BUSINESS NOTES (CIE SYLLABUS CODE 9609) 2019 -21 Edition Article: 134 Kashif Aziz MBA (Accounting & finance and Marketing) Visiting teacher at: Green Hali Academy (GHA)-Johar Town Campus Beacon House School System (Defence and College Campus Gulbera) ‘The City School System. Crescent Model School (Boys and Girls campuses). READ WRITE S2 PUBLICATIONS Ginarasuns Ginsesnas — @ wwiaowininy KE eslniwrcybicsonSop (@ Hest OMe: 3. Zar ahi RoC, Late Even btn com Sate Punt Shop No 252 Loner Gnd Fo sta ale Co, Chas St, Ue Bs, Late> > Allright reserved. No part ofthis publication may be reproduced, stored ina retrieval system or transmitted. «any form orby any means, electronic, mechanical, photocopying, recording or otherwise, without the prior writen permission ofthe Publisher. Title A-IL Level Business Teacher's Notes Author Kashit Avie Cll: 492 321 940.2978, nail: kasifaziepk @ hotmail.com Pablished by Printed by Composed by ‘Tite designed by Legal Advisor Read & Write Publications ‘Sadast Printers, Uy Bazar, Labor, Rashid Mehmood, Salman Buksh Resid Mehmood, Raja Naveed Mian Tariq Ahmad (Advocate Supreme Court) Room No. 10, 11 2 AL Majeed Cente |-Morang Road, Lahore “Tel: O42-37236145, Fax: O$2-37241367 Edition Price For Books Order 2018 Edition Call Or SMS: 0336-5314141 DISTRIBUTORS es READ & WRITE SALE POINT ‘Shop No. 25.28 Lowor Ground Floor, Haadia Haleema Centre, Ghazni Street, Urdu Bazar, Lahore, Ph: 042:25714038 Po ‘ABDUL RAHMAN BOOKS ‘Abdul Rahman Plaza, Colege Road, Rawalpindi Tel: 081-5551226, +92-915-5618976 H BURHAN! BOOK CENTRE. Shop # 6 Hashmi Trust Building Rotson Road New Urcu Bazar Karachi Tol 021 32212640 MARYAM ACADEMY Tayyab Ali Building, Urdu Bazar, Karen, Tol: 021 92214243 ,021 32634243PREFACE This is a comprehensive and carefully balanced compilation of all the relevant topics that need to be essentially covered and understood by any AS Level candidate who wishes to ace his Business paper. We have managed to adopt a purely focused and goal oriented approach in this context that would enable students not only to grasp the content but also assist them in analysing and evaluating individual components. Kashif Aziz Coll; +92 321 9402978 Email: [email protected]CONTENTS UUNIT-1 BUSINESS AND ITS ENVIRONMENT... : SI : BA BATERRSE — a 1.2 BUSINESS STRUCTURE nnn ——— se 4121 Local, national and mutational business 40 4.22 Mutinationas a 1.23, Prvatsoion 2 13 SUE OFBUSNESS nnn sn 413.1 External Growth. 4 A uswess Oneerves 2 415 Sraxenounensn Busse, 24 4.6 Exel ivwences on Buses Actor. 27 4161. Political and Legdnnnnnnnininnnninnnnnn ren 7 4162. Economie Constraints ond Enablers. 23 4.63. Social 45 4164 Technological (including the internet) a7 165. Other Businesses. a7 41.66 Demographic a7 487 Environmental a7 UNIT-2. PEOPLEIN ORGANISATIONS. 5 2.4. MawacenenT ano Leensi 52 22. Morwation 223, HUMAN RESOURCE MANAGEMENT (HRI) 70 23.1 Approaches to HRM. nm 23.3 Cooperation between Management & Workforce 79 234 Workforce Planing at 235 Role af Trade Unions in HRM a3 2A ORGANISATIONAL STRUCTURE ne : 89 24.1. Relationship Between Busines Objectives, People and Organisational Structure #9 242 Types of Structure: Functional, Hieochial lt and Narrow), Matis. 0 243 Formal ard informal Organisoions. 95 244 Delegation and Accountability n.sesnsnnnn ce 8 246 Centralstion, 00 247 Uineand stot 201 25 uswess Communication. 103 25.1 Purposes of Communication 303 252 Methods of Communication wusussnnsnnnn (nnd 253. Channels of Communication 109 254 Barrier to Communication at 255. The ole of Management in Facilitating Communication a2UUNIT-3. MARKETING ( LEVEL) a = se 3.4 Wears Mannie. 32 MamerReseancn 33 THE MARRETNG ME 3.4 Mane Plannin 34.1 Market Planning 3.42 Elosticty. 343 Product Development. 344 Forecasting {3.5 GLoRALSATION AND HUTERNATIONAL MARKET 35.1. Globoliation UNIT-4. OPERATIONS MANAGEMENT 40 4.1 THENATURE OF OPtraTiONS 140 42 Orssanions PUAN. : 17 42.1 Enterprise Resource Planning (ERP) 197 43 VERTORY MANAGEMENT ssn 44 capscry Urusarin. 443 Outsourcing 45, eae Prooucrion avo Quaury ManaceMn. 45.1 Lean production: 46 Prosser Manactosn UNIT'S. FINANCE AND ACCOUNTING (A LEVEL) 5.1. THE NEED FOR BUSINESS FINANCE. 5.2 Souncssor France. 53 costs ‘5.1 Approaches to costing: ul, contribution SA ACCOUNTING FUNDAMENTALS we 5.7 Conrenrsor Punusueo AccOUNS.. 5S FORECASTNG AND MANAGING CASH Flows 196 56 Buo«rTs. 190 5.73. Inventory Valuation 193 574 Deprecition, 394 5 Auais oF PunusneD Accounts. 196 5.9 Invisrar APPA. a 199 UNIT-6 STRATEGIC MANAGEMENT (A LEVEN) 208 6.1 WwarissmartcicManaceoent? 621 SWOT Anahsis 622. PESTor External Environment Analysis. 210 623. Business Vsion/Mision Statement and Objectives. 22 624 Boston Mati. 23 6.25. Porter's Five Fores. 217 626 Core Competences 218 626 Core Competences ond Strategy 2195 SINAN COR a0) 631 The Ansoff Mate. 220 63.2. Force Feld Anson snsnnnnnnnnnn 2 aan) 633. Decision Tees .ensnsennnnnn mn A 64 SmATESICIMPLEMENTATION 27 641 Business Plan 227 642 Corporate Culture and Strategic Implementation 230 643. Developing a Change Culture nnn eee 644 Managing ond Controlling Strategie Change enn snd 645 Contingency Planning and Css Management 233UNIT1 Business and Its Environment A-ll Level Business Teacher's Notes Kashif Aziz Cell: +92 321 9402978 [email protected] Resource Center Read 2ecsna'ftssn @ sews Write poco Prvnirosniox] 7, Read & Wht Publications sess fe Erionment Syllabus 2019 -21 Enterprise Business Structure Local, national and multinational businesses Multinationals Privatisation Size of business External growth Business Objectives ‘Stakeholders in a business External influences on business activity Political and legal Economie constraints and enablers Social ‘Technological (including the internet) Other businesses Demographic Environmentalnts sess fe Erionment 2 ead & Wie Publications UNIT-1_ BUSINESS AND ITS ENVIRONMENT 1.1 Enterprise Economic sectors. Levels of business activity: (As-level) Primary sector Secondar | Secior which wil extract raw] That sector of an economy | A sector of economy which Te | material trom natural resources. | which will conveniprocess raw | involved