AS&A Level Business Studies

Question	Answer
Consumer goods	the physical and tangible goods sold to the general public - they include durable consumer goods, such as cars and washing machines, and non-durable consumer goods, such as food, drinks, and sweets that can only be used once.
Consumer services	the non-tangible products sold to the general public - they include hotel accommodation, insurance services, and train journeys.
The Factors of Production	Land Labour Capital Enterprise
Capital Goods	the physical goods used by the industry to aid in the production of other goods and services, such as machines and commercial vehicles.
Creating Value	increasing the difference between the cost of purchasing bought-in materials and the price of the finished goods are sold for.
Added Value	the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for.
The economic problem	All societies face the economic problem, which is the problem of how to make the best use of limited, or scarce, resources. The economic problem exists because, although the needs and wants of people are endless, the resources available to satisfy needs and wants are limited.
Opportunity Cost	the benefit of the next most desired option which is given up
Entrepreneur	someone who takes he financial risk of starting a new venture and has some of the characteristics associated with entrepreneurship such as risk taking, innovation and leadership.
Social Enterprise	a business with mainly social objectives that reinvest most of its profits into benefiting society rather than maximizing return to owners
Triple Bottom Line	the three objectives of social enterprises; economic, social and environmental
Primary sector business activity	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.
Secondary sector business activity	firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making, and construction
Tertiary sector business activity	firms that provide services to consumers and other businesses such as retailing, transport, insurance banking, hotels, tourism, and telecommunications.
Public sector	comprises organizations accountable to and controlled y central or local government (the state)
Private Sector	comprises of businesses owned by individuals or groups of individuals
Mixed Economy	economic resources are owned and controlled by both private and public sectors
Free- market economy	economic resources are owned largely by the private sector with very little state intervention.
Command Economy	economic resources are owned, planned and controlled by the state.
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
Advantages of sole trader organizations	1. easy to set up 2. owner has complete control 3. owner keeps all the profits 4. able to establish close personal relationships with staff and customers 5. business can be based on the skills or interests of the owner
Disadvantages of Sole Trader organizations	1. unlimited liability 2. often faces extreme competition from bigger firms 3. owner is unable to specialize in areas of the business that they find most interesting 4. difficult to raise additional capital 5. long hours necessary to make the business pay 6. lack of continuity - as the business does not have a separate legal status, when the owner dies so does the business.
Partnership	a business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.
Advantages of Partnerships	1. partners may specialize in diffirent areas of business management 2. shared decision making 3. additional capital injected by the partner 4. business losses shared between partners greater privacy and fewer legal formalities than corporate organizations
Disadvantages of Partnerships	1. unlimited liability for all partners (with some exceptions) 2. profits are shared 3. as with sole trades, no continuity 4. all partners bound by the decisions of any one of them 5. not possible to raise capital by selling shares 6. a sole trader, taking on partners, will lose the independence of decision making
Limited Liability	the 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.
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
Advantages of Ltd's	1. shareholders have limited liability 2. separate legal personality 3. original owner is still often able to retain control 4. able to raise capital from the sale of shares to friends, family, and employees. 5. greater status than an unincorporated business
Disadvantages of Ltd's	1. legal formalities involved in establishing the business 2. capital cannot be raised by the sale of shares to the general public 3. quite difficult for shareholders to sell shares 4. end-of-year accounts must be sent to the Companies House - available for public inspection there (less secrecy over financial affairs than a sole trader or partnership)
Share	a certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights.
Shareholder	a person or institution owning shares in a limited company
Public Limited Company	a limited company, often a large business, with the legal right to sell shares to the general public - share prices are quotes on the national stock exchange
Documents needed to set up a company in the UK	1. Memorandum of Association 2. Articles of Association
Memorandum of Association	this states the name of the company, the address of the head office through which is can be contacted, the maximum share capital for which the company seeks authorization and the declared aims of the business.
Articles of Association	this document covers the internal workings and control of the business - for example, the names of the directors and the procedures to be followed at meetings will be detailed.
Advantages of Plc's	1. limited liability 2. separate legal identity 3. continuity 4. ease of buying and selling of shares for shareholders - this encourages investment in plc's 5. access to substantial capital resources due to the ability to issue a prospectus to the public and offer shared for sale
Disadvantages of Plc's	1. legal formalities information 2. cost of business consultants and financial advisors when creating such a company 3. share prices subject to fluctuation - sometimes for reasons beyond the business control, for example, the state of the economy 4. legal requirements concerning disclosure of information to shareholders and the public, for example, the annual publication of detailed report and accounts 5. risk of turnover due to the availability of the shares on the stock exchange 6. directors are influenced by the short-term objectives of major investors.
