Business syllabus notes (marketing)

8/7/2019 Business syllabus notes (marketing)

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9 Content: Business Studies HSC Course

9.1 HSC topic 1: Business Management and Change

20% of indicative time

The focus of this topic is to examine the nature and responsibilitiesof management within a changing business environment from atheoretical and practical perspective.

Outcomes

The student:

H2.1 describes and analyses business functions and operations andtheir impact on business success

H3.1 explains management theories and strategies and their impact

on businessH3.2 evaluates the effectiveness of management in the organisation

and operations of business and its responsiveness to change

H3.3 analyses the impact of management decision-making onstakeholders

H4.1 critically analyses the social and ethical responsibilities ofmanagement

H4.2 evaluates management strategies in response to internal andexternal factors

H5.1 selects, organises and evaluates information and sources for

usefulness and reliabilityH5.3 communicates business information, ideas and issues, using

relevant business terminology and concepts in appropriateforms.

Content

Students learn to:

use existing business case studies to investigate and communicate

ideas and issues related to business management and change. Thefocus of these case studies will be to:

analyse how management theories apply to various businesssituations

explain and evaluate how change is managed in one or morebusinesses.

Students learn about:

the nature of management

the importance of effective management

Traditional definition of management: the process of coordinating

a businesss resources to achieve its goals


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responsibility to stakeholders; reconciling conflicts of interestunderstanding business organisations with reference tomanagement theories

Stakeholders are groups and individuals who interact with thebusiness and thus have a vested interest in its activities. Many groups have an interest (a stake) in a businesss

activities. Society expects businesses to accept responsibilityto all stakeholders.

classical-scientific

management as planning, organising and controlling

Management skills

People (soft) skills

communication

interpersonal skills

Adaptable tochange

proactive

leadership

Visionary

sense of purpose

Self-managing

delegation

time management

Team player

team building

facilitating

Ethical/highpersonal standards

honest and fair

Strategic thinker

conceptual skills

decision making

Problem-solveranalytical skills

data analysis andinterpretation

Responsibility

of management

to stakeholders

Manage changeBeing adaptable

to maintain

competitive

advantage

Social justice

Responsibleuse of

economic

resources and

market power

Codes of practice

Acceptable

standards of

business behaviour

Ecological

sustainability

Develop long-

term strategiesCompliance

with the law

Abide by the

countrys

laws


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hierarchical organisational structure based on division oflabour

autocratic leadership style

The management philosophy adopted by a business will have an

enormous impact on all aspects of the businesss operations.

A classical perspective on management, pioneered by Max

Weber and Henri Fayol, emphasises how best to manage and

organise work so as to improve productivity.

A scientific approach to management, pioneered by Frederick

Taylor, studies a job in great detail to discover the best way toperform it.

Classical and scientific management theory:

- Time and motion studies used to reduce inefficiencies

- Hierarchical organisational structure (bureaucracy)

- Clear lines of authority (chain of command)

- Narrow span of control- Productivity improvements through division of labour

- Production line methods

- Discipline as a feature of leadership

- Autocratic leadership style; rules and procedures.

behavioural

management as leading, motivating, communicating

flat organisational structure, teams

participative/democratic leadership style

Management functions:

- planning: a predetermined course of action. Involves

strategic, tactical and operational planning.


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Key feature Autocratic orauthoritarian

manager

Participative ordemocraticmanager

Laissez-fairemanager

Decisionmaking

Makes alldecisions andinforms employees

Consults withemployees, asksfor suggestionsthen decides

Team baseddecision-making.Highly qualifiedemployees

working in teams.Control Centralised -controls allactivities

Shares decision-making withemployees

Little or no centralmanagement role.

Staffparticipation

Expectsemployees tofollow orders

High level ofemployeeempowerment

Very high level ofemployeeempowerment.

Communication

Top-down Two-way Two-way

The behavioural approach to management, pioneered by EltonMayo, stresses that people (employees) should be the main focus

of the way in which the business is organised.

Behavioural management theory:

- Humanistic approach; employees are the most important

resource

- Economic and social needs of employees should besatisfied

- Employee participation in decision-making

- Flatter organisational structure

- Broader span of control

- Teams increase output and job satisfaction

- Managers need good interpersonal skills.

- Democratic leadership style emerging.

Authoritarian orautocratic Participative or Laissez-faire

(total management control) democratic (more employee involvement)


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Management functions

- leading: having a vision of where the business should be

in the long and short term.

- motivating: energising and encouraging employees.- communicating: exchanging information between people.

The hierarchical management structure has been

criticised as being too:

- slow and unresponsive to rapid change

- expensive to maintain

- difficult to manage due to the different layers- stifling of creativity.

In response, businesses are adopting a flatter

management structure.

Employees or work teams

Flatter organisational/management structures have evolved due

to the elimination of one or more management levels. Main

characteristics include:

- de-layering of traditional hierarchical structure

- establishment of market-focused work teams

- making each work team responsible for a wide range of

production functions.

Manager


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Reducing the levels of management gives greater

responsibility to individualsin the organisation.

Closely associated with the emergence of flatter organisationalstructures is the development ofwork teams.

political

uses of power and influence, management as negotiating andbargaining

structure as coalitions

stakeholder view

Political management theory:

- Managers use power and influence to achieve business

goals.

- Organisational politics (unwritten rules of work).

- Informal coalitions and networks of stakeholders.

- Cooperation and conflict between coalitions.

- Manager must negotiate and bargain between competing

interests.

- Match sources of power to situations.

Sources of power Description

1. Legitimate2. Expert3. Referent4. Reward5. Coercive

Status or positionSkills and abilitiesIndividuals charismaAbility to compensateActions or words

Managers need to be aware of both the formal and informal

coalitions within the workplace.

A coalition is two or more people who combine their power to

push or gain support for their ideas.

strengths and weaknesses of the classical, behavioural andpolitical approaches

Strengths and weaknesses of management theories:


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Theory Strengths WeaknessesClassical-scientific

- based on scientificprinciples

- division of labour- high worker productivity

- clear chain of command- rules and regulations

- employee boredom andexploitation

- autocratic leadership style- job satisfaction ignored

- alienation betweenemployees and managers

Behavioural

- human needsrecognised

- high morale- employee empowerment- motivated team

members- flatter structure

improves

communication

- difficult to predict humanbehaviour

- slow decision-makingprocess

- no clear chain ofcommand

- conflict between theories

Political - recognises power plays- acknowledges coalitions

and networks- explains power bases- highlights need for

negotiating andbargaining

- explains stakeholdersrole

- acknowledges individual

self-interest

- misuse of power- shifting power bases- source of real power

difficult to analyse- internal conflict- not based on scientific

measurement- perceived manipulative

strategies

systems/contingency

adapting management and organisational approaches tocircumstances

The systems management approach views organisations as an

integrated process in which all the individual parts contribute to

the whole.

A system contains:

- inputs the resources used within the business

- transformational processes converts the inputs into a

finished product

- outputs information about how well the organisation

has performed in relation to its stated goals.

- feedback the products and other outcomes.


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Contingency management approach stresses the need for

flexibility and adaptation of management practices and ideas to

suit a particular situation.

