unit 2 business studies gcse yr11 chapter 6

Slide 1: 

Unit 2 Chapter 6 The Business Organisation Expanding a Business Methods of Expansion Conflict Between Stakeholders Choosing the right legal structure Changing business aims and objectives Social costs and benefits Location / Going Global

Slide 2: 

Learning Objectives Unit 2 is all about how and why businesses grow and the main issues that expansion raises. Chapter 6 looks at how businesses grow and how their objectives may change as they grow At the end of this chapter you will be able to Understand why a business owner may want to expand the business Understand the different ways a business can grow Understand how business growth can affect stakeholders Understand the differences between private and public limited companies Understand the objectives that an expanding business might have Understand the social costs and social benefits of a business Understand the factors that should be considered when relocating a growing business

Slide 3: 

What you should already know The objectives that the owners of a newly formed business might have The different legal forms of small businesses The importance of the location decision for a new business

Slide 4: 

What do you know about growing a business How different ways do you think a business could grow Think about a manufacturer of beer – how could it grow? Think about a business with one or two retail shops – how could it grow? You have 5 minutes to discuss this in pairs and then we will discuss as a class

Slide 5: 

6.1 Expanding a Business Business expansion means that the output (how much you make) and sales will increase over a period of time If this is happening it may indicate that the business owner is running a successful firm Survival may be the main aim when a firm is first set up but as time goes on objectives will change One of these objectives may be to expand There are benefits to expanding but there are also risks

Slide 6: 

6.1 Expanding a Business – Benefits and Risks One reason to grow the business is to increase sales Why would a firm want to do this? It should lead to an increase in profits What are the risks? If costs increase more than sales, profit will not increase If the firm reduces its prices too much to get more sales there will not be an increase in profit Another reason to grow the business is to increase market share How can a business increase it’s market share? It can take customers from other competitors If the sales of the business grow faster than total sales in the market its share of the market will increase What are the benefits of growing market share? Customers may like to buy from the most popular company Retailers might be more prepared to stock products from this business The risk is that other firms will also increase their sales at an even faster rate and the firm will lose market share

Slide 7: 

6.1 Expanding a Business – Benefits and Risks A third reason for growing the business is to gain economies of scale The more the firm produces the lower its average costs The more the firm buys to make its products the better discount it may get The risk is that it is much more difficult to manage a large business and a badly managed business can increase costs The last reason for growing a business is that customers may view your business as more secure people often feel more comfortable dealing with larger businesses because they think they will be around for the lifespan of the products they are buying This may increase sales Another risk of growing at that the business may grow too quickly and end up making losses that will force them out of business Economies of scale occur when the cost per unit falls as a business expands

Slide 8: 

Body Shop case study In 2006, Body Shop (the high street cosmetics retailer) agreed to be taken over by the huge French cosmetics firm, L’Oreal, for £652m. L’Oreal makes a wide range of cosmetics, including Ambre Solaire sun cream and Lancôme lipsticks. Body Shop is known for its ethical products and has over 2,000 stores in 53 countries. L’Oreal’s chairman said, ‘We have always had great respect for the Body Shop’s success and for the strong identity and values created by its outstanding founder, Dame Anita Roddick. A partnership between our companies makes perfect sense.’ Why might L’Oreal have wanted to buy the Body Shop? Answers might include: to gain its profits to have access to its shops where it might sell its products to benefit from its expertise and supplies and brand name to grow its business in a fast-growing business area

Slide 9: 

6.1 Reasons for not expanding Rapid growth can end in tears…why? Rapid growth is one of Starbuck’s main objectives In an economic recession Starbucks might find it has too many branches that are not making a profit

Slide 10: 

6.1 Reasons for not expanding Some business owners do not aim for the growth of their firm for several reasons To keep control The larger the business the owner will have to recruit managers and the business may have to be divided into divisions Decisions making authority will need to be given to these managers To offer a personal service to customers Personal service is often lost as a firm grows and the owners don’t know customers individually To avoid too much risk Expansion means putting more money into the business To avoid increased worry and workload Complete both activities on P93

Homework: 

