Ch 1.1 The Nature of Business Activity -- pg 2-5
Activity 1.1 pg 5
I. Introduction
a. What a business is and what businesses do??
II. What is a Business?
a. an organization that uses resources to meet the needs of customers by providing a product
or service that they demand
III. What businesses do?
a. Identify needs of consumers and other firms
b. Purchase resources-- which are inputs of the business, or factors of productions in order to
produce output
1. Land, Labor, Capital, Entrepreneurship
c. Outputs-- are the goods and services that satisfy customer wants
KEY TERMS:
Consumer goods- physical and tangible goods sold to the general public…
Durable goods --- cars, washing machines
Nondurable goods – food, drinks and sweets
Consumer services-- non-tangible products sold to public… hotel accommodation, insurance services,
train journeys
Capital goods—physical goods that are used by industry to aid production of other goods and services,
such as machines and commercial vehicles
IV. What are business inputs??
A. Factors of Production – resources needed by business to produce goods or services
1. Land- land itself--- also.. Renewable and non-renewable resources of nature; coal,
crude oil and timber
2. Labor – manual and skilled labor make up the work force of the business
3. Capital - finance needed to set up a business and pay for its continuing operations as
well as all of the man made resources used in production
a. includes – capital goods—computers, machines, factories, offices and vehicles
4. Enterprise-- driving force of business provided by risk-taking individuals—provides a
managing, decision making and co-coordinating role.
V. Business Functions -- four main functional departments
1. Marketing –
a. responsible for market research and analyzing such results so consumer wants can be
correctly identified
b. make important decisions concerning pricing, how and where to promote it and how
to sell it and distribute it for sale
2. Finance -a. monitor the flow of finance into an out of business, keeping and analyzing accounts
b. providing information to both senior management and other departments
3. Human Resource Managementa. identifies the workforce needs of the business, recruits, selects and trains
appropriate staff and provides motivational systems to help retain staff and encourage them to work
productively
4. Operations Management
a. responsible for ensuring adequate resources are available for production,
maintaining production and quality levels and achieving high levels of productive efficiency
Note : Good communication, co-operation and close interrelationships between functions are essential
before major decisions are made.
Example: Decision by Peugeot Citroen in 2010 to launch world’s first hybrid diesel car required
interaction between.
Marketing-- will consumers be prepared to buy this car and at what price?
Finance – do we have the capital needed to develop and produce it?
HR management -- do we need to recruit additional engineers before this project can be turned
into a market ready car
Operations management -- can we produce this product at a cost which allows the marketing
department to set a profitable price level?
VI. Sectors of Industry
1. Primary -- firms engaged in farming, fishing, oil extraction, and all other industries that
extract natural resources so that they can be used and processed by other firms
2. Secondary -- firms that manufacture and process products from natural resources, including
computers, brewing, baking, clothing, construction
3. Tertiary - firms that provide services to consumers and other businesses, such as retailing,
transport, insurance, banking, hotels, tourism, and telecommunications.
4. Quarternary Sector???
a. focused on information technology IT – businesses and information service providers
Ch 1.2 Types of Organization
pg 9-19
I. Introduction
1. The private and public sectors
2. Profit-based and non-profit based organizations
II. Public and private sector organizations
1. Private sector – comprises businesses owned and controlled by individuals or groups of
individuals
2. Public sector- organizations accountable to and controlled by central or local gov’t
3. Mixed economy - economic resources are owned and controlled by both private and public
sectors
4. Free- Market – economic resources are owned largely by the private sector with very little
state intervention
5. Command Economy - economic resources are owned, planned and controlled by the state
A. Links between sectors
1. goods and services provided by state run organizations
a. health, education, defense, law, police force
b. often have objectives other than profit:
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Ensuring supplies of essential G&S-- health and Education
Preventing private monopolies
Maintaining employment
Maintaining environmental standards
Key Terms
Privatization -- the sale of public sector organizations to the private sector
II. Starting a business -- role of the entrepreneur
Key Term
Entrepreneur – someone who takes the financial risk of starting and managing a new venue
Do you qualify as an Entrepreneur??