Management is a discipline that is continually evolving.

managing change

Change is any alteration in the business and work environment.

The ability to manage and, embrace and adapt to change will

increasingly determine a businesss competitive advantage and

survival.

The crucial management issue is how to manage change to make

it as productive as possible.

nature and sources of change in business

external influences the changing nature of markets;economic, financial, geographic, social, legal, political andtechnological developments

External changes result from factors outside the control of the

business but which may affect its performance.

External influence ExplanationChanging nature ofmarkets

- globalisation has integrated worldmarkets

Economic - economic fluctuations impact on themarket place and influence demand

Financial - deregulation created a more openfinancial system

Geographic - adoption of a global outlookSocial - demographic, attitudinal and cultural

trendsLegal and political - federal, state and local government

policies and legislationTechnology - scientific, technological innovations

can improve productivity

internal influences effects of accelerating technologyincluding

e-commerce, new systems and procedures, new businesscultures


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Internal changes are largely within the control of the business

and come from the desire to improve business operations.

Internal influence Explanation

Acceleratingtechnology

- office equipment, computers,- robotics used in the production

- processe-commerce - the use of the Internet to do

business. Business-to-business(B2B0 and business-to-consumer(B2C).

New systems andprocedures

- technology can revolutionise abusinesss activities and operatingprocedures

New business cultures - Workplace culture will need tobecome more flexible andadaptable.

structural responses to change outsourcing, flatstructures, strategic alliances and networks

As the business environment changes, organisations examine

and modify their business structures.

Structural change refers to changes in how the business is

organised the organisational structure.

The aim of these changes is to make business operations run

smoothly, improve efficiency, streamline coordination and

empower employees to make their own decisions.

Management must respond to change by:

- being flexible and innovative

- constantly reassessing the businesss position

- restructuring the business to maintain a competitive edge.

The main structural changes include:

- Outsourcing: contracting out non-core functions due todownsizing.


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- Flat management structures: reduced levels of

management.

- Strategic alliances: two or more businesses join

together.- Network structures: subcontracted production and

related business functions.

Resistance to change can sometimes be common among

businesses, managers and employees.

reasons for resistance to change

financial costs purchasing new equipment, redundancy

payouts, retraining, reorganising plant layout

inertia of managers, owners

cultural incompatibility in mergers/takeovers

staffing de-skilling, acquiring new skills, loss of careerprospects/promotional opportunities

The main reasons for resistance to change are:

- Financial costs: new equipment; redundancy payments;

retraining workforce; reorganising plant layout.

- Inertia: lack of interest; refusal to cooperate bymanagers/employees; fear of failure.

- Cultural incompatibility in mergers and takeovers:

possible culture clash; different work practices.

- Staffing considerations: de-skilling; acquiring new skills;

loss of career prospects or promotional opportunities.

A change agent, is a person, or group of people, who act as a

catalyst, assuming responsibility for managing the changeprocess.

managing change effectively

identifying the need for change

setting achievable goals

creating culture of change (encouraging teamwork approachusing change agents)

change models force-field analysis, Lewinsunfreeze/change/refreeze model

Five steps to successful change:


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1 Identify change issue.

2 Set achievable goals.

3 Create a culture of change: teamwork; change agent.

4 Implement the change.

5 Evaluate and modify the change as appropriate.

Lewin force-field analysis: identify, analyse and balance the

driving and restraining forces.

The Lewin change process:

- Unfreeze: employees made aware of the reasons for

change (possible use of outside change agent)

- Change: Implement changes. New skills and behaviours

introduced.

- Refreeze: Changed behaviour rewarded to make sure it

lasts.

change and social responsibility

ecological sustainability, quality of working life, technology,globalisation/managing cultural diversity, e-commerce.

A socially responsible business will attempt to achieve two goals

simultaneously: maximising profit (double bottom line) and

providing for the greater good of society (triple bottom line).

Social responsibility: how well a business manages the social,

environmental and human consequences of its actions.


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Ecological sustainability: production methods that conserve

and protect the environment.

Quality of working life: workplace practices that improveemployees wellbeing.

Technology: cushion its negative impact on employees.

Globalisation/cultural diversity: manage multiculturalism and

employee diversity.

E-commerce: training of employees, privacy and security

issues.


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9.2 HSC topic 2: Financial Planning and Management


The focus of this topic is to develop an understanding of the role offinancial planning within business operation and management and

the interpretation of financial information.

Outcomes

The student:


H3.2 evaluates the effectiveness of management in theorganisation and operations of business and itsresponsiveness to change




H5.1 selects, organises and evaluates information and sources forusefulness and reliability

H5.2 plans and conducts an investigation into business to presentthe findings in an appropriate business format

H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriateforms

H5.4 applies mathematical concepts appropriately in businesssituations.

Content

Students learn to:

use existing business case studies to investigate and communicateideas and issues related to financial planning and management. Thefocus of these case studies will be to:

interpret the published annual reports of one or more businesses

analyse the financial statements of one or more businesses (realor imaginary)

undertake comparative ratio analysis over a period of time,with similar businesses, against common standards.


the role of financial planning


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strategic role of financial management

Financial management: plan and monitor the businesss

financial resources to maximise the value of the business to the

owners.

objectives of financial management liquidity, profitability,efficiency, growth, return on capital

Objectives of financial management are:

- Liquidity: ability to pay short-term debts as they fall due.

- Profitability: maximise profits.

- Efficiency: minimise costs and manage assets/resources

efficiently to maximise profits.

- Growth: ability to increase businesss size in the long

term.

- Return on capital: profit returned to owners as a

percentage of their capital contribution.

the planning cycle addressing present financial position,determining financial elements of the business plan, developingbudgets, cash flows, financial reports, interpretation,maintaining record systems, planning financial controls,

minimising financial risks and losses The planning process involves the setting of goals and

objectives, determining the strategies to achieve these goals,

identifying and evaluating alternative courses of action and

choosing the best alternatives of the organisation.

Financial planning is a continuous series of financial activities

undertaken over time. The planning cycle involves:

Address present

financial position Determine financial

Minimise financial elements of the plan

risks and losses

Plan financial The planning Develop budgets

controls cycle

Maintain record Monitor cash


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Budgets provide information in quantitative terms (facts and

figures) about requirements to achieve a particular objective.

- Operating budget: relate to the main activities of an

organisation and may include budgets relating to sales,production, raw materials, labour, expenses and cost of

goods sold.

- Project budget: relate to capital expenditure and

research and development.

- Financial budgets: relate to financial data and include

the budgeted revenue statement, balance sheet and cash

flows.

Cash flow budget records the expected receipts of cash (cash

inflow) and expected payments of cash (cash outflow).

Preparation of budgeted financial reports is an important part of

the planning process.

Record systems must be maintained to ensure the financial

data is accurate, reliable and accessible.

Financial riskis the risk to a business of being unable to cover

its financial obligations.

financial markets relevant to business financial needs

major participants in financial markets including banks, financial

and insurance companies, merchant banks,superannuation/mutual funds, companies, government (ReserveBank of Australia)

Financial markets: consist of financial intermediaries who

receive excess funds from savers and provide finance to

borrowers.

Money market Capital/securities marketDeals in short-term debt

securities.

