;
1. We are committed to the highest ethical
2. Is ethical
3. There were questionable ethical
4. They tightened the city's ethics policy
after a string of ethical
5. “As a bank with a strong ethical
6. He's dealing with the ethical
a. stance, we are always looking to reduce the
amount of paper we use”.
b. lapses came to light, including city managers
hiring their relatives.
c. behaviour in business affairs different from
everyday behaviour in the family or community?
d. dilemma of whether to disclose to a buyer that
the house might soon be demolished to make
way for a new road.
e. standards and to promoting our medications
only for approved uses”, the company
spokesperson said.
f. issues, including whether he helped a
company that hired his brother as a lobbyist.
EXERCISE 2. Complete the sentences with expressions in bold from the following text.
Accountability and transparency
Individuals and organizations should be accountable – completely open about what they do and
able to explain their actions. Dealings – business transactions – should be transparent – not
hidden or secret – and explainable in a way that can be understood by outsiders. Companies may
say that their managers and employees should act with integrity and, more formally, probity –
complete honesty – and that they do not tolerate any form of professional misconduct. People
expect the behaviour of organizations to be above board – completely open and honest.
1. His lawyers have argued that the transactions were completely above _____________ and
approved by the other directors.
2. The code of professional conduct requires directors to act with _____________ and
_____________, and to accept that failure to comply carries the threat of fines.
3 It faces the most serious charges of _____________ yet brought against a big accountancy firm,
with claims that it deliberately concealed evidence of fraud.
4 We are totally _____________ about the methods that we use, so it would be hard for - and us
to hide the fact if we were not giving the correct numbers in our findings.
5 The city's officials ought to be held far more _____________ than they are today for what they
spend and how.
EXERCISE 3. Match the ideas (1–5) in the article with the points (a–c) in the table below.
Corporate social responsibility
Companies have long had codes of ethics and codes of conduct saying how their managers and
employees should behave. Now they are looking at these issues in more systematic ways. They
are designating executives to oversee the whole area of corporate social responsibility (CSR),
which relates to the following areas, among others:
a. employment and community: they want to pay attention to things that affect the wellbeing of everyone, not just their employees, in the areas where the company has its
plants, offices and other activities.
b. environmental protection: they want to conduct business in ways that protect the
environment, for example, to ensure that the company does not cause pollution of the
air, rivers, etc. and does not endanger plant and animal life or contribute to climate
change.
c. winning new business: they want, for example, to get business without engaging in
corruption, for example, offering bribes – money given to someone so that they behave
unethically.
Companies want to be seen as good corporate citizens, with activities that are beneficial
not only for their stakeholders but for the community and society as a whole.
C S R: MORE THAN PUBLIC RELATIONS
(1) Global greenhouse gas emissions continue to rise. (2) Disease wreaks havoc across entire
continents. A host of seemingly intractable issues confront governments around the world, who
are sometimes unable to effect positive changes. With the emergence of companies as some of the
most powerful institutions for innovation and social change, more (3) shareholders, regulators,
customers and corporate partners are increasingly interested in understanding the impact of
these organizations’ regular activities upon the community and its natural resources. With the
world’s largest 800 non-financial companies accounting for as much economic output as the
world’s poorest 144 countries, the importance of these organizations in addressing (4) trade
imbalances and income inequality is key. In public opinion surveys, consumers admit they prefer
to buy products and services from companies they feel are socially responsible (72 per cent) and
that they sell the shares of companies that are not (27 per cent). Challenging the notion that
companies’ only responsibility is to make a profit, executives are increasingly seeking ways to
combine (5) economic gain with social well-being in ways that will produce more customer
loyalty, better relationships with regulators, and many other advantages. CSR practices may, in
fact, prove pivotal to the success of a company.
UNIT REVIEW
1.
2.
3.
4.
5.
What is corporate responsibility?
What do companies need to do to show they exercise good corporate responsibility?
Do you think making huge profits means companies can never be responsible?
Can a company survive if it shows no corporate responsibility?
Which of the following do you think are especially interesting for a company to highlight as
part of its CSR:
 Good working environment for employees
 A good environmental policy
 Policy of not using child labour, products tested on animals, etc.
 Donating a percentage of profits to good causes
 Employing people at risk of exclusion (for instance, people with disabilities, single
mothers, and unemployed people over the age of 45)
REFERENCES
1. Mackenzie, I, 2010, English for Business Studies, Cambridge University Press.
2. Mascull, B, 2017, Business Vocabulary in Use Advanced, Cambridge University Press.
3. Stimpson, P, & Farquharson, A, 2021, Business for Cambridge International AS&A level,
Cambridge University Press.
4. Nickles, W.G, McHugh, J.M, McHugh, S.M, 2019, Understanding Business, Mc Graw Hill
Education.
5. Mackenzie, I., 1997. Management and Marketing, Thomson.
UNIT 25. EFFICIENCY AND EMPLOYMENT
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand the potential conflict between business efficiency and employment

