ESP-New_Ms. Mai Hanh

7/21/2019 ESP-New_Ms. Mai Hanh

http://slidepdf.com/reader/full/esp-newms-mai-hanh 1/71



C#$%A&' S(!UC(U!)

!ost organizations ha$e a hierarchical or pyramidal structure, with one person or a groupof people at the top, and an increasing numer of people elow them at each successi$ele$el. There is a clear line or chain of command running down the pyramid. #ll the people in the organization know what decisions they are ale to make, who their superior (or oss) is (to whom they report), and who their immediate suordinates are (to whomthey can gi$e instructions).

5ome people in an organization ha$e colleagues who help them3 for e2ample, there might e an #ssistant !arketing !anager. This is known as a staff position3 its holder has noline authority, and is not integrated into the chain of command, unlike, for e2ample, the#ssistant !arketing !anager, who is numer two in the marketing department.

7et the acti$ities of the most companies are too complicated to e organized in a single

hierarchy. 5hortly efore the irst World War, the rench industrialist 8enry ayolorganized his coal-mining usiness according to functions that it had to carry out. 8e isgenerally credited with in$enting functional organization. Today, most largemanufacturing organizations ha$e a functional structure, including (among others) production, finance, marketing, sales, and personnel or human resources departments.This means, for e2ample, that the production and marketing departments cannot takefinancial decisions without consulting the finance department.

unctional organization is efficient, ut there are two standard criticisms. irstly, areusually more concerned with the success of their department than that of the company, so

there are permanent attles etween , for e2ample, finance and marketing, or marketingand production, which ha$e incompatile goals. 5econdly, separating functions isunlikely to encourage inno$ation.

7et for a large organization manufacturing a range of products, ha$ing a single production department is generally inefficient. onse9uently, most large companies aredecentralized, following the model of #lfred 5loan, who di$ided 0eneral !otors intoseparate operating di$isions in ":%;. ach di$ision had its own engineering, productionand sales departments, made a different category of car (ut with some o$erlap, toencourage internal competition), and was e2pected to make a profit.

&usinesses that cannot e di$ided into autonomous di$isions with their own markets cansimulate decentralization, setting up di$isions that deal with each other using internallydetermined transfer prices. !any anks, for e2ample, ha$e estalished commercial,corporate, pri$ate anking, international and in$estment di$isions.

#n inherent prolem of hierarchies is that people at lower le$els are unale to makeimportant decisions, ut ha$e to pass on responsiility to their oss. <ne solution to thisis matri2 management, in which people report to more than one superior. or e2ample, a



product manager with an idea might e ale to deal directly with managers responsilefor a certain market segment and for a geographical region, as well as the managersresponsile for the traditional functions of finance, sales and production. This is one wayof keeping authority at lower le$els, ut it is not necessarily a $ery efficient one. Thomas=eters and 1oert Waterman, in their well-known ook In Search of Excellence, insist onthe necessity of pushing authority and autonomy down the line, ut they argue that one

element > proaly the product > must ha$e priority four-dimensional matrices are far too comple2.

# further possiility is to ha$e wholly autonomous temporary groups or teams that areresponsile for an entire pro@ect, and are split up as soon as it is successfully completed.Teams are often not $ery good for decision-making, and they run the risk of relational prolems, unless they are small and ha$e a lot of self-discipline. In fact they still re9uire adefinite leader, on whom their success proaly depends.

!eadin" comprehension tas*s

1. +hich of the followin" three para"raphs most accurately summari,es the te-t

and why/

First summary:

#lthough most organizations are hierarchical, with a numer of le$els, and a line of command running from the top to the ottom, hierarchies should e a$oided ecause theymake decision-making slow and difficult. # solution to this prolem is matri2management, which allows people from the traditional functional departments of

production, finance, marketing, sales, etc. to work together in teams. #nother solution isdecentralization3 the separation of the organization into competing autonomous di$isions.

Second summary:

!ost usiness organizations ha$e a hierarchy consisting of se$eral le$els and a clear lineof command. There may also e staff positions that are not integrated into the hierarchy.The organization might also e di$ided into functional departments, such as production,finance, marketing, sales and personnel. 4arge organizations are often further di$ided intoautonomous di$isions, each with its own functional sections. !ore recent organizationalsystems include matri2 management and teams, oth of which comine people fromdifferent functions and keep decision-making at lower le$els.

Third summary:

!ost usinesses are organized as hierarchies, with a clear chain of command3 a oss whohas suordinates, who in turn ha$e their own suordinates, and so on. The hierarchymight e internally di$ided into functional departments. # company offering a numer of products or ser$ices might also e sudi$ided into autonomous di$isions.ommunication among di$isions can e impro$ed y the introduction of matri2management or teams.



2. 0iscussion

(he te-t mentions the often incompatible "oals of the finance mar*etin" and

production or operations departments. Classify the followin" strate"ies accordin"

to which departments would probably fa3or them.

". a factory working at full capacity

%. a large ad$ertising udget'. a large sales force earning high commission. a standard product without optional features+. a strong cash alance. a strong market share for new products/. generous credit facilities for customersA. high profit margins:. large in$entories to make sure that products are a$ailale";.low research and de$elopment spending"". machines that gi$e the possiility of making $arious different products

"%.self-financing (using retained earnings rather than orrowing))-ercise 1: Complete each phrase 1 4 15 with an endin" a 4 6.

". <perational planning translatesgeneral goals

a. a direction for the company.

%. It is usual to di$ide an organization . de$eloped higher up the hierarchy.'. 5ome companies are organized

accordingc. for assigning employees to specific @o.

. The &oard gets in$ol$ed d. in ma@or strategy issues.+. 5enior managers set e. into functional departments.. !iddle managers de$elop detailed

plans asedf. into more concrete o@ecti$es.

/. irst-line managers implement plans g. on the o$erall strategy.A. irst-line managers are also responsile h. to geographical regions.:. # cross-functional team rings i. together staff from different parts of

the company.";. 5uordinates work @. under the super$ision of a first-line

manager.

)-ercise2. (he mi-7up letters ma*e words that describe departments or

functional areas inside a company. %ut the in the ri"ht order.

". haumn rruoeecss 6666666 :. pdroctoiun 6666666%. cmoesutr scriee$s 6666666 ";. lgael 6666666'. 9tuialy crotnol 6666666 "". siihnppg 6666666

. rsaceerh dna 6666666 "%. facnine 6666666



d$nolpmeeet 6666666+. piluc rnotilaes 6666666 "'. metakrnig 6666666. pe@crot

mmeegnnaat

6666666

6666666

". atnccous 6666666

/. aiiisdttrnmaon 6666666 "+. pasuirchng 6666666A. niillg 6666666 ". pcroenremut 6666666

)-ercise . %airs of words in bold ha3e been switched. %ut them bac* in their

correct places.

". market channel /. core "rowth

%. cost 3alue A. distriution research

'. earning business :. mission needs

. management loyalty ";. market portfolio

+. customer statement "". shareholder centre

. product share "%. rand hierarchy

)-ercise 8. +hich of the collocations in e-ercise 9 refer to:

". Bsing a 9uestionnaire to carry out a sur$ey 666666666666..%. The main acti$ity of a company that generates most of its profits 6666'. inancial enefits (C increase in share price and di$idends) for the owners of the

company 666666666666. The whole range of products that a company sells 6666666666+. When customers are faithful to a particular product 666666666. # usiness unit that spends money ut does not generate re$enue 6666

/. # continuing increase in profits 66666666666..A. What is shown in an organization 66666666666.:. 5enior managementDs $ision for the company 66666666666..";. 8ow a product gets from the manufacturer to the end-user 666666

)-ercise . $atch the 3erbs in the bo- with their definitions below.

adapt assign check control coordinate determine ensure

evaluate implement monitor

". !ake sure that e$erything is correct or the way you e2pect it666666666..%. <rganize people so that they work together effecti$ely 666666666'. 0i$e someone a @o to do 66666666.. arry out make a plan start to work 666666666+. 8a$e the power to make decisions make something operate in the way that you

want 6666666666. !ake certain that something happens 6666666../. hange something to fit a new situation 666666666



A. Watch or measure something carefully for a period of time to see how it changes66666666666

:. (ormal) think aout or test something efore deciding its $alue, suitaility or effecti$eness 666666666

";.(ormal) control what something will e officially decide something find out6666666666.

)-ercise ;: (ic* the one statement that is true.

". Targets and goals tend to e more general. <@ecti$es and aims tend to e morespecific, with aims eing the most concrete and measurale. 666666.

%. #ims and goals tend to e more general. <@ecti$es and targets tend to e morespecific, with targets eing the most concrete and measurale. 666666.

)-ercise 9: 0escribin" company structure

(he most common 3erbs for describin" structure are:

onsist of contains includes is composed ofis made up of is di$ided into

#ther 3erbs frequently used to describe company or"ani,ation include:

to e in charge of, to e responsile for, to support or to esupported y to assist or to e assisted y, to e accountale to

Now write a description of a company you know in about 100 – 150 words with an

organizational chart .

Unit 2



$ana"ement and Cultural 0i3ersityBefore you read

1. Answer the questions:

7 !ultinational companies can either attempt to use similar management methods inall their foreign susidiaries, or adapt their methods to the local culture in eachcountry or continent. Which procedures do you think is the most efficient?

7 *o you think the culture of your country is similar enough to those of neighoringcountries to ha$e the same management techni9ues? <r are there countries nearywhere people ha$e $ery different attitudes to work, hierarchy, organization, and soon?

2. !eadin"

ead the te!t below and answer the "uestions

C!#SS7CU<(U!A< $A&A=)$)&(

!anaging a truly gloal multinational company would o$iously e much simpler if it re9uired only one set of o@ecti$es, goals, policies, practices, products and ser$ices.&ut local differences often make this impossile. The conflict etween gloalizationand localization has led to the in$ention of the word EgloalizationD. ompanies thatwant to e successful in foreign markets ha$e to e aware of the local culturalcharacteristics that affect the way usiness is done.

# fairly o$ious cultural di$ide that has een much studied is the one etween, on theone hand, the countries of Forth #merica and north-west urope, where managementis largely ased on analysis, rationality, logic and systems, on the other, the 4atincultures of southern urope and 5outh #merica, where personal relations, intuition,emotion and sensiti$ity are of much greater importance.

The largely =rotestant cultures on oth sides of the Forth #tlantic (anada, the B5#,&ritain, the Fetherlands, 0ermany, 5candina$ia) are essentially indi$idualist. In suchcultures, status has to e achie$ed. 7ou donDt automatically respect people @ust ecause theyD$e een in the company for '; years. # young, dynamic, aggressi$e

manager with an !&# (a master in &usiness #dministration degree) can 9uickly risein the hierarchy. In most 4atin and #sian cultures, on the contrary, status isautomatically accorded to the oss, who is more likely to e in his fifties or si2tiesthan in his thirties. This is particularly true in Gapan, where companies traditionallyha$e a policy of promotion y seniority. # +;-year-old Gapanese manager, or a 0reek or Italian or hilean one, would 9uite simply e offended y ha$ing to negotiate withan aggressi$e, well-educated, ut ine2perienced #merican or 0erman %; years his



@unior. 8e would also want to take time to get to know the person with whom he wasnegotiating, and would not appreciate an asserti$e #merican who wanted to sign adeal immediately and take the ne2t plane home.

In northern cultures, the principles of pay-for-performance often successfullymoti$ate sales people. The more you sell, the more you get paid. &ut the principle

might well e resisted in more collecti$ist cultures, and in countries where rewardsand promotion are accepted to come with age and e2perience. Trompenaars gi$es thee2ample of a sales rep in an Italian susidiary of a B5 multinational company whowas gi$en a huge 9uarterly onus under a new policy imposed y head office. 8issales > which had een high for years > declined dramatically during the followingthree months. It was later disco$ered that he was delierately trying not to sell morethan any of his colleagues, so as not to re$eal their inade9uacies. 8e was alsodesperate not to earn more than his oss, which he thought would e an unthinkalehumiliation that would force the oss to resign immediately.