Homework Activities 1 to 4 Research activity 1 Bullet points if you have not completed them To be handed in next lesson (period 1 Sunday)

Recap: 

Recap

Slide 13: 

Recap What does business expansion mean? output (how much you make) and sales will increase over a period of time Why would a business want to expand? to increase sales in order to increase profits to increase market share How can they do that? take customers from other competitors What are the benefits of growing market share? Customers may like to buy from the most popular company Retailers might be more prepared to stock products from this business

Slide 14: 

Recap What other reason might a business want to grow a business? to gain economies of scale The more the firm produces the lower its average costs The more the firm buys to make its products the better discount it may get For example McDonalds has to buy beef to make its burgers The more beef it can buy the more discount it will get The more discount it gets the lower its costs will be If it can lower its costs it can maybe pass some of this saving onto the customer – it can give them a burger at a lower price So as McDonalds grows and opens more stores it gets more customers It sells more burgers It buys more beef It gets more discount Costs reduce It can reduce its price It will get more customers And so on……. Economies of scale occur when the cost per unit falls as a business expands

Slide 15: 

Recap Say for example McDonalds had a large factory that cost £1 million per year to run If it made 1 million burgers then each of these burgers would cost what? £1 McDonalds would have to charge its customer more than £1 for the burger to make a profit If McDonalds made 2 million burgers how much would each one cost? £0.50 McDonalds can now charge the customer less than a £1 to make a profit This is benefitting from economies of scale

Slide 16: 

Recap £984,000 for six bikes! Diseconomies of scale Tesco mistakenly paid Universal Cycles, who are owned by Sports Direct, £984,000 for six bicycles when they were meant to pay £984. They are still to get their money back with sports direct holding on to more than £120,000. This is a great example of Tesco suffering from diseconomies of scale as they have now become so big that no one noticed almost a million pounds being paid for 6 bikes until 10 days too late!

Slide 17: 

Recap Another reason for growing? customers may view your business as more secure people often feel more comfortable dealing with larger businesses because they think they will be around for the lifespan of the products they are buying This may increase sales

Slide 18: 

Recap What are the risks of expanding? If costs increase more than sales, profit will not increase If the firm tries to get more sales by reducing prices and it reduces its prices too much to get there will not be an increase in profit more difficult to manage a large business and a badly managed business can increase costs business may grow too quickly and end up making losses that will force them out of business Starbucks could open too many branches and find there is not enough customers to make a profit

Slide 19: 

Recap Why might an owner of a business decide not to grow? To keep control Won’t need to recruit more managers and divide business into divisions Won’t need to give decision making authority to other managers Wants to keep offering a personal service to customers To avoid too much risk Expansion means putting more money into the business To avoid increased worry and workload

Slide 20: 

6.2 Methods of Expansion – organic growth How do you think a business could grow? There are two ways in which any business can grow Organic or internal growth Inorganic or external growth Organic growth can be achieved in a number of ways Open a new branch, office or factory in another location Sell franchises Expand through internet selling

Slide 21: 

6.2 Methods of Expansion – organic growth Why would opening branches be a good way of growing? Opening branches is good because It is slow and steady – it is less risky and managers can manage this form of growth more easily It is often paid for from profits (does not need loans or the sale of shares to pay for it) Don’t have to pay interest or lose control by selling shares Easier to manage and control slower growth means management will have time to consider all the risks and benefits Managers will have experience in the market

Slide 22: 

6.2 Methods of Expansion – organic growth What might be the disadvantages of growing by opening branches? There are some disadvantages It is too slow for some owners – it can take several years to significantly increase the size of the business If other businesses are expanding quickly the firm may lose market share Don’t get the gains that you would from integrating with another business (inorganic) Activity P94 and P95

Slide 23: 

6.2 growth through the internet What do you think the advantages of growing using the internet are? No high costs of setting up new branches Relatively low cost to set up Less risk – if it doesn’t work it is not so expensive to close down Complete activity P95

Slide 24: 

Learning Objectives Complete our understanding of organic growth Understand the advantages and disadvantages of inorganic growth Apply our knowledge to some real life examples Be able to judge which type of growth is best

Recall!!: 

Recall!! What do we know about growth so far? Write down as many things as you can possibly think of See who can get the most (don’t cheat!!)