 Have an idea for a new business
 Willing to invest your own savings and capital
 Accept the responsibility of managing the business
 Accept the possible risks of failure
Personal Qualities and skills needed to make a success of a business venture
1. Innovative – must be able to carve out a new niche in the market
2. Commitment and self-motivation -- willingness to work hard, a keen ambition to succeed,
energy and focus are all essential qualities
3. Multi-skilled – be able to produce or provide product--- promote it--- sell it and count the money
4. Leadership skills -- personality to encourage people in the business to follow and be motivated
by them
5. Belief in oneself -- ability to bounce back from setbacks
6. Risk taker -- often involves investing their own savings in a new business
B. Why start a business?
1. Losing a job
2. Desire for independence
3. Business opportunity exists that can be taken advantage of
4. A wish to make more money than in the current job
C. Start-Up Businesses
1. Sectors of industry where there is a much greater likelihood of new entrepreneurs
a. primary -- fishing, market gardening ( sell to local markets)
b. secondary -- dress making, craft manufacturer, building trades
c. tertiary - hairdressing, car repairs, cafes, babysitting
2. Its unusual to find entrepreneurs establishing themselves in steel or car manufacturing
D. identifying market opportunities
- opportunity will generate sufficient demand for their product or service to enable the
business to be profitable
E. Ideas for new businesses can come from several sources
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Own skills or hobbies
Previous employment experience
Franchising conferences and exhibitions
Small budget market research
o Low cost research might indicate market gaps
F. Problems faced by Start-Ups
1. Competition
a. may have to offer better customer service to overcome the cost and pricing
advantages of bigger businesses
2. Building a customer base
a. personal customer service
b. knowledgeable pre- and after sales services
c. providing for one-off customer requests that larger firms may be reluctant to offer
3. Lack of record keeping
4. Lack of working capital
a. lack of funding for day to day operations is the single most common reason for the
failure of a new business to survive in the first year.
5. Poor management skiils
a. leadership skills
b. cash handling and cash management skills
c. planning and coordinating skills
d. decision making skills
e. communication skills
f. marketing, promotion and selling skills
G. Changes in the business environment
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Activity 2.1 pg 10
New competitors
Legal changes – outlawing product altogether
Economic changes that leave customers with much less money to spend
Technological changes making methods used by new business old fashioned
& Activity 2.2 pg 12
III. Profit Based organizations
Key Term:
H. Sole Trader
Sole Trader -- a business in which one person provides the permanent finance and, in return, has full
control of the business and is able to keep all of the profits.
1. most common form of business
2. unlimted liability
3. difficulty with finance expansion
4. common industries --- construction, retailing, hairdressing, car service, and catering
Disadvantages and Advantages – table 2.1 pg 13
Key Term
I. Partnership
Partnership -- a business formed by two or more people carry on a business together, with shared
capital investment and , usually, shared responsibilities
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Disadvantages and Advantages -- table 2.2 pg 14
J. Limited Company
1. limited liability --- only liability – or potential loss – a shareholder has if the company fails is
the amount invested in the company, not the total wealth of the shareholder
2. legal personality --- company is legally recognized as having an identity separate from its
owners..—this means company itself can be prosecuted and not its owners
3. continuity -- death of owner does not lead to break up of company… ownership continues
through the inheritance of the shares
Key Terms:
Private Limited Company – a small to medium-sized business that is owned by shareholders who are
often members of the same family. This company cannot sell shares to the general public
Shareholder – a person or institution owning shares in a limited company
Share- a certificate confirming part ownership of a company and entitling the shareholder to dividends
and certain shareholder rights.
Private Limited Company – disadvantages and advantages --- table 2.3 pg 15
K. Public Limited Companies
1. a limited company, often a large business, with the legal right to sell shares to the general
public. It’s share price is quoted on the national stock exchange
--- disadvantages and adv --- table 2.4 pg 15
IV. Legal forms of business organization
 Often happens because owners wish to protect their personal wealth and encourage new
shareholder investors
V. Public Sector enterprises
EXAM TIP --- Public limited companies are in the private sector of industry but public corporations are
not.
