Preliminary topic: Nature of business
The focus of this topic is the role and nature of business in a changing business environment.
|
Outcomes
The student:
P1 discusses the nature of business, its role in society and types of business structure
P2 explains the internal and external influences on businesses
P6 analyses the responsibilities of business to internal and external stakeholders
P7 plans and conducts investigations into contemporary business issues
P8 evaluates information for actual and hypothetical business situations
Content
Students learn to:
examine contemporary business issues to:
· discuss the global expansion of one Australian business
· discuss the expansion into Australia of one global business
· explain how changes in external influences have contributed to the growth of the tertiary, quaternary and quinary industries in Australia
· identify problems that arise for stakeholders when companies go into liquidation
investigate aspects of business using hypothetical situations and actual business case studies to:
· distinguish between the different types of businesses
· identify actual businesses at different stages in the business life cycle
· outline possible business strategies appropriate for different stages in the business life cycle
Students learn about:
role of business
· the nature of a business
A business is an organisation that attempts to satisfy the needs and wants of the community by providing goods and/or services.
– producing goods and services
A product is a good or service that can be bought or sold.
- Goods are items that can be seen or touched. (Tangible) e.i a computer
- Services are things done for you by others. (intangible)e.i. Dental work
Why is business important?
– profit, The generation of profit is the primary role of business. The production of goods and services is the means of fulfilling this role.
– employment, One of the most important roles business plays in society is the provision of employment. Even though large businesses employ many thousands of working Australians, small businesses employ more Australians. Very small businesses with fewer than nine employees employ over 16% of the workforce. Businesses with fewer than a hundred employees employ over 42% of the workforce.
– incomes, Businesses provide income to business owners/shareholders and employees.
– choice, Consumers have freedom of choice—the choice of what to purchase and where to purchase it. Businesses have a choice of what they produce.
– innovation, For one business to capture and maintain a competitive edge over other businesses it needs to be constantly seeking ideas for new products, product modifications or different markets for existing products.
– entrepreneurship and risk, An entrepreneur is someone who starts, operates and assumes the risk of a business venture in the hope of making a profit. Entrepreneurs are prepared to take the risk of starting and operating a business venture; of turning their dreams and passions into a livelihood. Entrepreneurs have to take risks because usually they explore untapped markets with no track record of proven consumer demand or guaranteed returns
– wealth The more that is produced the more wealth is generated within the Australian economy.
– And quality of life Quality of life refers to the overall wellbeing of an individual, and is a combination of both material and non-material benefits.
types of businesses
classification of business Businesses may be organised in a variety of ways. Although no two businesses are identical, there are some common features that allow similar business types to be classified and grouped together. The four common methods used to classify businesses are:
– size – small to medium enterprises (SMEs), large Although no universally accepted definition exists for a small, medium or large business, a number of measurements can be used to determine the size of a business, including:
– local, national, global
A local business, such as a newsagent, corner store, hairdresser, mechanic or
pharmacy, has a very restricted geographical spread. It serves the surrounding area and is in no position to offer a range of products to another suburb or town. Local businesses such as these will frequently be used by consumers who live nearby. The majority of local businesses tend to be small to medium in size.
A national business — one that operates within just one country. Coles, for example, commenced trading in 1914 as G.J. Coles variety store in Collingwood, Victoria. Started by George Coles and his brother Jim, it employed six people. Today, Coles is a leader in Australian food retailing, with more than 100 000 employees and over 11 million customer transactions a week.
A global business, commonly referred to as a transnational corporation (TNC), is a large business with a home base in one country that operates partially owned or wholly owned businesses in other countries. Transnational corporations come in many different forms and sizes. Coca-Cola, LG, McDonald’s, CSR, News Corporation, BHP Billiton, Toyota, Unilever, Westfield and Exxon are just a few of the well-known foreign and Australian TNCs.
– industry – primary, secondary, tertiary, quaternary, quinary
Classification by industry sector: There are three main types of industry groupings or sectors: primary, secondary and tertiary. Due to the rapid growth in the tertiary industry over the last three decades, this sector has been subdivided into quaternary and quinary sectors.