Slide 26: 

McDonald’s franchisee Paul Crocker ran a number of successful petrol station businesses before taking on a McDonald’s franchise in 1995. He now operates five restaurants in Kent with the help of his wife. Would you buy a franchise or would you prefer to set up on your own? Why? Answers might include: buying a franchise means you are buying into an existing business you can look at its track record the franchisor provides advice, products and expertise, which can reduce the risk of starting up But: you have to pay a fee for the franchise and a percentage of your turnover so this may mean less profit than if it was your own business you may not agree with all the franchisor’s policies and want more freedom

Slide 27: 

6.2 Inorganic growth This is also called external growth It can be achieved with a merger or a takeover We use the word integration to describe the joining of two businesses You need to know about 4 types of integration Diversification where a business buys another business that is in a different industry If one industry sees a fall in demand the other business may not suffer – this spreads risk Merger – an agreement between 2 businesses to combine and operate as one business Takeover – purchasing another business from its owners

Slide 28: 

6.2 Inorganic growth The other 3 types of integration are Horizontal integration where 2 businesses in the same industry and at the same stage of production join together e.g. 2 shops Vertical integration – where 2 businesses in the same industry but at different stages of production join together Vertical forward integration (closer to the customer) Vertical backward integration (closer to the supplier)

Slide 29: 

6.2 supply chain Farm growing hops Brewer – factory that creates the beer customer Pub buys the beer and sells it to the customer Vertical Backward integration (if the pub were to buy the brewer or the hop farm Vertical forward integration (if the brewer were to buy the pub or the farm were to buy the brewer and the pub Think of a business and think of a supply chain for it. Then think of examples of vertical backward integration and vertical forward integration horizontal integration (if the brewer were to buy another brewer) Brewer Brewer Brewer

Slide 30: 

Jack Welch Case Study – example of diversification Jack Welch was a very successful boss of General Electric, a conglomerate whose businesses include electrical goods, finance and engines. Under Jack Welch the company made many takeovers and became one of the largest companies in the world. Why do you think Jack Welch made so many takeovers? Answers might include: enabled the business to grow quickly meant General Electric could enter new markets quickly his pay and bonuses may have been linked to the size of the business by making the business bigger it may have been safer from takeover itself could gain control of suppliers or increase its market share depending on the type of takeover

Slide 31: 

Football billionaires - takeovers In 2003 Roman Abramovich, a Russian billionaire, bought Chelsea football club for around £140m. Abramovich is the main shareholder in Sibneft, a major Russian oil company. Within two years he had spent another £250m on players, a new manager and new facilities, all of which brought Chelsea great success. Malcolm Glazer owns Tampa Bay Buccaneers, a big American football club. In 2005 Glazer bought Manchester United in a £790m takeover bid. The takeover was opposed by many United fans who were worried it would lead to an increase in ticket prices. Why might someone want to take over a football club? Answers might include: for interest e.g. if they like football to diversify their business interests so they are operating in many different markets to spread risk because they think they can earn attractive profits from tickets and merchandising

Slide 32: 

YouTube Chad Hurley, Steve Chen and Jawed Karim set up YouTube in February 2005. Eighteen months later the business had grown so rapidly that they were able to sell it for £880m to Google. Why do you think Google was willing to pay so much for such a new business? Answers might include: because it was growing so fast and enabled Google to access the market quickly enabled Google to gain access to a well-established brand without having to build it up itself over time may have expected high future earnings e.g. through advertising revenues

Slide 33: 

6.2 Benefits/Disadvantages of Inorganic growth It is much quicker than organic growth Horizontal integration Can lead to a larger market share Reduces competition Economies of scale Vertical backward integration Reliable supplies Vertical forward integration Reliable outlets Protects the brand Diversification If one business does not do well the other may compensate (demand may be different in different industries) Examiner’s Tip – Questions will often ask you to identify whether a merger or takeover is horizontal or vertical Examiner’s Tip – if you are asked about the advantages or disadvantages of inorganic growth remember to think about what type of inorganic growth it is. They are not all the same