Trompenaars also reports that 5ingaporean and Indonesian managers o@ected that pay-for-performance caused salesmen to pressure customers into uying products theydidnDt really need, which was not only ad for long term usiness relations, ut 9uitesimply unfair and ethically wrong.

#nother e2ample of an #merican idea that doesnDt work well in 4atin countries ismatri2 management. The task-oriented logic of matri2 management conflicts with the principle of loyalty to the all-important line superior, the functional oss. 7ou canDtha$e two osses any more than you can ha$e two fathers. #ndreD 4aurent, a rench

researcher, has said that in his e2perience, rench managers would rather see anorganization die than tolerate a system in which a few suordinates ha$e to two osses.

In discussing peopleDs relationships with their oss and their colleagues and friends,Trompenaars distinguishes etween uni$ersalists and particularists. The formal elie$e that rules are e2tremely important the latter elie$e that personal relationshipsand friendships should take precedence. onse9uently, each group thinks that theother is corrupt. Bni$ersalists say that particularists Ecannot e trusted ecause theywill always help their friendsD, while the second group says of the first Eyou cannot

trust them they would not e$en help a friendsD. #ccording to TrompenaarsD data, thereare many more particularists in 4atin and #sian countries than #ustralia, the B5#,anada, or north-west urope.




1. Answer the followin" questions

". 8ow would you e2plain the concept of EgloalizationD?

%. Why might a +;-year-old Gapanese manager e offended if he had to negotiatewith or report to a well-educated ut ine2perienced ';-year-old #merican?

'. Why was the #merican concept of pay-for-performance unpopular in Italy, and in

#sia, in TrompenaarsD e2ample?. Why do uni$ersalists disappro$e of particularists, and $ice $ersa?

2. Vocabulary

>ind words in the te-t which mean the followin"

". The use of reasoning rather than emotions or eliefs 66666666

%. Bnderstanding or knowing without consciously using reason 6666666

'. 1espect, prestige or importance gi$en to someone 66666666..

. 8a$ing a higher rank ecause one is older 666666666..+. To ha$e hurt feelings ecause someone is eing disrespectful 66666666

. !oney or something else gi$en in recognition of good work 66666666.

/. #dditional money gi$en for etter work or increased producti$ity 66.6666..

A. # feeling of shame and loss of dignity or self-esteem 66666666

:. To gi$e up a @o or position 666666666

";. #ccording to accepted moral standards 666666666.

. 0iscussion

# $utch researcher% Fons Trompenaars% and his associates% ha&e asked nearly

15%000 business people in o&er 50 countries a number of "uestions which re&eal

differing cultural beliefs and attitudes to work' (ere are fi&e of them% adapted from

!idin" the +a3es of Culture: Understandin" Cultural 0i3ersity in Business '

They concern ways of working% indi&iduals and groups% rules and personal

friendships% and so on' )hat are your answers to the "uestions*

". If you had to choose, would you say that a company is (a) a system designed to perform functions and tasks in an efficient way, using machines and people, or () agroup of people whose functioning depends on social relations and the way peoplework together?



%. What is the main reason for ha$ing an organizational structure in a company? (a)5o that e$eryone knows who has authority o$er whom, or () so that e$eryone knowshow functions are allocated and coordinated?

'. Will (a) the 9uality of an indi$idualDs life impro$e if he or she has as much freedomas possile and the ma2imum opportunity to de$elop personally, or () the 9uality of life for e$eryone impro$e if indi$iduals are continuously taking care of their fellowhuman eings, e$en if this limits indi$idual freedom and de$elopment?

. # defect is disco$ered in a production facility. It was caused y negligence y oneof the memers of a team. Would you say that (a) the person causing the defect ynegligence is the one responsile, or () ecause he or she is working in a team theresponsiility should e carried y the whole group?

+. Imagine that you are a passenger in a car dri$en y a close friend who hits and9uite seriously in@ures a pedestrian while dri$ing at least %+ kilometers an hour toofast in town. There are no other witnesses. 7our friendDs lawyer says that it will helphim a lot if you testify that he was dri$ing within the speed limit. 5hould your friende2pect you to do this?

)-ercise1: !ewrite each of the "roups of sentences as one sentence. 0o not useand but because or so but ma*e any other necessary chan"es.

". We ha$e @ust ought the =arkland guide. Fow we can find out what uropeansthink of each other.

%. 8is employees turned up late e$ery morning. 8e was furious with them. 8edecided to ha$e a serious talk with them.

'. I ha$e two 5wiss people staying at my house. I do not consider either of them to e money-minded. I do not find them e2cessi$ely serious.

. 5ome uropeans consider the Italians to e dishonest. I recently $isited Italy. Ifound them completely trustworthy.

+. The &ritish ha$e their faults. They also ha$e their 9ualities. They ha$e an e2cellentsense of humor. They are famous for this throughout the world.

. I worked for a multinational ased in 8olland. I learned to admire the *utch. I liketheir good nature and tolerance.



/. We generalize aout nationalities. When we do this, we often show [email protected] are deeply-rooted in us. Their origins are oscure.

A. We tried to pick nationalities for each post. We were o$iously unfair to those weomitted. We were proaly generous to some we selected.

)-ercise 2. Complete these sentences with suitable prepositions.

". The 0ermans ha$e a reputation 6666.. making good eer and the rench arefamous 6666.. their wine.

%. The nglish take pleasure 6666.. talking 6666their ad weather. Indeed,they almost take pride 6666.. it.

'. The Gapanese show great respect 6666.. old people and are sensiti$e6666.. their needs.

. 5ome people accuse the &ritish 6666. feeling superior 6666.. other nationalities.

+. !any people are pre@udiced 6666. minority groups in their country.. 5ome people are en$ious 6666.. the Forth #mericanDs standard of li$ing.

/. The Italians are said to e e2perts 666.. making ice-cream.

A. The Gapanese are fond 6666 eating raw fish and the rench are mad6666 snails.

:. The Italians are uni$ersally admired 6666. their rich artistic tradition.

";. # sense of humor is not peculiar 6666 the &ritish.

"". # passionate temperament is characteristic 6666. !editerranean people.

"%.rnest 8emingway, the #merican writer, elie$ed the 5panish are osessed6666. death.

)-ercise . 'ou and your influences

1' )hich of the following do you think ha&e been the most important influences

on you* $o you think the same is true of most people*

Hnature3 your genes or *F#, the characteristics you inherited from your parents and were orn with, your emotional and physical make-up

Hyour family en$ironment in early life

Hyour friends and social life, the things you do in your free time

Hprimary or secondary school, teachers, and what you learnt

Hhigher education3 college, uni$ersity, teachers, colleagues, the su@ects you studied (or are studying)

Hyour @o

Hthe culture of your particular company



Hyour colleagues3 the people in your team or department

Hyour colleagues3 the kind of people who work in your specific area of work

Hthe characteristics that are considered typical of people from your geographical region

Hthe characteristics that are considered typical of people from your country, arising from

geography, climate, history, religion, the political, social and economic system, and so on

+' $o you belie&e that it is possible to sum up national characteristics in a few words*

,s there usually some -or a lot of. truth in such stereotypes* /r% on the contrary% do you

find such stereotyping dangerous*

Unit



$ar*etin"

Before you read

*iscuss these 9uestions3

- What is a definition of marketing?- an selling really ecome superflous, e$en if the customer is ready to uy?

The entrality of !arketing!ost management and marketing writers now distinguish etween selling and

marketing. The Eselling conceptD assumes that resisting consumers ha$e to e persuaded y $igorous hard-selling techni9ues to uy non-essential goods or ser$ices. =roducts are sold rather than ought. The Emarketing conceptD, on thecontrary, assumes that the producerDs task is to find wants and fill them. In other words, you donDt sell what you make, you make what will e ought. #s well assatisfying e2isting needs, marketers can also anticipate and create new ones. Themarkets for the Walkman, $ideo recorders, $ideo game consoles, * players, personal computers, the internet, moile phones, mountain ikes, snowoard, andgenetic engineering, to choose some recent e2amples, were largely created rather

than identified.!arketers are conse9uently always looking for market opportunities- profitale possiilities of filling unsatisfied needs or creating new ones in areas in which thecompany is likely to en@oy a differential ad$antage due to its distincti$ecompetencies (the things it does particularly well). !arket opportunities aregenerally isolated y market segmentation. <nce a target market has eenidentified, a company has to decide what goods or ser$ice to offer. This means thatmuch of the work of marketing has een done efore the final product or ser$icecomes into e2istence. It also means that the marketing concept has to eunderstood throughout the company as much as in the marketing department itself.The company must also take account of the e2istence of competitors who alwaysha$e to e identified, monitored and defeated in the research for loyal customers.

1ather than risk launching a product or ser$ice solely on the asis of intuition or guesswork, most companies undertake market research (0&) or marketingresearch (B5). They collect and analyze information aout the size of potential



market, aout consumersD reactions to particular products or ser$ice features, andso on. 5ale representati$es, who also talk to customers, are another source of information.

<nce the asic offer, e.g. a product concept, has een estalished, the company hasto think aout the marketing mi2, i.e. all the $arious elements of a marketing

program, their integration, and the amount of effort that a company can e2pend onthem in order to influence the target market. The est-known classification of these elements is the Eour psD3 product, place, promotion and price. #spects to econsidered in marketing products include 9uality, features (standard and optional),style, rand name, size, packaging, ser$ices and guarantee. =lace in a marketingmi2 includes such factors as distriution channels, locations of point of sale,transport, in$entory size, etc. =romotion groups together ad$ertising, pulicity,sales promotion, and personal selling, while price includes the asic list price,discounts, the length of the payment period, possile credit terms, and so on. It is

the @o of product manager to look for ways to increase sales y changing themarketing mi2.

It must e rememered that 9uite apart from consumer markets (in which people uy products for direct consumption) there e2ists an enormous producer or industrial or usiness market, consisting of all the indi$iduals and organizationsthat ac9uire goods and ser$ices that are used in the production of other goods, or in the supply of ser$ices to others. ew consumers realize that the producer marketis actually larger than consumer market, since it contains all the raw materials,

manufactured parts and components that go into consumer goods, plus capitale9uipment such as uildings and machines, supplies such as energy and pens and paper, and ser$ices ranging from cleaning to management consulting, all of whichha$e to e marketed. There is conse9uently more industrial than consumer marketing, e$en though ordinary consumers are seldom e2posed to it.


". Which of the following three paragraphs most accurately summarizes the te2t andwhy?First summary!arketing means that you donDt ha$e to worry aout selling your product, ecauseyou know it satisfies a need. ompanies ha$e identified market opportunities ymarket segmentation3 doing market research, finding a target market, andintroducing the right product. <nce a product concept has een estalished,marketers regularly ha$e to change the marketing mi2 > the productDs features, itsdistriution, the way it is promoted, and its price > in order to increase sales.



Industrial goods > components and e9uipment for producers of other goods > ha$eto e marketed as well as consumer goods.

Second summary

The marketing concept has now completely replaced the old-fashioned sellingconcept. ompanies ha$e to identify and satisfy the needs of particular marketsegments. # productDs features are often changed, as are its price, the places inwhich it is sold, and the way in which it is promoted. !ore important than themarketing of consumer goods is the marketing of industrial or producer goods.Third summary

The marketing concept is that a companyDs choice of what goods and ser$ices tooffer should e ased on the goal of satisfying consumerDs needs. !any companieslimit themsel$es to attempting to satisfy the needs of particular market segments.Their choice of action is often the result of market research. # productDs features,the methods of distriuting and promoting it, and its price, can all e changedduring the course of its life, if necessary. uite apart from the marketing of

consumer products, with which e$eryody is familiar, there is a great deal of marketing of industrial goods.