Deals in long-term debt and

equity securities. Example:


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Example: three-month bonds bonds and shares

Financial markets are important for businesses because they

provide:

- access to funds

- investment opportunities and contacts in managing funds

- expertise in financial market dealings.

Types of financial markets:

- Primary markets: sell new securities.

- Secondary markets: buy and sell existing securities.

- Security: documents representing finance raised by

companies or governments.

- Financial markets are influenced by overseas and domestic

economic and political factors.

- Major participants in financial markets include:

Participant Source of funds Main financial products

Commercial

banks

Deposit accounts Personal loan, mortgage,

overdraftFinance and

insurance

companies

Debentures and

premiums

Loan, lease, factoring,

equity capital

Merchant

banks

Borrow short-term

funds

Commercial bills,

underwriterSuperannuatio

n funds

Peoples savings Equity capital, long-term

loanCompanies Excess funds,

bonds, debentures

Short-term loan, bills of

exchange, equity loanReserve Bank

of Australia

Government

securities

Governments banker

Australian

Stock

Exchange

New equity capital Share issues


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Financial markets are influenced by a wide range of political and

economic factors from both overseas and within Australia

(domestic).

Financial markets have changed rapidly and offer new tradinginstruments to suit the needs of businesses.

role of the Australian Stock Exchange as a primary market

overseas and domestic market influences and trends in financialmarkets and their implications for business financial needs

management of funds

sources of funds

internal owners equity, retained profits external short-term borrowing, (overdraft, bank bills),

long-term borrowing (mortgage, debentures) leasing,factoring, venture capital, grants

A business cannot establish itself and thrive without funds to

enable it to pursue its activities.

Sources of funds can be either internal or external.

Debt Equity

External lenders

Short-term Other sourcesLong-termborrowing

borrowing

- overdraft - venture capital -

mortgage

- bank bill - grant -

debenture

- factoring -

leasing

- trade credit

Internal

lenders

- owners

equity

- retained

profits


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Internal sources - equity:

- Owners equity is the funds contributed by the owner or

partners to establish and build the business.- Retained profits (profits not distributed) are the most

common source of internal finance.

External sources - debt:


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- Bank overdraft: allows the business to overdraw their

account up to an agreed amount.

- Bank bills: a type of bill of exchange given for largeamounts, usually over $50 000.

- Mortgage: a loan secured by the property of the borrower.

- Debentures: issued by a company for a fixed rate of

interest for a fixed period of time.

- Leasing: a long-term source of borrowing that involves

payment for the use of equipment that is owned by another

party.

- Factoring: the selling of accounts receivable for a

discounted price to a finance factoring company.

- Venture capital: funds supplied by private investors

either to new businesses (seed capital) or to established

businesses ready to expand or diversify.

financial considerations matching the terms and source offinance to business purpose and structure

Financialconsiderations: match the terms and source of

finance to business purpose and structure.

comparison of debt and equity financing, including costs andbenefits, risks, gearing/leverage

Comparison of debt and equity finance:

Debt Equity

Lenders have prior claim in

the event of liquidation.

Debt must be repaid byperiodic repayments.

Interest payments are taxdeductible.

Lenders usually require lowerrate of return.

Interest payments are fixed.

Shareholders have a residual

claim onassets.

No maturity date.

Dividends are not taxdeductible.

Shareholders require higher

return due to higher risk.


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Debt providers have no votingrights.

Dividend payments are notfixed andmay be reduced through lack

offunds.

Equity holders have voting

rights.

Debt finance is a liability to a business as it is money owed to

external sources.

Equity finance is the most important source of funds forcompanies because it remains in the business for an indefinite

time.

The capital structure is determined by the mix of debt and

equity, and the proportion of each is known as leverage, or

gearing.

Leverage (gearing) is the proportion of debt (external finance)and the proportion of equity (internal finance) that is used to

finance the activities of the business.

using financial information

the accounting framework The accounting framework provides most of the financial

information for decision-making purposes.

Financial statements summarise the businesss activities

over a period of time.

financial statements revenue statement, balance sheet

Revenue statement (statement of financial performance):

shows the operating efficiency that is, revenue earned and

expenses incurred over the accounting period with the resultant

profit or loss.


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Balance sheet (statement of financial position): assets and

liabilities at a particular point in time and represents the net

worth (equity) of the business. It shows the financial stability

of the business. the accounting equation and relationships

The accounting equation forms the basis of the accounting process;

shows the relationship between assets, liabilities and owners

equity.

Assets = Liabilities + Owners equity

Assets are what the business owns.

Liabilities are what the business owes.

Owners equity is funds contributed by the business

owner(s).

types of financial ratios

Analysis of financial statements is usually aimed at the areas of:

- financial stability (i.e. liquidity and solvency)

- profitability

- efficiency.

liquidity current ratioFinancial ratios:

o Liquidity: ability to pay short-term debts as they fall

due.

solvency gearing debt to equity Solvency: ability to pay long-term debts as they fall due.

profitability gross profit ratio, net profit ratio, return onowners equity

Current ratio (working capital) = Current assetsCurrent liabilities

Debt to equity ratio = Total liabilities

Owners equity


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Profitability: relationship between profit and sales.

efficiency expense ratio, accounts receivable turnoverratio

Efficiency: management of assets to generate profits.

Financial ratios are one of the main tools used to analyse

financial information.

comparative ratio analysis

over time, with similar businesses, against commonstandards

Comparative ratioanalysis isused for comparing the

businesss performance:

- over time past performance.

- inter-firm between similar businesses.

- against industry standards benchmarks.

limitations of financial reports

historical costs, value of intangibles

Limitations of financial reports

Accounting Limitation

Gross profit ratio = Gross profit

Sales

Net profit ratio = Net profit

Sales

Return on owners equity = Net profit__

Owners equity

Expenses ratio = Expenses

Sales

Accounts receivable turnover ratio = Sales_______

Accounts receivable


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practiceHistorical cost True value of assets may be understated or

overstated.Value of

intangibles

No uniform method of valuing these, especially

goodwill.

effective working capital (liquidity) management

the working capital ratio

Working capital is the funds available for the short-term

financial commitments of a business.

Working capital management is determining the best mix of

current assets and current liabilities needed to achieve thebusinesss goals.

control of current assets cash, receivables, inventories

Control of current assets:

Current asset Control methodCash - cash flow budgetAccounts

receivable

- credit policy

- monitor debtors

- factoringInventories - regular stocktakes

- just-in-time

control of current liabilities payables, loans, overdrafts

Current liabilities are liabilities that a business must settle

within the current accounting period. They usually include

overdraft, accounts payable and short-term loans.

Working capital = current assets current liabilities


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Control of current liabilities:

Current liability Control methodAccounts payable - monitor creditors

- holding back payment - stretching

- early payment discountsLoans - capital budgeting compare return and

riskOverdrafts - regular payments

- monitor budgets and bank charges

strategies for managing working capital leasing, factoring, saleand lease back

effective financial planning

Strategies for managing (improving) working capital:

- Leasing: frees up cash and no upfront fees.

- Factoring: sale of accounts receivable generates

immediate cash inflow.