in the production / In financial term i eters to the | material info semi-finished or | provision of intangbble products ‘sector of an economy which | finished products. Eg. a sugar | (services). makes dict use of natural | factory textle unt etc This segment of the economy resources. It includes the |i is. also known as the | provides services to ts agriculture, forestry and fishing, | manufacturing sector. Consumers. it includes a wide mining, and extraction of ll and range of businesses including ‘988 sectors, financial institutions, schools transports and restaurants. is also known as “service induetryisaetor.nts 9 sess fe Erionment ead & Wite Publications 1.2 Business Structure Organisation: ‘A.group of people working together to achieve certain common objectives. Limited Companies: PVT. Lid 60. PLC. 7. Owned and controled by the private sector. | 2. Is also owned and controled by the private 2. Will only sell shares to friends and family | sector. members. 3. Iti sll shares to outsiders/general puble. 3. Ate not registered in stock exchange. 4. -Ace registered in stock exchange. 4. Minimum 2 and maximum 50 shareholders. | 5. Minimum 7 shareholders to start and 1. Divorce between ownership and. control | maximum number wil depend on the amount which means that al shareholders can not | af the authorized share capital manage the business, they will have to elect | 6. DWvarce between ownership and contol a board of directors that will run company on | which means that all shareholders can not ‘hele bohal. ‘manage the business. they will have to elect 5. Management is conducted by 2 board of | a board of directors that will un company on directors consisting of2 directors. thelr Beha. 6. Are not required o publish accounts. 7. Management is conducted by a board of 7. Are lkaly to face less legal formalities. For | directors consisting of 7 directors. ‘example they do not need 10 publish their | 8. Avo required to publish annual accounts. ‘accounts 9. Ave lkaly fo face more legal formalies. Eg. high tx rat. Converting a partnership firm into a PVT. Ltd. Co. Benefits: 1. Parine's lability willbe imited 2. More capital can be generated by selling shares (Max. 0 shareholders) 3, Business expansion could lead 10 economies of scale ‘4. Profitability might also increase 5. Business might become more competitive Draw Backs: 41. More legal formalities to be fulfilled. 2. Tax rate might also increase. 3. Divorce between ownership and control Converting private Ltd co. into a Ple (Nov 03 Q-68) Benefits: +. Huge amount of capital can be raised by sling shares to general publi 2 Business scale cul be expands 3. Might hep to overcome franca problems. {Gp np oncone moe compete aa oml ere competion ugh shilinatonl compares. 5 6 Greater level of economies of scale. ‘Goula get in better position to satisty stakeholders e.g. shareho ca et. Draw Backs: 4. Logalformalties wil increase. E.. high tax rate. 2. Business will no longer remain a family business. ‘3. Will have to public important financial informati Pe Een ‘accounts. 4. Directors will no longer be independent 10nts sess fe Erionment 10 Read & Write Publications What is mean by Flotation? “The process in which a private limited company becomes a public imited company is called flotation. To become a pa, ie. to loa, a company must 1, Produce a prospectus giving details about the company e.9. its activities and accounts. 2. Meet the requirements of the company acts and the stock exchange. Problems of flotation: 1. Gost e.g. of lawyers, accountants, stock holders. 2. May not be able to sell shares at desived pric. 3. Loss of conto. 4. New owners may have diferent objectives. UL Tate foyy folks 1.2.4 Local, national and multinational business Local businesses National businesses Multinationals: A iosal business is the ane | National businesses are_the | Sich Business which have thy ‘whion wil" producelprovice | ones who wil se their produts | production uns and operat {90008 and services forthe focal | throughout the country. For ths | (seling) in other count Bopuiation. it could bein terms | they.» could Setup mutiple | well apart trom the. aU ‘of a small business, or branch | manutacturing units, a the ongin are ‘of @ company ‘opeiating ina | distribution channel” including | mutinational_ cor local area, Local businesses ae | warehousing and privately | example, App more key to be independent | owned delvery vehicles. They | Pizza Ht ee ‘Owned and” operated. Their | may also ‘detign appropiate | Such Cae kely 0 ‘owners have complete corr! | marketing mix 10 achieve tei | operate e{-prueh larger scale ‘over the business that might not | marketing objectives. ang. produce and sel thet be possible in case of franchise. | Sine such businesses are likely | proBuetd other counties. as Such “businesses can cat | 12 operate at a much lager Lygh Tey, se ely f_bing needs of riche markets. For | scale as compared to loca nefits for host countries ‘example, a small scale shoes | businesses so they may be jever there could be certain manufacturer manufacturing | 10 enjoy economies of woacks ofthese as well shoes for disabled consumers. | Such businesses would ‘Note: Normally such businesses. do | to establish businesses | Discussed below. not aim business expansion and | counties. Exanpip@/ol\ Such they operate in a smart or well | businesses couldgbe, Gourmet defines part of the countr etc. xnts 1, sess fe Erionment ead & Wie Publications 1.2.2 Multinational Multinational: Itis defined as a business organisation which has its production units and operations in other counties as \well apart from the country ofits origin. For example, Sony, KFC et. International co: ‘Those companies which will produce goods in their own counties but wll selVexport in foreign countries via agents or through any other suitable channel of dstrution. E.g. Royal fans or Shan spices sell ther products in Middle East but they only produce in Pakistan. Why Govt. might attractiencourage/support MNC’s to locate in its country? 