%. 4ook at the following diagrams from !arketing !anagement y =hilip Jotler.#ccording to te2t, which of these diagrams est illustrates a company that hasadopted the marketing concept?

)-ercise 1: $atch the terms with their definition:

". *istriution channel #. #ll the companies or indi$iduals in$ol$ed in



%. To launch a product'. !arket opportunities. !arket research+. !arket segmentation. =ackaging/. =oints of sale

A. =roduct concept:. =roduct feature";. 5ales representati$e

mo$ing a particular good or ser$ice from the producer to the consumer

&. #n idea for a new product, which is tested withtarget consumers efore the actual product isde$eloped

. #ttriutes or characteristics of a product3

9uality, price, reliaility, etc.*. *i$iding a market into instinct group of uyerswho ha$e different re9uirements or uyinghait

. =laces where goods are sold to the pulic-shops, stores, kioshks, market, stalls, etc.

. =ossiilities of filling unsatisfied needs insectors in which a company can profitaly produce goods or ser$ices

0. 5omeone who contacts e2isting and potential

customers and tries to persuade them to uygoods or ser$ices8. ollecting, analysing and reporting data

rele$ant to a specific market situation ( such asa proposed new product)

I. To intro duce a new product onto the marketWrappers and containers in which product are sold

)-ercise 2: Cate"ori,e the followin" aspects of mar*etin" accordin" to the well7

*nown ?8%@s classification of the mar*etin" mi- 4 product price promotion and

place.

#d$ertisingommercialsranchisingIn$entory!arket co$erage<ptional features=oint of sales=ulic relationsretailingtransportation

#fter-sale ser$iceredit termsree sample4ine-filling!arket penetration=ackaging=oster =ulicity5izesKending machines

&rand nameharacteristicsgoing-rate4ist price!arket skimming=ayment period=restige pricinguality5ponsorshipWarehousing

ash discount*istriution channels0uarantee!ailings!edia plan=ersonal selling=roduction costsuantity discounts5tyleWholesaling

)-ercise : Complete the ei"ht sentences below by addin" an e-ample from the

second bo-3



". on$ersional marketing is the difficult task of re$ersing negati$e demand,%. 5timulational marketing is necessary where thereDs no demand,'. *e$elopmental marketing in$ol$es de$eloping a product or ser$ice for which

there is clearly a talent demand,. 1emarketing in$ol$es re$italizing falling demand,+. 5ynchromarketing in$ol$es altering the times pattern of irregular demand,

. !aintenance marketing is a matter of retaining a current (may e full) le$el of demand

/. *emarketing is the attempt (y go$ernments rather than pri$ate usinesses) toreduce o$erfull demand, permanently or temporarily.

A. ountermarkeing is the attempt to destroy unwholesome demand for products thatare considered undesirale.

a. eg. a non-polluting and fuel-efficient car. . eg. cigarettes, drugs, handguns, or e2tremist political parties.c. eg. for churches, inner city areas, or ageing film stars.d. eg. for some roads and ridges during rush hours.e. eg. for pulic transport etween rush hours, or for ski resorts in the summer.f. eg. for dental work, or hiring disale people.g. in the face of competition or changing tastes.h. which often happens with new products and ser$ices.

)-ercise 8: $atch up these mar*etin" actions with the ei"ht tas*s described abo3e:

i. #lter the pattern of demand through fle2ile pricing, promotion, and other incenti$es.

@. onnect the enefits of the product with peopleDs needs and interests.k. ind new target markets, change product features, de$elop more effecti$ecommunication.

l. ind out why people dislike the product, and redesign it, lower prices, and usemore positi$e promotion.

m. Increase prices, reduce a$ailaility, make people scared.n. Jeep up or impro$e 9uality and continually measure consumer satisfaction.o. !easure the size of the potential market and de$elop the goods and ser$ices that

will satisfy it. p. 1aise prices, reduce promotion and the le$el of ser$ice.

)-ercise : Complete the te-t with the words in the bo-:

#d$ertising udgets consumer tastes differentiate productsarly adopters making a loss reaches saturation5imilar offerings withdrawn from the market



The classic product life cycle is Introduction, 0rowth, !aturity and *ecline. In theintroduction stage the product is promoted to create awareness. It has low sales and willstill e ".making a loss. If the product has few competitors, a skimming price strategy can e used (a high price for %....ad$ertising udgets........ which is then gradually lowered).In the 0rowth phase sales are rising rapidly and profits are high. 8owe$er, competitors

are attracted to the market with '.....similar offering........ The market is characterized yalliances, @oint $entures and takeo$ers. ....1eaches satuation . are large and focus on uilding the rand.

In the !aturity phase sales growth slows and then stailizes. =roducers attempt to + .differentiate product.. ......... and rands are key to this. =rice wars and competition occur as the market .early adopters... In the *ecline phase there is a downturn in the market.The product is starting to look old-fashioned or / ....consumer taste................ ha$echanged. There is intense price-cutting and many products are A .....withdrawn from themarket ..

)-ercise ;: Boston $atri-



- 8ow useful do you think the &oston !atri2 is?- an you think of a potential star product or ser$ice that your company doesnDt

make or offer?

Unit 8%ricin"&othin" you buy is priced too hi"h.

Before you read

*iscuss these 9uestions." What is the difference etween price and pricin"?

% 0i$e a situation in which predatory pricing is applied.

ompaniesD pricing decisions depend on one or more of three asic factors3 productionand distriution costs, the le$el of demand, and the prices (or proale prices) of currentand potential competitors. ompanies also consider their o$erall o@ecti$es and their conse9uent profit or sales targets, such as seeking ma2imum re$enue, or ma2imummarket share, etc. =rice strategy must also consider market positioning 9uality products



generally re9uire Lprestige pricingM and will proaly not sell if their price is thought to e too low.

<$iously, firms with e2cess production capacity, a large in$entory, or a falling marketshare, tend to cut prices. irms e2periencing cost inflation, or in urgent need of cash, tendto raise prices. # company faced with demand that e2ceeds its possiility to supply is alsolikely to raise its prices.

When sales respond directly to price $ariations, demand is said to e elastic. If salesremain stale after a change in price, demand is inelastic. #lthough it is and elementarylaw of economics that the lower the price, the greater the sales, there are numerouse2ceptions. or e2ample, price cuts can ha$e unpredictale psychological effects3 uyersmay elie$e that the product is faulty or of lower 9uality, or will soon e replaced, or thatthe firm is going ankrupt, etc. 5imilarly, price rises con$ince some customers that product must e of high 9uality, or will soon ecome $ery hard to get hold of, and so onN

# psychological effect that many retailers count on is that a potential customer seeing a price of O:: registers the O;; price range rather than the O+;;. This techni9ue is known

as Lodd pricingM.<$iously most customers consider elements other than price when uying something3the Ltotal costM of a product can include operating and ser$icing costs, and so on. 5ince price is only one element of the marketing mi2, a company can respond to a competitorDs price cut y modifying other elements3 impro$ing its product, ser$ice, communications,etc. 1eciprocal price cuts may only lead to a price war, good for customers ut disastrousfor producers who merely end up losing money.

Whate$er pricing strategies a marketing department selects, a productDs selling pricegenerally represents its total cost (unit cost plus o$er heads) plus profit or Erisk rewardD.<$erheads are the $arious e2penses of operating a plant that cannot e charged to any one product, process or department, which ha$e to e added to prime cost or direct cost whichco$ers material and laor. ost accountants ha$e to decide how to allocate or assign fi2edand $ariale costs to indi$idual products, processes or departments.

!icro economists argue that in a fully competiti$e industry, price e9uals marginal coste9uals minimum a$erage costs e9uals reake$en point (including a competiti$e return oncapital), and that a companyDs ma2imum-profit e9uilirium is where e2tra costs are alanced y e2tra re$enue, in other words, where the marginal cost cur$e intersects themarginal re$enue cur$e. In reality, many companies ha$e little idea what optimal price or production $olume is, while most micro economists are happier with their models than

actually talking to production managers, marketers or cost accountantsN


1. Understandin" main points

Which of these three summaries most fully and accurately e2presses the main ideas of the te2t on pricing?>irst summary

The prices companies charge for their products depend on many factors3 their costs, the le$el of demand,competitorsD prices, financial targets, marketing strategies, market positioning, production capacity,in$entory size, inflation, and so on. 7et pricing strategies are often unsuccessfully ecause of theunpredictale psychological reactions of customers. onse9uently companies often concentrate instead onother elements of the marketing mi23 production impro$ement, ser$ice, communications, etc. $en so,companies ha$e to make sure they co$er direct costs and o$erheads. This usually results in a price thate9uals oth marginal cost and reake$en points.



Second summary

(hird summary

2. Understandin" details

*ecide whether the following statements are True or alse. Tick the correct answers.

5tatements True alse". There are three asic factors potentially in$ol$ed in all pricingdecisions

2

%. When pricing a product, companies ha$e to think of potential as wellas e2isting competitors.

2

'. 7ou are unlikely to sell high 9uality products at a low price. 2. When demand e2ceeds supply, a company nearly always increases its price.

2

The most important factors in pricing decisions are production costs (including o$erheads), the le$el of demand, and the going market price. 7et roader company o@ecti$es, and profit or sales targets, andmarket positioning, are also important. There are also lots of circumstances that might cause companies tochange their prices3 e2cess production capacity, large in$entories, or a falling market share on the onehand, or cost inflation, an urgent need of cash, or demand that e2ceeds supply, on the other. 7et perfectlylogical decisions regarding prices thought to e elastic can ha$e unpredictale psychological effects. It isalso clear that customers are influenced y elements other than price, so companies can e9ually modifyother elements of the marketing mi2. In a competiti$e industry, price is generally not much greater than

marginal cost and reake$en point.

ompaniesD pricing decisions generally depend on factors such as production and distriution costs,consumer demand, and competitorsD prices. 7et a companyDs o$erall o@ecti$es and profit or sales targetsare also important. <f course there are situations in which a company will raise its prices (e.g. e2cess production capacity, a large in$entory, or a falling market share) or lower them (e.g. e2cessi$e demand,

cost inflation, a cash shortage). In general, the lower the price, the greater the sales. ompanies takeaccount of psychological effects and use techni9ues such as odd pricing. ompanies can also change other elements of the marketing mi2, especially if this allows them to a$oid a damaging price war. Whate$er happens, companies generally ha$e to co$er a productDs total cost and make a profit. This is difficult in acompetiti$e industry, as here price will only e9ual reake$en point.



+. # company faced with rising costs has to increase its prices.. # company can only change a price if it is LinelasticM. 2/. =ricing is often strongly influenced y psychological factors. 2A. # company can respond to competitorsD price cuts y changingdifferent elements of the marketing mi2.

2

:. =rices generally take into account oth direct and indirect costs. 2

";. In theory, a productDs price should e9ual its marginal cost and thecompanyDs reake$en point.

2

. Complete the followin" word partnerships from the te-t:

". &reake$en point66666666.3 PiQm hRa $Sn%. 66production6666.. capacity3'. *istriution 66costs66666. 666financial6666 targets+. 666market6666 positioning 3 $ thU th trVng. 66market66666 share 3th phXn

/. <dd 66pricing66666A. =rime 6cost6666663 chi phY trZc tiUp:. 66cost66666. #ccountant";.Kariale 66666666.

Kocaulary tasks)-ercise 1: #ll the words elow can e comined with price in a two- word partnership3e.g. price war , retail price. #dd the word price either efore or after each of the words elow3

". 66666 control 66666666. ". 66666 market 66666666...

%. 66666 cost 666666666. "+. 66666 mechanism 6666666.

'. 66666 cut 6666666666 ". 66666 minimum 6666666..