- Sale and lease back: cash is obtained from asset sales.

effective cash flow management

cash flow statements

Cash flow management is the movement of cash in and out of a

business over a period of time.

Cash flow statements show the movement of cash receipts and

cash payments. In preparing a statement of cash flows, the

activities of a business are generally divided into three categories:

1. Operating flows: Sales revenue and operating expenses

related to the businesss main activity.

2. Investment flows: purchase and sale of non-current assets.


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3. Financing flows: borrowing, debt and equity, of the

business.

Many businesses use bank overdrafts to cover temporary cash

shortfalls.

management strategies distribution of payments,discounts for early payments

Cash flow management strategies:

- Distribute payments throughout the year to avoid cash

shortfalls.

- Discount for early payment to minimise late payment and baddebts.

effective profitability management

cost control fixed and variable, cost centres, expenseminimization

Effective profitability management requires control of both the

businesss costs and its revenue.

Profit is the difference between costs and revenue.

Cost-control measures:

- Fixed and variable costs identify and account for expenses.

- Cost centres managers accountable for their business unit

expenses.

- Expense minimisation expenses budgets assist in cost

control.

revenue controls sales objectives, sales mix, pricing policy

Revenue is the income earned from the main activity of a

business.

Revenue-control measures:

- Sales objectives set to generate maximum revenue.

- Sales mix review each products profit margin contribution.


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9.3 HSC topic 3: Marketing


The focus of this topic is to develop an understanding of the nature

and role of marketing in a business and the main elements involved inthe development and implementation of successful marketingstrategies.

Outcomes

The student:

H1.2 critically analyses the role of business in Australia


H3.2 evaluates the effectiveness of management in the organisationand operations of business and its responsiveness to change


H5.1 selects, organises and evaluates information and sources forusefulness and reliability

H5.2 plans and conducts an investigation into business to present thefindings in an appropriate business format

H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriateforms.

Content

Students learn to:

use existing business case studies to investigate and communicateideas and issues related to marketing. The focus of these case studieswill be to:

analyse and evaluate marketing strategies for a product or service

analyse the marketing plan of a business

construct a marketing plan for a single product/service (real orimaginary).


nature and role of markets and marketing

the role of marketing in the firm and in society


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Marketing is a total system of interacting activities designed to

plan, price, promote and distribute products to present and

potential customers.

Role of marketing:

- Find out what customers want and then attempt to satisfy their

needs.

- Bring together the buyer and seller.

- Generate revenue for the business.

A market is a group of individual, organisations or both that:

- need or want a product

- have the money to purchase the product

- are willing to spend their money to obtain the product

- are socially and legally authorised to purchase the product.

types of markets resource, industrial, intermediate, consumer,mass, niche

- Resource markets:

Resource markets refer to business buyers who purchase thefactors of production which are:

o Land: agricultural, mineral deposits and forests

o Labour: people who provide skills for business needs

o Capital: economic sense (equipment)

o Enterprise: the risk- taking by entrepreneurs

- Industrial markets:

An industrial market provides products needed to manufactureother products. E.g. coke buying aluminum cans for Alcom tocreate a finished product

- Intermediate markets:

The intermediate market consists of goods purchased for resale.

These businesses buy these goods to resell them to its retailcustomers.

- Consumer markets:

The consumer markets consists of personal buys such as clothes,cds and foods.

- Mass markets:

The mass market refers to the larger number of customers whowant to buy a standard product such as electricity and petrol.


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- Niche Markets:

Niche markets consist of buyers with specialized needs e.g. A firstclass ticket on the Virgin Space flight or a rolex watch.

productionsellingmarketing orientation

Changes in marketing over time:

1. Production approach - Taking orders and delivering goods.

- 1820s to 1920s

- Emphasis on producing goods

- Demand for goods is greater than supply.

Just producing a product to fulfil customer requirement without offering

choice (sacrificing choice ) for a cheaper and low cost manufacturing

through large scale production. The model T manufactured by HenryFord in the 1920s is an excellent example. Henry boasted the customer

could have any colour so long as it was black.

2. Sales approach - Advertising and personal selling.

- 1920s to 1960s

- Emphasison selling goods

- Demand is weaker.

This was done through advertising and producing products to compete

with competitors and hence increase sales and market share.

3. Marketing approach Aimed at satisfying customers needs.

- 1960s to present

- Emphasis on identifying customer needs through market

research

- Establishing and maintaining customer relationships

- Development of the marketing concept.

Researching the needs of their customers and developing products to

effectively meet the needs.


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4. Ecological approach Ecologically sustainable development is

based on consumer choices as they may want to buy only

environmentally friendly products or may want to see the business

incorporate ecological sustainability. An e.g. of this is McDonalds using

recycled paper packaging after consumer backlash to the previous

Styrofoam.

the marketing concept customer orientation, relationshipmarketing

The marketing concept is a business philosophy that sates that all

section of the business are involved in satisfying a customers

needs and wants while achieving the businesss goals. It is based on

four principles:- customer-oriented

- supported by integrated marketing strategies

- aimed at satisfying customers

- integrated into the business plan so as to achieve the

businesss goals.

Marketing concept accomplished through:

- Customer orientation: marketing decisions and practices

are based on customers needs

- Relationship marketing: long-term relationships with

individual customers to create customer loyalty.

marketing planning process

Marketing planning process is the process of developing and

implementing marketing strategies to achieve marketing strategies,

and consists of five steps:

1. Performing situational analysis

2. Establishing market objectives

3. Identifying target markets

4. Developing marketing strategies

5. Implementing, monitoring and controlling the marketing plan.


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elements of a marketing plan

situational analysis including SWOT and product life cycle

establishing market objectives

identifying target market

developing marketing strategies

implementation, monitoring and controlling developing afinancial forecast, comparing actual and planned results, andrevising the marketing strategy

An integrated marketing plan gives purpose and direction to all

the businesss activities.

There are five steps involved in developing a marketing plan.

Step 1 Situational analysis: A precise understanding of the

businesss current position and where it is heading.

- SWOT (strengths, weaknesses, opportunities and

threats) analysis: provides the information needed to

complete the situational analysis and assesses the

businesss position compared with its competitors.

- Product life cycle analysis: At each stage of the cycle

a different marketing strategy is necessary. A business

must be able to launch, modify, and delete products inresponse to changes in the product life cycle.

Step 2 Establish marketing objectives: The realistic and

measurable goals to be achieved through the marketing plan.

The marketing objectives should be more customer oriented than

the objectives for the entire business, and should include specific

targets to be met for example, Increase market share by 5 per

cent over twelve months. Marketing objectives include:

- Increase market share. Market share refers to the

businesss total share of the total industry sales for a

particular market.


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- Expand the product range. Product mix is the total

range of products offered by a business.

- Expand existing markets. Geographical

representation refers to the presence of a business

and the range of products across a geographical area.

- Maximising customer service. Customer service

means responding to the needs and problems of the

customer.

Step 3 Identify target markets: Specific groups of

customers with similar characteristics. Two broad approaches

can be used when selecting a target market:

1. Total market: a vast number of people. Example:

Basic food items.

2. Market segmentation: the total market is

subdivided into groups of people who share common

needs. Example: HSC Business Studies students.