Slide 34: 

6.2 Benefits/Disadvantages of Inorganic growth Disadvantages of inorganic growth Expensive – may need a loan or sell shares Problems for managing and controlling a larger business With vertical integration and diversification managers may lack experience of the markets Examiner’s Tip – Questions will often ask you to identify whether a merger or takeover is horizontal or vertical Examiner’s Tip – if you are asked about the advantages or disadvantages of inorganic growth remember to think about what type of inorganic growth it is. They are not all the same Complete activity P97

Slide 35: 

6.1 Quick Questions 1 What is organic growth? (2 marks) 2 Explain two reasons why a business might want to take over a competitor? (4 marks) 3 Explain what is meant by diseconomies of scale (4 marks) 4 What is a stakeholder? (2 marks) 5 Explain two reasons for selling a franchise (4 marks) Complete for next lesson

Slide 36: 

6.1 Quick Questions 1 What is organic growth? (2 marks) 2 Explain two reasons why a business might want to take over a competitor? (4 marks) 3 Explain what is meant by diseconomies of scale (4 marks) 4 What is a stakeholder? (2 marks) 5 Explain two reasons for selling a franchise (4 marks) Complete for next lesson Go through answers

Slide 37: 

Lesson instructions

Slide 38: 

6.3 Conflict between stakeholders What is a stakeholder? Anyone that is affected by the activities of a business Examples of stakeholders? Owners, workers, customers suppliers, banks, government Growth through takeover or merger will have a different impact on each of the stakeholders – in what ways? If you are the owner how will you feel about growth? You may benefit from an increase in sales but there is more risk involved which may cause stress If you were a worker how would you feel about growth? you might be happy because there could be more opportunity for promotion in a larger company but you might also be worried about losing your job if the business is merging with a company that has people doing the same job as you Examiner’s Tip – think about how the takeover or merger will affect the different stakeholders

Slide 39: 

6.3 Conflict between stakeholders How would you feel if you were a customer? you might benefit from lower prices (due to economies of scale) but prices might also go up with less competition How would growth make you feel if you were a supplier? you might get more orders from a bigger business but the bigger business might demand lower prices If you were a bank how would you feel? you would be lending more money but there is more risk if the expansion is not successful If you were government how would you feel about the firm growing? you will get more tax from this larger firm but if a monopoly is created this may not be good for the public Examiner’s Tip – think about how the takeover or merger will affect the different stakeholders

Slide 40: 

6.3 Ways to defend stakeholder interests Every stakeholder will have its own objectives and will take action to defend those interests during a takeover/merger What could each stakeholder do? Workers? Try to stop any job losses (defend their own job) Use trade unions to get a good settlement for people losing their jobs Negotiate better pay Argue for internal recruitment Customers? Use consumer groups and their websites to put pressure on large firms to give value to consumers Check prices after expansion

Slide 41: 

6.3 Ways to defend stakeholder interests Suppliers? Insist on reasonable prices and prompt payment Bank? Keep a close watch on the firm’s account In very large firms the bank may ask for a senior manager to sit in on board of director meetings Government? Ask the competition commission to investigate and maybe recommend that the merger or takeover is stopped

Slide 42: 

6.3 Stakeholder activity P99 Read case study below the table and on the right hand side of page Think about the questions and discuss in pairs Class discussion Homework Long questions

Slide 43: 

6.3 Section Assessment Quick questions Long questions

Lesson Instructions: 

Lesson Instructions Hand in marked assessment questions from last lesson Create a poster that contains all the information you need to know about choosing the right legal structure Use the photocopied pages you have been given and your text book P100-101 There will be a quick quiz at the end of the lesson Make a note of your homework Research activity P101

Slide 45: 

6.4 Choosing the right legal structure - Jeopardy Here are the answers - what is the question? This is the market for shares Shareholders own it Because there would be no limit to the amount of money they would lose if they didn’t have it It can sell shares to the public and raise more money It can’t control who buys its share and is more regulated so it spends a lot of time working on information such as finances to give to shareholders This is when the shareholders and managers have different objectives This is when a private limited company decides to become a plc and sells shares to the public on the stock exchange It has more status than a sole trader and can attract private investors