. 66666 discrimination 66666.. "/. 66666 range 6666666.........

+. 66666 elasticity 6666666... "A. 66666 recommended 666666.

. 66666 e2ercise 66666666. ":. 66666 reduction 6666666...

/. 66666 fi2ing 666666666. %;. 66666 retail 6666666..........

A. 66666 freeze 666666666 %". 66666 rise 6666666666

:. 66666 going 666666666.. %%. 66666 selling 66666666...

";. 66666 historical 6666666... %'. 66666 sensiti$ity 66666.........

"". 66666 inde2 666666666. %. 66666 strike 6666666.........

"%. 66666 list 6666666666. %+. 66666 war 6666666666

"'. 66666 maintenance 666666. %. 66666 wholesale 66666..........



)-ercise 2: $atch up the remar*s below with the names of different pricin"

strate"ies in the bo-:

a. irstly we need cash, and secondly, we donDt think the product will last $erylong > itDs really @ust a gimmick > so weDre trying to ma2imize our salesincome now.

. 4ike all supermarkets, we offer half a dozen or more different items at a reallylow price each week. We lose on those, ut customers come in and uy lots of other stuff as well.

c. 5ince our product is indistinguishale from those of all our competitors, andweD$e only got a tiny park of the market, we charge the same as the rest of them.

d. They @ust worked out the unit cost and added a percentage, without e$enconsidering demand elasticity or anything like that.

e. We charge an e2tremely high price ecause we know people will pay it. <ur rand name is so famous for 9uality > we can make huge profits.

f. We charge lots of different prices for what is really almost the same thing. <f course, in irst lass you get etter food, and in conomy thereDs hardly anylegroom, ut itDs still a flight from # to &

g. We decided to launch the product at a $ery low price, almost at direct cost,hoping to get a ig market share. Then we can make profits later ecause of economies of scale.

h. WeDre going to charge a really high price to start with. We can always lower itlater to reach price-elastic market segments.

" % ' + / A

)-ercise : +hich of these two7word nouns refers to/

". # asic price efore discounts and special offers are made?%. #ggressi$e competition etween ri$al?'. # price at which retailers uy goods?. # price recorded in a companyDs accounts?+. The go$ernmentDs measure of inflation?. The price at which a producer makes no profit?/. The relationship etween a productDs price and the 9uantity ought?

". market penetration pricing

%. market skimming

'. current >re$enue pricing. loss-leader pricing+. mark-up or cost-plus

pricing. going-rate pricing/. demand- deferential

pricing ( or pricediscrimination)

A. percei$ed-$alue pricing



+hich two of these two7 word nouns refer to

A. # price-limit imposed y go$ernment?:. #rrangements etween competitors not to lower prices?";.The price of options?

)-ercise 8: Complete the te-t with suitable words. (he first letters are pro3ided.

The price of a product should logically co$er its production costs, including a proportionof the companyDs fi2ed costs or o666. such as rent and interest payments, and lea$e asmall profit. &ut prices are also influenced y the le$el of demand, the prices of s666. products, and the prices charged y competitors.

8igh 9uality products made with e2pensi$e c666. and re9uiring a lot of craftsmanshipare o$iously e2pensi$e. They also generally re9uire Lprestige pricingM as the consumersin their t666. market would not uy them if they thought the price was too low. Themarkets for most other goods are generally price s666. , i.e. the lower price, thegreater the sales.

&ut for new products for which there is a sufficiently high demand, companies maychoose to set the highest possile price so as to ma2imize profits. This is known asmarket- skimming. The price can later e reduced in order to reach further m666.s6666. The opposite strategy is market-penetration, which means setting as low a price as possile so as to increase sales $olume and m666. s6666.,leading tolower unit production and distriution costs and higher long-run profit. The low price willalso discourage competitors.

ompanies with o$ercapacity, intensi$e competition, a large in$entory, or a decliningmarket are likely to cut the prices of estalished products. They are more concerned withkeeping the p666. going and staying in usiness than making a current profit. <n the

contrary, firms facing rising costs, or in need of cash in the short term, tend to raise prices. # company faced with demand that e2ceeds supply is also likely to raise its prices,like a m666.

irms in perfectly c666. markets, or homogeneous-product markets, or small firms inan industry with a strong m666., are likely to use going-rate pricing, i.e. they willcharge more or less the same price as e$eryone else, rather than set a price ased onestimates of costs or pro@ected demand.

&ut of course, all prices can e adapted. !ost companies offer cash discounts tocustomers who pay immediately, and 9uantity discounts to uyers of large $666.!any products and ser$ices are sold at a lower price during an off-season. 1etailers often

offer some loss- leader prices3 they cut the prices of selected products to cost price or elow in order to attract customers who also uy other goods. ompanies are also oftenoliged to react to price changes y competitors. They might try to a$oid a price war ymodifying other elements of the marketing mi2. 5imilarly, they ha$e to anticipatecompetitorsD reactions if they change their own prices.

&ow translate the hi"hli"hted e-pressions in the te-t into Vietnamese.



Unit : (orts

Tort law is the ody of law that deals with ci$il wrongs, e2cept those that arise from contract

prolems. The purpose of torts is to compensate an in@ured party through the award of damages for the in@uries incurred during a tortuous act. In general, the law of tort is

concerned really with a personDs responsiility to others. It applies to oth indi$iduals and

companies.

)ssential (erms

(ortfeasor: person who is guilty of tortuous conduct

(respass3 an unlawful interfering with the property or property rights of another

ntentional infliction of emotional distress: causation of se$ere mental suffering or

physical in@ury through highly aggra$ated acts or words. The acts or words must e

done with (") intent to cause an in@ury or (%) a reasonale certainty that those acts or

words will result in the in@ury

>alse imprisonment: interference with the freedom of or restraining the mo$ements of

an indi$idual. There must e the intent to detain, and the detention must e without

pri$ilege or consent.

0efamation: interference with one[s interest in his or her good reputation and name

defamation encompasses two torts, slander (spoken) and liel (written)

+ron"ful death action: suit rought y the eneficiaries of a decedent against a person

who allegedly caused the decedent[s death through negligence

Battery: the unlawful interference with another[s person, such as hitting someone on the

arm with a handag

&e"li"ence3 failure to use such care as a reasonaly prudent and careful person would

use under similar circumstances applies to either an act or an omission

%uttin" the (erms to Use

1ead the story, and indicate the appropriate tort in the lank spaces pro$ided.



__________ Jennifer and Giorgio were classmates at Cleghorn

Community College in Pocahontas, Arkansas. Though

Giorgio, a male student from Greece, thought he and

Jennifer, a female student from Michigan, were only

friends, unbeknown to him, she had become obsessed

and determined to marry him at all costs. he began to

sli! into his yard e"ery night and watch him slee!ing

through an o!en window. he ne"er hurt or disturbed

anything in the yard# she merely watched him.

__________ $nfortunately, Jennifer did not know that Giorgio and his

%ancee&, Mary, whom he met while an e'change student

in (orth )akota, had already decided to marry but had

not announced their engagement. *ecause Mary was

com!leting her studies at the $ni"ersity of Te'as, Jennifer

ne"er saw Mary+that is, until the holiday break, when

her midnight "igil re"ealed that Giorgio was not alone

anymore. Jennifer was distraught+her dreams dashed.

Then she decided if she could make Mary see reason, all

was not lost. he cornered Mary in the ladies room at the

local mo"ie theater, locked her in a toilet stall, and would

not let her out, all the while making a !lea for Giorgios

a-ection. After twenty minutes or so, Mary agreed to gi"e u!

Giorgio, and Jennifer released her. Mary had lied, as

Jennifers moonlight "igil soon re"ealed.

__________ Jennifer became incensed and sto!!ed Giorgio and Mary

at church the ne't day. he shouted terrible insults atMary, calling her "ile names and calling on the minister

to im!ose religious sanctions on Mary. Mary was so

distressed that she e'!erienced se"ere !anic attacks,

de"elo!ed hi"es, and lost her beautiful blonde hair.



__________ (ot satis%ed with that, Jennifer ty!ed u! a scornful

letter about Mary, com!lete with !icture, and stuck a

co!y on e"ery car in a de!artment store !arking lot.

__________ inally, Jennifer began following Mary and bum!ing,

sho"ing, or tri!!ing her whene"er !ossible, though it

always a!!eared to be an accident on Jennifers !art.

Legal Thumbnail

Tort law has de$eloped o$er the centuries and lacks statutory organization conse9uently,

it is helpful to discuss torts y categorizing them in terms of the degree of fault inherent inthe tortuous conduct\liaility.

". ntentional torts re9uire fault in the form of intent it must e shown thatthe actor knew that there was a sustantial certainty of harm.

". &e"li"ent torts re9uire that the act create an unreasonale risk of harm.%. Strict liability re9uires no showing of intent\negligence or fault y the actor.

The doctrine was de$eloped to co$er situations in which a party was engaged inultra-hazardous situations, such as use of e2plosi$es or dealing with wild

animals.

ntentional (orts

=roof of an intentional tort re9uires showing that a protected right has eenintentionally reached. <$iously, the difficulty here lies in pro$ing another[s state of mind, since for o$ious reasons the statements of the defendant regarding his or her own intent are 9uestionale. Therefore, intent is most often pro$ed throughcircumstantial e3idence: the defendant[s conduct, in the conte2t of his or her sur-

roundings and what he or she presumaly knew and percei$ed. The law makes presumptions regarding the defendant[s intent in light of these considerations,assuming that the defendant intends the natural and proale conse9uences of his or her acts.

Intentional torts include actions that the layperson often associates with criminal law ut are actually also co$ered y tort law. Two ma@or types of intentional torts are3



". personal torts such as assault battery and false imprisonment ]unlawfulconfinement^ and

%. property torts such as trespass to land ]unlawful entry on property of another^ and trespass to chattels ]interference with or damage to the elongings of another^

5ince it is eyond the scope of this te2t to deal thoroughly with all of these torts, onee2ample from each category, eginning with the personal tort of false imprisonment, will e e2amined

False ,mprisonment

The tort of false imprisonment in$ol$es cases in which the plaintiff has allegedly eenunlawfully confined y the defendant. or false imprisonment to e pro$en, theseelements must e present3

". intent to confine a person within a certain area%. actual confinement'. awareness of plaintiff of the confinement or in@ury to plaintiff due to con-

finement. =re$ention of e2it or no safe e2it possile y plaintiff.onsider the case of Big Town Nursing Home, Inc. v. Newman, " 5.W.%d ":+ (Te2.

i$. #pp. ":/;). The plaintiff, Fewman, was confined in a nursing home without acommitment order ]court order re9uiring placement in an institution^ after his nephew

took him to the nursing home and paid for a one-month stay. Fewman had health prolems, including =arkinson[s disease and alcoholism. 5hortly after his placement inthe home, Fewman tried to lea$e howe$er, he was stopped y employees of the nursinghome, who placed him in the section of the nursing home reser$ed for senile patients.#pprehended se$eral times during se$eral escape attempts, Fewman was taped to a chair to pre$ent his further escape attempts. #ppro2imately se$en weeks after eing placed inthe home, Fewman successfully escaped. 8e then sued the nursing home for falseimprisonment and won actual (compensatory) ]the losses that are readily pro$ale and

actually sustained^ and e2emplary (puniti$e) ]damages designed to punish thewrongdoer^ damages. #lthough the nursing home appealed the case, the trial court[sdecision was upheld on appeal the appellate court held that a nursing home cannot force a patient to stay when there is no legal @ustification.

If the plaintiff agrees to the detention, o$iously there is no false imprisonment. Whathappens, howe$er, if the plaintiff has no knowledge of the confinement at all? The ma@orityof the @urisdictions hold that the plaintiff must ha$e een aware of the confinement in order



for there to ha$e een a false imprisonment. In Fewman[s case, he was o$iously aware of the confinement despite his illness, so that argument (lack of awareness) could not e raised y the nursing home.

