UNIT 1: BUSINESS AND THE BUSINESS ENVIRONMENT

UNIT 1: BUSINESS AND THE BUSINESS ENVIRONMENT LO 1: EXPLAIN THE DIFFERENT TYPES,SIZE AND SCOPE OF ORGANISATIONS

UNIT 1: BUSINESS AND THE BUSINESS ENVIRONMENT M1: ANALYSE HOW THE STURCTURE,SIZE AND SCOPE OF DIFFERENT ORGANISATIONS LINK TO THE BUSINESS OBJECTIVES AND THE PRODUCT AND/OR SERVICES OFFERED BY THE ORGANISATION

Industrial structures and Competitive analysis Industry structure pertains to the number and size distribution of competitors in an industry, according to University of Maryland University College. Some industries, such as the restaurant and retailing industries, contain many firms or competitors. Other industries contain relatively few competitors. Industries may also be comprised of different-sized competitors. The number and size of competitors and several other key factors are extremely important in determining a firm's profitability.

Industrial structures and Competitive analysis The goal of competitive strategy for a company is to find a position in its industry where these competitive forces will do it the most good or the least harm. A company may take a defensive posture, positioning itself so that its capabilities provide the best defense against the existing array of competitive forces. Alternatively, it can take an offensive approach by developing strategies designed to influence the balance of existing forces or to exploit a change in the competitive balance before rivals recognize it.

Industrial structures and Competitive analysis The first step in structural analysis is an assessment of the competitive environment in which the company operates--the basic competitive forces and the strength of each in shaping industry structure. The second is an assessment of the company's own strategy--of how well it has positioned itself to prosper in this environment. Taken together, these steps are the key to forecasting a company's earning power.

Industrial structures and Competitive analysis Source: https://www.mindtools.com/pages/article/newTMC_08.htm

Market forces and economic operations Scarcity and choice: At any one time, only a limited amount of goods and services can be produced. This is because the existing supplies of resources are extremely inadequate. These resources are land, labour, capital and entrepreneurship. These factors of production or inputs are used in producing goods and services that are called economic goods which have a price. These facts explain scarcity as the principal problem of every society and suggest the Law of Scarcity, The law states that human wants are virtually unlimited and the resources available to satisfy these wants are limited.

Market forces and economic operations Scarcity and choice: The scarcityof resources gives rise to the fundamental economic problem of choice. As a society cannot produce enough goods and services to satisfy all the wants of its people, it has to make choices. A decision to produce one good requires a decision to produce less of some other good. So choice involves sacrifice. Thus every society is faced with the basic problem of deciding what it is willing to sacrifice to produce the goods it wants the most.

Market forces and economic operations Supply and Demand: Economists argue that there is a valid assumption because changes in price occur much more quickly than changes in other factors that may affect supply or demand. Examples of these other factors include changes in taste, changes in the state of the economy and long-term changes in production capacity (such as the construction of a new factory).

Market forces and economic operations Demand is the rate at which consumers want to buy a product. Economic theory holds that demand consists of two factors: taste and ability to buy. Taste, which is the desire for a good, determines the willingness to buy the good at a specific price.

Market forces and economic operations Ability to buy means that to buy a good at specific price, an individual must possess sufficient wealth or income. Both factors of demand depend on the market price. When the market price for a product is high, the demand will be low. When price is low, demand is high. At very low prices, many consumers will be able to purchase a product.

Market forces and economic operations Supply is the willingness and ability to supply goods determine the seller’s actions. At higher prices, more of the commodity will be available to the buyers. This is because the suppliers will be able to maintain a profit despite the higher costs of production that may result from short-term expansion of their capacity.

Market forces and economic operations In a real market, when the inventory is less than the desired inventory, manufacturers will raise both the supply of their product and its price. The short-term increase in supply causes manufacturing costs to rise, leading to a further increase in price. The price change in turn increases the desired rate of production. A similar effect occurs if inventory is too high.

INCOME ELASTICITY Income elasticity is an economic term that explains the connection between the demand of a product and the income of the consumer. In other words, if a person's income goes up or down, his income elasticity impacts if he will purchase a product or not. As a result, companies must be aware of how their customers will react if their customers income changes.

