IB Business Management Unit 1 - Key Definitions

Disadvantage of a subsidiary

- Can be costly - other investments might be a better option - More administrative work required to keep two or more companies on track

Disadvantages of unethical organizations

- Cost's will increase - Loss of profit - Business practice means changing the way certain things are done

Advantages of being an ethical organization

- Increases good will, improves brand image - Recruits and retains highly-skilled and motivated staffs - Improves motivation from employees

Disadvantages of a joint venture

- It will not necessarily be successful - Sharing of knowledge could be abused - Sometimes only one company walks away with the benefits

Advantages of a joint venture

- Shares risk - Open doors to new technology and customers - Gain competitive advantage - several companies

Advantages of a subsidiary

- Spread risks - parent company is not liable for the subsidiary - Losses of subsidiary do not affect the parent company (because of different legal entity) - Increases the companies territory - consumers always see the same company everywhere

Advantage of Franchise

1. A franchise increases your chances of business success because products and methods have proven to be succesful 2. Good Reputation and customer loyalty 3. Already well advertised

Hierarchy of objectives

1. Aim 2. Strategic objectives 3. Tactics 4. Operational objectives

Reason for Mergers

1. Allos businesses to compete with larger corporations or eliminate competition 2. Takes advantage of economies of scale

Advantages of Conglomerates

1. Companies aren't as vulnerable to the decline of sales in one sector or industry as they are spread out. 2. Opportunity to grow in each unrelated market. 3. Create synergies between companies

Why are organizations ethical?

1. Consumer view: People take notice of a firm's behavior when making product choices. 2. Recruitment and retention of staff : By being ethical, firm's can recruit well-qualified and motivated staff. 3. Improvement in employee's motivation: Ethical firms tend to get better output from employees.

Advantages of Sole Traders

1. Easy to set up 2. Complete control 3. Owner keeps all the profit

Advantages of Backward integration

1. Improves efficiency 2. Cuts cost's as it saves transportation costs, 3. Improves profit margins

Why do organizations grow

1. Increased sales and profits 2. Greater market power - due to increased market share 3. Product development

Disadvantages of Conglomerates

1. Lack of experience in the industry may cause mismanagement 2. Lack of focus on an industry or sector

Advantage of Cooperatives

1. Limited liability: Like company form of ownership, the liability of members is limited to the extent of their capital in the cooperative societies. 2. Easy formation: Doesn't involve long and complicated legal formalities

Disadvantages of Cooperatives

1. Longer decision-making process 2. Requires participation of each member 3. Less incentive to invest additional capital

Disadvantage of Franchise

1. Not completely independent, still required to operate their business according to the procedures and restrictions set forth by the franchisor in the franchise agreement. 2. In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. 3 Dependent on success of the franchisor

Advantages of Partnership

1. Shared workload 2. Easy to setup - all they need is a written formal and legal agreement 2. Additional financing

Disadvantages of Sole Traders

1. Unlimited liability 2. Shortage of finance - may prevent expansion 3. Lack of expertise

Disadvantages of Partnership

1. Unlimited liability 2. Shared profits 3. Shortage of capital

Partnership

A Partnership is a business with multiple owners, each of whom has invested in the business.

Private Limited Company

A business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public.

Business plan

A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a marketing, financial and operational viewpoint.

Conglomerate

A conglomerate is a corporation that is comprised of different independent businesses. That usually target a different market.

Corporation

A corporation is a separate legal entity from its owners, with its own rights and obligations. Corporations can be created in nearly all countries in the world and are usually identified as such by the use of terms such as "Inc." or "Limited" in their names.

Demergers

A de-merger is a business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. It may be a way out of failed merger or overgrowth.

Franchise

A franchise is a type of license that a party (franchisee) can get that allows them to have access to a business's (the franchiser) proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name.

Objective

A goal than an organization wants to achieve in to remain competitive and ensure its long term sustainability. Example: To increase market share

Holding company

A holding company is a company that owns another company. They need to have enough stock to be able to control the board of directors, which then means they can direct management and operations.They do this so they can operate the company the way in which they think it is best, and has higher profits. A holding is beneficial because it is like having another company but only with less liability and risk.

Joint Venture

A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.

Unlimited liability

A legal obligation that states that companies such as general partners and sole proprietors are responsible (liable) for paying off all of their companies debt personally if the company is ever to go bankrupt.

Mission Statement

A mission statement is a written expression of the corporate aims. It is a statement of the fundamental purpose of the organization and used to inspire those who work for it. A good mission statement should: • provide information and inspiration to their employees • outline clearly the way ahead for the organization

Multinational companies

A multinational organization is a company that supplies or makes their product in at least two countries. Important features: - Large size and huge capital - a lot of power, can influence economies and political relations between countries. - Played an important role in globalization because - went to poor countries to produce their goods for cheap labor Examples of this are Google and HSBC but there are many more.

