Business notes Unit 1 - IB Business Management HL PDF

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IB Business management hL notes on unit 1 from the oxford textbook and overall class summaries...

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IB Business Management HL ____________________________________________________________________________________________________

Unit 1 : Business organization and environment 1.1 – Introduction to business management Must know = Nature of business activity in each sector = The impact of sectoral change on business activity If the secondary sector increased: - The GDP increases which leads to the increased standard of living - Lower imports and higher exports - More jobs are created - More tax is paid to the government - Value is added before export rather than exporting unprocessed products Problems: - Movement of people from the village to the city (overpopulation) - Difficulties in recruiting and retaining staf - Increased import of raw materials - Pollution - Expansion of multinationals within the country Implications: • Increased spending on services than goods • More competition for manufacturing from other countries – increased imports • Employment patterns change – skills shortage ___________________________________________________________________________ INDIVIDUAL ACTIVITY o Choose 1 country and research how the sectors have changed over time. o Answer the following questions With reference to Country X, explain one advantage and one disadvantage of sectorial change on business activity. (4 marks) Spain’s economy has been largely dominated by the primary sector until the 21’st century, only in the past few decades, the country has moved from prioritizing their exports such as fish, fruits, vegetables, cereals, vines and olives to focusing more on the tertiary sector including their trade and tourism. An advantage of this sectoral change on the business activity is that there is an increase in the amount of jobs available. As businesses begin to focus more on the provision of services such as tourism in Spain, which now accounts for 11% of the annual GDP, the demand for

people working in the tertiary industry increases so more people have the opportunity to be employed in this sector. As a result, when people get jobs in a diferent industry, they are able to receive a more solid source of income and they expand their skill set and are able to contribute more to the GDP of the country to eventually raise the standard of living. A disadvantage of this sectoral change on business activity is that when the prioritizing of the sectors changes then as the jobs increase, eventually businesses will see a skills shortage as many people are transitioning from diferent industry sectors e.g. farming to tourism therefore their relevant skills wouldn’t benefit the next industry. As a result, businesses would have an increase in the cost of production to be able to provide for the training and provision of skills. This can apply in any directional shift of the industries as all focus on a certain aspect of producing a product and the specialized skill set must be expanded to allow for work in all the diferent sectors. (4 marks)

Charities Charities are a type of non-profit organization however they work with focus in philanthropy and to help those who may not be able to help themselves. Another main diference is that charities are exempt from taxes and operate in the private sector of the economy. Examples of charities: - Salvation Army - Greenpeace - Amnesty International - Dufy Books at home The main features of a charity are: o Profits are not generated – Businesses gain surpluses which are then re-invested to advance the purpose of the charity or may be retained for the capital requirements of the organisation. o Donations are important – As these businesses do not reply on any government funding, majority of the revenue is from donations. o There is unclear leadership and control – Ownership, board members, pay, power are all among the common questions that arise within a charity and can lead to stakeholder discontent if not handled efectively. Advantages: o They help people in need – As governments and social enterprises cannot always address the problems, charities are crucially important and valuable in the welfare of people. o Fosters philanthropic spirit – People feel satisfaction after helping others which helps to foster socially constructive attitudes leading to a more positive business community. o Fosters informed discussions regarding resources – As resources aren’t always sufficient for all needs, allocation is very important so with better information, organizations carry out more informed decision making.

o Innovation – Often members of these organisations are ‘forced’ to try and address new problems to help find the solutions Disadvantages: o The lack of control – Some organisations may be lobbying which can lead to socially undesirable goods o Sometimes members of organizations that can ill serve the cause – Some employees may disobey rules to nurture their passion for the cause which may disrupt the organisations objectives and could lead to loss of support o Funding is irregular – As charities are heavily dependent on donations, the revenue is not stable which can prove to be difficult in times of economic recessions QUIZ 1. Where does majority of the revenue come from in a charity? A = Donations 2. Leadership and control is clearly organised in a charity - True or False? A = False 3. Employees in a charity don’t always nurture their passion in accordance with the rules – True or False? A= True 4. What is the main diference in a charity and NGO? A = Tax exemption, focus/goals 5. Is there increased innovation or competition in charities? A = Innovation