4. They ae Ikely to create more employment opportunities. This wil help to raise the standard of living ct local population and crime rato might also dscrease in county 2. These Companies wil pay taxes 10 Govecrment s0 i may iecease is revenue. Such increased revenue might be used by Government on sects such as health, edueaton and inrestrucure leading to beter standard of Wing and increased business actly. ‘8. Since they are more likely to operate ata very large scales there wil be Increased gross domestic ‘rod! leading to fasior econamic growth. 4. For developing or undexcoveloped counties they aro of immense importance as thoy wil bing in foreign Ivesiment in county which could resulta exploration of resouroas and inceased economic activi. 5. They ae Ika o bring n latest technology in county which wil raise qualty standard and consumers wil got more variety of products. This wil also lead to improvement iniving standards and seondly inereasod compotion might load 10 reduction in pice lovol and domastio fms might bo forced 10 ‘aie thoi qualty standard as wel 6. Mulntionas wil hie local abo (low wage cost) and they wl also Wain them to operat technology. Such training wil result in human resouree development. This wil create new. job opportunites for labor in foreign counties and apa trom this wel ained human resouree might also alract olor mmlnationals to locale in county 7. ‘Since quality standards of products wil improve so they will be able to compete mor ellectvay in intornaonal markets resulting into high demand. Increase in expors cold help to improve balanoe of trade of county 8. Improvement in standard of ing a8 eating of employees wil increase and consumers wil get better prodyets at reasonable pie 9. Thore wil be improvement in relations between counties as thelr economic interest shall be m far oamp, doo Gra Pawan ctromc cori Pace sur av pve ‘a now Chinese secunty Toros are also concerned about the securty of Gwadar Sea por 410. Since goods wil be locally produced 80 his could result in reduction In imports of Rie int improvervent in balance of payment. ‘Why government might be reluctant to allow multinationals to Ic wy gem pee SPE we ‘example Japanese refurbished cars imported in Pakistan have ws inblogy as compared to fs 2 Thy have ben foun guity of expotingomployecs, as hey yt wor overtime without ary ‘extra payment and even in poor working conditions ("sweat 3, They may expiot consumers whan they get stable. For ax a ‘may charge high price duo lack ‘of domestic competitors or create arificial shortage to ch rca, ‘4. "National economy gets dependent on multinationals. 5. They will produce luxuries and will advertise extensive, tfRay lead to inflation. 6. They will go for Mass production and this co Increased social costs e.g. environmental pollution. 7. Thoy may pressurize government and ty to cette Yer own tormsnts 12, sess fe Erionment ead & Write Publications ‘8, Profits might be sent back to country where the head office is based. This could result in outfow of {foreign exchange that might not be desirable from Government pont of view. factory or workshop, especially in the clothing industy, where manual workers are ‘employed a very low wages for long hours and under poor conditions. ‘Why companies might prefer to become a multinational company? 1, They might be able to save transportation cost as they might get near to ther targat market. For ‘example Apple gets is iphones assembled in china and exports to neighbouring countries. Skilled and economical labor might atract them to locate in foreign countries. For example in case of ‘Apple it thinks that Chinese labor is both economical and skiled to assemble iphones. “There might be economical and quality raw material available in foreign counties. “There might be lesser overhead casts. Eg. cost of land, labor, tax rate etc “There might be favorable goverment. pois. E.g. relaxation in tax rate etc “To avoid import restrictions that might have been imposed by the government of host country, Problems companies might face by becoming multinational: 41. They would need huge inal investment. E.g. setting up cost ete. 2. Risk factor wil increase as there will be huge investment and threat of competition from domestic ‘companies. ‘3, They might not be well aware of foreign conditions. .g. language and cultural diferences, in order to ‘overcome tis problem they may have to allocate huge market research budget 4. ‘They might find it dificul fo manage operation at such a large scale. For example managerial diseconomies of scale. 5. Poor communication and coordination with headquarters might lead to misunderstanding, poor decision making et. 6. Foreign labor might lack in skis, so company might have to allocate huge budget for training ‘development 7. Unpredictable potcies of foreign government could lead to uncertainty. ell, tion: us 4.2.3 Privatisation > ‘When Govt. decides to sell its state owned industries ie ‘sector then this process is known as, Prvaaton 9. Patan govermant sold PTCLnts Reasons for privatisation: they are constantly going in loss. For example, stee! mils and PIA in Pakistan. 1 1a ead & Wite Publications sess fe Erionment 2. Ii government does not have time to manage these organisations, 3. If government cannot afford to fund these organisations anymore (due to lack of financial resources). 4. Ih'goverrment thinks that private sector can run these organisation more effecivelyltficienty. For ‘example, PTCL. 5. it government wants to raise the confidence level of private sector to invest more in economy then it might sell it state owned organisations to show its intentions of not getting invalved into commercial acinites. Argument In Favor ‘Against 7. Enables Govt. to generate funds which ean be | 7. Govt might lose control over used for foreign debt repayment or | stralegicimpodant organisations. Eg. infrastructure development. electri (Karach) 2. More employment opportunities, since private |2. Private sector will increase price to become ‘sector i likely to work at very large scale protitable, products may not remain affordable 3. More variety of goods as private sector will| for poor people. Eg. pubic hospitals. produce wide range in’ order to. stay |9._Inorder to become cost effective, management ‘competitive might announce redundancies which could 4. Increased revenue in terms of tax collection. As | increase un-employment when private sector will operate these | 4. Private sector will go for mass production and Corgarisations then it wil pay taxes to0| cause more socal costs ‘government They might attempt to exploit consumers, if will 5. Reduces work burden of Govt. t can spend |” be in a dominating positon, more time on policy making and foreign affairs. |. Govt. might’ have to face crcism tom 6. Increased rate of economic growth, as pxvate | opposition pares which could de-stabalise ‘sector wil go for mass production. (Increased | Govt. hence shaking the confidence level of eDP), private sector companies. 