Step 4 Develop marketing strategies: Actions to achieve

marketing objectives based on the four Ps which make up the

marketing mix: product, price, promotion and place.

A business controls four basic marketing strategies (the four Ps) to

reach its target market.

1. Product anything that satisfies a need or want and can be

offered in exchange.

2. Price the value placed on what is exchanged.

3. Promotion activities used to communicate to a targetmarket persuasive, positive information about a business and its

products.

4. Place methods used to get the product to the customer.

The four Ps make up the marketing mix.


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Step 5 Implement, monitor and control the marketing plan:

- Implement: decide which marketing strategies will be

put into action.

- Monitor:

o check and observe progress of the marketing

plan.

o establish a performance standard

o develop a financial forecast

- Control: compare actual performance against

planned through the use ofsales analysis, market

share analysis/ratios, marketing profitability

analysis.

- Corrective action may need to be undertaken and revise

the marketing strategy through:

o changes in the marketing mix

o new product development or product deletion.

market research process

determining information needs, data collection (primary andsecondary), data analysis and interpretation

Market research is the process of systematically collecting,

recording and analysing information concerning a specific

marketing problem.

Marketing data refers to the information, usually facts and

figures, relevant to the defined marketing problem.

- Primary data: information from original sources. Example:

Interviews and surveys.

- Secondary data: information collected by other organisations.

Example: ABS.


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factors influencing customer choice psychological, sociocultural,

economic, government

Customers choices are influenced by four main factors:

1.Psychological: the buyers perceptions, motives, attitudes

and personality.

2.Sociocultural: the buyers family role, peer groups, social

class and culture.

3.Economic: the level of economic activity and individual

incomes.

4.Government: the influence of regulations and policies on

marketing activities.

developing marketing strategies

market segmentation and product/service differentiation

Market segmentation allows the business to direct its marketing

strategies to specific groups of customers. Consumer market

segmented according to demographic, geographic, lifestyle and

behavioural variables.

Mass market

A primary target market is the market segment at which most of

the marketing resources are directed.

Marketing plan

consisting of:

objectives

strategies

marketing mix

Product Price Promotion Place

Segment 1

Segment 2

Primary target

Segment 3

Secondary target


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A secondary target market is usually a smaller and less

important market segment.

A mass marketing approach seeks a large range of customers.

A concentrated market approach requires the business to directits marketing mix towards one selected segment of the total

market. A niche market is a narrowly selected target market

segment, a segment within a segment; a micromarket.

Segmentation results in product differentiation: when products

that are the same or similar are made to appear different and/or

better than those of their competitor.

product and serviceA product is a good or service, an idea or any combination of the

three which can be offered for sale. It consists of tangible and

intangible benefits a total product concept. All products are a

combination of tangible and intangible attributes.

positioning Positioning: developing a productimage.Assists with

product differentiation. Examples: Rolex, No Frills, Nike.

branding Branding: name, term, symbol or logo identifying a specificproduct. Brands can be manufacturers, house, or genericdepending on ownership

packaging Packaging: a container and graphic designs helping preserve,

protect and promote the product.

price including pricing methods cost, market and competition-based

Selecting the most appropriate pricing method is important.

Pricing method Explanation1.Cost plus

margin

This is the simplest method. The business

determines the total cost of production and then


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adds an amount for profit. The extra margin is

referred to as the mark-up.2. Market Instead of using costs to determine price,

businesses sometimes set prices according to

the level of supply and demand whatever the

market is prepared to pay. When demand is

high, prices are high. When demand is low,

prices fall.3. Competition-

based

This method is often used when there is a high

degree of competition from businesses

producing similar products. A business can

choose a price that is either below, equal to or

above that of the competitors.

pricing strategies/tactics skimming, penetration, lossleaders, price points

Four pricing strategies can also be used to determine price:

1.Price skimming charge the highest price possible for

innovative products.

2.Price penetration charge the lowest prices possible to

quickly achieve a large market share.

3.Loss leader sell a product below its cost price to attract

customers to the business.

4.Price lining (price points) a limited number of key prices or

price points for selected product lines.

price and quality interaction

promotion

elements of the promotion mix personal selling,advertising, below-the-line promotions, public relations

Promotion mix is the various promotion methods used to

inform, persuade and remind a target market about a product.

Promotion

method

Explanation


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Personal sellingSalesrepresentative dealing directly with a

customer. The message can be modified to

suit the specific circumstances. Complex and

technical products require this approach.

AdvertisingPaid, non-personal message communicated

through a massmedium such as electronic or

print. Advertising is an essential tool for

successful marketing.

Below-the-linePromotional activities designed without the

use of an advertising agency. The activities

are designed in-house. These activities

include exhibitions, point-of-sale material,

demonstrating and directmarketing.Publicity and

public relations

Publicity is any free news story about a

businesss product. Its main aim ism to

enhance the image of the product. Public

relations involves activities aimed at creating

and maintaining a favourable relationship

between a business and its customers.

the communication process including opinion leaders andword of mouth

Opinion leaders and word of mouth assist the

communication of a promotional message.

place/distribution

distribution channels and reasons for intermediaries Place refers to the channels of distribution (marketing

channels) which are the routes taken to get the product from

the producer to the customer. This process usually involves a

number ofintermediaries (retailer, wholesaler, agent).

channel choice including intensive, selective, exclusive

Market coverage refers to the number of outlets a firm

chooses for its product including:


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Content

Students learn to:

use existing business case studies to investigate and communicate

ideas and issues related to employment relations. The focus of thesecase studies will be to:

analyse how conflict and change are managed in a business

prepare and justify possible ways of resolving conflicts in theselected business organisations.


the nature of employment relations

stakeholders in the employment relations process employers,employees, employer associations, unions, governmentorganizations

Employment relations refers to thetotal relationship between an

employer and employee.

Stakeholders in the employment relations process:

Conflict or cooperation

possible at all levels

Employees

Objectives

better wages and

conditions

job security

participation in

decisions

Employers

Objectives

increase profit

increase

flexibility

minimise costs,

be competitive

Governments

Objectives

global competitiveness

higher living standards

and employment

workplace reform

compliance withle islation


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managing the employment relations function

line management and specialist

Employers and mangers deal with employment relations on a daily

basis.

Under recent legislation, employers have gained more power to

make arrangements relevant to individual workplaces.

Employees are more highly educated than in the past. There are

many changes to employment conditions and basis of employment.

Trade unions are organisations formed by employees in an

industry. Unions have played a powerful role in employment

relations. Union membership has been declining over the last two

decades.

Employer associations act on behalf of employers:

- in collective bargaining sessions

- provide advice

- make wage submissions

- negotiate agreements

- lobby governments.

Governments are an important stakeholder in the employment

relations process. Their key roles are:

Australian Industrial

Relations Commission,Federal Court,

Employment Advocate


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- Legislator: pass laws, which provide the legal framework for

industrial relations.

- Employer: employ almost one-third of Australian workers.

- Responsible economic manager: ensure stable economic

growth.

- Administrator of government policies on industrial

relations: implement legislation they pass.

- Representative of Australia in the international arena:

implement international treaties.

Industrial tribunals and courts: operate to:

- settle industrial disputes through conciliation and

arbitration.