Slide 46: 

6.4 Choosing the right legal structure - Jeopardy Here are the answers - what is the question? This is the market for shares What is the Stock Exchange Shareholders own it Who owns a plc? Because there would be no limit to the amount of money they would lose if they didn’t have it Why do investors want limited liability? It can sell shares to the public and raise more money What is an advantage of becoming a plc? It can’t control who buys its share and is more regulated so it spends a lot of time working on information such as finances to give to shareholders What are two advantages of becoming a plc? This is when the shareholders and managers have different objectives What is divorce between ownership and control? This is when a private limited company decides to become a plc and sells shares to the public on the stock exchange What is flotation? It has more status than a sole trader and can attract private investors What are two advantages of being a private limited company?

Slide 47: 

6.4 Choosing the right legal structure When starting a business the two most common business structures are? Sole trader and partnership As a business expands other types of structure become more common In the UK nearly all medium and large business are limited companies This is because as a firm grows it needs capital (finance) which it will get from investors investors don’t like to invest when there is unlimited liability What is limited liability? If the firm fails the investors will only lose the amount they have invested – they will not be forced to sell assets Complete activity P100

Slide 48: 

6.4 Choosing the right legal structure There are two types of limited companies Private limited company Public limited company A private limited company cannot sell shares to the public but a public limited company can This means that the plc is able to raise more finance for growth There are advantages and disadvantages to each structure The advantages of a private ltd company are They have more status than a sole trader or partnership – suppliers and customers may have more confidence in dealing with the company Private investors that are known by the owners can be given limited liability and can buy a share in the company Owners often remain as directors or senior managers and run the company Limited liability for all shareholders

Slide 49: 

6.4 Choosing the right legal structure The disadvantages of being a private ltd company Cannot be listed on the stock exchange so can’t sell shares – difficult to raise very large sums of money Expansion into a very large company is limited Share prices are not quoted daily so shareholders don’t have a good idea of value of shares Accounts are available at Companies house so it is possible to find out how the company is performing The advantages of being a public limited company Can sell shares and raise large amounts of finance Higher status Shareholders always know the value of shares and can buy and sell easily Limited liability

Slide 50: 

6.4 Choosing the right legal structure The disadvantages of being a public ltd company Original owners lose control as a high proportion of shares are sold Owners may have different objectives to managers All accounts published creating pressure for short term profit Company can be taken over if shareholder buys majority of shares Complete activity P101

Slide 51: 

Andrew Lloyd Webber Sir Andrew Lloyd Webber is a highly successful producer of musicals such as Cats , The Phantom of the Opera and Joseph and His Amazing Technicolor Dreamcoat . In 1986 he floated his company, the Really Useful Group, but did not like having to discuss decisions with outside investors. In 1990 he bought back the shares and turned the business back into a private limited company. Why do you think Andrew Lloyd Webber preferred his business to be a private limited company? Answers might include: so that he was the main owner and therefore did not have to answer to many other investors it enabled him to make the decisions he could retain more of the profits

Slide 52: 

6.4 section assessment Quick questions now! Long questions for Homework (to be handed in next lesson (Wednesday) Mark answers to long questions

Slide 53: 

6.5 Changing business aims and objectives What were the main objectives of small businesses? Survival, profit and growth What do you think the objectives of an expanding business will be? The main danger for small businesses is cash flow That is why survival is often the main objective Once they have survived they may become more secure and have a reasonable cash flow That means that owners can start to set other objectives For example profit growth Profit is always likely to be an aim unless the firm is a social enterprise As firm’s get larger they will look to increase the amount of profit they earn Profit can be used to pay dividends to shareholders Or it can be reinvested into the company to achieve further growth During a recession the need to survive might become the main objective of even large businesses Dividend – payment made to shareholders from company profits (usually annually)

Slide 54: 

