Higher Business Management - Understanding Business Exam Questions And Answers 2024

Higher Business Management - Understanding Business Exam Questions And Answers 2024 Primary sector - answerConsists of businesses that are involved in the extraction and exploitation of natural resources Secondary sector - answerConsists of businesses that are involved in manufacturing and construction, by taking the natural resources provided by the primary sector and turning them into goods to be sold later Tertiary sector - answerConsists of businesses and organisations that are involved in providing services rather than goods Quaternary sector - answerConsists of businesses providing information and knowledge- based support services, such as ICT, consultancy and research and development services Private sector - answer- Consists of businesses that aim primarily to maximise profits and that are owned by private individuals - Includes all profit-making businesses from small local businesses to multinational companies Public sector - answerConsists of government-owned organisations and agencies which aim to provide a service to society Third sector - answer- Consists of organisations that have been set up to provide goods or services to benefit others - Includes charities, voluntary organisations, social enterprises and democratic enterprises Private limited companies - answer- Owned by shareholders, who have one or more shares in the business - Shareholders have limited liability - Shares are sold privately to investors whom the business knows - Aim to maximise profits, grow and increase market share - Controlled by a Board of Directors who are managed by a managing director - Have to produce documents called the Memorandum of Association and Articles of Association Limited liability - answerThe owners' personal possessions are not at risk if the business gets into debt, as they only lose their investment in the company Advantages of a private limited company - answer- Shareholders have limited liability - Capital can be raised by selling shares - They do not have to disclose most of the information that public limited companies have to provide - Ownership is not lost to outsiders as all shareholders are known Disadvantages of a private limited company - answer- Profits have to be split with shareholders by issuing dividends - Legal process required to set up the company - Shares cannot be sold publicly on the Stock Exchange, so there is a limited source of capital available - Financial accounts can't be kept private as they must be shared with the Companies House and are therefore made publicly available - Larger companies are more difficult to manage effectively Public limited companies - answer- Owned by shareholder who have limited liability - Must have a minimum of £50,000 share capital (usually a large company) - Controlled by a Board of Directors - Can sell their shares publicly through the stock market - They aim to dominate the market, increase market share and market value Advantages of public limited companies - answer- Shareholders have limited liability - Large amounts of finance can easily be raised through the public sale of shares - Banks are very willing to lend PLCs money due to their size and reputation, as they are seen as less risky - Organisation has financial stability, enabling it to develop and expand Disadvantages of public limited companies - answer- Dividends are shared with many shareholders - Control of the business can be lost as anyone can buy shares on the stock market - Annual accounts have to be published - Setting up a PLC is costly and complicated - Employees can feel alienated from those at the top - They can grow so large that they cannot be managed effectively - Decision making can be slow due to its size Franchise - answerA business run by one firm under the name another Franchiser - answer- Original business that gives franchisees licenses to sell goods or services under their brand name - Aims to grow, increase market share and maximise profits Franchisee - answerOwner of each individual branch of the franchise Examples of franchises - answer- McDonald's - Subway - Papa John's - Red Driving School - KFC - Burger King - Hertz - Kumon - Hard Rock Cafe - Hilton Hotels Advantages for the franchiser - answer- Low risk form of growth as the franchisee invests the majority of the capital - Receives a percentage of all franchisee's profits each year - Risk is shared between the franchiser and franchisee Disadvantages for the franchiser - answer- Reputation of the whole franchise can be tarnished by one poor franchise - Reliant on the franchisee to make it a success - Only a share of profits is received rather than all profits Advantages for the franchisee - answer- The franchise is a well-known business with an existing customer base, so the risk of business failure is reduced - Industry knowledge, administration and training is provided by the franchiser - National advertising is carried out by the franchiser Disadvantages for the franchisee - answer- Very little autonomy over decisions as the franchiser decides on products, store layout, uniforms etc - Royalties have to be paid each year, so not all of the profits can be kept - High initial start-up fees - The franchiser can decided not to renew the franchise Multinational - answerA business (usually a limited company) that has operations in more than one country, with a head office based in their home country Advantages of multinationals - answer- Wages and raw material costs are often lower in the foreign countries they operate in - Can avoid legislation in their home country - They can take advantage of grants issued by governments to locate in their countries - They can avoid certain quotas and tariffs issued by their own governments Quotas - answerLimits on the number of imports and exports Tariffs - answerTaxes on imports and exports Disadvantages of multinationals - answer- Language barriers can slow down communication - Cultural differences can affect production (e.g. siestas in Spain) - Exchange rates can affect purchasing and paying expenses in different countries - Time differences can hinder communication between head office and branches located elsewhere in the world Central government organisations - answer- Usually national services that would be difficult to rely on the private sector to provide - Examples include defence provided by the armed forces, healthcare provided by the NHS and transport infrastructure through the road network - Paid for through taxation