Public Sector / Public Corporations – a business enterprise owned and controlled by the state – also
known as nationalized industry..
a. do not often have profit as a major objective
Public Sector Organization adv vs. disadv -- table 2.5 pg 16
Activity 2.3
VI. Non-proft and non-governmental organizations
Key Terms
1. Non – profit organization -- any organization that has aims other than making and
distributing profit and which is usually governed by a voluntary board
2. Non- governmental organization (NGO) a legally constituted body with no participation or
representation of any government
3. Pressure group -- an organization created by people with a common interest or objective
who lobby businesses and governments to change policies so that the objective is reached..
Examples
 Greenpeace
 Fairtrade Foundation
 Amnesty International
A. Pressure groups want changes in 3 important areas
1. Governments to change their policies and to pass laws supporting the aims of the group
2. Businesses to change policies so that, for example, less damage is caused to the environment
3. Consumers to change their purchasing habits so that businesses that adopt “appropriate’
policies see an increase in sales, but those that continue to pollute or use unsuitable work
practices see sales fall
B. Pressure groups try to achieve these goals in a number of ways
1. Publicity through media coverage
2. Influencing consumer behavior
3. Lobbying of government
VII. Social Enterprise
1. they directly produce goods or provide services
2. they have social aims and use ethical ways of achieving them
3. they need to make a surplus or profit to survive as they cannot rely on donations as charities do.
A. Objectives of social enterprises
1. economic – to make a profit or surplus to reinvest back into the business and provide some
return to owners
2. Social -- to provide jobs or support for local, often disadvantaged, communities
3. Environmental – to protect the environment and to manage the business in an
environmentally sustainable way.
Key Terms:
Social Enterprise - a business with mainly social objectives that reinvests most of its profits into
benefiting society rather than maximizing returns to owners
Triple Bottom line -- the three objectives of social enterprises: economic, social and environmental
Examples of Social Enterprise:
SELCO – in India provides sustainable energy solutions to low income households and small businesses.
KASHF -- foundation in Pakistan provides microfinance ( very small loans) and social support services.
Activity 2.4 pg 18
Ch 1.3 Organizational Objectives pg 23-35
I. Introduction
a. importance of business objectives
b. the different forms that these can take
c. including ethical and social targets
II. Importance of objectives
S – specific -- should focus on what the business does and should apply directly to that business
M – measurable – should have a quantitative value which will likely prove to be more effective targets
A- achievable -- enough said
R- realistic and relevant -- should be realistic when compared with the resources of the company
T - time –specific -- a time limit should be set when an objective is established.
III. Aims, objectives, plans and strategies
1. Aim --- long term goals
2. Mission
3. Corporate Objective
4. Divisional Objective
5. Departmental Objectives
6. Individual targets
Activity 3.1 pg 25
IV. Mission statements and vision statements
KEY Terms
Mission statement -- a statement of the business’s core aims, phrased in a way to motivate employees
and to stimulate interest by outside groups
Vision statement—a statement of what the organization would like to achieve or accomplish in the long
term
Pg 24 Simpson – examples of mission statements
A. An effective mission statement should answer 3 questions
1. What do we do?
2. For whom do we do it?
3. What is the benefit?
B. Organization -- vision statement --- mission statement
table 3.1 pg 24 samples
C. Evaluation of These statements
support
1. they quickly inform groups outside the business what the central aim and vision are
2. they help to motivate employees, especially where an organization is looked upon, as a caring
and environmentally friendly body.. Employees will then be associated with these qualities
3. where they guide ethical statements, they can help to guide and direct individual employee
behavior at work
4. they help to establish in the eyes of other groups what the business is about
criticisms
1. too vague and general so that they end up saying little which is specific about the business or its
future plans
2. based on a public relations exercise to make stakeholder groups ‘feel good’ about the
organization
3. virtually impossible to analyze or disagree
4. rather woolly and lacking in specific detail
pg 26 Activity 3.2
V. Corporate objectives
1. based upon the business’s central aim or mission, but they are expressed in terms that
provide a much clearer guide for management action or strategy
KEY TERMS:
Corporate or strategic objectives – important, broadly defined targets that a business mush reach to