Un-incorporated business = when the business and owners are not seen as separate legal entities Incorporated = Companies have the organisation where the owners and business are separate legal entities. ___________________________________________________________________________ Footie Ltd – Question a) Define the term ‘shareholder’ A shareholder is an individual who owns a share or shares in a company. Shareholders may make an investment and since they’re owners of a business, they are able to reap the benefits of the company and their profits. b) Which industrial sector(s) does Footie Ltd operate in? Explain your answer. Footie Ltd operates in both the secondary and tertiary however they are more recently moving exclusively into the tertiary sector. Footie Ltd is now more of a retailer and wholesaler than manufacturer meaning that they are focusing more on the service and distribution of the products. Operating in the tertiary sector means that you focus more on the provision of goods and services rather than producing the goods themselves. Footie Ltd own or franchise 650 shops and then import the shoes from abroad. Five

years ago, 75% of its shoes were manufactured in Footie’s factories, this is when they were operating in the secondary sector as this included the manufacturing of the product. Now it is just 25%, with 40% of the products being produced in Asia. As Footie Ltd are investing more in their brand and retailing operations, they will be more involved in operating in the tertiary sector and gradually move out of the manufacturing (secondary sector). This would then lead them to be solely dependent on importing the products and ensuring their services are of the best quality. c) Explain two differences between a private limited company and a public limited company. A diference between a private limited company and a public limited company is how and where the shares can be sold. In a private limited company, shares may only be sold within the company meaning the ownership stays within a private group. Shares can be sold through invitation through direct communication meaning it is a closed deal whereas in a public limited company, it is open for everyone to see. To buy and sell shares in a public limited company, you must list the shares on the stock exchange where it is open for purchase to the public. There are no invitations involved as the business then has no control over who can purchase the shares. Another diference between a private limited company and public limited company is how transferable the shares of the company are. In a private limited company, since the shares are sold directly to people by invitation or choice, the owner of the shares then cannot go and sell their share to others or transfer it. It must be sold back to the business and to the business only whereas in a public limited company, transferability is not an issue. As shares are already public, it is very flexible to sell your share to somebody else and then transfer the shares over since the business isn’t directly involved in the purchase of the shares anymore. d) Discuss the decision for Footie Ltd to remain as a private limited company. The decision for Footie Ltd to remain as a private limited company has many advantages and disadvantages for each respective organizational structure. An advantage of a private limited company is that there is continuous existence of the business. This means that if the current owner of shares passes away then the business can still continue running and isn’t terminated whereas in a Public Limited company, it is a more complicated process. A disadvantage of a private limited company is that the maximum capital that can be raised is only dependent on the owners. This means that if the maximum number of shareholders are 50 then they are the only source of income that the business has access to. This can negatively impact the business as if they are need of extra capital, the only sources of money are from their current shareholders that have been invited. In a public limited company, an advantage is that there are unlimited sources of capital. As there is no maximum number of shareholders in the business, capital can be raised more easily and more can be gained in a period of time as there are more external sources. However a disadvantage of a being a public limited company is that the initial start-up costs to establish the business is higher and more expensive. This means that to originally begin the business or to run a public company, at least $500,000 must be needed to start up the business. This can be quite negative as some business may rely on their shareholders for capital and cannot aford the high establish and registration costs.

In conclusion, I think Footie Ltd.’s decision to remain as a private limited company is the right choice as they have implemented new strategies and are already seeing positive change as a private limited company. Footie Ltd. Wouldn’t be afected as harshly by the disadvantage that capital is limited because they are making large profits and their current shareholders seem to be sustaining the business at a good rate with minimum cost casualties. It is also important for Footie Ltd. to have perpetuality as it is a very large business and if it were to be ceased then it could have increased negative impacts for internal and external stakeholders of the business. ___________________________________________________________________________ Co-operative Advantages - Farmers income would increase - Children would be able to go to school and not be required to participate in the working in the fields - Linguistic and cultural diferences wouldn’t be a problem now and they could communicate more efectively - Limited liability would protect farmers and their business - Everyone would be contributing their skills and labour Sole Trader Advantages - Faster decision-making process - Keeps all profits personally

Disadvantages - Arguments or disagreements if linguistics get in the way - There could be challenges as this new technology hasn’t been used before - Decision making would be a longer process

Disadvantages - Unlimited liability - Profits may not increase - Retaining high calibre employees is more difficult - Lack of variety in ideas, skills, knowledge, experience etc. - Children have to work on the farm - Competition is local and international - Responsible for all risks