Features common to all cooperatives	1. all members can contribute to the running of the business, shared workload, responsibilities and decision making, although in larger cooperatives some delegation to professional managers take place 2. All members have one vote at important meetings 3. Profits are shared equally among members
Potential drawbacks of cooperatives	1. poor management skills, unless professional managers are employed 2. capital shortages because no sale of shares to the non-member general public are allowed 3. slow decision making if all members are to be consulted on important decisions.
Franchise	a business that uses the name, logo and trading systems of an existing successful business
Benefits of Franchises	1. fewer chances of the new business failing as an established brand or product are being used 2. advice and training offered by the franchiser 3. national advertising paid by the franchiser 4. supplies obtained from established and quality - checked suppliers 5. franchiser agrees not to open another branch in the local area
Drawbacks of franchises	1. share of profits or revenue has to be paid to franchiser each year 2. initial franchise license fee can be expensive 3. local promotions may still have to be paid for by the franchisee 4. no choice of supplies or suppliers to be used 5. strict rules overpricing and layout of the outlet reduce owners control over their own business.
Joint Venture	two or more businesses agree to work closely together on a particular project and create a separate business division to do so
Benefits of Joint Ventures	1. Costs and risks of a new business venture are shared - this is a major consideration when the cost of developing new products is rising rapidly 2. different companies might have different strengths and experiences and they, therefore, fit well together 3. they might have their major markets in different countries and they could exploit these with the new products, more effectively than if they both decided to "go at it alone"
Drawbacks of Joint Ventures	1. Styles of management and culture might be so different that the two teams do not blend well together 2. errors and mistakes might lead to one blaming the other for mistakes 3. the business failure of one of the partners would put the whole project at risk
Holding Companies	a business organization that owns and controls a number of separate businesses, but does not unite them into one unified company
Public corporation	a business enterprise owned and control by the state - also known as nationalized industry
Advantages of public corporations	1. managed with social objectives rather than solely with profit objectives 2. loss-making services might still be kept operating if the social benefit if great enough 3. finance raised mainly from the government
Disadvantages of public corporations	1.tendency towards inefficiency due to lack of strict profit targets 2. subsidies from the government can also encourage inefficiencies 3. government may interfere in business decisions for political reasons, for example by opening a new branch in a certain area to gain popularity
Different measures of business size	1. Number of employees 2. revenue 3. capital employed 4. market capitalization 5. market share
Revenue	the total value of sales made by a business in a given time period
Capital Employed	the total value of all long-term finance invested in the business
Market Capitalization (definition & formula)	the total value of a company's issued shares market capitalization = current share price x total number of shares issued
Market Share (definition & formula)	sales of the business as a proportion of total market sales total sales of business / total sales of the industry x 100
Benefits of encouraging small business units	1. jobs created 2. innovation and motivating others 3. small forms can create competition for bigger firms 4. can offer specialist goods 5.possibility of growth in the future 6. lower costs and therefore possibly lower selling price
Loan Guarantee Scheme	a government-funded scheme that guarantees the repayment of a certain percentage of a bank loan should the business fail. This makes banks much more likely to lend to newly formed businesses. However, the rates of interest are often higher than market ones and the firm must pay an insurance premium to the government.
Strength of Family Businesses	1. Commitment: the family owners are often dedicated to seeing the business grow and prosper so they have added incentive to reinvest in the company and have long term objectives 2. Reliability and Pride: because family businesses have their reputation and name associated with their products they strive to keep and improve the quality of products and relationship with stakeholders. 3. Knowledge continuity: families in business pass accumulated knowledge, experience, and skills to the next generation. This increases their level of commitment and gives tools to run their family business.
Weaknesses of Familly Businesses	1. Succession/continuity problem: only 15% of family business manage to continue into the third generation this can be due to lack of skills and dedication. 2. Informality: because most families run their businesses themselves, there is usually little interest in setting clear and formal business practices. As the family and the business grow, this can lead to inefficiencies and internal conflicts. 3. Traditional: there is quite a reluctance to change systems and procedures, preferring to continue to operate as it was historically run. Lack of innovation could happen. 4. Conflict: problems within the family may reflect on the management of the business and make effective decisions less likely.
Reasons for Business Growth	1. increased profits 2. increased market share 3. increased economies of scale 4. increased power and status of the owners and directors 5. reduced risk of being a takeover target
Internal Growth	expansion of a business by means of opening new branches, shops or factories. (also known as organic growth)
What are SMART objectives	Specific Measurable Achievable Realistic and relevant Time-specific
Hierarchy of Objectives	↓ (increasingly detailed) AIM MISSION CORPORATE OBJECTIVES DIVISIONAL OBJECTIVES DEPARTMENTAL OBJECTIVES INDIVIDUAL TARGETS ↑ (increasingly strategic)
Benefits of establishing corporate aims	1. they become a starting point for the entire set of objectives on which effective management is based 2. corporate aims can help to develop a sense of purpose and direction for the whole organization if they are clearly communicated to the workforce 3. They allow an assessment to be made, at a later date, of how successful the business has been in attaining goals 4. Aims provide the framework within which the strategies or plans for the business can be drawn up. A business without long-term corporate aims is likely to drift from event to event without a clear action plan.