Consider cases of rationalization and downsizing
KEY TERMS

Job insecurity: The fear that you might lose your job

Employability: The extent to which a person has skills that employers want

Downsizing: Decreasing the number of permanent employees

Core: The central part of something (e.g. a company's workforce)

Efficiency: a situation in which a person, company, factory, etc. uses resources
such as time, materials, or labour well, without wasting any

Rationalization: to make a company, way of working, etc. more effective, usually
by combining or stopping particular activities, or by employing fewer people

redundancy package: all the payments and advantages that a company gives to
workers who have lost their jobs because they are no longer needed

restructuring: to organize a company, business, or system in a new way to make it
operate more effectively (noun)

delocalization: to move the location of an enterprise (noun)
LEAD- IN

How important to you is job security?

How many different employers do you expect to have in your career?

Would you prefer to have a single full-time job or various part-time activities?

Which economic sectors are expected to create jobs in your country?

In which sectors are jobs expected to disappear?

Is technological progress creating or destroying jobs, on balance?
READING 1:
The post office in a country of about 10 million people has recently been privatized. Now it wants
to become more efficient, so as to be more competitive when the market is opened to international
competition.
There is already a lot of competition for express mail - companies such as DHL, FedEx and UPS
- but the law will soon allow post offices to compete for local business in other countries, e.g.
delivering mail to businesses and homes in large cities. Furthermore, the volume of mail has
decreased by 10% in the past ten years, and is expected to decrease by another 10% Since the
spread of email and electronic signatures, the amount of intercompany mail has declined by over
60%, but commercial mail still represents 85% of the post office's turnover.
There is already a plan to close 25% of post offices - the smaller, unprofitable ones in small towns
and villages. Now the post office wants to reduce the number of sorting offices from the existing
25, spread all over the country, to three.
The plan is to build three large new sorting offices on cheap land outside big cities, with good
access to railways and motorways. They would be of equal size, in the west, centre and east of the
country. They would use new automated machines.
The restructuring would save €200 million a year in salaries and increase efficiency.
The number of sorting staff would be reduced from 10,000 to about 5,500, although many of them
would now have to work at night and would have to travel further to work. The post office would
try to find jobs for the other 4,500 people elsewhere in the organization (in post offices and in
technical and maintenance jobs). It is also promising a €100 million redundancy package and
training programmes.
The trade unions are obviously against this proposal, and so are the local governments in areas
where many jobs would be lost. Between them, they have put forward various alternative plans,
whereby the post office builds five, six or eight new centres instead of only three, or three main
ones but also several secondary ones, in order to preserve jobs all over the country. On the
contrary, the local governments in the areas where the three new centres are planned are wholly
in favour of the project.
Comprehension
1. What does the post office want to do?
2. Why do they say this is necessary?
3. What are the advantages and disadvantages?
4. Who is for and who is against the plan?
Discussion: The postal service
- In your country, is the postal service public or private? (i.e. is it a nationalized industry or a
private company with shareholders?)
- Is it profitable?
- Is it a monopoly?
- What do you know about post offices in other countries?
- Should everybody have the right to the same postal services, whether they live in a large city,
or in a very remote part of the countryside?
- If a business is considered to offer a public service, should it be allowed to rationalize or
restructure or downsize or outsource or delocalize?
READING 2: Read the following text and fill in the gaps with the words from the box.
competition
core
created
decision-making
delaying
demand
dismiss
employ
globalization
merged
outsource
recession
reports
sub-contractors
temporary
Redundancy
There are several verbs in English that mean to (1) __________ one or more new members of
staff, including to hire, to engage, to appoint, and to take on. Significantly, there are a far greater
number of verbs and expressions that mean to dismiss staff.
If you do something wrong, your employer can sack you (or give you the sack) or fire you. Other
idioms include “to give someone the boot”, or “the elbow” or “the chop”. But even if you have
done nothing wrong, your employer can easily choose to lay you off or make you redundant, i.e.
to (2)__________ you because you are no longer needed. There are various reasons why
companies might need fewer staff:
• because they have taken over, or been taken over by, or (3) __________ with, another company,
in which case existing jobs can often be combined;
• because they are suffering from declining sales in a (4) __________;
• because hiring (5) __________ staff - people doing occasional, casual, part-time work; people
on short, fixed-term contracts; and people working for employment agencies - allows a company
to respond to fluctuations in (6) __________;
• because they are experiencing greater (7) __________ following deregulation and the (8)
__________ of the world economy;
• because (9) __________, i.e. flattening the organizational structure by stripping the hierarchy of
several levels of middle managers, might make (10) __________ quicker and easier;
• because many companies find it cheaper to concentrate on their central or (11) __________
activities, and to contract out or (12) __________ other services from specialized external
companies;
• and because jobs that were formerly done by several people can now be done by a single
computer.
Yet in their press releases and annual (13) __________, most companies do not write that "we
have laid off 50 members of staff." They generally prefer other expressions and phrases, such as