)-ercise 1: Case ypothetical@s and 0iscussion

In groups of three, look at these scenarios, determine whether or not there has een falseimprisonment in these scenarios, and gi$e reasons for your decisions. &e prepared todefend your answers in class.

Fact Situations

". The captain of a fishing oat agreed to let one of his crew lea$e the trawler at thene2t port of call. 8owe$er, once they reached port, the captain refused to allow the

crew memer to use the rowoat to get ashore. 5ince it was the only way ashore,the crew memer had to remain with the fishing oat for two more months until thefishing season ended and the home port was reached.

%. Gane, who was clearly under the influence of alcohol or drugs, wasfound wandering around the city streets at % #! one morning y a securityguard. 8e dro$e her to a each area outside of town and left her there inan aandoned hut. Gane went to sleep. When she awoke the ne2t morning,she had no recollection of what had happened the night efore. 8owe$er,after eing told the story y an ac9uaintance who knew oth the securityguard and Gane, she sued the security guard for false imprisonment. *uringthe trial it was unclear whether Gane had gone willingly to the each hutor had re9uested that the guard let her out elsewhere.

Trespass

Trespass, the most familiar of the property torts, prohiits the unauthorized entry of a person or thing onto the property of another. The right to e2clusi$e possession of theland is the asis for this tort, a right that had its origin in feudal times and was most

fiercely defended. Bnlike in other countries where citizens may ha$e the right totemporary access to all unde$eloped lands (such as allemansratt in 5weden), B.5. lawallows landowners to close off land completely to others.

A prima facie ]asics that must e pro$en^ case of trespass must include an act,coupled with the intent to cause entry y the defendant, and an in$asion of the plaintiff[s land. In other words, the person must ha$e intended to enter another[s land.



*amages are not re9uired to e pro$en for intentional trespass. <nly when theentry onto another[s land is negligent (and then falls under negligent torts) is there anyre9uirement for showing actual damages.

The intent to cause entry does not mean that the defendant must ha$e knowledgethat the land he or she enters elongs to another ut only that he or she intends the actthat would effect an entry. In most B.5. @urisdictions, it does not matter whether adefendant[s presence on another[s land is a mistake caused y ignorance of theownership or the oundaries, or e$en that the trespass may ha$e enefited the land. In allcases, it has een held to e trespass. or e2ample, if Gan uilds a small lake to attractmigrating ducks and the pond e2tends o$er onto #lfred[s property, Gan has trespassede$en though #lfred has a enefit ecause he can use the lake water to irrigate one of his fields. It[s of no matter that Gan thought he was uilding the lake only on his own property Gan has committed trespass.

=roperty interests are such that failure to remo$e something from the land can econsidered a trespass. If, for e2ample, you had een gi$en permission to lea$e your car parked on your neighor[s property for si2 months and you didn[t remo$e it at theend of si2 months, that could e considered a trespass. Trespass can e$en e remainingon another[s land after a pri$ilege (either the owner[s consent or a legal pri$ilegeirrespecti$e of consent) e2pires for e2ample, ecause the pri$ilege to e on the campus ina classroom uilding generally e2pires when the uni$ersity closes for the night, it might e possile in some states to charge a student who is studying in an otherwise emptyclassroom uilding with trespass. ausing another to enter plaintiff[s land may also eheld a trespass. It is also interesting to note that the rights inherent in the possession of land e2tend ao$e and elow the surface.

&e"li"ence

The central factor in negligence is determining what the standard of care imposed uponthe pulic should e, as a general rule, all persons are under a duty to conductthemsel$es in such a manner as not to create unreasonale risks of physical harm to

others. *uring a trial, the conduct of the defendant is re$iewed to determine if he or shehas met the reasonale person standard. That is, would a reasonale person ha$e actedsimilarly under similar circumstances? or the court to impose liaility for negligence, thefollowing elements must e pro$en3

". that the defendant had a duty of care%. that there was a reach of that duty y negligent conduct (act or omission)'. that the act or omission caused in@ury (pro2imate cause) and



. that the act or omission is not su@ect to the defenses of assumption of therisk or contriutory negligence.

#lthough the elements are isolated for discussion, they are interrelated to the e2tentthat it is almost misleading to speak of them separately.

Standard of are

The standard of care that must e e2ercised is that which a reasonale person would useunder similar circumstances. It is important to note that this standard is an e2ternal,o@ecti$e one in which all people are deemed to use certain minimal le$els of care in all of their acti$ities.

2ro!imate ause

=ro2imate cause is one of the most difficult and elusi$e of the concepts associated with tortlaw. =ro2imate cause is related to the concept of duty. If the defendant is found to ha$ehad a duty to protect the plaintiff from the conse9uences of the harmful act, and reached that duty, then there is pro2imate cause. *eterminations of pro2imate cause ycourts are true e2ercises in the use of precedent and legal reasoning case law, pulic policy arguments, and common sense all play a part in the court[s decision.

8owe$er, a person does not ha$e the same duty of care to all persons. &asically, a person only has a duty of care to someone with whom that person logically would elikely to interact. In other words, we are oligated only to those people or that propertythat our actions or inactions would foreseealy ha$e an effect on. This issue of foreseeaility is enormously comple2 since the courts ha$e held that the duty of care isowed only to a plaintiff who is reasonaly foreseeale. The 9uestion then ecomes, whois foreseeale? # landmark case on foreseeaility is alsgraf v. !ong Island "."., %A F.7.'':, "% F.. :: (":%A). The facts of the case were set forth y hief Gustice ardozo, a

distinguished #merican @urist, in his opinion.

=laintiff was standing on a platform of defendant[s railroad after uying a ticket to go to 1ockaway &each. # train stopped at the station, ound for another place. Two men ran forward to catch it. <ne of themen reached the platform of the car without mishap, though the trainwas already mo$ing. The other man, carrying a package, @umped aoard



the car ut seemed unsteady as if aout to fall. # guard on the car whohad held the door open, reached forward to help him in, and another guard on the platform pushed him from ehind. In this act, the packagewas dislodged, and fell upon the rails. It was a package of small size,aout fifteen inches long, and was co$ered y a newspaper. In fact it

contained fireworks, ut there was nothing in its appearance to gi$enotice of its contents. The fireworks when they fell e2ploded. Theshock of the e2plosion threw down some scales at the other end of the platform many feet away. The scales struck the plaintiff, causing in@uriesfor which she ]=alsgraf^ sues.

ardozo resol$ed the issue of foreseeaility as follows.

The conduct of the defendant[s guard, if a wrong in its relation to theholder of the package, was not a wrong in its relation to the plaintiff,standing far away. 1elati$ely to her it was not negligence at all. Fothingin the situation ga$e notice that the falling package had in it the potencyof peril to persons thus remo$ed. Fegligence is not actionale unless itin$ol$es the in$asion of a legally protected interest, the $iolation of aright.

In simple terms since the plaintiff was not foreseeale, the railroad owed her no duty andtherefore did not act negligently.

#nother area that causes prolems in determining pro2imate cause is the issue of inter$ening causes. The courts ha$e to determine if another act, either y a person or anatural force, comes etween the tortious act committed y the defendant and the plaintiff.oreseeaility is also an issue in making this determination. If the defendant should ha$eforeseen the inter$ening act, then lack of foreseeaility is not a defense. or e2ample, Tracy

lights a campfire in windy weather in the 5ierra Fe$ada mountains after a four-month dryspell. 5he lea$es the fire urning and goes off to take a short hike. The wind spreads the fire,and !artina[s house is destroyed y the resulting forest fire. Tracy will not e allowed to relyon inter$ening forces (the strong wind and dry conditions) as a defense ecause it wasforeseeale that strong winds in dry woods could cause a forest fire. 5he was negligent inlea$ing the fire urning when she left the campsite.



Strict <iability

5trict liaility is liaility without fault_it is ased on the policy of law that under certaincircumstances a plaintiff may e allowed reco$ery e$en though there is no fault on the part of the defendant. It should e noted here that a finding of no legal fault is not the

same as a finding of no moral lame. 7ou can e legally innocent ut morally guilty. 4egalfault stems from a de$iation from a standard of conduct needed to protect society and itscitizens. 8istorically, strict liaility co$ered situations in which acti$ities_lasting,storing inherently dangerous sustances, keeping wild animals_were anormallydangerous ones. These acti$ities were and are still allowale as long as no harm occurs inother words, the acti$ities may e carried on ut only if the actor is willing to insure the pulic against harm.

5ellers and manufacturers can e held responsile under strict liaility e$en if theseller or manufacturer e2ercised all reasonale care in production and sale of the product and e$en if there is no pri$ity of contract ]contractual relationship etweenthe parties^.

)-ercise 2: Analysis and Collaboration

1. *i$ide into groups. 1ead the scenarios and reach a group consensus as towhether the cause of action should e ased on intent, negligence, or stric tliaility. The causes of action are not mutually e2clusi$e. or e2ample,you can file a suit ased oth on negligence and strict liaility.

2. 4ist the reasons for your decisions. 5elect one group memer to present your list.

Scenarios

a. letcher owned coal mines on property ne2t to 1ylands[s property.1ylands had a reser$oir uilt on his property. *uring constructionof the reser$oir, workers disco$ered old mining shafts that weakened thereser$oir structure. The reser$oir, once filled with water, urst and

flooded letcher[s coal mines. letcher sued. #letcher v. "$lands, 4.1." 2ch. %+ ("A).

. The #rizona =ulic 5er$ice ompany hung copper wire along polesthat were irregularly placed. In the autumn, &rittain flew hishelicopter into the wire ecause the copper color lended withthe landscape. &ritain[s wife sued for wrongful death. %ri&ona

u'lic Service (o. v. Brittain, ";/ #riz. %/A, A =.%d "/ (":/").



c. 5utherland, from property not elonging to 8errin, repeatedly shot atducks and other game irds. The shots were fired o$er 8errin[s property and distured his cattle and his peace and 9uiet. 8errinsued. Herrin v. Sutherland, )* !ont. +A/, %" =. '%A (":%+).

d. onnie rancis 0arzilli, a well-known singer, was criminally assaulted

in her motel room at 8oward Gohnson[s !otor 4odge in Westury, Few 7ork, when the attacker came in through a sliding glass door.=roof was offered at the trial that the door could e easily forced openfrom the outside. rancis and her husand sued the motel chain for,inter alia, mental suffering and depri$ation of companionship.+ar&illi

v. Howard ohnson-s otor !odges, Inc., ":. 5upp."%";(.*.F.7.":/).

Unit ;: nternational (radeBefore you read

1. 0iscussion

onsider the clothes and shoes you are wearing, and those you wore last week. Wherewere they made? Try to recall the meals youD$e eaten in the last % hours. 8ow much of the food came from aroad? If you ha$e them, where do your car, tele$ision, stereo,cameras, watches, and so on come from? Where was the last *K* or * you oughtmanufactured? an you e$en imagine li$ing in a country that did not import anything,where only locally produced food and te2tiles and products were a$ailale?