- Supervise the making of agreements or awards (legally

enforceable, formal agreements made collectively between

employers and employees that outline the pay and conditions.

Most large businesses train their line managers in general

employment issues.

Specialist managers for employment relations are responsible

for:

- recruitment and selection

- induction and training

- separation

- managing and implementing equal employment opportunity

and affirmative action legislation.key influences on employment relations

social influences changing work patterns, population shifts

legal influences overview of major employment legislation

new organisational behavioural influences flat management andteam structures

economic influences economic cycle, globalisation


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Change is the only constant in the business environment. The main

influences on employment relations are:

Social influence Employment relations response

Changing work patterns Fewer permanent employees

More casual employees

Flexible working hours

Telecommuting

Population shifts Increase in the female participation

rate Family-friendly or work/life

balance

Employees wanting more

involvement

Legal influences Employment relations

response

Employment contracts Greater awareness of social justice

Equal employment opportunities

Anti-discrimination

Centralised to decentralised

system

Organisational influences Employment relations

response

Flatter management Employee participation

structure Alternative motivational strategies

Job enlargement, rotation,

enrichment

Self-managing work teams

Training and development


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Economic influences Employment relations

response

Economic cycle Changes in demand for labour

Downsizing

Structural change

Globalisation Inefficient work practices

removed

Global employment contracts

Cultural awareness training

Manage diverse workforce

effective employment relations

role of employment relations Most organisations that are successful in the long term maintain a

balance between concern for success (expansion and profit) and

regard for their employees.

Well-managed employees ensure efficient and effective use is

made of their skills, time and working relationships.

Effective employment relations provide the competitive edge as

similar raw materials, technology and business systems become

common to all organisations in a global marketplace.

Managing employment relations effectively involves the following

activities:

- Human resource planning: determining future needs, and

changes to the internal and external environment.

- Recruitment: locating and attracting the right quantity of

staff to apply for employment vacancies or anticipated

vacancies.


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- Selection: gathering information about each applicant for a

position and then using that information to choose the most

appropriate applicant.

- Placement: locating the employee in a position that best

suits the needs and utilises the skills of the individual.

- Training and development: training develops skills,

knowledge and attitudes; development focuses on enhancing

the skills of the employee to allow them to accept promotion

within the organisation.

- Rewards management: the provision of monetary and non-

monetary rewards.

- Conflict resolution: the constructive use of conflict and

dispute resolution.

- Legal compliance: abide by the appropriate legislation such

as occupational health and safety (OH&S).

- Separation: employees leaving the organisation. This needs

to be handled properly to avoid claims of discrimination.

communications systems grievance procedures, worker

participation, team briefings Functional communication systems are vital for effective

employment relations. This involves:

1. Grievance procedure: system to deal with workplace

complaints.

2.Worker participation: employee involvement in decision-

making.

3. Team briefings: managers and employees meet to discuss issues.Quality circles and semi-autonomous teams assist in thisprocess.

rewards financial, non-financial


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Rewards can be monetary or non-monetary, and intrinsic (sense

of personal achievement) or extrinsic (rewards given outside the

job itself such as incentive payment).

An effective rewards management system should attract, retain

and motivate employees, and be equitable.

training and development induction

Effective training and development improves employee

performance and productivity.

An effective induction program introduces new employees to the

job, their co-workers, the organisation and its culture.

Ongoing training is critical due to technological change and global

competition, leading many organisations to promote the concept of

a learning organisation within the business.

Key features of an effective training program include:

Step 1: Assess the needs (needs analysis).

Step 2: Determine the objectives of the training program.

Step 3: Consider the internal and external influences.

Step 4: Determine the training process

Step5: Evaluate the training program.

Training can be formal, informal, off-the-job or on-the-job.

Development assists employees to cope with added responsibility

and accountability. It prepares employees for promotion.

Non-monetary rewards Monetary rewards

- Interesting work

- Challenge

- Responsibility

- Satisfaction

- Recognition

- Wage and salary

- Incentive bonus

- Fringe benefits

- Profit sharing

- Commission


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Australia has a dual system of industrial relations, although

changing.

Constitution gives federal government powers to pass legislation on

industrial relations.

The industrial relations system has undergone an evolution from a

centralised to a decentralised system starting with the

Workplace Relations Act 1996 (Cth.)

Further reforms have been implemented under the Howard

government as the move to Australian Workplace Agreement

(AWAs) (individual contracts), the reduction in the powers of the

Australian Industrial Relations Commission, and the establishment

of a Fair Pay Commission.

At the federal level there are three types of agreements available to

businesses and employees:

1. awardscollective

agreements2. certified (enterprise) agreements

3. individual agreements (AWAs)

Certified agreements may cover a single business or multiple

businesses. They are made between an employer and a union, or

unions, or a group of employees.

AWAs are individual contracts, signed individually and are secret.

Certified agreement Australian workplace


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(CA) agreement

(AWA)

- collective agreements for

employees at a specific

workplace

- can replace awards or act as

add-ons

- must pass a no disadvantage

test.

- majority approval required

- individual agreements but

may be agreed collectively

- replace the award for a

specific workplace

- must be registered with the

Employment Advocate

- bargaining agents can be

appointed

- signed individually and are

secret

Individual common law employment contracts mainly apply to the

managerial or professional level and common in the private sector.

types of employment contract casual/part-time/flexible,permanent, casual

Types of employment contracts include:

- casual: employment that is short term, irregular and

uncertain; not entitled to holiday pay or sick leave.

- part-time: continuing employment contract but less hours

than full-time.

- regular or continuing employees: continuing

employment contract and are required to work a specified

number of hours per week.

- fixed-term employees: employed on a contract for a

specific period.


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Overt (highly visible) Covert (not highly visible)Lockout: employers refuse

employees admission

Absenteeism: unapproved

absence form work

Picket: employees stop entry

into workplace

Sabotage: vandalism and theft

Strike: employees withdraw

their labour

Turnover: staff resignations

Bans: selected tasks not

performed

Exclusion from decision-

making: not inviting all staff to

meetingsWork-to-rule: employees refuse

to perform additional duties

roles of stakeholders in resolving disputes

The key stakeholders involved in resolving disputes include

employees, employers, governments, trade unions, employer

associations and industrial tribunals.

Since the introduction of the Australian Workplace Relations Act

1996 a move towards employers and employees resolving disputes

without outside assistance.

Many firms try to develop a corporate culture in which disputes are

minimised through cooperative working relationships and by

training staff in procedures, policies and guidelines for managing

disputes.

dispute resolution processes conciliation, arbitration, grievanceprocedures, negotiation, mediation, common law action,business/division closure

Dispute resolution procedures:

- Commences with grievanceprocedures.


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- Negotiation: discussion between the parties to reach a

solution.

- Mediation: objective third person assists parties to reach a

solution.

Australian Industrial Relations Commission (AIRC)

- Conciliation: mediation involving a meeting of the parties to

reach a solution.

- Arbitration: commissioner makes a legallybinding decision.

- Common law: disputes settled by court action when no

relevant employment legislation exists.