re-engineering or re-structuring the corporation, or refocusing business strategy, or right-sizing,
or down-sizing, or de-hiring, or outplacement, or readjusting the company's skill mix, or increasing
capital effectiveness, or tightly controlling operating costs, and so on.
Yet whatever they call it, many large companies are employing fewer and fewer staff. Most of the
jobs currently being (14) __________ are in small and medium-sized companies, including those
acting as (15) __________ to larger organizations.
CASE STUDY 1: Work in small groups and read the following text:
ANNA-KIM HYUN-SEUNG: I have one example which is a Korean company. It's called YuhanKimberly and it's a form of a joint venture between Yuhan, a local company, and Kimberly Clark
in the United States. So Yuhan-Kimberly is a local player; they are the market leader in their
industry, and they make toilet paper, tissues, and sanitary items. Within South Korea, they are
probably one of the most respected companies because of their very consistent corporate social
responsibility policies and practice. For example, in 1984, they launched the very first nationwide
environmental campaign, which was about developing forests. The company really tried to
commit itself to social and responsible causes.
I don't exactly remember the year, but at some point the company had problems and they had the
situation that they needed to cut down the total number of working hours, and what they chose
was instead of cutting down the number of employees they cut down the number of average
working hours, so they actually changed their shift system. Before the change, it was three teams,
three shifts, but they changed it into four teams, two shifts, and I think each worker worked
consecutively four days, 48 hours, 12 hours each day, and they took off four days, and one of the
four days was committed to a training programme operated by the company. It was part of their
lifelong learning programme as well, so I think the employees responded in very good ways
because for them it was obviously a much better choice than losing their job, and it was also a
training opportunity. Also after this change, there was a big increase in productivity because
obviously, the workers could have the proper rest for three or four days.
Do you think the situation described here is exceptional, or could more companies do the same
thing?
CASE STUDY 2
Renault and Nissan have a strong partnership in automobiles. Their partnership made a
remarkable achievement of making up 10% of new car sales worldwide.
Renault and Nissan chose to make an alliance rather than a merger because an alliance has many
stronger benefits than a merger would give.
With an alliance, they can access more geographical areas where foreign investments are
restricted. These companies got better chances to enter each other’s territory where they were
already established companies because of the alliance.
Although they faced numerous challenges including fluctuation in price share, they managed to
resolve issues and succeed.
Study the case of Renault and Nissan and answer the following questions:
1. What happens when small businesses collaborate with other businesses?
2. Can partnership enable the involved parties to take benefit from each other’s strong areas?
VOCABULARY
EXERCISE 1. Match up the words in the table with the definitions below.
casual work
contract work
job sharing
relocation or delocalization
delayering
outsourcing or contractingout
rightsizing
downsizing
flexible labour market
rationalization or
restructuring
1. a situation in which it is easy for companies to hire non-permanent staff
2. decreasing the number of permanent employees working for an organization
3. using other businesses as subcontractors to supply components or services
4. employing two or more people on a part-time basis to perform a job normally available to one
person working full time
5. moving some of a business's activities (e.g. accounting, production) to another place or country
6. removing unproductive parts of the management hierarchy to make organizations more flexible
and efficient
7. reorganizing a company, business or system in a new way to reduce costs and improve
efficiency and effectiveness
8. temporary employment by an organization to do a specific project or piece of work
9. temporary employment that is not regular or fixed
10. another way of saying downsizing, though it could also describe increasing the size of an
organization, perhaps as an attempt to correct a previous downsizing
EXERCISE 2. Which of the following words have a similar meaning to employ someone,
and which means the same as to dismiss someone?
appoint
engage
make redundant
fire
hire
lay off
recruit
sack
take on
let go
Are there any differences among the words in the different groups?
EXERCISE 3. Fill the gaps in the sentences with words from exercises 1 & 2 above.
1. As an IT specialist, I mainly do _________ _________ for local companies, two or three
months at a time.
2. _________ _________ is expensive for employers, as having two members of staff instead of
one involves extra costs.
3. Big companies abolished a lot of middle management positions by ___________ in the 1980s.
4. We ____________ our accounting and IT services to Indian companies last year, but we
would never ______________ our manufacturing.
5. When they ______________ the company, 1,000 people were made ______________.
UNIT REVIEW
1. Do you think restructuring can help a business become more efficient?
2. What is delocalization?
3. How can you interpret the term “business efficiency”?
4. What is the purpose of rationalization?
5. What does “redundancy package” mean?
6. What notable cases of restructuring or downsizing or delocalizing have there been in the news
recently? What was the reaction?
7. In a situation where there is growing unemployment, what are the advantages and
disadvantages of the following partial solutions?
- job sharing
- decreasing working hours
- lowering the age of retirement
- staff training programmes
- increasing the number of public sector jobs (i.e. those paid for by the national or local
government)
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Stimpson, P., & Farquharson, A, 2021, Business for Cambridge International AS&A level,
Cambridge University Press.
3. Mackenzie, I., 1997. Management and Marketing, Thomson.
UNIT 27. INTERNATIONAL TRADE
LEARNING OBJECTIVES
After you have read and studied this unit, you should be able to