Vision/Aim

A statement of the general purpose of a business, usually not specific and mainly to attract stake holders

Subsidiary

A subsidiary is a company that is bought over or controlled by another company.

Acquisition Advantage & Disadvantage

A:Immediate expansion, acquiring of skills and workforce overnight. D: Costly, and may increase the burden the parent company

Advantages and Disadvantage of a Multinational companies

Advantage - Products are sold all over the world - Possibility to work on revolutionizing ideas Disadvantage - Not all products can be sold everywhere in the world - different legislation, culture, etc.

Capital

All non-natural resources used in the production process. An example is money, but the term also includes resources such as machinery, tools, equipment, and factories.

Public Limited Company

An incorporated business organization that allows the general public to buy and sell shares in the company via a stock exchange

CUEGIS

Change, Culture, Ethics, Globalization, Innovation and Strategy

Sole Traders

Companies owned by just one person who has full control of the decision making and receives all the profit.

Opportunity cost

Cost measured in terms of the best alternative that is foregone when a choice is made.

Cooperatives

Firm owned, controlled, and operated by a group of users for their own benefit. Each member contributes equity capital, and shares in the control of the firm on the basis of one-member, one-vote principle (and not in proportion to his or her equity contribution).

Incorporation

Incorporation is the legal process used to form a company.

Stakeholders

Individuals or organizations that have a direct interest (known as stake) in the activities and performance of a business.

IPO

Initial Public Offering (When a business sells all or part of its business to shareholders "go public")

Fish bone Diagram

Is a tool used to categorize the potential causes of a problem by identifying its root causes.

Economies of scale

Is the benefit gained by producing a large volume of products

Networks

Is the creating of a group of acquaintances and associates and keeping it active through regular communication for mutual benefit

Forward Vertical Integration

Is when a business takes over functions that were originally performed by its partners further down the supply chain. Also known as cutting out the middleman

Operational Objectives

Low-level objectives which are addressed or individuals or small groups

Internal stakeholders

Members of the organization (People who own the business) Example: employees, shareholders, and directors

Mergers

Merger is a term used when two companies join to form one new company voluntarily (differently from an acquisition that may not be voluntary)

Objectives

Objectives are used to state the goals of the business, and also to assess the business' performance. Good objectives should be SMART (Specific, measuralble, agreed, realistic, and timely)

PEST Analysis

PEST is an acronym for Political, Economic, Social and Technological. This analysis is used to help determine how these factors will affect the performance and activities of your business in the long-term.

PESTLE

Political, Economical, Social, Technological, Legal, Environmental Planning tool used to assess a business's external opportunities and threats.

Functional areas

Refers to the different sections of a business. These are usually named as the marketing, production, finance, and human resources departments.

Entrepreneurs

Risk taking individuals who exploit business opportunities in return for profits. They also manage, organize and plan the other three factors of production.

SWOT Analysis

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. It is important to remember that strengths and weaknesses are internal factors, while opportunities and threats are external factors.

Synergy

Synergy is the concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts.

Tactics

Tactics are the strategies in departmental level to achieve the strategic objectives, which are the strategies or objectives set to achieve the business aims.

Organic Growth (Internal Growth)

The development of a company by growing its existing business with its own finances, as opposed to acquiring other businesses. Is when a company expands its scale of production to meet increased demands. Ex. To expand the scale of production, a business might hire more employees, invest in new larger machineries,

Articles of Association

The document that sets out the internal organization and rules of a limited company. Details might include the powers for each director and voting rules.

Added value

The extra worth created in the production process

External Growth

The growth of a firm by buying other companies, rather than by expanding existing sales or products.

Factors of production

The inputs (or resources) necessary for the production process: land, labor, capital, and enterprise.

Ethics

The moral values that determine and affect business behavior and decision-making

Public Sector

The part of the economy controlled by the government. Examples include state health and education services, the emergency services and national defense.

Private Sector

The part of the economy under the control of private individuals and businesses, rather than the government. Examples include sole traders, partnerships and limited companies

Shareholders

The people who own shares in a private or public limited company. This makes them part owners of the company.

External stakeholders

These people or groups do not form part of the organization but have a direct interest or involvement in the actions of the organization. Examples: customers, suppliers, and the governments

External shocks/Exogenous shocks

Unforeseeable and unexpected changes in the external business environment that tend to affect all businesses in the economy, such as natural disasters or wars.

Acquisition

When a business buys another company

Backward vertical Integration

When a company owns a supplier

Horizontal integration

When a company seeks to increase in size and acquires other businesses or creates other related business

Integration

When one company owns another business in its supply chain