- Business/division closure: if dispute is impossible to

resolve.

costs and benefits of industrial conflict

financial, personal, social, political, international

Costs and benefits of industrial conflict

Type Costs BenefitsFinancial - lost production and

wages- business closure

- increased productivity

after changesimplemented

- improved working

conditionsPersonal - stress, insecurity and

fear

- work problems resolved


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Social - community anger - new career opportunitiesPolitical - voter dissatisfaction - better employment

policiesInternatio

nal

- loss of export

markets

- workplace reforms

improve global

competitivenessethical and legal aspects

issues in the workplace

working conditions Ethical business practices are those practices that are

socially responsible, morally right, honourable and fair.

An ethical framework must be developed for the workplace and

include a code of conduct and a code of ethics.

An ethical employer will provide safe and healthy working

conditions that improve employeewelfare. This is enforced by

the Occupational Health and Safety Act 2000 (NSW).

Employers have a duty of care and employees have a

reciprocalduty.

Occupational Health and Safety (OH&S) Workcover recommends implementing a six-step approach to

OH&S.

Step 1. Develop an OH&S policy.

Step 2. Set up a consultation mechanism with employees.

Step 3. Establish a training strategy for new and existing staff.

Step 4. Establish a hazard identification and workplace

assessment process.

Step 5. Develop and implement risk control.

Step 6. Promote, maintain, and improve these strategies.

workers compensation state and/or federal agencies andcommon law redress

Employers are legally obliged to take out workers

compensation insurance, a no-fault system emphasising

rehabilitation and monetary compensation.


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Employees must notify their employer as soon as possible of an

injury or work-related illness.

Common law redress may be available for injured employees

to sue for negligence.

anti-discrimination Discrimination occurs when a policy or a practice

disadvantages a person or group because of a personal

characteristic that is irrelevant to the performance of the work.

Employers and managers working in employment relations

need to be familiar with the following legislation:

o Human Rights and Equal Opportunity Commission Act

1986 (Cth).

o Affirmative Action (Equal Employment Opportunity for

Women) Act 1986 (Cth).

o Sex Discrimination Act 1984 (Cth) and the Anti-

Discrimination Act 1977 (NSW).

All employers are required to take reasonable steps to

eliminate discrimination. Equal Employment Opportunities (EEO)

Equal employment opportunities (EEO)encourages equitable

practices in recruitment, selection, training and promotion.

Private sector employers with more than 100 employees are obliged

to develop an affirmative action program, which aims to remove

discriminatory employment barriers and take action to promote

equal opportunity for women in the workplace.

An employment contract is legally binding, so employers must

terminate the contract in a legally compliant manner.

There are three ways an employee can be sacked:


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9.5 HSC topic 5: Global Business


The focus of this topic is to examine the implications of globalisation on

business structure, functions and management.

Outcomes

The student:

H1.1 explains the impact of the global business environment onbusiness role and structure

H1.2 critically analyses the role of business in Australia


H2.2 evaluates processes and operations in global businessH3.2 evaluates the effectiveness of management in the organisation

and operations of business and its responsiveness to change




H5.1 selects, organises and evaluates information and sources for

usefulness and reliabilityH5.2 plans and conducts an investigation into business to present the

findings in an appropriate business format

H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriate forms

Content

Students learn to:

use existing business case studies to investigate and communicateideas and issues related to global business. The focus of these casestudies will be to:

select a global business and identify its international targets

describe and analyse the reasons for its international expansion

explain the influences on this business in the global market

explain the strategies used by the business to achieve its targets.


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globalisation

nature and trends growth of the global economy and changes inmarkets (financial/capital, labour, consumer)

The global economy is the world economy and refers to the

economic activity going on in the world.

Global influences on the Australian business environment include:

- Increasing globalisation and a changing international business

environment.

- Changes in protection policies.

- Establishment of overseas operations.

Globalisation is the movement across nations of trade,

investment, technology, finance and labour.

Globalisation is not a new process. However, in the last 20 years the

world has experienced rapid and widespread globalisation.

National economies are merging into one huge, interdependent

global economic system.

Globalisation of markets refers to the combining of once

separate and distinct national markets into one huge global

marketplace.

Globalisation of production refers to the way many businesses

purchase their inputs from around the globe and tend to

manufacture components in low-cost countries.


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interaction between global business and Australian domesticbusiness

Since the 1990s, there has been a heightened sense of awareness

of the need for domestic businesses and managers to increase their

interactions with global businesses.

As globalisation gathers momentum Australian businesses face

increased competition as well as more opportunities.

Australian businesses have three specific advantages in the

transition phase:

1. Networks and relationships are well established.2. Multicultural make-up of the Australian workforce.

3. Governments and private consultant provide advice.

global business strategy

methods of international expansion

export

The different methods of international expansion require

varying degrees of involvement each requiring varying degrees of

involvement in global business.

Exporting: when a business manufactures its products in its home

country and then sells them in foreign markets.

- Can be a relatively low-risk method of entering overseas

markets.

- There are three different methods of exporting:

o Indirect exporting is the most basic level of exporting

where a business sells its products to a domestic

producer, who then exports the product.

o Direct exporting happens when the exporting

business sells its products to an agent or intermediary

or final consumers in another country.


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o Intracorporate exporting (transfer) is the selling of a

product by a firm in one country to a subsidiary firm in

another.

foreign direct investment Foreign direct investment (FDI) occurs when a business

from one country owns property, assets or business interests in

another country.

There are three methods of FDI:

1. Greenfield strategy: a new business venture from scratch.

2. Acquisition strategy: acquiring through a takeover or

merger of an existing business operating in the foreign country.

3. Joint venture: two or more businesses agree to work

together and form a jointly owned but separate business.

relocation of production

Relocation of production (relocation offshore) occurs when

the domestic production facility is closed down and then set up in a

foreign country. The motivation behind this strategy is usually cost

reduction as the relocation is often to a low-cost, developing

country.

management contract Management contract: an arrangement under which a global

business provides managerial assistance and increased

technical expertise to a second or host business for a fee.

licensing/franchises Licensing is an agreement in which one business (licensor)

permits another (licensee) to produce and market its product,brand name etc for a royalty fee.

Franchising is a specialised form of licensing in which the

franchisor grants the franchisee the right to use a companys

trademark and distribute its product.


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Regulatory

differences

Taking advantage of differences in laws of the host

country to gain a cost advantage.Tax

minimisatio

n

Low-tax host countries offer incentives oftax holiday

and taxhaven.

specific influences on global business

financial

currency fluctuations

interest rates

overseas borrowing

A business that operates globally has to deal with a more complex

set of factors compared to a business that operates only in the

domestic market, including:

- difficulty of assessment

- different value systems

- decision making is more complex

- cultural differences.

Financial influences are largely uncontrollable although a

business can put in place appropriate financial management

strategies to minimise their negative effects.

1. Currency fluctuations. In all global transactions it is

necessary to convert one currency into another.

- This transaction is performed through the foreign

exchange (forex or fx) market, which determines the

price of one currency relative to another.- Exchange rate: value of one currency to another.

Example: A$1 = US$0.70 means one Australian dollar is

worth 70 US cents.

- Exchange rates fluctuate over time.