achieve its overall aim
A. Common Objectives
1. Profit maximizations -- produce greater total revenue that total costs
B. Limitations to profit maximizations??
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High short term profits may lead competitors to enter the market
Business needs to make an appropriate target rate of profit from their sales
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Small business owners may be more concerned with independence and control, which
may be of higher importance than making a profit
Rate of return on each dollar invested in the business rather than on total profit
Growing concern over job security and environmental issues may force profitability
business decisions to be modified
In practice , it is very difficult to assess whether a profit max point has been reached or
not
C. Profit Satisficing – aiming to achieve enough profit to keep owners happy but not aiming to
work flat out to make as much profit as possible.. (satisfactory level of profit)
D. Growth -- Benefits
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Larger firms are less likely to be taken over and should benefit from economies of scale
Managers may gain higher salaries and fringe benefits
Businesses that do not continue to grow may cease to be competitive and eventually
lose their appeal to new investors
E. Growth --- Limitations
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Over-rapid expansion can lead to cash-flow problems
Sales growth might be achieved at the expense of power profit margins
Larger businesses can experience diseconomies of scale
Using profits to finance growth – retained profits – can lead to lower short term returns
on shareholders
Growth into new business areas and activities – can result in a loss of focus and
direction for the whole organization
F. Increasing Market share
1. Benefits resulting from being the brand leader with highest market share
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Retailers will be keen to stock and promote best selling item
Profit margins offered to retailers may be lower than competing brands as the shops are
so keen to stock it.. more profit for the producer
Effective promotional campaigns are often based on buy our product with confidence..
it is the brnad leader
G. Survival
1. to survive the first two years of business is an important aim for entrepreneurs
H. Corporate Social Responsibility
KEY TERM:
Corporate Social Responsibility - this concept applies to those businesses that consider the
interests of society by taking responsibility for the impact of their decisions and activities on
customers, employees, communities and the environment
I. Issues relating to corporate objectives
1. must be based on corporate aim and should link in with it
2. they should be achievable and measurable
3. they need to be communicated to employees and investors in the business
4. they form the framework for more specific departmental or strategic objectives
5. indicate a time scale --- remember SMART
J.. Conflicts between corporate objectives
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Growth versus profit
Short term vs. long term – lower profits and cash flow may need to be accepted in the
short term if managers decide to invest heavily in new technology
Stakeholder conflicts
Pg 28 Activity 3.3 & Activity 3.4
K. Factors determining corporate objectives
1.
2.
3.
4.
Corporate culture --- who leads and how they lead matters
Size and legal form of the business
Public sector or Private sector
Well-established businesses
VI. Interrelated objectives, strategies and tactics
KEY TERM:
Tactical or operational objectives – short or medium term goals or targets which must be achieved for
an organization to attain its corporate objectives
Senior managers ensure:
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Coordination between all divisions
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Consistency with strategic corporate objectives
Adequate resources are provided to allow for the successful achievement of the objectives
The Hierarchy of Objectives === figure 3.3 pg 30
Differences between strategic and tactical objectives -- table 3.2 pg 30
1.4 Stakeholders
pg 40-42
I. Introduction
KEY TERMS:
Stakeholders -- people or groups of people who can be affected by, and therefore have an interest in,
any action by an organization
Stakeholder concept -- the view that businesses and their managers have responsibilities to a wide