6.5 Changing business aims and objectives Increasing market share is also an objective of a growing business once they have survived the first risky years. Why? This will increase the status of the firm It will give them more power over retailers and suppliers It may give them more control over the prices they can set particularly if they grow to be the main or dominant firm in the industry A common objective of plc’s is increasing shareholder value This means increasing the share price and increasing dividends paid to shareholders If directors keep shareholders happy they will keep their jobs Exam tip – if you are asked about business objectives you should check to see if it is a newly set up business or a well-established business

Slide 55: 

6.5 Changing business aims and objectives There may be other managerial objectives In large plc’s there may be something call ‘ divorce between ownership and control ’ Senior managers/directors will have different objectives to the owners They may have shares in the company but not a majority They have to keep the shareholders happy but they may want to Increase their status by running a larger business (focus on market share) Increase their salaries and perks Gain publicity such as takeovers or expansion abroad Divorce between ownership and control – when directors control a plc and thousands of shareholders own it but the two groups have different objectives

Slide 56: 

6.5 Changing business aims and objectives Complete activities on P103 (class discussion)

Slide 57: 

Changing Objectives What are the objectives of a business that is just starting up Survival Cash flow Break even – cover costs Maybe make small profit What might be the objectives of a business as it matures? Make more profit Grow your market share Grow in general What about the objectives of a plc – how might they differ Keep shareholders happy!! Increase the value of shares Give them dividends – this indicates the business is doing well

Slide 58: 

6.5 Changing business aims and objectives There may be other managerial objectives In large plc’s there may be something call ‘ divorce between ownership and control ’ Senior managers/directors will have different objectives to the owners They may have shares in the company but not a majority They have to keep the shareholders happy but they may want to Increase their status by running a larger business (focus on market share) Increase their salaries and perks Gain publicity such as takeovers or expansion abroad What other objective might a large plc have? Tip – how do customers like to see companies behaving Ethically!! Doing the right thing. They may have ethical objectives Divorce between ownership and control – when directors control a plc and thousands of shareholders own it but the two groups have different objectives

Slide 59: 

6.6 Social costs and benefits Although profit is the main measure of success for most companies, many firms are starting to set other ethical and environmental objectives as well as growth and profit. Why? This could be due to the beliefs of the senior management or just that they know how important it is to the image of the firm Managers will not only make decisions based on how much profit will be made but also what impact it will have on society They may end up making less profit in the short term but more profit in the long term when customers stay loyal Ethical objective – a business aim to do the right thing according to the values and beliefs of managers even though this may not be the most profitable way Environmental objective – a business aim to protect the environment during its operations (e.g. recycle waste water) thereby reducing social costs

Slide 60: 

6.6 Social costs and benefits There are a few reasons why firms are adopting new objectives Laws on environmental protection have become stricter To break these laws would lead to bad publicity There is growing support for action against dumping waste and climate change – social costs of business activity Businesses with clear environmental objectives often gain good publicity and customer loyalty Consumers are putting pressure on firms to be increasingly ethical Demanding more organic foods and low polluting cars Not buying products they find unacceptable e.g. clothes made in low-wage sweat shops Social costs – the costs a business activity plus the costs to society (e.g. pollution)

Slide 61: 

6.6 Social costs and benefits Being ethical can reduce short term profits. Why? Rather than paying low wages in cash firms may decide to pay above the minimum wage Not paying money bribes or giving gifts to win a contract can mean lost sales Not forcing suppliers to reduce prices further will mean paying more in the short run Being ethical can increase long term profits. Why? Other ethical firms will want to do business with ethical companies The co-operative bank refuses to accept any investments from companies in the tobacco or weapons industries As a result it attracts many more accounts Consumers may spend more with ethical firms and boycott unethical firms

Slide 62: 

6.6 Social costs and benefits More reasons for making more profit being ethical Workers may be more motivated if they are well treated and paid well Microsoft attracts the best engineers in the world because it treats its employees as valued members of its organisation Government is more likely to give contracts to ethical firms or those that offer social benefits Suppliers will develop good relationships with firms that treat them well and give the best terms possible People are often sceptical about firms behaving ethically – they believe that the firm is doing it more for good publicity rather than they truly want to for the right reasons Social benefits – the benefits a business activity to the firm plus the costs to society (e.g. new jobs created by business expansion)

Slide 63: 