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- Depreciation: a downward movement of the

Australian dollar (or any other currency) against another

currency. Exports become cheaper but imports dearer. An

appreciation has the opposite effect.

- Fluctuations impact on production costs, revenue

and profitability.

2. Interest rates. Finance is generally required for overseas

expansion. Borrowing offshore to gain a lower interest rate can

expose the business due to adverse currency fluctuations.

3. Overseas borrowing. There is a diverse range of debt and

equity sources within the international capital market. However,

there are two main sources:

- International equity (share) market. This involves

selling shares of ownership to new or existing owners

worldwide.

- International bond market. A bond is an IOU from one

business to another and requires the borrower to repay a

certain amount, plus interest, by a specified date.

political

tensions between protectionism and free trade

international organisations and treaties (World TradeOrganisation)

trade agreements

regionalism

war and civil unrest

Political influences. A political riskis any political event that

results in a drastic change to the countrys business environment

and ultimately has a negative impact upon business operations and

profit.


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Political risks tend to be greater in countries experiencing social and

economic unrest.

Some political influences could act as incentives, encouraging

businesses to relocate.

1. Tension between protectionism and free trade

- Protectionism creates artificial barriers to free trade

- Many governments are encouraging free trade. The debate

causes tension within and between countries.

2. International organisations and treaties

- The actions and decisions of international organisations

have an enormous impact upon global business.

- The main organisations are:

(i) World Bank (WB): Bank lending encourages business

activity.

(ii) International Monetary Fund (IMF): Fosters orderly

exchange arrangements and an international monetary

system.

(iii) Bank for International Settlement (BIS): Provides

stability and certainty to the worlds financial system.

(iv) World Trade Organisation: World Trade

Organisation (WTO): Responsible for managing world

trade, trade negotiations, treaties and investment.

3. Trade agreements and regionalism. The main aim of the

WTO is to remove barriers to international trade. A trade

agreement is a negotiated relationship between countries that

regulates trade between them.


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- Countries that participate in a trade agreement form

economic communities trading bloc. The main trading

blocs are:

(i) European Union (EU)

(ii) North American Free Trade Association (NAFTA)

(iii) Association of South-East Asian Nations (ASEAN)

(iv) Asia-Pacific Economic Cooperation (APEC).

4. War and civil unrest. Business operations can be

significantly disrupted in politically volatile countries.

legal

contracts dispute resolution

intellectual property

Legal influences. There is no one set of international laws. A

global business must be aware of the hosts unique legal system.

1. Contracts: legally enforceable agreements. There are two

main legal systems in the world: common law and civil law.

Rights and responsibilities of contractual parties vary between

countries. A contract should outline a method of resolving

disputes.

2. Dispute resolutions. Negotiation and mediation are less

expensive methods. WTO has a dispute settlement process.

3. Intellectual property refers to property that is created byan individuals intellect.

- Brand names, trademarks, patents and copyrights need

to be protected. Not all countries enforce intellectual

property conventions.


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social/cultural

languages

tastes

religion

varying business practices and ethics

4. Social and cultural influences. Global businesses must be

aware of and appreciate the unique system of values, beliefs,

rules and customs of a host country.

- Language. A difficult barrier to overcome and will impact

on negotiations. Need to appreciate the importance of non-

verbal communication.- Tastes. Exported products should be modified to suit local

tastes.

- Religion. Insensitivity could damage business

relationships.

- Varying business practices and ethics. Vary the world

over. International business managers must research and

accept business practices and ethics of the countries with

which they wish to conduct business. Difficulty in

distinguishing between a gift and a bribe.


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managing global business

financial

methods of payment

credit risks

There are a number of private and government organisations

(Austrade) that offer assistance with a particular aspect of

managing a global business.

1. Financial management of a global business involves methods of

payment, currency exchange fluctuations, credit risks and insurance.

Method of payment and credit risks.

Method of

payment

Explanation Risk to

exporterPayment in

advance

Allows the exporter to receive payment and

then arrange for the goods to be sent. Few

importers will agree to these terms because

it exposes them to the most risk.

Least

Letter of credit A commitment by the importers bank,

which promises to pay the exporter a

specified amount when the documents

proving shipment of the goods are

presented.

Minimal

Clean payment

(clean

remittance)

Easiest and quickest method. Occurs when

the payment is sent to, but not received by,

the exporter before the goods are

transported. Favoured by exporters, but notso much by importers.

Minimal

Bills of

exchange

A document drawn up by the exporter

demanding payment from the importer at a

specified time. Widely used method and

allows the exporter to maintain control over

Moderate


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the goods until payment is either made or

guaranteed. Two types: bills against

payment and bills against acceptance.Open credit

(account)

Allows the importer to access the goods,

with a promise to repay at a later date.

Most

hedging

Hedging reduces the risk of currency fluctuations.

- A spot exchange occurs when two parties agree to

exchange currency and finalise a deal immediately. Spot

exchange rates: the value of one currency in another

currency on a particular day.

Hedging (natural and financial instrument derivatives) can be usedto minimise the risk of having to accept an unfavourable exchangerate.

derivatives Derivatives are financial instruments that may be used to

lessen the risk of currency fluctuations. There are three main

derivatives:

(i) Forward exchange contract: a contract to exchange one

currency for another currency at an agreed exchange rate on a

future date.

(ii) Options contract: gives the buyer (option holder) the right,

but not the obligation, to but or sell foreign currency at some

time in the future.

(iii) Swap contract: an agreement to exchange currency in the

spot market with an agreement to reverse the transaction in the

future.

insurance Insurance: protection against default of payment, product

damage and financial risks.

obtaining finance Obtaining finance.


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(i) Domestic capital market: Australian banks and financial

institutions.

(ii) International capital market: international financial

institutions.

(iii) Eurocurrency market: nominating a currency of choice

US dollar, Deutschmark, British pound, Japanese yen.

marketing

research of market2. Marketing management. A global business must modify its

marketing plan to suit overseas markets.

Market research to determine:

- economic capabilities of host country.

- market potential for a product.

- social, cultural and political features.

global branding Global branding: worldwide use of names, symbols and logos.

Helps global recognition irrespective of language.

standardisation and differentiation A standardised marketing mixcan be adopted based on an

identical product being sold worldwide. A differentiated

approach uses a customised marketing plan to suit the host

countrys local needs.

operations

sourcing (vertical integration, make or buy)3. Operations management. To remain competitive, businesses are

forced to find ways to reduce costs of production and improve their

products.


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Need for an understanding of the different labour laws, wages and

working conditions between countries. Shortages of skilled labour

overcome by recruiting expatriates. Non-managerial staff are

normally host country nationals.

labour law variations Need for an understanding of the different labour laws, wages

and working conditions between countries. Shortages of skilled

labour overcome by recruiting expatriates. Non-managerial

staff are normally host country nationals.

ethnocentric/polycentric/geocentric staffing system Staffing system: concerned with the selection of employees

for particular jobs. One of three approaches:

(i) Ethnocentric: key management staff are relocated from the

home country.

(ii) Polycentric: host country employees are recruited.

(iii) Geocentric: the best employees available are selected

irrespective of nationality.

evaluation strategies with reference to a particular global

market Management strategies

Business syllabus notes (marketing)

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