2. Vocabulary: !atch up these words and e2pressions with the definitions elow

". trade in goods%. trade in ser$ices (anking, insurance, tourism, and so on)'. direct e2changes of goods, without the use of money. the difference etween what a country recei$es and pays for

its e2ports and imports of goods+. the difference etween a countryDs total earnings from

e2ports and its total e2penditure on imports. the (impossile) situation in which a country is completely

self >sufficient and has no foreign trade/. a positi$e alance of trade or paymentsA. a negati$e alance of trade or payments

#. autarky

&. deficit

. 9uotas

*. alance of payments

. dumping

. surplus



:. selling goods aroad at (or elow) cost price";. imposing trade arriers in order to restrict imports"". ta2es charged on imports"%. 9uantitati$e limits on the import of particular products or

commodities

0. alance of trade

8. in$isile imports ande2ports

I. tariffs

J. $isile trade (0&) or merchandise trade (B5)

4. arter or counter-trade

!. protectionism

. !eadin"

1ead the te2t and answer the following 9uestions- Why do most economists oppose protectionism?- Why do most go$ernments impose import tariffs and\ or 9uotas?- Why were many de$eloping countries for a long time opposed to 0#TT?- Why ha$e many de$eloping countries recently reduced protectionism and

increased their international trade?%!#()C(#&S$ A&0 >!)) (!A0)

The ma@ority of economists elie$e in the comparati$e cost principle, which proposesthat all nations will raise their li$ing standards and real income if they specialize in the production of those goods and ser$ices in which they ha$e the highest relati$e producti$ity. Fations may ha$e an asolute or a comparati$e ad$antage in producinggoods and ser$ices ecause of factors of production (notaly raw materials), climate,di$ision of laour, economies of scale, and so forth.

This theory e2plains why there is international trade etween Forth and 5outh, e.g.semiconductors going from the B5# to &razil, and coffee going in the opposite direction.&ut it does not e2plain the fact that o$er /+` of the e2ports of the ad$anced industrialcountries go to other similar ad$anced nations, with similar resources, wage rates, and

le$els of technology, education, and capital. It is more a historical accident than a resultof natural resources that the B5 leads in uilding aircraft, semiconductors, computers andsoftware, while 0ermany makes lu2ury automoiles, machine tools and cameras.

8owe$er, the economists who recommend free trade do not face elections e$ery four or fi$e years. *emocratic go$ernments do, which often encourages them to impose tariffsand 9uotas in order to protect what they see as strategic industries- notaly agriculture-without which the country would e in danger if there was a war, as well as other @os.



#andoning all sectors in which a country does not ha$e a comparati$e ad$antage islikely to lead to structural unemployment in the short (and sometimes medium and long)term.

<ther reasons for imposing tariffs include the following3

• to make imports more e2pensi$e than home-produced sustitutes, and thereyreduce a alance of payments deficit• as a protection against dumping (the selling of goods aroad at elow cost price in

order to destroy or weaken competitors or to earn foreign currency to pay for necessary imports)

• to retaliate against restrictions imposed y other countries• to protect Einfant industriesD until they are large enough to achie$e economies of

scale and strong enough to compete internationally.• With tariffs, it is impossile to know the 9uantity that will e imported, ecause

prices might e elastic. With 9uotas, go$ernments can set a limit to imports. 7etunlike tariffs, 9uotas pro$ide no re$enue for the go$ernment. <ther non tariff arriers that some countries use include so-called safety norms, and the delieratecreation of customs, difficulties and delays.

The 0eneral #greement on Tariffs and Trade (0#TT), an international organization set upin ":/, had the o@ecti$es of encouraging international trade, of making tariffs the onlyform of protectionism, and of reducing these as much as possile. The most fa$orednation clause of the 0att agreement specified that countries could not ha$e fa$oredtrading partners, ut had to grant e9ually fa$orale conditions to all trading partners. Thefinal 0att agreement- including ser$ices, copyright, and in$estment, as well as trade ingoods- was signed in !arrakech in "::, and the organization was superseded y theWorld Trade <rganization.

It took nearly +; years to arri$e at the final 0att agreement ecause until the ":A;s, mostde$eloping countries opposed free trade. They wanted to industrialize in order tocounteract what they rightly saw as an ine$itale fall in commodity prices. They practisedimport sustitution (producing and protecting goods that cost more than those madearoad), and imposed high tariff arriers to protect their infant industries.

Fowadays, howe$er, many de$eloping countries ha$e huge dets with Westerncommercial anks on which they are unale to pay the interest, let alone repay the principal. Thus they need to rollo$er (or renew) the loans, to reschedule ( or postpone)repayments, or to orrow further money from the International !onetary und, often @ustto pay the interest on e2isting loans. Bnder these circumstances, the I! imposes se$ereconditions, usually including the oligation to e2port as much as possile.



uite apart from I! pressure, Third World go$ernments are aware of the e2portsuccesses of the ast #sian E TigerD economies ( 8ong Jong, 5ingapore, 5outh Jorea andTaiwan), and of the collapse of the 5o$iet economic model. They were afraid of einge2cluded from the work trading system y the de$elopment of trading locks such as theuropean Bnion, finalized y the !aastricht Treaty, and the Forth #merican ree Trade

#greement (F#T#), oth signed in the early "::;s. 5o they tended to lieralize their economies, lowering trade arriers and opening up to international trade.

!eadin" comprehension tas*s: Write 9uestions, relating to the te2t, to which thesecould e the answer.

#. actors of production, most importantly raw materials, ut also laor andcapital, climate, economies of scale, and so on.

&. &ecause it doesnDt e2plain why the ma@ority of the e2ports of ad$ancedindustrialized country go to other $ery similar countries.

.# recently de$eloped one that has not yet grown to the point where it enefitsfrom economies of scale, and can e internationally completi$e.

*. Bnlike 9uotas, they produce re$enue.

. Bnlike tariffs, you know the ma2imum 9uantity of goods that will e imported.

)-ercise 1: !eplace the underlined words and e-pressions in the te-t with the words

and e-pressions below

&alance of payments alance of trade arter pr counter-trade

limate commodities di$ision of laor economies of scale

actors of production nations protectionism 9uotas tariffs

(")ountries import some goods and ser$ices from aroad, and e2port others to the restof the world. Trade in (%) raw materials and goods is called $isile trade in &ritain andmerchandise trade in the B5. 5er$ices, such as anking, insurance, tourism, and technicale2pertise, are in$isile imports and e2ports. # country can ha$e a surplus or a deficit inits (') difference etween total earnings from $isile e2ports and total e2penditure on$isile imports, and in its () difference etween total earnings from all e2ports and totale2penditure on all imports. !ost countries ha$e to pay their deficits with foreigncurrencies from their reser$es, although of course the B5# can usually pay in dollars, theunofficial world trading currency. ountries without the currency reser$es can attempt todo international trade y way of (+) direct e2changes of goods without the use of money.



The (imaginary) situation which a country is completely self sufficient and has no foreigntrade is called autarky

The 0eneral #greement on Tariffs and Trade (0#TT), concluded in ":;, aims to

ma2imize international trade and to minimize () the fa$ouring of domestic industries.0#TT is ased on the comparati$e cost principle, which is that all nations will raise their income if they specialize in producing the commodities in which they ha$e the highestrelati$e producti$ity. ountries may ha$e an asolute or a comparati$e ad$antage in producing particular goods or ser$ices, ecause of (/) inputs (raw materials, cheap or skilled laour, capital, etc), (A) weather conditions, (:) specialization of work intodifferent @os, (";) sa$ings in unit costs arising from large-scale production, and so forth.7et most go$ernments still pursue protectionist policies, estalishing trade arriers suchas ("") ta2es charged on imports, ("%) restrictions on the 9uality of imports,

administrati$e difficulties, and so on.

)-ercise 23 There is a logical connection among three of the four words in each of thefollowing groups. Which is the odd one out, and why?

". asolute ad$antage- arriers- comparati$e ad$antage- free trade%. autarky- counter trade- in$isile trade- $isile trade'. alance- deficit- dumping- surplus. anking- insurance- merchandise- tourism+. comparati$e ad$antage- protectionism- 9uotas- tariffs. non tariff arriers- norms- 9uotas- ta2es/. arter- import sustitution- infant industries- tariff arriersA. det- reschedule- protect- susidize- sustitute:. lieralize- protect- susidize- sustitute

)-ercise : omplete the summary using the list of words, A7D , elow.

() (!A&S%#!( !)V#<U(#&

!odern cargo-handling methods ha$e had a significant effect on " .................... as the

usiness of mo$ing freight around the world ecomes increasingly streamlined.!anufacturers of computers, for instance, are ale to import % .................... fromo$erseas, rather than ha$ing to rely on a local supplier. The introduction of ' ....................has meant that ulk cargo can e safely and efficiently mo$ed o$er long distances. Whileinternational shipping is now efficient, there is still a need for go$ernments to reduce.................... in order to free up the domestic cargo sector

A tariffs B components C container ships 0 output



) employees > insurance costs = trade freight

fares software international standards

)-ercise 8: 0)<V)!&= () =##0S

The &ast e!pansion in international trade owes much to a re&olution in the business

of mo&ing freight

A International trade is growing at a startling pace. While the gloal economy has een e2panding at a it o$er '` a year, the $olume of trade has een rising at acompound annual rate of aout twice that. oreign products, from meat tomachinery, play a more important role in almost e$ery economy in the world, andforeign markets now tempt usinesses that ne$er much worried aout sales eyond

their nation[s orders.

B What lies ehind this e2plosion in international commerce? The general worldwidedecline in trade arriers, such as customs duties and import 9uotas, is surely onee2planation. The economic opening of countries that ha$e traditionally een minor players is another. &ut one force ehind the import-e2port oom has passed all utunnoticed3 the rapidly falling cost of getting goods to market. Theoretically, in theworld of trade, shipping costs do not matter. 0oods, once they ha$e een made, are

assumed to mo$e instantly and at no cost from place to place. The real world,howe$er, is full of frictions. heap laour may make hinese clothing competiti$ein #merica, ut if delays in shipment tie up working capital and cause winter coatsto arri$e in spring, trade may lose its ad$antages.

C #t the turn of the %;th century, agriculture and manufacturing were the two mostimportant sectors almost e$erywhere, accounting for aout /;` of total output in0ermany, Italy and rance, and ;-+;` in #merica, &ritain and Gapan.

International commerce was therefore dominated y raw materials, such as wheat,wood and iron ore, or processed commodities, such as meat and steel. &ut thesesorts of products are hea$y and ulky and the cost of transporting them relati$elyhigh.

0 ountries still trade disproportionately with their geographic neighours. <$er



time, howe$er, world output has shifted into goods whose worth is unrelated totheir size and weight. Today, it is finished manufactured products that dominate theflow of trade, and, thanks to technological ad$ances such as lightweightcomponents, manufactured goods themsel$es ha$e tended to ecome lighter andless ulky. #s a result, less transportation is re9uired for e$ery dollar[s worth of

imports or e2ports.

) To see how this influences trade, consider the usiness of making disk dri$es forcomputers. !ost of the world[s disk-dri$e manufacturing is concentrated in 5outh-east #sia. This is possile only ecause disk dri$es, while $aluale, are small andlight and so cost little to ship. omputer manufacturers in Gapan or Te2as will notface hugely igger freight ills if they import dri$es from 5ingapore rather than purchasing them on the domestic market. *istance therefore poses no ostacle tothe gloalisation of the disk-dri$e industry.

> This is e$en more true of the fast-growing information industries. ilms andcompact discs cost little to transport, e$en y aeroplane. omputer software can e[e2ported[ without e$er loading it onto a ship, simply y transmitting it o$ertelephone lines from one country to another, so freight rates and cargo-handlingschedules ecome insignificant factors in deciding where to make the product.&usinesses can locate ased on other considerations, such as the a$ailaility oflaour, while worrying less aout the cost of deli$ering their output.

= In many countries deregulation has helped to dri$e the process along. &ut, ehindthe scenes, a series of technological inno$ations known roadly as containerisationand inter-modal transportation has led to swift producti$ity impro$ements in cargo-handling. orty years ago, the process of e2porting or importing in$ol$ed a greatmany stages of handling, which risked portions of the shipment eing damaged orstolen along the way. The in$ention of the container crane made it possile to loadand unload containers without capsizing the ship and the adoption of standardcontainer sizes allowed almost any o2 to e transported on any ship. &y ":/,dual-purpose ships, carrying loose cargo in the holdH and containers on the deck,were gi$ing way to all-container $essels that mo$ed thousands of o2es at a time.