7. Private sector firms might target foreign ‘markets which might help to increase exports. 8. Private sector is likely to spend more on fesearch & development, so. their product ually might improve and this could raise ‘standard of ving of consumers. 9. Private sector firms might pay higher salaries ‘and provide better working conditions, this ‘could help to raise standard of living of femployees. 410. This wil raise confidence level of private sector ‘and more private sector firms might decide to slat busingss inthe countynts sess fe Erionment ead & wri Publications 1.3. Size of Business 41.3.4 External Growth External growth: ‘Tris method of grow will require much larger sums of money as compared to interaVorgario growth. It takes place through the use of mergers and takeavers (often known as growin through amalgamation, or simply integration). Integration itis a form of exteral growth. occurs when two or more businesses join together. This might be through merger ora takeover. Methods of external growtt 1. Mergers ‘Amaro hen to buineen cade ogo together wth he conent teach ar. (herholers ‘and directors) Inaccounting, “A merger isan act or process of purchasing equity shares (ownership shares) of one ar mare companies bya single exsting company’. Merger isa technique of business grows. iis not treated as a business combination. Merger is dane on ‘permanent basis. Generally, itis done between two companies. However, it can be done among mare than two companies. After merger, acquiring company and acquired companies come together to decide land execule a merger agreement between them. Aller merger, acquicng company survives whereas ‘acquired companies do not survive any more, and they cease (stop) to exist. Merger does not result in the formation of a new company. The management acquting company continues to lead (direct) the merges Example of MERGER eq ( =| Qo eo we Types of mergers: WE’ Horizontal merger: % Thpuctaeby acon acpi aampangaRs sin pc ores On When wo or more companies working in the same, ‘Side to get together wih the consent of teach other thon i nown asa horzortal merger <= , Ex NIBbank td. Merged with PICIC and PICIC & il bank on 31+ December, 2007.nts sess fe Erionment 1, ead & Wie Publications Possible reasons /Objectives of horizontal mergers: 1. To reduce competition as one competitor wil be eliminated as a result of merger. 2 Toimprove financial resources as they wil use fund mutually 3 Touse mutual expertise to make business more successful (Synergistic effect). 4 Tocompete with large scale competiors in a more competitive manner. 5 Toensure survival. (In case of economic recession smal fms might merge with large scale fms to ensure survival 8 To.achieve economies of scale. 7 Toexpand target market, Horizontal merger- advantages & disadvantages: advantages: disadvantages: 7 BUBingSSeS Gan achieve Gresley GconomIS GF| 1. Average cost mht increase iT Company & 160 scale. large ard experiencing s-economies 0! scale. 2. Increase in market share. 2. Clash of cuture as businesses that are going 3. Can become ina dominating postion in the | to merge might have been operating using marks. diferent leadership sie 4. Reduction in average cost as a result of|3. There is inlay Ikely to be some extra cost fatonaliston. involved in seeking to harmonise for instance 5. Increased power over suppl wage rates. and accounting systems in two companies, 4. Ttmay lead to monopoly, eventually resuting in consumer exploitation. Vertical Merger: When companies operating at a diferent sage of praducton in the same industry decide to merge, then such an arrangement is known as verical merger E.g. A car manuiacturing Co, might merge wih a tires manufacturing Co. ‘Types of vertical mergers Vertical forward merger: ‘A company will merge with another co. which might be working in an advanced stage. E.9. for te ‘manufacturing co. it wil be a forward meroer. > ono OS Vertical backward merger: ¢ Chi nace nner, ch niga wsig a he rev spo proc NES cr mmanvlacurr hw be a vrteal back ward merge. was we Reasons for Vertical Mergers: Sark 1. Toensure timely sup of nputsreducton in ead tine. Qs 2, Toensur sancadied aly of nuts. © 3 Tosca citrate cats pro nari innate Zo, 4, Togeta conpetve advantage over compettors ix Xe Os 2s os esnts 16, sess fe Erionment ead & Write Publications Vertical merger- advantages & disadvantages: advantages: disadvantages 7, Reduction in cost of inputs, Eg. material 1. Capacity balancing issues. E g. frm may need 2. Better contral over supplies. to build excess upstream capacity to ensure 3, Qualty of products can be improved further. that its downstream operations have sufficient 4 Might’ resuit’ in maximum consumer | supply under all demand conditions satsfacton, (Due to improved quality) 2. potentially higher costs due to low efficiencies 5. Increase eniry barriers to potential competitors, | resulting rom lack of supplier competition. {or example, I the im can gain sole access to | 3. Decreases abiliy to increase product variety if ‘scarce resource, significant in-house development is required. 68, Leads o expansion of core competencies. | 4. Developing new core competencies may compromise existing competencies. 