Ethical banking The Cooperative Bank wants to be an ethical bank. This means it does not want to trade with businesses that its savers consider unethical. Each year the Cooperative Bank asks its customers what they think is unethical and then makes sure it avoids lending to these businesses. Examples of its current ethical aims are: ‘We will not lend to any business involved in: ● the manufacture or transfer of armaments to oppressive regimes ● the manufacture of torture equipment or other equipment that is used in the violation of human rights We will not invest in any business whose core activity contributes to: ● global climate change, through the extraction or production of fossil fuels ● the manufacture of chemicals which are persistent in the environment and linked to long-term health concerns ● the unsustainable harvest of natural resources, including timber and fish’ Why do you think the bank needs to ask its savers what they think each year? Answers might include: it wants to make sure it represents their views and does not do anything they would not want to be associated with e.g. lending to unethical businesses it wants to keep up to date with their thinking and their values

Slide 64: 

Ben and Jerry’s Ben and Jerry’s, the US company that makes ice cream, was founded in Vermont in 1978 by Ben Cohen and Jerry Greenfield, who describe themselves as hippies. The two friends started their ice cream careers with a $5 ice cream making correspondence course from Pennsylvania State University and a $12,000 investment ($4,000 of which was borrowed). Their ice cream is now world famous but despite the growth, both Ben and Jerry have always maintained their links with their community and promoted a number of good causes. It is known as a very ethical business. One of the company’s mottos is: ‘Business has a responsibility to the community in which it operates.’ The actions the company takes include reducing waste, trying to adopt environmentally friendly methods of production and respecting their employees. Why do you think Ben and Jerry’s tries to be ethical and environmentally friendly? Answers might include: because their founders held these values and wanted the company to show them as well in its activities because they want to improve things (or at least not make them worse) by the way they produce it could help attract customers, employees and investors i.e. it is good for business Complete activity on P105 – ignore today!

Slide 65: 

6.3 Quick Questions 1 Explain why a business might want to increase its market share. (3 marks) 2 Explain why a business might want to start selling its products abroad. (3 marks) 3 What is meant by ‘business ethics’? (2 marks) 4 Explain two actions that a business could take to become more environmentally friendly. (5 marks) 5 Explain why firms might want to be ethical and more environmentally friendly (4 marks) Homework – see questions on www.econandbiz.com Don’t forget to use examples!!

Slide 66: 

Homework Complete short questions Look online and find an example of an ethical business. Write a couple of lines about the company and be prepared to discuss it next lesson. Think about why they are ethical. Do some research on why businesses move parts of their business abroad to places like China e.g. their call centres or their production facilities

Slide 67: 

6.6 assessment Quick questions Long questions Homework to be checked – if not handed in stay in at lunch time

Slide 68: 

6.7 Location The location of any business is important as it will affect costs, revenue and image Why? An ideal location would be one that Minimises costs and maximises revenue – it would be as profitable as possible The problem is that the cheapest locations will often lead to the lowest sales unless the business sells over the internet The factors that managers of a growing business will consider when choosing a location will be Cost of site the cost of buying versus the cost of renting For a shop the most expensive would be a shop in the city centre but probably the most profitable Labour costs These can vary from region to region If you need high income customers there is no point in locating yourself in an area with low labour costs You need the right skills which may cost more

Slide 69: 

6.7 Location Other things to think about are Transport costs and proximity to suppliers If heavy raw materials are used in production there may be high transport costs and the business will need to be near the supplier If the business needs lots of specialist suppliers they might locate near them IT industries tend to locate in the Thames Valley Sales potential Even if the land or rent costs are high the business may need to be in an expensive location e.g. high class dress retailer Manager’s preferences The owners may chose an area due to personal preference e.g. schools for their children are better in a certain area

Slide 70: 

6.7 Location Choosing the lowest cost location for the Rolls-Royce factory was not a priority They chose to locate in Goodwood – a very expensive location Why? It was close to a small airport where helicopters and executive jets of intending purchasers of Rolls-Royce can arrive in style Buyers are invited to visit the factory and taken to nearby exclusive evens at the marina and horse racing course The area is a ‘playground for the wealthy’ Customers can spend a day at the races or the marina before buying their new car Complete activity 1 and 2 P106/107