range of groups, not just shareholders
II. Who are the stakeholders??
1. Internal stakeholders
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Employees – employment security, wage levels, conditions
Managers-- employment security, salary and benefits
Shareholders – annual dividends, share price
2. External Stakeholders
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Suppliers -- speed of payment, level and regularity of orders, fairness
Customers --- value for money, product quality, service levels
Government – jobs created, taxes paid, value of output produced
Special interest groupso Banks and other creditors
o Pressure groups
o Competitors
DO NOT CONFUSE “STAKEHOLDER” AND “SHAREHOLDER”
III. Business responsibilities to stakeholders
Table 4.1 pg 41 outlines the benefits to business of accepting stakeholder responsibilities
IV. Stakeholder conflicts
Table 4.2 pg 42 shows potential conflicts of interest between stakeholder groups
Activity 4.1 pg 40
Chapter 1.5 External Environment
pg 46- 54
I. Introduction --- assessing the importance of external influences on business performance
II. PEST analysis
KEY TERM:
PEST analysis --Political, Economic, Social, and Technological – refers to an analytical framework for
external environmental factors affecting business objectives and strategies
TABLE 5.1 pg 46 Examples of possible PEST analysis for McDonald’s
--- Activity 5.1 -- pg 47 & Activity 5.2 pg 47
II. External opportunities and threats
1. Political and Legal constraints
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Employment laws
Consumer protection laws
Business competition laws
Political changes resulting from a new government
Major policy changes such as nationalizing some UK banks after 2008-9
See Table 5.2 pg 47 Political and legal factors and their impact on business
Activity 5.3 pg 48 & Activity 5.4 pg 48
III. Four main macro economic objectives
1. economic growth and the rising living standards
2. low levels of inflation
3. low levels of unemployment
4. balance of payment equilibrium-- between value of imports and exports
KEY TERMS:
Fiscal Policy -- changes in the government spending levels and tax rates
Monetary Policy -- changes in the level of interest rates with make loan capital more or less expensive
Economic Growth -- increases in the level of a country’s Gross Domestic Product ( total value of output)
Inflation -- the rate of change in the average level of prices
Unemployment -- the numbers of people in an economy willing and eable to work who cannot find
employment
IV.. Social and Cultural Influences
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Aging population
Changing role of women
Improved education
Early retirement – growing number of wealthy pensioners
Rising divorce rates -- increase number of single person households
Job insecurity
Increased levels of immigration
A. An aging population
1. changing patterns of demand
2. change in the age structure of the workforce
B. Changing patterns of employment
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Increase in the number of women employed
Increase in student employment
Increase in temp, part time employment contracts
Table 5.3 shows economic factors and their influence on business
KEY TERMS:
Recession: six months (two quarters) of falling GDP growth ( negative growth)
Exchange rate- the value of one currency in terms of another currency
Cost push inflation - caused by rising costs forcing businesses to increase prices
Demand –pull inflation -- caused by the excess demand in an economy, an economic boom, allowing
businesses to raise prices
Activity 5.5 --- pg 5.1 table 5.4 Profile of country’s labor force 2000-2020
V. Impact of Technology
1. costs
2. labor relations
3. Management
TABLE 5.5 pg 53 -- shows the impact of applications of technology on business
KEY TERMInformation technology -- the use of electronic technology to gather, store, process and communicate
information.
Computer aided design -- using computers and IT when designing products
Computer –aided manufacturing – the use of computers and computer controlled machinery to speed
up the production process and make it more flexible
Internet -- the worldwide web of communication links between computers
ACTIVITY 5.6 pg 54
Chapter 1.6 Organizational planning tools
pg 58-65
I. Business Plans
KEY TERMS
Business plan – a written document that describes a business, its objectives and its strategies, the
market it is in and its financial forecasts
Contents of a Business Plan:
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Executive summary – overview of business plan and strategies
Description of the business opportunity – what is going to be sold – why
Marketing and sales strategy
Management team and personnel
Operations – premises to be used—production facilities – IT systems
Financial forecasts
A. Importance of Business Plans
B. Stakeholders and users of business plans
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Corporate planning
Financial forecasts
Updated versions of the plan
Employees will benefit
Suppliers may be able to from business plan if its worth developing long term relationship
II. Decision making framework
A.. Different approaches to decision making
KEY TERMS:
Intuitive decision making – involves making decisions based on instint or gut feeling
Scientific decision making -- basing decisions on a formal framework and a data analysis of both the
problem and the options available
Figure 6.1 pg 59 shows the decision making framework
1. set objectives
2. assess the problem or situation
3. gather data to analyse both the extent of the problem and the information
4. consider all the options available
5. decide between the alternative ideas or options using decision making tools
6. plan and implement the decision
7. control and review
KEY TERMS
Internal constraints -- limiting factors in decision making that can be controlled by the organization
External constraints - limiting factors in decision making that are beyond the organizations control
D. internal constraints
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Organizational structure
Financial constraints
Labor and other resource constraints
Attitude of the workforce to change
E. External constraints
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Changes in the business cycle that may make raising finance difficult or expensive
Changes in legal constraints
F. SWOT analysis
- a form of strategic analysis that identifies and analyses the main internal strengths and
weaknesses and external opportunities and threats that will influence the future direction and success
of a business..