Mission Statement	a statement of the business's core aims, phrased in a way to motivate employees and to stimulate interest by outside groups.
Benefits of Mission Statements	1. quickly inform groups outside the business what the central aim and vision are 2. can prove motivating to employees 3. often include moral statement or values to be worked towards, and these can help to guide and direct individual employee work behavior 4. are not meant to be detailed working objectives, but they help to establish in the eyes of other groups "what the business is about"
Drawbacks of Mission Statements	1. too vague and general, so that they end up saying little that 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 really analyze or disagree with 4. often rather woolly and general, so it's common for two completely different businesses to have similar mission statements.
Common Corporate Objectives	1. Profit Maximisation 2. Profit Satisfaction 3. Growth 4. Increasing market share 5. Survival 6. Corporate social responsibility (CSR) 7. Maximizing short - term sales revenue 8. Maximizing shareholder value
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 beyind the legal obligation that they have.
Stages of the decision-making framework	1. set objectives 2. assess the problem or situation 3. gather data about the problem and possible solutions 4. consider all decision options 5. make the strategic decision 6. plant and implement the decision 7. review its success against the original objectives
Factors that determine the corporate objectives of a business	1. Corporate culture 2. The size and legal form of the business 3. public sector and private sector businesses 4. the number of years the business has been operating 5. divisional, departmental and individual objectives
Management by Objectives (MBO)	a method of coordinating and motivating all staff in the organisation by dividing its overall aim into specific targets for each department, manager and employee.
Ethical code (code of conduct)	a document detailing a company's rules and guidelines on staff behaviour that must be followed by all employees
Drawbacks of being Ethical	1. using ethical and fair trade suppliers can add to the businesses costs 2. not taking bribes to secure business contracts can mean failing to secure significant sales 3. limiting ads to kids to reduce "pester power" may result in lost sales 4. accepting that its wrong to fix prices with competition might lead to lower prices/profits 5.paying fair wages makes them less competitive to firms that exploit workers
Benefits of being Ethical	1. avoiding expensive court cases and bad publicity 2.can lead to increased brand loyalty and sales 3 ethical businesses can attract ethical consumers as world pressure grows for CSR 4. ethical businesses are more likely to be awarded government contracts 5.well qualified staff may be attracted to work for the firms with more CSR policies and ethics
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.
Business Stakeholders	customers suppliers employees and their families local communities government and government agencies special interest group (pressure groups) lenders
Free Trade	no restrictions or trade barriers exist that might prevent or limit trade between countries.
Tariffs	taxes imposed on imported goods to make them more expensive than they would otherwise be.
Quotas	limits on the physical quanitity or value of certain goods that may be imported
Voluntary export limits	an exporting country agrees to limit the quantity of certain goods sold to one country (possibly to discourage the setting of tarriffs and quotas)
Protectionism	using barriers to free trade to protect a country's ow domestic industries.
Comparative Advantage	Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
Globalization	the increasing freedom of movement of goods, capital and people around the world.
WTO	World Trade Organisation: this is made up of countries committed to the principle of freeing world trade from restrictions. It holds regular meetings to discuss the reductions in tariffs, quotas and these have to be agreed by all members. When China joined the WTO, the other countries were concern about such a major producer with very low labor costs - competing freely with them
Free trade blocs	these are groups of countries, often geographically grouped, that have arranged to trade with each other without restrictions. The best examples are NAFTA and ASEAN.
NAFTA (countries)	USA CANADA MEXICO in the Noth Americal Free Trade Organisation
ASEAN (name)	Assosiation of South East Asian Countries
Multinational business	a business organization that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries
Benefits to "host" countries of multinationals	1. will bring foreign currency, and if output is exported, further foreign exchange can be earned 2. employment opportunities, training, improved quality of life of the locals 3. local firms benefit from supplying 4. local firms forced to bring up their quality to compete 5. tax revenues from profits of the multinational 6. skills of the locals will be improved, qualified locals can replace foreigners 7. total output of the community will be increased and this will increase GPD
Drawbacks to "host" countries of multinationals	1. exploitation of the local workforce 2. pollution from plants higher than allowed in other countries 3. local competitors squeezed out of business 4. western cultures imposed and leading to a loss of cultural identity 5. profits can be sent back to head office instead of reinvested into the host nation 6.depleation of limited resources and a lack of incentive to conserve them
Privatization	selling state-owned and controlled business organizations to investors in the private sector, the government transfers ownership of specific facilities or business processes to a private, for-profit company. Privatization generally helps governments save money and increase efficiency.