Understand the theory of free trade

Discuss the advantages and disadvantages of international trade
KEY TERMS

International trade: Purchase, sale, or exchange of goods and services across
national borders.

Free trade: a trade policy that does not restrict imports or exports. It can also be
understood as the free market idea applied to international trade.

Protectionism: the economic policy of restraining trade between nations, through
methods such as tariffs on imported goods, restrictive quotas, and a variety of other
restrictive government regulations designed to discourage imports, and prevent
foreign take-over of local markets and companies.

Trade barriers: Government laws, regulations, policies or practices that either
protect domestic products from foreign competition or artificially stimulate exports
of particular domestic products.

Tariff: A duty (or tax) levied upon goods transported from one Customs area to
another, for either protective or revenue purposes. Tariffs raise the prices of
imported goods, thus making them generally less competitive within the market of
the importing country, unless that country does not produce the items so tariffed.

Quota: Restriction on the amount (measured in units or weight) of a good that can
enter or leave a country during a certain period of time.

Absolute advantage: Ability of a nation to produce a good more efficiently than
any other nation.

Comparative advantage: Inability of a nation to produce a good more efficiently
than other nations, but an ability to produce that good more efficiently than it does
any other good.

An infant industry: a new industry, which in its early stages experiences relative
difficulty or is absolutely incapable of competing with established competitors
abroad.

A strategic industry: an industry which is essential for the promotion or
stabilization of the growth of the locality in which that industry is situated.
LEAD- IN

Look around you. How many things can you see that were imported from another country?

How much of the food you've eaten in the last 24 hours came from abroad?

What are your country's major trading partners?

What are your country's most important exports?