5._Increased bureaucratic costs Conglomerate merger: |When two companies having co common business but decides to poo! resources for some other reason, the deal is caled conglomerate merger. tis also known as lateral merger. Examples: ‘Ashoe manutacturer buys a biscuit producing business. ‘Ou Procter & Gamble (NYSE:PG), a consumer good company, engaged in just such a transaction with its ‘2005 merger with Gilt. At the time, Procter & Gamble was largely absent from the men's personal care market, a sector led by Gillette. The company's product portfolio was complimentary, however, and the ‘merger created one ofthe world's biggest consumer product companies. Takeover: Itis also known as acquisition. Itis the buying of one company (the target’ by another. Or IVa business buys controling shares of another business to exer its contrl then such an arrangement is Known asa takeover. Examples: ¥_Inyear 2015 PARCO (TOTAL) ook over Caltex in Pakistan, ¥_Inyear 2015 Qubee took over Wateen telecom’ intemet services. Yin September, 2013 Micro sat took aver Nokia for $7 Boilion, J. LA in yeor 2013' Hab bank ied (HBL) in Pakistan took over CYTI bank's Soaexi aio N ‘consumers business poriolo comprising credit card business, auto financing and perso In Pakistan Metro cash and carry ook over Makro cash and cary. C pas Difference biw merger and takeover (acquisition): oO Tage aa aon 7 Two ime are combined on a eaivaly co ‘One fim aia) 7 ccqual bass 2 ean of controling share, a 2. Parent stocksishares are usually retired the target firm's stock. land new stocksishares are issued. 3 ly or hose. 3, Name may be the original ora 4 fy done through a tender offer. ‘combination 4 One of the partners takes over the | 6 dominant management esnts 7, sess fe Erionment ead & Wie Publications Friendly takeovers: Ina friendly take-over, the bidder informs the company’s board of directors before making an offer for ‘acquiring its shares. Deal wil be finalized by the management of both businesses. E.g. In year 2013 Habip bank limited (HBL) in Pakistan took over CITI bank's (Pakistan's operations) ‘consumers business porttoto comprising credit card business, auto financing and personal loans. Hostile takeover: ‘A take-over is considered hostile i 1. The boa rejects the offer but the bidder continues to pursue it, of 2. The bidder makes the offer without informing the board before hand, For example, Micro soft attempted to takeover yahoo in early 2008, ‘Takeover/Acquisition- advantages & disadvantages: disadvantages 7 Brand aware ‘as the business | 1 The bigger the business the harder to contol. ‘expands, allowing more advertising, products | 2. More decision making and high isk. ‘and serves. 3. More expensive eg. more running costs, more 2 Ienables to speedily acquire resources and and, more supplies, more products need 10 ‘competencies. 'be made, new locaton, 3, Iallows entry in new products and markets. | 4. Aequling company usually have to pay a Fisk of new product development daccoases. premiumigoodwil 10 take aver other businass, 4. Acquiring company might also gain market | this means the bidding fim has to earn higher power. Pols to cover intial costs. '5. ‘oguiting compary might overcome market | §. There might be a clash of culture as now wo bartier by acquiring an existing organisation. |” businesses wil work under the | same “The risk of compelive reactions decreases. management and there might be different 6. Organisation with low share value or low price | management policies or diferent leadership ‘earning rato can be acquired to take short term | style ‘gains through assets stripping 6, Diseconomies of scale might occur. Eo, coordination and contol Assets stripping: Wing sep ya unr ncmpery toxepaty bt ml inact ano OE pet Tn ited sae warps meet bx tnt ar repo, may be moe vauebl than the compar as le dew such acre a per manager ele eclosion S Retrenchment: Co When atm dees © wither tom cern pros or makes tfais ons Key og ion mt be more pit ard succes nN ON ‘Synergy: SV ‘Tre concep tha the valve ang eromance of wo compares combined wif@ Shan he sum of tho separate individual parts. Synergy is a term thats most commonly usedap tie gontext of mergers ard cquitions. Synergy, or the polenta facial benefit achieved throu ining of companies, s ‘often a driving force behind a merger. Shareholders wil benef if a = post merger share price increases due to the synergistic effect of the deal. The expected! rachieved trough the merger canbe atrbted to vans fats, such as increased revenueg, comb lent and echalogy, or cost aie x ee Management buy-outs: é aie When management team in a business becomes t ually by buying the shares from its existing ‘owners. It would raise the finance isa rom banks inetttions,nts sess fe Erionment 1. ead & Write Publications Management buy-ins: |When an outside management team takes over a business. it normally happens in case of family owned ‘businesses with no clear line of succession when the head of the family retires, One example was F & AE Lodge, a Huddersfield based supermarket chain. Edward Lodge the chairman sold the business to @ ‘group of outside managers when the Ladge family decided to rete, Holding company: ‘A-company that owns enough voting sharesistock in another company to contol its board of directors (And, therfore, controls its policies and management), Eg. ABC. Limited company owns 60% shares of XYZ. limited company. In this case ABC lied ‘company wil be the holding company, Subsidiary company: ‘A subsidiary or sister company is a company that is completely or party owned and party of wholly Controlled by another company that owns more than half of iis shares/stock. In some casos It is a {government or state owned enterprise. The controling company is known as holding/parent company. Eg. ABC. Limited company owns 60% shares of XYZ. limited company. la this case. XYZ. limited ‘company wil be the subsiary company. Group companies: ‘A holdinglparent company and all ofits subsiciaryssister companies are collectively known as group ‘companies, Joint ventures ‘A partnership agreement between two or more than two businesses according o which these businesses ‘docide to cay on a project by sharing thelr cesources. They will share prolis and