The shipping container transformed ocean shipping into a highly efficient,intensely competiti$e usiness. &ut getting the cargo to and from the dock was adifferent story. Fational go$ernments, y and large, kept a much firmer hand ontruck and railroad tariffs than on charges for ocean freight. This started changing,howe$er, in the mid-":/;s, when #merica egan to deregulate its transportation

industry. irst airlines, then road hauliers and railways, were freed from restrictionson what they could carry, where they could haul it and se what price they couldcharge. &ig producti$ity gains resulted. &etween ":A+ and "::, for e2ample,#merica[s freight railways dramatically reduced their employment, trackage, andtheir fleets of locomoti$es - while increasing the amount of cargo they hauled.urope[s railways ha$e also shown marked, aleit smaller, producti$ityimpro$ements.

In #merica the period of huge producti$ity gains in transportation may e almosto$er, ut in most countries the process still has far to go. 5tate ownership ofrailways and airlines, regulation of freight rates and toleration of anti-competiti$e practices, such as cargo-handling monopolies, all keep the cost of shippingunnecessarily high and deter international trade. &ringing these arriers downwould help the world[s economies grow e$en closer.

+hich para"raph contains the followin" information/

". a suggestion for impro$ing trade in the future

%. the effects of the introduction of electronic deli$ery

'. the similar cost in$ol$ed in transporting a product from aroad or from a localsupplier

. the weakening relationship etween the $alue of goods and the cost of theirdeli$ery

0ecide if these statements are true ( or false > or not "i3en &=". International trade is increasing at a greater rate than the world economy.

%. heap laor guarantees effecti$e trade conditions.

'. Gapan imports more meat and steel than rance.

. !ost countries continue to prefer to trade with neary nations.

+. 5mall computer components are manufactured in 0ermany



Unit 9: Ban*in"

Vocabulary

!atch up the terms with the definitions3

Cash card cash dispenser or A($ credit card home ban*in"

<oan mort"a"e o3erdraft standin" order or direct debit

Current account or chec*in" account 0eposit account or time or notice

account

" an agreement y which a customer can withdraw more form a ank account

% a card which guarantees payment for goods and ser$ices purchased y the cardholder,who pays ack the ank or finance company at a later date

' a computerized machine that allows ank customers to withdraw money, check their alance and so on

a fi2ed sum of money on which interest is paid, lent for a fi2ed period, and usually for aspecific purpose

+ an instruction to a ank to pay fi2ed sums of money to certain people or organization atstated times

a loan, usually to uy property, which ser$es as a security for the loan

/ a plastic card issued to ank customers for use in cash dispensers

A doing anking transactions y telephone or from oneDs own personal computer

: one that generally pays little or no interest, ut allows the holder to withdraw his or her cash without any restrictions

"; one that pays interest, ut usually cannot e used for paying che9ues or checks, and on

which notice is often re9uired to withdraw money

0iscussion

". Which of the anking facilities do you use?%. What ser$ices do commercial anks offer in your country?'. What changes ha$e there een in personal anking recently?. What future changes do you foresee in the future?

The anking industry



!eadin"

!ead the te-t below and write short headin"s for each para"raph

(ypes of ban*

"............................................

ommercial or retail anks are usinesses that trade in money. They recei$e and holddeposits, pay money according to customerDs instructions, lend money, offer in$estmentad$ice, e2change foreign currencies, and so on. They make a profit from the difference(known as a spread or a margin) etween the interest rates they pay to lenders or depositors and those they charge to orrowers. &anks also create credit, ecause themoney they lend , from their deposits, is generally spent (either on goods or ser$ices, or to settle dets), and in this way transferred to another ank account > often y way of a ank transfer or a che9ue (check) rather than the use of notes and coins - from where it

can e lent to another orrower, and so on. When lending money, ankers ha$e to find a alance etween yield and risk, and etween li9uidity and different maturities.

%.............................................

In$estment anks, often called merchant anks in &ritain, raise funds for industry on the$arious financial markets, finance international trade, issue and underwrite securities,deal with takeo$er and mergers, and issue go$ernment onds. They also generally offer stock roking and portfolio management ser$ices to rich corporate and indi$idual client.In$estment anks make their profits from the fees and commissions they charge for their ser$ices.

'...............................................

In some uropean countries (notaly 0ermany, 5witzerland and #ustria) there ha$ealways een uni$ersal anks comining deposit and loan anking with share and onddealing and in$estment ser$ices, ut for much of the %; th century, #merican legislationenforced a strict separation etween commercial and in$estment anks. The 0lass-5teagall #ct, passed during the *epression in ":', pre$ented commercial anks from

underwriting securities. This act was repealed in ":::. The Gapanese e9ui$alent wasaolished the pre$ious year, and the anking industry in &ritain was also deregulated in"::;s, and financial conglomerates now comine the ser$ices pre$iously offered y anks, stockrokers, and insurance companies.

...............................................

# countryDs minimum interest rate is usually fi2ed y the central ank. This is thediscount rate, at which the central ank makes secured loans to commercial anks. &anks



lend to lue chip orrowers ($ery safe large companies) at the ase rate or the prime rateall other orrowers pay more, depending on their credit standing (or credit rating, or credit worthiness)3 the lenderDs estimation of their present and future sol$ency. &orrowerscan usually get a lower interest rate if the loan is secured or guaranteed y some kind of asset, known as collateral.

+.................................................

In most financial centers, there are also ranches of lots of foreign anks, largely dongurocurrency usiness, # urocurrency is any currency held outside its country of origin.The first significant urocurrency market was for B5 dollars in urope, ut the name isnow used for foreign currencies held anywhere in the world (e.g. yen in the B5, euros inGapan). 5ince the B5O is the worldDs most important trading currency > and ecause theB5 for the many years had a huge trade deficit > there is a market of many illions of urodollars, including the oil-e2porting countriesD EpetrodollarsD. #lthough a central ank

can determine the minimum lending rate for its national currency it has no control o$er foreign currencies. urthermore, anks are not oliged to deposit any of their urocurrency assets at ;` interest with the central ank, which means that they canusually offer etter rates to orrowers and depositors than in the home country.


1. Summari,e the te-t

2. >ind the words or e-pressions in the te-t which mean the followin"

# To place money in a ank or money placed in a ank

& The money used in countries other than oneDs own 8ow much money a loan pays, e2pressed as a percentage* #$ailale cash, and how easily other assets can e turn into cash The date when a loan ecomes repayale To guarantee to uys all the new shares that a company issues, if they can not e sold to the pulic0 When a company uys or ac9uires another one8 When a company comines with another oneI &uying and selling stocks or shares for clientsG Taking care of all a clientDs in$estments

J The ending or rela2ing of legal restrictions4 # group of companies, operating in different fields that ha$e @oined together ! # company considered to e without risk F #ility to pay liailities when they ecome due< #nything that acts as a security or guarantee for a loan

. $atch up the 3erbs and nouns below to ma*e common collocations

harge #d$ice



*o2changeIssue!ake<ffer =ay

1aise1ecei$eBnderwrite

&onds&usinessurrencies*epositsundsInterest

4oans=rofits5ecurity issues

)-ercises

)-ercise 1

(his e-ercise defines the most important *inds of ban*. >ill in the blan* the

name of each type of ban*:

(")............................................. super$ise the anking system fi2 the minimum interestrate issue ank notes, control the money supply influence e2change rates and act aslender of last resort.

(%)............................................. are usinesses that trade in money. They recei$e and holddeposits in current account and sa$ing accounts, pay money according to customerDsinstructions, lend money, and offer in$estment ad$ice, foreign e2change facilities and soon. In some countries such as ngland these anks ha$e ranches in all ma@or towns, in

other countries there are smaller regional anks. Bnder #merican law, for e2ample, ankscan operate in only one state. 5ome countries ha$e anks that were originally confined toa single industry, e.g. the redit #gricole in rance, ut these now usually ha$e a far wider customer ase.

In some uropean countries, notaly 0ermany, #ustria, and 5witzerland, there are(')............................................. which comine deposit and loan anking with share and ond dealing, in$estment ad$ice, etc. yet e$en uni$ersal anks usually from a susidiary,known as a ()............................................., to lend money > at se$eral per cent o$er the

ase lending rate > for hire purchase or installment credit, that is, loans to consumers thatare repaid in regular, e9ual monthly amounts.

In &ritain, the B5# and Gapan, howe$er, there is, or used to e, a strict separation etween commercial anks and anks that do stockroking or ond dealing. Thus in&ritain, (+)............................................. specialize in raising funds for industry on the$arious financial markets, financing international trade, issuing and underwritingsecurities, dealing with takeo$ers and mergers, issuing go$ernment onds, and so on.



They also offer stockroking and portfolio management ser$ices to rich corporate andindi$idual clients. ()............................................. in the B5# are similar, ut they canonly act as intermediaries offering ad$isory ser$ices, and do not offer loans themsel$es.

7et despite the 0lass-5teagall #ct in the B5#, and #rticle +, imposed y the #mericansin Gapan in ":+, which enforce this separation, the distinction etween commercial and

merchant or in$estment anks has ecome less clear in recent years. *eregulations in theB5 and &ritain is leading to the creation of Lfinancial supermarketsM > conglomeratescomining the ser$ices pre$iously offered y stockrokers, anks, insurance companies,etc.

In &ritain there are also (/)............................................. that pro$ide mortgages, i.e. theylend money to home-uyers on the security of house and flats, and attract sa$ers y paying higher interest than the anks. The sa$ing and loan associations in the Bnited5tates ser$ed a similar function, until most of them went spectacular ankrupt at the end

of the ":A;s.

There are also (A)............................................. such as the World &ank or the uropean&ank for 1econstruction and *e$elopment, which are generally concerned witheconomic de$elopment.

)-ercise 2

Complete the te-t usin" these words:

accountscurrent accountlendo$erdraftreturn

ank loandetliailitiessalarytransfer

che9uedepositorsli9uidityspreadwages

customersDdepositsoptimizestanding order withdraw

ommercial anks are usinesses that trade in money. They recei$e and hold(").............................., pay money according to (%).............................. instructions,(').............................. money etc.

There are still many people in &ritain who do not ha$e ank ()...............................Traditionally, factory workers were paid (+).............................. in cash on ridays. Fon-manual workers, howe$er, usually recei$e a monthly ().............................. in the form of che9ue or a (/).............................. paid directly into their ank account.

# (A).............................. usually pays little or no interest, ut allows the holder to(:).............................. his or her cash with no restrictions. *eposit accounts pay interest.



They do not usually pro$ide (";).............................. facilities, and notice is often re9uiredto withdraw money. ("").............................. and direct deits are ways of paying regular ills at regular inter$als.

&anks offer oth loans and o$erdrafts. # ("%).............................. is a fi2ed sum of money,lent for a fi2ed period, on which interest is paid, ank usually re9uire some form of

security or guarantee efore lending. #n ("').............................. is an arrangement ywhich a customers can o$erdraw an account, i.e. run up a det to an agreed limit intereston the (").............................. is calculated daily.

&anks make a profit from the ("+).............................. or differential etween the interestrates they pay on deposits and those they charge on loans. They are also ale to lend moremoney than they recei$e in deposits ecause (").............................. rarely withdraw alltheir money at the same time. In order to ("/).............................. the return on their assets(loans), ankers ha$e to find a alance etween yield and risk, and

("A).............................. and different maturities, and to match these with their (":).............................. (deposits). The maturity of a loan is how long it will last the yieldof the loan is its annual (%;).............................. > how much money it pays > e2pressed asa percentage.