Slide 71: 

China worksheet

Slide 72: 

6.7 Location – go global Recently many well known UK owned businesses have located in other countries (sometimes closing their UK operation) One of the reasons is globalisation (increasing trend for goods to be traded internationally and companies to locate abroad) Electrolux is a typical example Had a cooker factory in Durham Loss of 500 jobs Had been making increasing losses even after investing £7m with some government aid (£1.6m) Exchange rates, wage costs and other increasing costs made it uncompetitive Decided to move production to a factory in Poland It can now make a profit making only half the machines it made in the UK The process of moving production abroad is known as off-shoring Services can also be off-shored too e.g. call centres Companies that have operations in more than one country are called multinational

Slide 73: 

6.7 Possible benefits of locating abroad Lower site or land prices London is the 2 nd most expensive city in the world to buy office space Locating in Poland, Chile or other countries is much cheaper Firms have to take into consideration transportation costs Lower labour costs If a business uses a lot of labour the cost savings of moving to a country where labour is cheaper will be huge Will quality be as good? Insert photo of

Slide 74: 

6.7 Possible benefits of locating abroad Avoid trade barriers 3 Japanese car makers have factories in the UK They do this because they can then export to Europe without any tariffs The UK factory may not be as productive Take advantage of fast growing economies and markets The economies in China and India are growing very quickly (more than 10% per year for the last 10 years The UK economy has grown only 2.5% per year Selling in these markets gives an opportunity to grow sales Goods and services might need to be changed to suit different tastes (expensive) A tariff is like a tax on imported goods

Slide 75: 

6.7 Possible disadvantages of locating abroad Language differences may make communicating with workers difficult Transport costs will increase Bad publicity because UK jobs lost. Might be seen as unethical Using low wage countries may be seen as unethical Exam tip – when discussing a decision to locate in another country you must always weigh up the advantages and disadvantages

Slide 76: 

Tesco Under Terry Leahy, Tesco plc has become the biggest retailer in the UK with nearly 4,000 stores and 440,000 staff. He has grown the business by moving it into areas other than food e.g. insurance, electronics and clothes. He also expanded the business into 13 countries abroad. Why do you think he wanted to expand overseas? Answers might include: Expanding overseas gives the company access to new markets that may be growing faster than the UK. It also spreads the risk so that if demand in the UK falls other markets abroad may still be growing.

Slide 77: 

6.1 locating the business Tata Nano The Tata Nano, which is intended to be one of the cheapest cars in the world, was going to be made in the West Bengal region of India. However, because of violent opposition (due to disputes about land ownership) this plan had to be abandoned in 2008. What do you think Tata will consider before choosing a new place in which to produce? Answers might include: costs of production skills of the labour subsidies and support from the government transportation costs location of suitable suppliers political stability in the region

Slide 78: 

6.8 Location go global Overseas expansion Why do you think Tesco chose to expand into the USA? Answers might include: to gain access to more customers to spread the risk by being in business in different countries to sell in a bigger and/or faster growing market

Slide 79: 

6.8 Location go global Burberry In 2007, the British brand Burberry decided to stop production in Rhondda Valley in Wales and relocate to China. Three hundred workers lost their jobs. The company describes itself as a ‘luxury brand with a distinctive British sensibility’. It claimed that the manufacturing cost of each individual polo shirt in Wales was £11, compared to a potential £4 in China. Each year that the factory was kept open in Wales, Burberry argued, would reduce its profits by £2 million. Do you think Burberry was right to move production to China? Answers might include: depends on perspective e.g. are we asking shareholders, competitors, employees, the Chinese government or the UK government? may be right for some but not others e.g. UK employees lose jobs but Chinese employees gain jobs; may help the business but the UK government may earn more tax revenue Complete activity on P109

Slide 80: 

Location assessment Quick Questions Long questions Next lesson you are going to be assessed on all the work we have done since the start of term. This will be 6 short/medium questions and 2 long questions. Homework is Revision

Slide 81: 

Chapter 6 Assessment