Business Studies(Al) Notes

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Business Studies

A-Level Revision Notes

Business Ownership
A. Reasons for Owning a Business Advantages • Enjoy higher flexibility and autonomy • Entitled to give orders to employees • Higher profit potential B. Ways to start a business ■ Buying an Existing Business Advantages • Save effort and time in planning, analyzing, recruiting.. • Avoid look for a location and design plant layout • Provide a network of existing customers, suppliers and distributors • Availability of business information (sales record, cost, competition) ■ Starting from Scratch Advantages • • • • Control over your own destiny Ability to reach full potential Unlimited profits Recognition of your own effort • • • • Disadvantages Uncertainty of income High level of stress Heavy workload Higher risk of losing entire invesment • • • • Disadvantages Deal with the existing problems Less flexibility Difficult and costly to make changes Resistance from the existing employees • Bias from customers against new products or changes Disadvantages • Have the risk of losing the capital and effort • Heavy workload

■ Franchise Advantages • • • • • • Setup assistance Managerial assistance Financial assistance ( bank loans) Potential customers available Help in marketing (EOS) Lower risk • • • • • • Disadvantages Low flexibility/ autonomy High setup cost Sharing profit (loyalty payment) Low personal satisfaction Chain effect (other franchisees) Market saturation → competitive

C. Basic Forms of Business ■ Types • Sole proprietorship • Partnership • Limited company (listed/ private) 1

■ Factors affecting choice of forms: • Degree of control • Secrecy (reveal financial records) • Continuity • Source of capital • Willingness to take risk (liability) D. Other Forms of Business ■ Joint Venture Advantages • Synergy effect • Lower risk • Favourable treatment by the host country (local vs foreign) • Local expertise and assistance (customers' preference/ culture) • Technology transfer ■ Franchise Advantages • Fast expansion • Local knowledge provided by franchisees • Stable source of income • Economies of scale ■ Public Enterprise Advantages • Adequate capital supply • Easier to obtain loans • Better planning Pros and cons of privatization: Advantages • More efficient (profit-driven) • Cut cost and improve quality → competitiveness enhanced • Raise more funds for investment (not so conservative) 2

Disadvantages • • • • • Less control Conflicts over management Coordination problems logistics problems Profit sharing

Disadvantages • • • • Difficult to maintain uniformity Risk of damaging image and reputation Difficult to keep business secret Franchisees become future competitors

Disadvantages • Low incentives for improvement • Dis-economies of scale (more than enough) • Misallocation of resources

Disadvantages • Charge higher price → profit max. • loss of valuable but loss-making service • less control by the govt → not for the best interest of the public

■ Co-operatives Advantages • Simple procedures in formation • Economies of scale Disadvantages • Lack of experience or skills • Limited source of capital for expansion

E. Problems of Setting Up a Business ■ Internal Factors • owner's business experience • owner's health (heavy workload) • amount of capital • business nature (owner's interest and experience, industry prospect) • personnel problems ■ External Factors • government regulations • location • market competition F. Business Objectives ■ Importance • give a sense of direction to everyone • reference to check progress • motivate staff members ■ Criteria for good objectives • specific • measurable • achievable • relevant • timely ■ Types of Objectives • Survival: sales, establish clientele (customer base), minimize losses • Profit: sales, reduced cost • Growth: sales. Market share • Consolidation: improved efficiency e.g. merge overlapping units, downsizing • Social: CSR, not necessarily profits ■ Factors affecting Setting of Objectives •...
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