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Pedro - Question d) Examine Pedro’s proposal to create an agricultural cooperative in his community rather than continuing to operate as a sole trader. (10) The are many advantages and disadvantages of Pedro’s proposal to create an agricultural cooperative in his community however, there would be increased positive impact on the community if the cooperative is created. Advantages include how forming the cooperative would lead to a collection of the farmers’ personal resources and they would all pool together for the benefit of others. The linguistic and cultural diferences would be resolved as the increased cooperation would help them communicate more amongst one another and then would be able to efectively exchange ideas. As they are now working closer together, they would collectively raise capital to invest in the technology meaning there would be more sources for capital allowing them to efficiently gather funds for investment and the farmers can become more involved in the secondary sector activity. Now that more people are working together, there are more perspective that can add ideas to the discussions resulting in increased diversity and a larger range of opinions on the situations. This would help the farmers ensure that they are exploring all various possibilities to try and progress with most impact. Choosing to expand as a cooperative would also have immense social impact that would be beneficial for all the community. One of the major benefits of forming the cooperative would be that the children would no longer have to work in the fields and would have the opportunity to go to school. This would result in the literacy and education rates to increase which in the long-term, could help raise the community out of poverty as people would be more educated. The farmers would be receiving more pay as a result of this co-op and would be contributing more to the community helping it lift families out of poverty which is extremely important for the communities’ welfare. A disadvantage of forming a cooperative would be how the farmers would then be forced to work together as a group. Many problems can arise from this situation. The most problematic outcome of forming a cooperative would be how the linguistic and cultural diferences could provide some conflict and create barriers in communication between the g4roup. Other farmers may not understand or agree with what someone else is saying which is also another disadvantage, how the decision-making process if longer. As there are more people now to consider and are being directly afected by the business, it is important that everyone’s opinions are considered while making a decision which can prove to be difficult with extra people which adds to the time and added communication barriers. Another major disadvantage with Pedro’s proposal to create an agricultural cooperative is how the farmers may not be able to cope with the new technology and systems. As the farmers would not have been previously exposed to this type of secondary sector activity, there would have to be investment of time and money to learn and apply the new skills and knowledge to run the technology for their benefit. This operational shift would greatly slow down the process. There may also be possible infrastructure limitations as the community in the developing country wouldn’t be as allowing of newer, modern technology systems. Therefore, the

farmers must ensure that the working environment for the new technology systems is sufficient for it to work and with minimum safety concerns, meeting the regulations. Overall, I believe that Pedro should carry out with his proposal to create an agricultural cooperative in his community rather than continuing to operate as a sole trader as there is more positive impact in the long-term for the farmers and community. As there would be some conflicting linguistic and cultural diferences, working together in a cooperative would lead to the farmers communicating more and becoming used to each other’s ideas. Therefore, they would learn to be able to look past their diferences to work towards the collective benefit. As they surpass this barrier, they would then gain much more knowledge and be able to explore more perspectives than if they were a sole trader. As new technology would be implemented to help the cooperative progress, there would be the need for new skills to be taught and training to be given which would add to the cost however this would be reimbursed in the long-term when if the farmers would ever need to specialize more into the secondary sector, it would be an easy transition and beneficial financially for the community. The infrastructure limitations can be easily combatted in a way that once they implement the new buildings, which would probably be suitable for future expansion and endeavors, they would have established a solid base for any increased secondary sector activity. Therefore, as the advantages weight out the disadvantages of forming a cooperative, Pedro’s proposal would be the most beneficial step in their community. ___________________________________________________________________________

Workforce Planning Definition – The business process for ensuring that an organisation has suitable access to talent (potential candidates that have the ability to undertake required activities including decision making) to ensure future business success Read pages 94-98 ___________________________________________________________________________

Discuss the extent of external influences over workforce planning in the tourism sector of New Zealand. (10 marks) Use the links for Staffing shortage in tourism sector projected by 2025; Bay afected and Young Kiwis not wanting careers in tourism a concern as source material. (previously emailed). How big is the impact – actually technological impact isn’t s much as the social trends Need to deal with social trends more which would help with the technological factors Pages 102-106

External influences over workforce planning have an impact on the size and availability of the pool of potential employees for the business. In the tourism sector of New Zealand, two main external influences afecting workforce planning are socials trends and technological change. Socials trends mean that changes in society that influence over workforce planning. Currently in New Zealand, there is increased influence over workforce planning in the tourism sector. Young people are now reluctant to begin jobs in the tourism industry as they perceive them as jobs that did not pay well and were low status. As more people are now looking for high end jobs that provide a good establishment for further growth, this social trend is proving to be difficult for the tourism sector to register interest. This has led to a staffing shortage in the areas where tourism is one of the main sources of income for the population. In the Bay of Plenty, where tourism plays a major role in sustaining businesses, the number of people that are showing interest in the jobs is decreasing even though the amount of available jobs is increasing. Tourism is one of the main industries which supports our economy therefore, the jobs being created in this sector are rapidly increasing to keep up with the demand. However, as the social trends of finding higher paying jobs that are more permanent are becoming popular, the pool of labour available for potential employment is decreasing. This may then mean that businesses would have to scout people for their jobs if they do not receive enough interest during the initial recruitment process. Also, as there are improvements in ICT and infrastructural changes, people gravitate more towards technological jobs which they believe will provide them with a better stage to then expand their skill sets. This then leads to further decrease in employment in the tourism industry which is heavily dominated by tertiary sector processes and direct service. Another external influence that is having increased impact on the workforce planning in the tourism sector is the technological influences. With businesses such as Airbnb growing at rapid rates...