Primary industry includes all those businesses in which production is directly associated with natural resources.
Secondary industry includes all those businesses that take the output of firms in the primary sector (raw materials) and process it into a finished or semi-finished product (manufacturing businesses).
Businesses in the tertiary industry provide a service. Tertiary industry involves people performing a vast range of services for other people. Examples include retailers, dentists, solicitors, banks, museums and health workers.
Quaternary industry includes services that involve the transfer and processing of information and knowledge. Examples include telecommunication, property, computing, finance and education. The quaternary sector is expected to undergo dramatic change over the next 20 years due to the rapid advances in telecommunications. Expansion in e-commerce and internet-based business activity will see an increase in the number of people employed in information processing and analysis.
Quinary industry includes all services that have traditionally been performed in the home. Examples include hospitality, tourism, craft-based activities and childcare. It includes both paid and unpaid work. Due to social and lifestyle changes, as well as an increase in the number of two income households, the demand for quinary-type services is estimated to expand rapidly during the next two decades.
– legal structure – sole trader, partnership, private company, public company, government enterprise
There are a number of different legal structures to choose from when deciding how a business is to be owned and operated. The four main legal structures of privately owned businesses are:
A sole trader is a business that is owned by one person. The owner may employ other people to work in the business, but the owner or sole trader is the person who provides all the finance, makes all the decisions and takes all the responsibility for the operation of the business. This responsibility may include selling personal assets, such as property or motor vehicles, to pay for the liabilities of the business. This is referred to as unlimited liability.
Unlimited liability occurs when the business owner is personally responsible for all the debts of his or her business.
A partnership is a legal business structure that is owned and operated by between two and 20 people. A partnership is similar to a sole trader in that the owner and the business are regarded as the same; that is, there is no legal entity. Consequently, partnerships also have unlimited liability.
All companies are incorporated enterprises or have gone through the process of
incorporation. This means that the company has become a separate legal entity from its owners (shareholders). The idea of a separate legal entity is referred to as the ‘veil of incorporation’. This separate legal entity means that the company can sue and be sued; it can lease, sell or own property; and it has perpetual succession. In limited liability companies, the most money a shareholder can lose is the amount they paid for their shares.
A proprietary (private) company is the most common type of company structure in Australia, and usually has between two and 50 private share holders. Private companies often tend to be small to medium-sized, family-owned businesses.
The shares for public (puplic) company are listed on the Australian Securities Exchange, and the general public may buy and sell shares in those companies.
Government enterprises are government-owned and operated. (They are also known as government business enterprises — GBEs.) Although only small in number — approximately 5000 — they are typically large, and include some of the largest employers of people in Australia. GBEs are owned and operated by all levels of government: federal, state and local. Examples include Railcorp (formerly State Rail Authority), Australia Post and Great Southern Energy.
· factors influencing choice of legal structure
One of the most difficult decisions a business owner must make is what type of legal structure to select. This will depend on a number of particular circumstances influencing the business at certain times. These factors will change as the business expands. There fore, the legal structure may need to be altered to reflect these changing circumstances.
Of all the factors that influence the business owner when deciding upon the most appropriate legal structure, the three most important are the:
1. Size of the business
2. Ownership structure
3. Finances needed.
– size, ownership, finance
Size: As sales increase and the business operations grow to meet this higher level of customer demand, the business owner may need to select a more appropriate legal structure.
To finance this level of expansion, it will be necessary to draw from a large pool
of available finances. The business will now decide to raise this money from a share market float. A float is the raising of capital in a company through the sale of shares to the public.
A prospectus is issued (A prospectus is a document giving details of a company and inviting the public to buy shares in it.), the business is listed on the Stock Exchange and shares are offered for sale. Also, an established public company can raise additional money from existing shareholders.
Ownership structure: If a business owner wishes to have complete control and ownership of a business, then becoming a sole trader is the only realistic option. On the other hand, if the owner wishes to share the ownership with other people, then a partnership is the ideal legal structure. Of course, a private company would also allow the owner to maintain a high degree of control and it would also offer the protection of limited liability. This is because a private company structure provides the owner with a large degree of control over who can become a shareholder of the business.