Does your country try to restrict imports?
READING 1:
Education and protection
The Korean economist Ha-Joon Chang is the author of several books including Bad Samaritans
- Guilty Secrets of Rich Nations and the Threat to Global Prosperity. Here is part of an interview
about this book. Read it and answer the questions below.
To explain this idea in the book I use the example of my young son. This little guy is perfectly
capable of making a living. He's already eight now, but when I wrote the book he was six. Millions
of children work in developing countries from the age of four or five, as did millions of children
in rich countries in the 19th and early 20th centuries. Maybe I should send my son to the labour
market and make him get a job. If he can earn his own living, that's a lot of money saved for me.
But more importantly, this will expose him to competition and make him a very productive person.
Well, of course, I don't do this. He is quite a clever kid and maybe if I support him for another 12
or 15 years, he could become a software engineer or brain surgeon or nuclear physicist. Of course,
there's a danger that he might turn out to be a total waste of time, but that's a risk I'm willing to
take. know for sure that if I kick him into the labour market now, he will become a shoe-shine
boy, and will maybe grow up to be a street hawker, but he will never be a brain surgeon or a
nuclear physicist.
The analogy is: When you are trying to get into a more difficult and thereby higher-return activity,
developing countries have to invest in it. The investment comes in the form of protection, which
makes, for the moment, your local consumer use expensive and inferior domestic products. But
unless you do that, these industries are not going to grow. you accept that you will use inferior
products from inefficient producers for the time being. In the meantime, you do certain things to
make sure that these firms grow up, i.e. they increase their productivity and eventually give you
cheaper domestic goods, create jobs and stimulate other activities. In the end, you are better off
that way.
So, inefficiency is part of the deal. Only you are deliberately creating these inefficiencies With the
view of becoming even more efficient than otherwise possible.
Comprehension:
1. Explain in detail the analogy Chang makes between child labour and free trade (or between
education and protectionism).
2. What is the short-term disadvantage of protecting growing industries?
Discussion:
• Which industries or sectors could be usefully protected in your country until they had a
comparative advantage?
• To what extent would you be prepared to use inferior, expensive products from inefficient
producers? What if you thought this “might turn out to be a total waste of time”?
Vocabulary: Before discussing arguments for and against free trade, match up these words and
definitions.
Copyright
dumping
generic
subsidize
trademark
1. a cheaper copy of a product that is not marked with the producer's name
2. a name or a symbol showing that a product is made by a particular producer and which cannot
be legally used by anyone else
3. selling unwanted goods very cheaply, usually in other countries
4. the legal right to control the production and selling of a book, play, film, photograph, piece of
music, etc.
5. to pay part of the cost of something
READING 2: Read the text and answer the following questions
1.
2.
3.
4.
Why do most economists oppose protectionism?
Why do most governments impose import tariffs and/ or quotas?
Why were many developing countries for a long time opposed to GATT?
Why have many developing countries recently reduced protectionism and increased their
international trade?
5. What can give a country an absolute or comparative advantage in goods and services over
other producers?
6. Why does the theory of comparative advantage seem inadequate to explain international
trade?
PROTECTIONISM AND FREE TRADE
The majority of economists believe in the comparative cost principle, which proposes that all
nations will raise their living standards and real income if they specialize in the production of
those goods and services in which they have the highest relative productivity. Nations may have
an absolute or comparative advantage in producing goods and services because of factors of
production (notably raw materials), climate, division of labour, economies of scale, and so forth.
This theory explains why there is international trade between North and South, e.g.
semiconductors going from the USA to Brazil, and coffee going in the opposite direction. But it
does not explain the fact that over 75% of the exports of the advanced industrial countries go to
other similar advanced nations, with similar resources, wage rates, and levels of technology,
education, and capital. It is more a historical accident than a result of natural resources that the US
leads in building aircraft, semiconductors, computers and software, while Germany makes luxury
automobiles, machine tools and cameras.
However, the economists who recommend free trade do not face elections every four or five years.
Democratic governments do, which often encourages them to impose tariffs and quotas in order
to protect what they see as strategic industries- notably agriculture-without which the country
would be in danger if there was a war, as well as other jobs. Abandoning all sectors in which a
country does not have a comparative advantage is likely to lead to structural unemployment in the
short (and sometimes medium and long) term.
Other reasons for imposing tariffs include the following:

to make imports more expensive than home-produced substitutes, and thereby reduce a
balance of payments deficit;

as protection against dumping (the selling of goods abroad at below-cost price in order to
destroy or weaken competitors or to earn foreign currency to pay for necessary imports);

to retaliate against restrictions imposed by other countries;

to protect ‘infant industries’ until they are large enough to achieve economies of scale and
strong enough to compete internationally.