losses in the agreed rallo. They might cveate a separate division for this project. Example: Al Ghurair Giga Pakistan (Private) Lid is a joint venture betwoen two of the UAE's largest business ‘conglomerates, the Al Ghurair Group and the Giga Group. Involved in projects concerning Real Estate, Banking, Textiles and Gold Refining, they have bult a reputation based on the trust of ther clients by Oe ‘Qualities of business objectives: 2%, cy Objectives ofa business must be ‘SMART’, ~~nts 22 sess fe Erionment ead & Wile Publications Specific: must set out that what is expected to be achieved: Measurable: {Ai the end business should be able to determine that how much it has achieved. Agree Al partiesindviduals involved must agree on abjectivestargets Realistic: “They must be achievable, otherwise they might lead to de-motivation of stat, Time specific: “They must have time imi in which they should be achieved, Hierarchy of objectives: Market share of 12% [Sales per customer of £45 Coe) oper 00 ‘What is a mission statement? {A statement in which a businass wil write down all undamertal obectves of ts formation. it will bo Geplayed at prominent places in the organisation. It wil Koop on reminding employees about the ‘xpactations of thar omiployr. Greaing @ mission statement is one of the fst actions an organisation should take. The mission statement can be the foundation stone of an overall stategy and then be followed thvough ilo the ovelopment of more specific funcional statgies. By detiing a mission an ogarisalion is makiip a lar saloon fs purpooe. S$ SR'fcod' mston steterron captures an orgariston’s unigue and encusng reason fr a crores stakshoters to prev common golf ako enables = locoed aocaton of al fesouees because t compet re aans some tough questions What su Dl wows ‘is What are we tying fo actomplen (Ba, 298) ON ya Example Mission Statements Se oa Gok Eventing wo dis aired by ou ecring sion Qs ¥" To Refresh the Word... in body, mind, and spr. © 2 Te inepre Moments ofOpeminn rough ur Sands ana our eo 1 RES Mmiaitaa. omernts sess fe Erionment ead & whi Publications ‘The hierarchy of setting objectives: Importance of having clear objectives: 4. Enables management to communicate employees what it expacts them to achiove. 2. Gives a clear guideline to employees that what they are supposed to achieve. 3, Provides a base of evaluating performance of dlferent employees. for example if employees will be able to achieve objectives then management wil consider them efficient employees or vice versa. 4, Target setting might help to raise level of motivation of employees. For example according to McGregor group "Y’ managers believe that employees respond postively when they are given targets. ‘5. Orgainsational resources shall be allocated accordingly hence decreasing the chances of wastage. Objectives of a private sector business organisatoin: 1, Achieving maximization of consumer satistation, 2. Tomaximise prof 3, To inorease market share, 4. Business expansion growth ‘5. Survival. (during economic recession or during tough competion) 6. Produce qualty products. 7, 8 8, Produce a varity of products to target mutiple market segments. go ‘To create brand loyal < To improve company’s image. Oss ‘0. Tohave ahighly motvated and well trained workforce. wos 11, Be a responsible corporate ciizen and minimise social cosis. E.g. environmental poluighy» CD 12. Share success with society and provide them some social beneis. Eg Trust he eto. 13, Help Gout. in achieving ts economic growth targets. Eg, by increasing exporis, S™ 14. To meet competion etecvely. Sov 15. To acheve sonomies of scale Ve ® ‘What stops firm to achieve its objectives? ww > 1. Businass might not be able ta design an appropiate strategy to glove abjocves. 2._Itmight not be able to manage and implement its strategy ive objectives. 3. Compatiors might adopt aggressive statogy against co. ef Wey ht ater into pice war. ‘4 There might be some economic fvctuatons. Eg. econo fon might not enable co 0 achieve high marketshare ‘5. Shitin consumo tronds could aso infuonce succose Grea ine co. 8 ioral ervormona actors eg, rasta ripe let of sls of employees might not erabe& to achieve desired objectives.nts sess fe Erionment 2 ead & wile Publications Stakeholders 1.5 Stakeholders in a Business Stake holders: All those individuals, groups oF organisations wo might be having any interest in the business or they might be effected cue tothe operations of business. This interest of stakeholders isnot necessary to be a financial interest, Their interest could be @ direct or indirect interest. They will be able to influence cisions of an organisation. A business organisation is required to satisty thelr interest both from legal and ethical point of view. Types of stakeholder infernal Exeral T Ownertare Folders 1 Gover 2. managers 2. Consumers 3. empoyeos 3. Compettor 4. aeges 5. Bans oO Local communi i Mage _ QV, ‘Ownersishare holders: xo ws ‘Achieve maximum level c consumer sistacon, awe Proft maximisation & Business growth, x To create brand loyalty. ‘To have a good reputation inthe market ‘Tobe a responsible corporate clizen and min Achieve economies of scale Be the marke leader! achieve maximum market share, £2 os einnts sess fe Erionment 26 ead & wile Publications Managers: Empowerment Career growth opportunities ‘Training opportunites Business growth More salaries and tinge benefits Employees: 1. Democratic style of leadership. ‘Good working conditions. Reasonable salary and fringe benefits, eb satety (contract ‘Training opportunites. Businoss must follow he th & safety laws, External stake holders: Government: ‘Should pay due taxes. 2. Should provide maximum job opportunites. 3. Must follow laws 4. Maximum expors. 5. Minimum social costs. 6. Maximum social benefits. 7. No consumeriemployees explotation Consumers: 4. Businoss must offer quality products. 2. Reasonable pric. 3. Maximum variety. 