A level business
Business structure
Types of businesses
Local business; operating in a small part of a country, no desire to expand.
National business; operate around the country, don’t often expand internationally.
International business; MNCs
International trade links; imports and exports to and from other countries
Drawbacks of international trade
- New businesses and infant industries may face challenges against the imported goods
and may struggle to survive.
- Domestic markets may take a hit as the imported goods would have higher demand.
- Businesses may not be able to compete with imported goods, leading to closing down
which would lead to job losses.
Free trade: no restrictions or trade barriers on the movement of goods amongst countries.
Tariffs: taxes imposed on imported of goods to make them even more expensive.
Privatization: selling state owned and controlled businesses to investors in the private sector.
Why go multinational?
- Lower costs of production.
- Closer to the main market.
- To avoid import restrictions.
- Competitive advantage.
, Size of a business
External growth; when a business expands in terms of merging with or taking over a business
from either the same or a different industry.
Pros
- Economies of scale; bulk buying and paying lower prices.
- Marketing and distribution costs can be reduced.
- The merged businesses can share the same research facilities and more new ideas.
Cons
- Diseconomies of scale; alienation of workforce, communication problems.
- Management culture of both businesses may be different.
- It may be more difficult to manage a larger organization.
- Sharing the same facilities wouldn’t be of use if the merged businesses are from different
industries.
- Expansion is expensive.
Horizontal integration; integrating w firms in the same industry at the same level of
production.
Conglomerate integration; integrating w a business from a different industry.
Forward integration; integrating w a business in the same industry, but as a customer of the
business.
Backward integration; integrating w a business in the same industry, but as a supplier of the
business.
, External economic influences on business behavior
External factors are changes which are not in the control of the organization, and those changes
will directly impact the business’ functions.
GDP; total value of goods and services produced in a country in 1 year.
High GDP = high economic growth = firm achieves growth = higher consumer spending power
Economic growth
High output = higher wages (motivating factor); lower poverty = higher spending power
Inflation (high prices, low value of money)
Cost push inflation: increased costs of necessary products for which there are no substitutes.
Demand pull inflation: aggregate demand exceeding aggregate supply.
High GDP -> low unemployment -> high inflation.
High inflation = high prices = changes in consumer spending power; effects on income too.
Deflation (low prices, higher value of money)
During deflation, businesses have to charge low prices, and since the cost of production should
always be lower than the selling price to gain profit, so for the firms to earn profit, they have to
cut their production cost.
Unemployment
Cyclical, structural and frictional
Low unemployment = difficult to find skilled workers = high wage rates = higher overall
expenses
Though there is high economic growth and consumer spending power would be higher.
Exchange rate
Measure of the value of one currency against another.
Appreciation in a currency; expensive exports, cheaper imports.
Depreciation in a currency; expensive imports, cheaper exports.
Government policies to increase business competitiveness
- Reduce income tax.
- Reduce corporation tax (tax on profits of the business).
- Increase labor training and flexibility.
Market failure occurs due to;
- External costs
- Deliberate low training
- Monopoly producers
Business structure
Types of businesses
Local business; operating in a small part of a country, no desire to expand.
National business; operate around the country, don’t often expand internationally.
International business; MNCs
International trade links; imports and exports to and from other countries
Drawbacks of international trade
- New businesses and infant industries may face challenges against the imported goods
and may struggle to survive.
- Domestic markets may take a hit as the imported goods would have higher demand.
- Businesses may not be able to compete with imported goods, leading to closing down
which would lead to job losses.
Free trade: no restrictions or trade barriers on the movement of goods amongst countries.
Tariffs: taxes imposed on imported of goods to make them even more expensive.
Privatization: selling state owned and controlled businesses to investors in the private sector.
Why go multinational?
- Lower costs of production.
- Closer to the main market.
- To avoid import restrictions.
- Competitive advantage.
, Size of a business
External growth; when a business expands in terms of merging with or taking over a business
from either the same or a different industry.
Pros
- Economies of scale; bulk buying and paying lower prices.
- Marketing and distribution costs can be reduced.
- The merged businesses can share the same research facilities and more new ideas.
Cons
- Diseconomies of scale; alienation of workforce, communication problems.
- Management culture of both businesses may be different.
- It may be more difficult to manage a larger organization.
- Sharing the same facilities wouldn’t be of use if the merged businesses are from different
industries.
- Expansion is expensive.
Horizontal integration; integrating w firms in the same industry at the same level of
production.
Conglomerate integration; integrating w a business from a different industry.
Forward integration; integrating w a business in the same industry, but as a customer of the
business.
Backward integration; integrating w a business in the same industry, but as a supplier of the
business.
, External economic influences on business behavior
External factors are changes which are not in the control of the organization, and those changes
will directly impact the business’ functions.
GDP; total value of goods and services produced in a country in 1 year.
High GDP = high economic growth = firm achieves growth = higher consumer spending power
Economic growth
High output = higher wages (motivating factor); lower poverty = higher spending power
Inflation (high prices, low value of money)
Cost push inflation: increased costs of necessary products for which there are no substitutes.
Demand pull inflation: aggregate demand exceeding aggregate supply.
High GDP -> low unemployment -> high inflation.
High inflation = high prices = changes in consumer spending power; effects on income too.
Deflation (low prices, higher value of money)
During deflation, businesses have to charge low prices, and since the cost of production should
always be lower than the selling price to gain profit, so for the firms to earn profit, they have to
cut their production cost.
Unemployment
Cyclical, structural and frictional
Low unemployment = difficult to find skilled workers = high wage rates = higher overall
expenses
Though there is high economic growth and consumer spending power would be higher.
Exchange rate
Measure of the value of one currency against another.
Appreciation in a currency; expensive exports, cheaper imports.
Depreciation in a currency; expensive imports, cheaper exports.
Government policies to increase business competitiveness
- Reduce income tax.
- Reduce corporation tax (tax on profits of the business).
- Increase labor training and flexibility.
Market failure occurs due to;
- External costs
- Deliberate low training
- Monopoly producers