with tariffs, it is impossible to know the quantity that will be imported, because prices
might be elastic. With quotas, governments can set a limit on imports. Yet unlike tariffs,
quotas provide no revenue for the government. Other non-tariff barriers that some
countries use include so-called safety norms, and the deliberate creation of customs,
difficulties, and delays.
The General Agreement on Tariffs and Trade (GATT), an international organization set up in
1947, had the objectives of encouraging international trade, making tariffs the only form of
protectionism, and of reducing these as much as possible. The most favoured nation clause of the
Gatt agreement specified that countries could not have favoured trading partners, but had to grant
equally favourable conditions to all trading partners. The final Gatt agreement- including services,
copyright, and investment, as well as trade in goods- was signed in Marrakech in 1994, and the
organization was superseded by the World Trade Organization.
It took nearly 50 years to arrive at the final Gatt agreement because, until the 1980s, most
developing countries opposed free trade. They wanted to industrialize in order to counteract what
they rightly saw as an inevitable fall in commodity prices. They practised import substitution
(producing and protecting goods that cost more than those made abroad) and imposed high tariff
barriers to protect their infant industries.
Nowadays, however, many developing countries have huge debts with Western commercial banks
on which they are unable to pay the interest, let alone repay the principal. Thus, they need to
rollover (or renew) the loans, reschedule (or postpone) repayments, or borrow further money from
the International Monetary Fund, often just to pay the interest on existing loans. Under these
circumstances, the IMF imposes severe conditions, usually including the obligation to export as
much as possible.
Quite apart from IMF pressure, Third World governments are aware of the export successes of the
East Asian ‘Tiger’ economies (Hong Kong, Singapore, South Korea, and Taiwan), and of the
collapse of the Soviet economic model. They were afraid of being excluded from the work trading
system by the development of trading blocks such as the European Union, finalized by the
Maastricht Treaty, and the North American Free Trade Agreement (NAFTA), both signed in the
early 1990s. So, they tended to liberalize their economies, lowering trade barriers and opening up
to international trade.
CASE STUDY 1
Three countries, X, Y and Z, trade with each other. The government of Country X is worried about
the high level of imports from the other two countries. The government of Country Y wants to
encourage the two other countries to join a common currency. The currency of Country Z has
recently appreciated against the currencies of the other two countries.
a) State one way in which Country X could reduce imports from the other two countries.
b) Explain two ways in which businesses in Country X might be affected by the government
reducing imports.
c) Do you think that businesses in these three countries would benefit from a common (single)
currency? Explain your answer.
CASE STUDY 2
For and against free trade
Although many economists favour free trade, there is also a lot of opposition, there have been
huge and violent protests at meetings of the World Trade Organization (WTO).
-
Classify the following statements (A-N): which are in favour of, and which are against free
trade and the policies of the WTO?
Which set of arguments do you find the most convincing?
A. Free trade and international supply chains lead to peace and stability.
B. WTO policies prohibit developing countries from protecting infant industries until they are
internationally competitive, although the rich countries that dominate international trade all did
this.
C. Free trade guarantees the largest possible foreign markets for producers and exporters.
D. The WTO defends Trade Related Intellectual Property rights (TRIPs), granting pharmaceutical
companies patents, copyrights and trademarks which deny poor countries access to lifesaving
medicines and generic drugs.
E. Free trade guarantees consumers the lowest possible prices.
F. Lowering trade barriers also breaks down other barriers between peoples and nations.
G. The price of exported goods does not reflect the environmental cost of transporting them.
H. Instead of promoting internationally recognized labour and environmental standard., free trade
makes it easier for production to go where the labour is cheapest and environmental costs are low.
I. Free trade, comparative advantage and specialization always lead to economic growth and
development.
J. Total world trade in 2000 was 22 times higher than in 1450, and as a result, people were much
more prosperous.
K. The WTO classifies most environmental, labour, health and safety protection laws as illegal
barriers to trade; it has ruled against the US Clean Air Act and parts of the US Endangered Species
Act.
L. Free trade ensures secure supplies and a greater choice of components and raw materials for
producers, and of products and services for consumers.
M. The WTO has ruled that governments cannot take into account “non-commercial values” such
as human rights, opposing child labour, etc.
N. WTO policies allow rich countries to dump heavily subsidized industrially produced food in
poor countries, which damages local production.
In favour