4. More alter sales services. '5. Must have good reputation and use environmentally rlendly techniques of production. ‘Competitors: 1 Must not enter into price war: 2. Have beter cooperation and understanding so that they can respond collectively to common, 9, high ax fom govt, moe 3. Have access to publish accounts to conduct nancial analysis xy 4, Have intormaton regain ture plane of competes to design ts own stategy. On ‘Suppliers: 1. Must bea bya customer 2 Must by ino 3. Mist oman minimum cred tine. 4 Mist tow proper tm for delvery of goods xs 5. Must nota we Banks: 4. Mustget loans oF 2. Must mantain accounts wi the bank Oe ‘3. Must make regular payment of loan installments @ 2. st bea highly prttalebsiness so har banana vst 5. Must also use other banking services e.g. bank draff etter of credit etc.nts sess fe Erionment 26 ead & Wile Publications ‘Must provide job opportunites to local community Minimum social cost Maximum social benefits Business must be successful so thal value of real estate can increase “Must provide training opportunities fo youngsters so that their career growth chanoes can increase 1 2 3 4 5 Me Must give advertising orders 1. Have access to financial reports of business 2. Should not exploit consumers/employees 3. Must follow laws 4. ts executives must participate in programs of mediants 27 sess fe Erionment Read & Wri Publications 1.6 External Influences on Business Activity External influences on business activity 1.6.1 Political and Legal ‘The impact of the government and law on business activity ‘Government is responsible to govern the economy. In order to ensure this government wil introduce laws that might constrain decisions and activities of a business organisation. Such goverment laws fall info the following main categories 41. Employment practices and concitions of work. 2. Marketing behaviour and consumer rights. 3. Business competion 4. Location of business: Employment practices and conditions of wort ‘Such laws are Intended to control ralationship between employer and emplayees. Two main objectives of ‘such laws could be: 4. To prevent employees exploitation by the employer. In this regard, government might set minimum level of heath & safety and minimum wage rates. 2. To control excassive use of Yade union collective action, for example, srke ete. Legal consainis usually cover the folowing areas of employment practices: + Recruitment, employment contracts and termination of employment + Health and safety at work Minimum wages. + Trade union rights and responsibities. Recruitment, employment contracts and termination of employment: Such laws are intended to protect employees. In this government will pass laws regarding contract of ‘employment, its contents. Such employment contract will create a sense of seculy amang employees as all terms & conaition willbe documented and in case of violation of any clause employee will be able 10 provide the evidence. Apart from this other laws might be related to holidays and pension entitements, minimum wage rate, length of working hours ele. Such legisiaton wil also help to protect discrimination against people during recruitment and selection or while al work on the grounds of race, colour, gender or religion. Government will also ty 10 protect employees against unfair dismissal or redundancies. For ‘example, in EU counties large-scale redundancies have to be discussed with the trade union leader with work councils before the court will accept the legality of action. In the same way in case oP wa) ae Every government wil set target forthe whole economy. ‘objectives. Every government would wish that ecor ‘can be increased along wit rate of employment an possible objectives could be: joctves are referred as macroeconomic’ {its country must grow so that it tax collection ent in standard of living of people. Thesents sess fe Erionment CER ar ee a ees teen ae remet ae ne SS aa ar Sateen int Sse einen ot ma Saad let ek Sin Seo untae asta See ie oe ce ata ey coe Ta ee ate era es Th at ee he aoe arene How government objectives could be in contlict: Unfortunately several ofthese government objectives could be in cont wih eachother. 1 Inflation versus unemployment: It government wil attempt to decrease the rate of unemployment then it might create demand pull inflation ‘a8 consumers will be having strong purchasing power and they will demand excessive quantity of goods that could lead to shortage and price level might increase. AS the employed people will have more disposable income to spend so it may also lead to cost push inflation as labor cost for businesses wil increase and they will pass on these higher costs to consumers in terms of high price. f 2 Economic growth versus inflation: ano ‘th tne ineased level of economic gro more goods and services wil be bought and sag. fa is Tead to increase in incomes o the employers and employees. Due to Increased comes a ese ‘eople wil Gemand more and more goods and services which coud lead o demand py inthe Shor tem . mt WO Ser 3 Economic growth versus balance of payments: oO Wien gous wat ab echee stag QD tents! come ee coo ee ee a a ones Se cee a Siileectyeeenane ee" we 4 Economic growth versus environmental sustainability: apd economic growth wll increase demand for goods andbgetjgs and tis could ad xa pressure ‘on searco environmental sources and could treaton the pdeaitliy of bing standard in futuro ee s <nts sess fe Erionment 1 ead & Wile Publications Economic growth ‘What is economic growth? Economic growth is defined as the amount of goods and services produced per head of the population ‘over a certain period of time. itis measured in terms of gross domestic product (GDP). Gross domestic product is the value of goods ‘and services produced in the country in a year. If GOP of country is increasing as compared to the last ‘year then itis Said that economy of that country is growing or vice versa, Causes of economic growth: 41. lnvestmentin capital goods wil increase. 