Once a company floats and sells shares to the public, ownership will be divided among thousands of small, individual shareholders and a few institutional shareholders. The degree of ownership, then, is directly related to the number of shares owned: more shares, more ownership. Therefore, if the original owner/s wished to retain ownership and control of the business, they would need to hold more than 50 per cent of all the shares sold.
Finances needed: As mentioned earlier, when a business expands it will require injections of finance. This money will be used to purchase new equipment, undertake research and development, hire more staff, exploit new markets, and open new outlets.
To overcome the difficulty of raising finance from banks or financial institutions, the business owner may decide to sell shares in the business. Therefore, the business will be incorporated and either a proprietary or public company formed. Of course, this legal structure does not guarantee the necessary finance will be obtained.
influences in the business environment
· external influences –
- economic, the Australian economy does experience economic cycles of ‘booms’ and ‘busts’. These periods of high and low economic activity are referred to as the business cycle
- financial, There have been enormous changes in global fi nancial markets over the past thirty years. Deregulation of Australia’s fi nancial system began in 1983 and it continues to undergo change. This has resulted in a more fl exible, market-oriented approach across the fi nancial sector.
Deregulation is the removal of government regulation from industry, with the aim of increasing efficiency and improving competition.
- geographic, Two major factors that have an enormous impact on business activity are Australia’s geographic location within the Asia–Pacifi c region and the economic growth in a number of Asian nations, especially China. They provide challenging opportunities for business expansion, sales and profit.
- social,
1. Increased diversity
· People are getting older
· Greater ethnic mix
· Roles of women continue to change
· Living standards rising (bigger gap between the rich and the poor?)
· Bigger range of production methods
· Technology
2. Changing consumer tastes
· Fashions
· Healthy lifestyle
· Better informed
· Time-saving
· Housing demand
- legal, Society expects business owners to abide by the laws of a country. Consequently, it is essential that they have a sound working knowledge of the laws that will affect their operations (so that they avoid penalties), and that they understand and accept the legal responsibilities they owe to all stakeholders. All levels of government impose legal responsibilities on businesses, and these laws govern every aspect of a business’s life.
- legal requirements (eg registration of business name)
- state taxes (eg stamp duty)
- OHS laws
- workers’ compensation laws
- environmental protection policies
· Local Government
- land zoning
- building codes (eg parking arrangement and sign display)
- enforce health regulations
· Regulatory bodies
- ATO
- ASIC
- ACCC
- EPA
- Department of Fair Trading
- political,
· Commonwealth Government
- monetary policy (subsidies for example solar panels)
- fiscal policy
- tax (company/income tax, GST, FBT)
- microeconomic reform
- trade agreements
- Corporations Laws
- institutional,
institutional influences may include
· Employer, trade and industry associations
· Trade Unions
· Australian Stock Exchange
· Consumer Organisations (Choice magazine)
- technological,
Global technological innovation has increased at a remarkable pace, revolutionizing the workplace and every aspect of daily life. With appropriate technology, businesses can increase efficiency and productivity, create new products and improve the quality and range of products and services.
- competitive situation,
· Number of competitors
· Ease of entry (refers to the ability of a person (or persons) to establish a business within a particular industry.)
· Overseas competition
· Marketing strategies
· Substitutes
- Markets
o the size of the market — the number of existing and potential customers
o the size of the business — the larger the business the more likely it is to invest in a range of marketing activities,
o number of competitors — usually the more competitors that there are in a market, the greater the need for marketing. This is necessary to maintain or increase market share.
o the nature of the product — this refers to the type of product and whether it requires extensive marketing. Some products, such as postage stamps, don’t need to be advertised in order to make sales.
internal influences –
– products,
1. The type of goods and services produced will affect the internal operations of a business.
2. Product influence will be reflected in the type of business (service, manufacturer or retailer).
3. The types and variety of product would influence the size of the business, as previously mentioned, will be based on the range and type of goods and services produced,
– location,
Location can make the difference between success and failure. A good location is an asset and will lead to high levels of sales and profits. A bad location is a liability that adversely affects sales and profits.