INCOME ELASTICITY Income elasticity has more of an impact on larger purchases or non-essential items. A consumer will likely still buy bread or eggs if her income changes. However, if her income goes down, she may not buy a new TV. Likewise, if she gets a raise, she may splurge for that larger TV that she's been wanting. Income elasticity of a TV purchase is high while the income elasticity of bread is very low.

Stakeholders And Their Role In Business Organisations Customers They are the supporters of businesses in the economy. They purchase goods and services to satisfy their needs and wants. Role of Customers- They assist businesses in indentifying the goods and services to be produced based on their demands. They also help business to identify changing trends in the market and so prepare business operators for future demands.

Stakeholders And Their Role In Business Organisations Society-Businesses must be aware of the society as a whole, how its activities affect it and not only those who are customers. Role of Society The production process may cause air pollution and discharge of harmful waste into rivers and seas. The society keeps businesses in check by making them aware of their impact on society. They write letters to the company and the media and speak on talk shows.

Stakeholders And Their Role In Business Organisations Government They are the managers of the economy within which the business operates. Role of Government -Regulate business activities to protect consumers. Government agencies ensure product standards as well as that various legislations are adhered to ensure the protection of consumers’ rights.

Stakeholders And Their Role In Business Organisations Board Of Directors- A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit companies have a board of directors as well.

How do Governments affect business organisations ? Governments establish many rules and regulations that guide businesses. Businesses will normally change the way they operate when government changes these rules and regulations. Government economic policy and market regulations have an influence on the competitiveness and profitability of businesses. Business owners must comply with regulations established by federal, state and local governments.

How Business Strategies shape Responsibilities and performance How you define your business strategy will determine the direction of your business and what it will look like in the future. By defining your business strategy clearly, you can develop your business or growth plan to achieve your business and personal goals.

How Business Strategies shape Responsibilities and performance The business strategy sets priorities for the company and management team and helps you attract and retain the talented workers you need. Although each department in your company may focus on different priorities to accomplish specific tasks, these priorities should not conflict with the overall strategic direction of the company.

Business objectives Abusiness that aims to grow could make more profit in the future. This is because a larger firm will enjoy more revenue and this is likely to result in more profit. Similarly, a business aiming to grow is also likely to increase its market share. Also, if a business improves its image it may attract more customers and increase its market share.

Business objectives Finally, a business may have more than one objective. For example, a business may try to grow and try to become a market leader. Also, long-term objectives may differ from short-term objectives. For example, in the early stages of the business start-up survival may be the main objective. But in the long term profit will become more important.

REVISION QUESTIONS

Reference Licensing Agreements - Encyclopedia - Business Terms. (2018). Retrieved from https://www.inc.com/encyclopedia/licensing-agreements.html Study.com. (2018). Income Elasticity: Definition, Formula & Example | Study.com. [online] Available at: https://study.com/academy/lesson/income-elasticity-definition-formula-example.html [Accessed 24 Sep. 2018]. (2018). Retrieved from https://ocw.mit.edu/courses/sloan-school-of-management/15-988-system-dynamics-self-study-fall-1998-spring-1999/readings/economics.pdf Assets.pearsonschool.com. (2018). [online] Available at: https://assets.pearsonschool.com/asset_mgr/current/201214/Chapter2.pdf [Accessed 24 Sep. 2018].

Reference The Importance of Industry Structure for the Determination of a Firm's Profitability. (2018). Retrieved from https://smallbusiness.chron.com/importance-industry-structure-determination-firms-profitability-33862.html Porter, M. (1980). Industry Structure and Competitive Strategy: Keys to Profitability. Financial Analysts Journal, 36(4), 30-41. doi: 10.2469/faj.v36.n4.30 Scarcity and Choice as Economic Problems (With Diagram). (2018). Retrieved from http://www.economicsdiscussion.net/economic-problems/scarcity-and-choice-as-economic-problems-with-diagram/18143

Reference BBC Bitesize. (2018). BBC Bitesize - GCSE Business - Stakeholders - Test. [online] Available at: https://www.bbc.com/bitesize/guides/z4gcd2p/test [Accessed 26 Sep. 2018]. Wps.pearsoned.co.uk. (2018). Multiple choice questions. [online] Available at: http://wps.pearsoned.co.uk/ema_uk_he_worthingto_econbus_2/33/8543/2187105.cw/content/index.html [Accessed 26 Sep. 2018].

UNIT 1: BUSINESS AND THE BUSINESS ENVIRONMENT