2, Businesses wil invest more in technology that will lead to mass production, ‘3. Improvement in skis of labor force might enable businesses to produce more. 4 5 serealetueneosan nant rane arena ere outst cou ad buses grow fo Pca encanta growit: xo 1. Due fo economic growth income of consumers wil increase. This improved pu consumers might enable them ob more goods ard Sorvces and race tek sai 2. Since thee wil be a high demand fr goods and services in economy $0 vil increase ther scale of rocucton and more job opportunities wil be crested Jae PAU lead 0 Toher ierease in Corand for goods an sencces and crm rtein soe i 3. Since government will be able to collect higher amount of taxes due to i 1880 economic activity 0 {waite oqrestaron eae, nee ato ODP a wae 4. Shee governments tx collection wil increase duet higher levieeqaromie acti so increased revenue can'be utzed 10 improve pub. services sucrwa hen. exicaton, inestuctre evelopment te < 5. With higher real GOP a society can devote more resay Ske faromotereeycing and the use of renewable resources canbe increased. o 6. Eoonomic growth willbe a postive indicator for inveg@rgferetore there is a chance that it could seein stn OO snts 22 sess fe Erionment ead & Wile Publications What a business organisation need to cope with economic growth: ‘To cope with economic growth a business may need: 1. More staff to meet increased market demand far goods and services, 2. More investment in technology in order to achieve mass production. ‘3. Bigger premises to accommadate machinery and increased man power. The business cycle “itis un-natural forthe economic growth to be achieved at a steady or constant rate. Economies tend to ‘row at very ciferent rates overtime. This is known as business cycle” O “The term business cycle refers to economy wie fiscuations in production, ade, and general economic actly. oo “The business cycle isthe four phases of economic growth and subsequent decine.Itis more commonly called the boom and bust eye” ‘The aim of economic policy is to keep the economy in a healthy growth rate. it must be fast enough to Create jobs for everyone who wants one, but slow enough to avoid inflation. Unfortunatly life is not 60 simple. Many factors can cause an economy to spin out of contol or settle into depression ‘The most important over-riding factor is confidence of investors, consumers, businesses and politicians ‘The economy grows when there coniéence inthe future and in poieymakers, ard does the oppose when confidence drops. The 4 stages of the business cycl ‘There are four phases that describe the business cycle. At any point in time you are in one of thes stages. Ww ny raced me co 1 Boom: Its a period of time during which sales ofa product or business increases very rapidly 2 Recession: é itis @ period of temporary economic decine. Owing this te period trade and ro we rn ay ae roms non ema 3 Recoverylexpansion: Ii ane period wen economy stars 0 Grow agai. nti there wi be Mins Tore il be mote obs ane demand for goose an senoes wi ice 4 Trough: oe Itis when the economy hits bottom, usually in a recession the business cycle. Lo”nea 29 Busnes Envtonment Read & Wite Publications ‘What happens at each stage? ‘Sago of business Koy features Tikely reactions by businesses cyole Fecovery/Expansion | 1. Consumer spending wil nerease. [7 Business right get an opporuniy 2. Seale of production wil rise. to increase price. 3. investment in economy will | 2. It might encourage new businesses increase. stan vp. 4. Confidence of businesses will | 3. Businesses wl increase investment increase. in growth projects 4, There willbe a high rate of capacity uiilsation of businesses. Boom 7. Inflation wil inoease T. Businesses wil increase price of 2. Some businesses might not be | "thei products. able to moet market demand. | 2. There is expected to be a rise in 3. Business will earn high profit but | wage level as. trade union. wl their costs wil also increase. demand wage increase due to isng 4. Interest rate wil increase to | inflation contrat rising ination 3. Demand for loans is expected to fall duet ris in interest rate Recession 1. Thee wil be Tow demand Tor] 7. Businesses are expected fo Sxpore goods and services, new markets with a view fo extend 2. Investmentin economy wl fal thelr product ite cycle. 3. Duet low demand or goods and | 2. Redundancies may be announced services profits of businesses will| businesses to reduce cost. aso fal. 3. Small scale businesses might decide to quit. ‘Stump 7 lloreat rate willbe low T. Businesses might reduce price of 2 Businesses might not be able to | thei produets in order to survive repay ther debis and become | 2. Some businesses might close bankrupt down 3. There is expected to be a high |3. Business might announce rate of unemployment redundancies. 4. There is expected 10 be a low level of consumer spending. Effect of economic growth on different types of producers: Tine ot pacer | — Ding soonaa goth uring Eons Taeee Te pase They et epan o powetmix[ 1 They nih mov ret Eg mate phones, | by ei nw range alee ae 4 ta ot 2. They walingesse pre to cam | sorb oOo mre pot 2. Thoy malt docs gS i Sorease 2 Reyer sae mae] ey Sek enna ot prertobonal bust Tage 4. Troy ose ner sae of. Thy mayne bites pronation proton ena sre 4. eR launch now product 8 oe survive. Tapal wie | Thy aR pote Tah ate [Tere mat decease ceo rasiews. "Eg | aoledprivuce wince saan pine’ pad |2. Theymgntuse haruniquesetrp| hey ‘might Increase romotina noodles. pois to ncrease sales osoet 3. Some producers may conti ke ‘Some producers may continue in the ihe sare way. se te sare vay as arenes may nol be rol be atoded cue © Spgs | sfodua cue to orovome gow gownnts 24 sess fe Erionment Read & Wri Publications Inferior goods | 1. They might decide to expand | 1. They might decide to use their Producers." E.g.| target. market by entering into | unique selling point in their marketing public transport. upmarket segments, Eg. luxury | strategy, “ow selling price” buses. 2. They might use ree sampling to 2. They might decide to produce high | promote thle product. value added products, 3. They. might expand _distbution 3. They might decide to expand size |" network to compensate lost sales, of thelr product mix by launching new product range, “all wo” Inflation: we What is inflation? 0S Its defied as the persistent raise in general price level, @ig price level means that the iteral para pov evn rnc gag soars S es