Strengths
Weaknesses
Opportunities
Threats
Table 6.3 pg 64 -- shows SWOT analysis and possible factors to consider
Activity 6.3 pg 65 SWOT analysis
Ch 1.7 Growth and Evolution -- pg 69-79
I. Introduction
A. huge difference between scales of operations between small & large businesses
KEY TERM
Scale of Operation -- the maximum output that can be achieved using the available inputs (resources) –
this scale can only be increased in the long term by employing more of all inputs
II. Increasing the scale of operations
A. risks involved in increasing scale of production
1. purchasing land, buildings, equipment, employing more staff
2. Changing scale of operation means using more or less of all resources
B. Economies of scale
Key Term:
Economies of Scale -- reductions in a firms unit (average) costs of production that result from an
increase in the scale of operations
C. Smaller firms unlikely to have economies of scale
D. The cost benefits arise for five main reasons
1. Purchasing economies
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Bulk buying economies -- suppliers will offer substantial discount
2. Technical economies –
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production and computer systems can be expensive
3. Financial economies—
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banks tend to favor bigger organizations
easier to raise capital from stock holders
4. Marketing economies
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costs can be spread over a higher level of sales for a big firm and this offers
substantial economies of scale
5. Managerial economies
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as firms expands they should attract more specialists to be managers
E. Diseconomies of Scale
Key Term
Diseconomies of scale -- factors that cause average costs of production to rise when the scale of
operation is increased.
F. Three main causes of management problems
1. Communications problems
2. Alienation in the workforce
3. Poor coordination and slow decision making
G. Large scale production – unit costs
III. Merits of small and large organizations
Table 7.1 shows the EU classification of a business size
A.. Significance of small and micro businesses
1. small firms are very important to all economies
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many jobs are created by small firms and the small business sector employs a
very significant proportion of the working population in most countries
small businesses are often run by dynamic entrepreneurs, with new ideas for
consumer goods and services leading to wider consumer choice
small firms create competition for larger firms
small firms often supply specialists goods and services to important industries
all great businesses were small at 1 time
Advantages of a small business vs. a large business are on pg 72 tables 7.2 and 7.3
IV. Recommending an appropriate scale of operation
A. Business owners must weigh up and assess
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owner’s objectives – they may wish to keep the business small and easy to manage
capital available
size of the market the firm operates in
number of competitors
scope of scale economies –
V. Business Growth
A.. Why seek growth??
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Increased profits
Increased market share
Increased economies of scale
Increased power and status of the owners and directors
Reduced risk of being a takeover target
B. Internal Growth
Key Term:
Internal Growth -- expansion of a business by means of opening new branches, shops or factories ( also
known as organic growth
Key Term
External Growth -- business expansion achieved by means of merging with or taking over another
business, from either the same or a different industry
Figure 7.3 pg 73 shows forms of different growth
Activity 7.2 pg 73
Starbucks confirms rapid growth strategy
Key Terms
Horizontal integration --- integration with firm in the same industry and at same stage of production
Forward vertical integration -- integration with a business in the same industry but a customer of the
existing business
Backward vertical integration – integration with a business in the same industry but a supplier of the
existing business
Conglomerate integration --- merger with or takeover of a business in a different industry.
Table 7.4 pg 74 – shows types of business integration and the dis and advantages that come with
KEY Terms
Merger -- an agreement by shareholders and managers of two businesses to bring both firms together
under a common board of directors with shareholders in both businesses owning shares in the newly
merged business
Takeover – when a company buys over %50 of the shares of another company and becomes the
controlling owner—often referred to as acquisition.