Against
VOCABULARY
EXERCISE 1. Match each term to its correct definition.
1. Barriers to trade
2. Dumping
a. A type of protectionist measure that sets a numerical limit
on the imports allowed into a country over a specified time
period.
3. Embargo
4. Free trade
b. International trade without any protectionist barriers
between countries.
6. Infant industries
c. The act of selling exports at artificially low prices, below
those charged by domestic firms, and often at less than the
costs of production.
7. International trade
d. Import taxes imposed on foreign goods and services.
8. A multinational
corporation (MNC)
e. A type of trade protectionist measure banning the trade of a
certain good, or banning trade with a particular country.
9. Protection
f. Obstructions to free trade, imposed by a government to
safeguard national interests by reducing the competitiveness
of foreign firms.
5. Globalization
10. Quota
11. Subsidies
g. The process by which the world's economies become
increasingly interdependent and interconnected.
12. Tariffs
h. An organization that operates in two or more countries.
i. The use of trade barriers to safeguard a country from
excessive international trade and foreign competition.
k. Financial support from the government to lower the
production costs of domestic firms, thereby improving their
competitiveness.
l. The exchange of goods and services beyond national
borders.
m. New, unestablished businesses that need protection from
foreign competitors.
EXERCISE 2. Complete the text about Incoterms with the words in the box. Notice the
glossary at the bottom.
clearance
customs
documentation
freight
truck
handling
loading
premises
terminal
transit
What are Incoterms?
Incoterms state the responsibilities of buyer and seller in relation to marine transportation - not
just the shipping costs, but all other associated costs such as insurance, (1) _____________ duties,
and ground (2) _____________.
The buyer pays for the sea crossing
A price quoted EXW is where the seller makes the goods available at their own (3)
_____________, and the buyer collects them there. The buyer has responsibility for all the other
transport costs and risks from that point onwards.
If the price is FAS, then the seller also covers the cost of inland transport (by (4) _____________
or rail) to the port of shipment, and of unloading the containers onto the dock. The buyer pays for
(5) _____________ onto the ship plus all the costs from that point.
FOB is almost the same, except here the seller pays for loading onto the ship, not the buyer.
The seller pays for the sea crossing
Now the goods are on the ship. If the price has been set so that the seller also pays the (6)
_____________ (= goods and the system of moving these goods) costs, then there are further
Incoterms to be used.
With CFR the seller pays the freight costs and handles the export (7) _____________ (=
paperwork), but does not pay the insurance while the goods are in (8) _____________ at sea. With
CIF the seller pays insurance as well. But in both cases, their responsibility ends at the port of
destination, while the goods are still on board. The buyer has responsibility for unloading fees,
local storage at a (9) _____________, the import licence, duties and taxes, the customs broker's
fees and onward delivery to the buyer's own premises.
In the final case, DDP, it's the seller who pays for everything, and who also has to handle any
customs (10) _____________ problems. The buyer has no additional costs or risks at all - but of
course, the price quoted in the contract will reflect this!
EXERCISE 3. Match up these words and expressions with the definitions below
1. trade in goods
A. autarky
2. trade in services (banking, insurance, tourism, and so on)
B. deficit
3. direct exchanges of goods, without the use of money
C. quotas
4. the difference between what a country receives and pays for
its exports and imports of goods
D. balance of payments
5. the difference between a country’s total earnings from
exports and its total expenditure on imports
F. surplus
6. the (impossible) situation in which a country is completely
self–sufficient and has no foreign trade
7. a positive balance of trade or payments
8. a negative balance of trade or payments
9. selling goods abroad at (or below) cost price
10. imposing trade barriers in order to restrict imports
11. taxes charged on imports
E. dumping
G. balance of trade
H. invisible imports and
exports
I. tariffs
K. visible trade (GB) or
merchandise trade (US)
L. barter or counter-trade
M. protectionism
12. quantitative limits on the import of particular products or
commodities
UNIT REVIEW
1. Discuss whether imposing tariffs will benefit the domestic economy?
2. Explain the difference between international trade and free trade.
3. Identify three methods of trade protection that a country could use.
4. Explain two benefits of free trade.
5. Describe two disadvantages of international trade.
6. Explain two reasons why countries might decide to trade with each other.
REFERENCES
1. Mackenzie, I., 2010, English for Business Studies, Cambridge University Press.
2. Mascull, B., 2017, Business Vocabulary in Use Advanced, Cambridge University Press.
3. Hoang, P., 2019, Cambridge IGCSE and O Level Economics, Hodder Education.
4. Nickles, W.G., McHugh, J.M., McHugh, S.M., 2019, Understanding Business, Mc Graw
Hill Education.
5. Emmersion, P., 2009, Business vocabulary builder, Macmillan Publishers Limited.