– resources,
• Human resources. These are the employees of the business and are generally its most important asset.
• Information resources. These resources include the knowledge and data required by the business such as market research, sales reports, economic forecasts, technical material and legal advice.
• Physical resources include equipment, machinery, buildings and raw materials.
• Financial resources are the funds the business uses to meet its obligations to various creditors.
– management
Rapid advances in technology, coupled with the significant pressures on businesses from increased competition due to forces of globalisation, have resulted in businesses flattening their structures. This means that there are fewer levels of management. Such businesses can adapt quickly to meet changing consumer needs and market conditions because there are fewer managers who need to approve decisions.
– and business culture
All businesses have their own business (corporate) culture — the values, ideas, expectations and beliefs shared by the staff and managers of the business. Each business develops its own particular way of doing things. The style or character of a business is consequently reflected in its culture.
· stakeholders
Responsibility to owners (shareholders)
Because shareholders invest and risk their funds, there is a legal obligation to protect those funds and provide the shareholders with a reasonable return on their investment.
Managers are obliged to make sure the business succeed ad comply with all relevant laws and regulations affecting its operation.
It should also recognise the concerns of the majority of it shareholders.
Responsibility to other managers
In order to help match the firm’s performance with its targets, managers are expected to
– acknowledge subordinates’ inputs and effort
– not block a promotional path
– not manipulate subordinates
– eliminate acts of discrimination.
Responsibility to employees
Managers are responsible for motivating their staff and provide training and career paths, and a challenging work experience.
business growth and decline
stages of the business life cycle
– establishment
The establishment phase is where the business first enters the market. The owner must decide on the location of the business, the types of products the business will sell, how to find motivated, appropriately trained staff and the most suitable legal structure.
– Growth
The growth phase is characterised by increasing sales and revenue for the business. Customers are now aware of the business and/or product and the business begins to increase its market share.
– Maturity
During the maturity phase, business growth and market share begin to slow. The business is faced with increased competition from new entrants.
– post-maturity
The post-maturity phase is the final stage of the business life cycle. There are four very different stages in the
post-maturity phase: steady state, decline, renewal
and cessation
post-maturity phase: steady state, decline, renewal
and cessation
· responding to challenges at each stage of the business life cycle
Challenges to the Establishment phase
– the most appropriate legal structure for the business (such as sole trader, partnership, private company, etc.)
– who is going to provide the finance (most of the finance at this stage is usually from the owner, and is known as owners’ equity)
– choosing the right location for the business (whether or not location is considered a critical success factor for the business)
– ensuring that government regulations are adhered to (involving registering a business name, etc.)
– finding motivated, enthusiastic and appropriately trained staff.
Challenges to the Growth phase
– developing a human resource management policy outlining the roles and responsibilities of staff
– developing a financial management plan outlining procedures for collecting debts when they fall due, looking after the cash within the business and implementing a credit policy
– controlling inventories to ensure that over- or under-buying does not occur.
Challenges to the Maturity phase
– adapting the latest technology to improve the existing production value chain
– improving the efficiency of business operations
– taking advantage of new market opportunities
– building customer loyalty
– managing cash flow and finance successfully.
Challenges to the Post-Maturity phase
The business decision to take one of four different paths: steady state, renewal, decline or cessation
· factors that can contribute to business decline
Internal factors
– Lack of management knowledge
– Inadequate planning
– Lack of adequate cash flow and finance
– Incorrect location
External Factors
– Government policies
– Unexpected competition
– Natural disasters
· voluntary and involuntary cessation – liquidation
Cessation refers to the closure of a business.
Voluntary cessation occurs when the owner of a business decides to cease the operations of the business.
Involuntary cessation occurs when the closure of the business is forced on the owner. The most common cause of involuntary cessation is the inability of the business to repay its debt.
• Bankruptcy occurs when a sole trader or business partnership is unable to repay the financial obligations (debt) of the business.
• A business will enter liquidation when an independent party is appointed by the court to sell the assets of the business so as to recover all outstanding debt owing to the business’s creditors.
No comments:
Post a Comment