Activity 7.3 pg 75 Jet Airways takes over Air Sahara
VI. Joint ventures, strategic alliances, franchising
A. Joint venture
KEY Term
Joint venture -- two or more businesses agree to work closely together on a particular project and
create a separate business division to do so
Reasons for a joint venture
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Costs and risks of new venture are shared
Different companies might have different strengths
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They might have different markets in different countries
Risks of venture
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Styles of management and culture might be very different
Errors and mistakes might lead to one blaming the other
Business failure of one of the partners would put the whole project at risk
A, Strategic Alliances
Key Term
Strategic Alliance --- agreements between firms in which each agrees to commit resources to achieve an
agreed set of objectives
Examples
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With a university – courses created to train better future staff
With a supplier -- help to design and produce components and materials
With a competitor --- to reduce risks of entering a market that neither firm currently operates in
B. Franchising
Key Term
Franchise – a business that uses the anme , logo and trading systems of an existing successful business
Table 7.5 pg 76 Franchises --- benefits and disadvantages
VII. Ansoff’s matrix
Key Term
Ansoff’s matrix --- a model used to show the degree of risk associated with the four growth strategies of
market penetration, market development, product development, and diversification.
C. Two main variables in a STRATEGIC MARKETING DECISION
1. the market in which the firm was going to operate
2. the product intended for sale
D. in terms of the market , managers have two options
1. to remain in the existing market
2. to enter new ones
E. in terms of product
1. selling existing products
2. developing new ones
Figure 7.4 pg 78 shows the matrix
A. Market penetration
KEY Term
Market penetration – the objective of achieving higher market shares in existing markets with existing
products
B. Product Development
Key Term
Product Development -- the development and sale of new products or new developments of existing
products in existing markets
C. Market Development
Key term
Market Development -- the strategy of selling existing products in new markets
D. Diversification
Key Term
Diversification – the process of selling different, unrelated goods or services in new markets
Ch 1.8 HL
Ch 1.9 Globalization -- pg 89 – 94
I. Introduction
KEY TERMS
Globalization – the growing trend towards worldwide markets in products, capital, labor, unrestricted by
barriers
Multinational Companies - business organizations that have their headquarters in one country, but with
operating branches, factories and assembly plants in other countries
Free international trade – international trade that is allowed to take place without restrictions such as
‘protectionist’ tariffs and quotas
Tariff - tax imposed on an imported product
Quota -- a physical limit placed on the quantity of imports of certain products
A. Key features of globalization that have an impact on business strategy
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Increased international trade as barriers to trade are reduced
Growth of multinational businesses in all countries as there is greater freedom for capital to be
invested from one country to another
Freer movement of workers between countries
II. Multinational Businesses
A. Why become multinational??
1. closer to main markets
- lower transport costs
- better market information
- may be looked at as a local company and gain customer support
2. Lower costs of production
-Lower labor rates
-cheap rent and site costs
-government grants and tax incentives
3. avoid import restrictions
4. access to local natural resources
5. take advantage of expanding markets in other countries which will lead to increased sales
and profits
Activity 9.1 South Africa accelerates its car production pg 91
B. Potential problems for multinationals
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Language, legal, cultural differences with local workers
Lack of skills
C. Evaluation of impact of multinational operations on host countries
Benefits
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Investment will bring in foreign currency--- ouput exported further foreign exchange can be
earned
Employment opportunities will be created
Local firms are likely to benefit from supply services
Local firms will be forced to bring their quality and productivity up to international standards
Tax revenues to the government will be boosted from any profits
Management expertise in the community will slowly improve
Total output of the economy.. GDP will be increased
Drawbacks
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Exploitation of local work force might take place
Pollution from plants might be higher levels than allowed in other countries
Local competing firms may be squeezed out of business due to inferior equipment
Possible reduction in cultural identity due to western influence
Profits may be sent back to the country where head office is at—no reninvestment in host
country
Extensive depletion of the limited natural resources
III. Globalization and the growth in international trade
A.. The World Trade Organization (WTO)
B. Regional Trade Blocs
1. Free Trade areas --- NAFTA -- USA, Canada, mexico – no tariffs, quotas.. but they are allowed
to determine import control coming from non member states
2. Customs unions –member countries agree to set same level of restrictions
Mercosur -- argentian, brazil, Paraguay, Uruguay, venzuela
3. common markets -- European union – aim to create the trading conditions that would exist
in one country. (EU) worlds largest common market
4. Economic and monetary unions -- (EMU) i.e euro zone…. Common currency.. interest bank
established by European central bank.
Table 9.1 pg 94 --- shows the impact on businesses in a country that is a member of a regional
economic trade bloc – potential benefits and drawbacks