Arguments for Privatisation	1. profit motive - higher efficiency 2. decision making in state bodies can be slow and bureaucratic 3. puts responsibility in the hands of managers/staff and therefore motivates them 4. sale of nationalized industries can raise finance for the government and be spent on other projects 5. private businesses will have access to private capital markets and this will lead to increased investment
Arguments against Privatisation	1. the state should make decisions about essential industries 2. with competing privately run businesses it will be much more difficult to make policies and decisions that benefit the whole country 3. through state ownership, an industry can be made accountable to the country. 4. industries could be operated as "private monopolies" if privatized and could exploit consumers with high prices. 5. breaking u p nationalized industries, into competing units, will reduce opportunities for cost-saving through economies of scale
External Growth	business expansion achieved by means of merging with or taking over another business, from either the same or a different industry
Horizontal Integration	integration with firms in the same industry and the same stage of production
Forward Vertical Integration	Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a company's products. This type of vertical integration is conducted by a company moving down the supply chain.
Backward Vertical Integration	integration with a business in the same industry but a supplier of the existing business
Rationalization	Rationalization is a reorganization of a company in order to increase its operating efficiency. This sort of reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy pertaining to particular products offered.
Merger	am 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 more than 50% of the shares to another company and becomes the controlling owner of it - often referred to as "acquisition"
Synergy	literally means that "the whole is greater than the sum of parts", so in integaration, it is often assumed that the new, larger business will be more successful than the two formerly separate businesses were
Legal constraints in terms of employment cover these areas:	1. recruitment, employment contracts, and termination of employment 2. health and safety at work 3. minimal wages 4. trade union rights and responsibilities
Impact on the business of employment and health and safety laws Disadvantages	1. supervision costs regarding recruitment, selection, and promotions 2. higher wage costs 3. higher costs from giving paid holidays, pension contributions and paid leave (maternity, sick, etc) 4. employment of more staff to avoid overlong hours fro exciting 5. protective clothing and equipment to meet health and safety laws
Impact on the business of employment and health and safety laws Advantages	1. workers will feel more secure and more valued - motivation 2. safe environment will reduce the risk of accidents and time off for injuries and sickness 3. failing to meet minimum standards - expensive court cases, fines, and bad publicity 4. attract the best employees culture will be looked upon as one that treats its "family" well
Sale of Goods Acts, 1979 and 1982	1. goods and services are fir to sell - they should have no defects and safe 2. they are suitable for their purpose 3. they perform in the way they were described
Trade Descriptions Act, 1968	there should be no misleading descriptions of , or claims made for, goods being sold, so a chair that was claimed to be covered in leather could not be covered in plastic
Consumer Protection Act, 1987	1. firms that provide dangerous or defective products are liable for any damages they cause 2. that it is illegal to quote misleading prices
governments encourage business competition by passing laws:	1. investigate and control monopolies - make it possible to prevent mergers 2. limit or outlaw uncompetitive practices between firms
Monopoly	theoretically, a situation in which there is only one supplier, but this is very rare: for government policy purposes this is usually redefined as a business controlling at least 25% of the market
Why do monopolies develop?	- the invention of new products or processes that are then legally patented to give the originator a monopoly in the production - merging or taking over firms in the industry - legal protection - for example of the government chose to protect the country's postal service by giving it a legal monopoly for the delivery of letters - the existence of barriers to entry into an industry
Competition Act 1980	an Act which extended UK COMPETITION LAW by providing for the investigation of potentially ANTI-COMPETITIVE PRACTICES such as EXCLUSIVE DEALING, REFUSAL TO SUPPLY, etc. on an individual ‘one-off basis rather than as part of a wider-ranging monopoly investigation. Under the Act, anti-competitive practices are examined in the first instance by the OFFICE OF FAIR TRADING which may itself order the discontinuance of an offending practice, or may refer it to the COMPETITION COMMISSION for further investigation and report.
Social Audit	a report on the impact a business has on society - this can cover pollution levels, health and safety record, sources of supplies, customer satisfaction and contribution to the community
Benefits of a social audit	- identifies what social responsibilities the business is meeting - and what still needs to be achieved - sets targets for improvement in social performance by comparing these audits with the best-performing firms in the industry - improves a company's public image and this will help to act as a useful marketing tool to increase sales
Limitations of a social audit	- if the social audit is not independently checked - as published accounts must be - it will be taken seriously by stakeholders? - time and money must be devoted to producing a detailed social audit - is this really necessary if these audits are not legally required. - many consumers may just be interested in cheap goods - not whether te business they buy them from is responsible or not.
Information technology	the use of electronic technology to gather, store, process and communicate information
Innovation	creating more effective processes, products or ways of doing things in a business.

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AS&A Level Business Studies

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