)-ercise

$atch the words with the correct definitions:

" dispenser

% teller ' cashier withdrawal+ alance deposit/ che9ueA credit: deit"; cash"" statement

# The remaining amount of money in an account

& !oney paid into a ank # record of the financial transactions of a person or usiness* #n amount of money in an account Fote to a ank asking it to pay money from your accountto a named person or usiness !oney in the form of ank notes and coins0 #n amount of money deducted from an account8 The remo$al of money from an accountI # machine or person who count out moneyG # container designed to gi$e out money in regulatedamountsJ # clerk who pays out and recei$e cash at a ank

$atch the 3erbs with the correct e-plainations:

" honour % present' draw

# pass the che9ue through the clearing system& write a che9ue make two account agree



clear + cross reconcile/ ad@ustA circulate

* change an account mo$e around the country draw two lines down the middle of a che9ue0 show and ask for payment8 pay

)-ercise 8

%ut the correct prepositions to complete each sentence:

". # che9ue is simply an order to your ank to pay money ....................... your account ....................... someone else.

%. # customer an pay ....................... che9ue ....................... goods and ser$ices'. With a ank card, the customerDs ank guarantees payment ....................... a limit,

say O+;;

. When an account holder pays a che9ue ....................... her ank, the ank creditsthe amount of the che9ue ....................... her account and sends the che9ue to e presented ....................... the drawerDs ank.

+. In &ritain the clearing system is operated ....................... the learing 8ouse in4ondon.

. The learing 8ouse adds up the total each ank owes to each other ank andreconciles the difference ....................... the ankDs accounts ....................... the&ank of ngland.

/. This process, from the time when the payee pays the che9ue ....................... her

ank until the che9ue is deited ....................... the drawerDs ank account, takesthree days.

Unit E

>inancin" nternational (rade

!eadin" 1

Before you read

*iscuss these 9uestions.

". What are some of the risks in$ol$ed in trading internationally?%. What payment methods do you know that are used when e2porting or importing goods?'. What is the role of the anks in international trade?

#pen Account



The goods, and rele$ant documents, are sent y the e2porter directly to the o$erseas uyer, who will ha$e agreed to

remit payment of the in$oice ack to the e2porter upon arri$al of the documents or within a certain period after the

in$oice date. The e2porter loses all control of the goods, trusting that payment will e made y the importer in

accordance with the original sales contract.

0ocumentary Credit

*ocumentary redit is often referred to as a 4etter of redit. This is an undertaking issued y an o$erseas ank to a

BJ e2porter through a ank in the BJ, to pay for the goods pro$ided that the e2porter complies fully with the

conditions estalished y the *ocumentary redit.

#dditional security can e otained y otaining the EconfirmationD of a BJ ank " to the transaction, therey

transferring the responsiility from the importerDs ank o$erseas to a more familiar ank in the country of the

e2porter.

Kery few risks arise for the e2porter ecause the potential prolem areas of the uyer risk and country risk can e

eliminated. 8owe$er, the e2porter must present the correct documents and comply fully with the terms and

conditions of the credit. ailure to do so could result in the e2porter losing the protection of the credit.

Bills for CollectionTrade collections are initiated when an e2porter draws a ill of e2change on an o$erseas uyer. This is forwarded y

the e2porterDs ank in the importerDs country.

5uch collections may e either EdocumentaryD or EcleanD%. # documentary collection is one in which the commercial

documents and, if appropriate, the documents of title to the goods are enclosed with the ill of e2change. These are

sent y the e2porterDs ank to a ank in the importerDs country together with instructions to release the

documentation against either payment or acceptance of the ill.

The risks that the e2porter has to face are that the importer fails to accept the ill of e2change or dishonors an

accepted ill' upon maturity. This means that the e2porter may ha$e to consider shipping the goods ack to the BJ,

finding an alternati$e uyer or e$en aandoning the consignment, all of which could e e2pensi$e.In many areas of the world it is common practice to defer presentation, payment or acceptance until arri$al of the

carrying $essel. ollection and remittance charges can also e relati$ely high.

If the e2porter retains control o$er the goods y remitting a full set of &ills of 4ading+ through the intermediary of

the anking system, control of the goods will e handed o$er to the importer only against payment or acceptance of

the ill y the importer. If the documents are released against the importerDs acceptance of the ill, control of the

goods is lost and the accepted ill of e2change may e dishonoured at maturity.

Ad3ance %ayment

2porters recei$e payment from an o$erseas uyer in full, or in part, efore the goods are dispatched. This means

that the e2porter has no risks associated with non-payment." This ank is then known as the confirming ank.% lean means that no documents are in$ol$ed.' The importer does not pay, although he had pre$iously agreed to pay. This means to delay passing the ill to the importer.+ This means sending all the necessary shipping documents.

!eadin" tas*s



A Understandin" main points

1ead the ao$e te2t aout payment methods for e2porters and write the four methods in the correct positions

according to their risks for the e2porter.

B Understandin" details

!ark these statements T (true) or (false) according to the information in the te2t. ind the part of the te2t that

gi$es the correct information.

#pen account

1' The importer pays for the goods after recei$ing the documents.T

+' There is no contract in$ol$ed.3' The e2porter must e ale to trust the uyer.

0ocumentary credit

4' If a letter of credit is issued, the importerDs ank agrees to pay for the goods without conditions.5' If a letter of credit is confirmed, the e2porterDs ank takes responsiility for payment.

Bills for collection

' ommercial documents and the document of title are always enclosed with a ill of e2change.6' Importers may not accept the ill of e2change until the goods arri$e.7' 2porters can keep control of goods y sending ills of lading through the anking system.8' 2porters reduce risk if documents are released against acceptance of the ill rather than payment.

Ad3ance payment

10' This means that the importer has to pay efore any goods are dispatched.

C nformation search

!atch the risks (a-g) with the payment methods.

Vocabulary (as*s

A Dey terms

!atch these terms with their definitions. Example/ 0 '

". in$oice%. clean collection'. documentary collection. ill of e2change+. ill of lading. document of title/. issuing ank A. collecting ank :. confirming ank ";. letter of credit

a) document that shows details of goods eing transported it entitles the recei$er to collect

the goods on arri$al

) list of goods sold as a re9uest for paymentc) ank that issues a letter of credit (i.e. the importerDs ank)d) ank that recei$es payment of ills, etc. for their customerDs account (i.e. the e2porterDs

ank)e) document allowing someone to claim ownership of goodsf) payment y ill of e2change to which documents are not attachedg) signed document that orders a person or organization to pay a fi2ed sum of money on

demand or on a specified dateh) ank that confirms they will pay the e2porter on e$idence of shipment of goodsi) method of financing o$erseas trade where payment is made y a ank in return for

deli$ery of commercial documents, pro$ided that the terms and conditions of the contract

are met @) payment y ill of e2change to which commercial documents (and sometimes a documen

of title) are attached

". <pen account%. *ocumentary credit'. &ills for collection. #d$ance payment

a) 2porters must comply with the conditions of the credit documents. ) Importers may delay payment.c) Importers may not pay at all.d) It takes a long time to process payment in some countries.e) Importers may not accept the ill of e2change.f) &ank charges may e high.g) 2porters must take care to present the correct documents.

4east secure

!ost secure

=ayment method3 0. 11111.open account...1111...2. 11111111111111111.

3. 11111111111111111.

*. 11111111111111111.



B +ord search

ind a word or phrase in the te2t that has a similar meaning.

". promise or guarantee gi$en to or y a ank (para %)

u6666666..

%. load of goods sent to a customer (para /)

c66666666

'. person or company that acts as a middleman in a transaction (para :)

i66666666. date when a ill of e2change is due for payment (para :)

m666666666

C Complete the sentence

Bse an appropriate form of the words in the o2 to complete the sentences which descrie the

procedure for documentary collection.

". The first step the e2porter takes is to ask his ank to 6.draw6.. a ill of e2change onthe o$erseas uyer.

%. The e2porterDs ank 666666. the ill of e2change, together with the commercial

documents, to the importerDs ank.'. #t the same time, the e2porter6666666. the goods.. The e2porter must take care to 6666666.the correct documents to the ank.+. When the importer6666666.the ill of e2change, the ank will666666.the

documents of title to the goods.

*raw accept dishonour release remit forward dispatch present present



. If the importer6666666..the ill, the e2porter may ha$e to find an alternati$e

uyer or ship the goods ack again./. In some parts of the world, anks may e slow to 666666666..payment to the

e2porterDs ank.

0 >urther 0iscussion.

". The ao$e reading descries the risks of each payment method from the e2porterDs point

of $iew. What are the risks for the importer? Which methods will e secure and why?%. Imagine you are a anker talking to one of your customers who has ne$er e2ported

efore. 2plain how documentary credit works.'. =repare a list of recommendations for either e2porters or importers.

!eadin" 2: ow a letter of credit wor*s

1 !ead about the first four steps in a transaction in3ol3in" a letter of credit and number

the steps 1 to 8 usin" the dia"ram below to help you.

The ad$ising ank authenticates the letter of credit and sends the eneficiary (the seller)

the details. The seller e2amines the details of the letter of credit to make sure that he or

she can meet all the conditions. If necessary, he or she contacts the uyer and asks for

amendments to e made. The applicant (the uyer) completes a contract with the seller. The issuing ank (the uyerDs ank) appro$es the application and sends the letter of credit

details to the sellerDs ank (the ad$ising ank). The uyer fills in a letter of credit application form and sends it to his or her ank for

appro$al.

2 &ow read about the ne-t si- steps and number them to 15 usin" the dia"ram below.

If the documents are in order, the ad$ising ank sends them to the issuing ank for

payment or acceptance. If the details are not correct, the ad$ising ank tells the seller and

waits for corrected documents or further instructions.



The ad$ising\confirming ank pays the seller and notifies him or her that the payment has

een made. The issuing ank ad$ises the ad$ising (or confirming) ank that the payment has een

made. The issuing ank (the uyerDs ank) e2amines the documents from the ad$ising ank. If

they are in order, the ank releases the documents to the uyer, pays the money promised

or agrees to pay it in the future, and ad$ises the uyer aout the payment. (If the details

are not correct, the issuing ank contacts the uyer for authorization to pay or accept the

documents.) The uyer collects the goods. The seller presents the documents to his or her ankers (the ad$ising ank). The ad$ising

ank e2amines these documents against the details of the letter of credit and the

International hamer of ommerce rules. When the seller (eneficiary) is satisfied with the conditions of the letter of credit, he or

she ships the goods.



Unit F: Accountin" and

>inancial Statement "emind people that profit is the difference 'etween revenue and expense. This makes $ou

look smart 4 Scott Adams 1F97 creator of the 0ilbert comic strip.

%reparation of the accounts

The accounting process starts with inputs, and these are things such as salesdocuments (e.g. in$oices), purchasing documents (e.g. receipts), payroll records, ank records, tra$el and entertainment records. The data in these inputs is then processed yspecialized software3

". ntries are recorded chronologically into [@ournals[.%. Information from the @ournals is posted (C transferred) into [ledgers[, where it

accumulates in specific categories (eg cash account, sales account, or account for one particular customer)

'. # [trial alance[ is prepared at the end of each accounting period3 this is asummary of the ledger information to check whether the figures are accurate. Itis used directly to prepare the main financial statements (income statement, alance sheet and cash flow statement).

The financial statements of large companies ha$e to e checked y an e2ternal firm of

auditors, who [sign off on the accounts[ (C officially declare the accounts are correct).They are pulicly a$ailale, and appear in the company[s annual report. Bsers of financial statements include3 shareholders, potential shareholders, creditors (lenders, eg anks), customers, suppliers, @ournalists, financial analysts, go$ernment agencies, etc.

%rofit and <oss Account



The profit and loss account (C income statement, or @ust [the =4[) summarizes usinessacti$ity o$er a period of time. It egins with total sales (C re$enue) generated during amonth, 9uarter or year. 5use9uent lines then deduct (C sutract) all of the costsrelated to producing that re$enue.

Balance Sheet

The alance sheet reports the company[s financial condition on a specific date. The asic e9uation that has to alance is3 #ssets C 4iailities b 5hareholders[ e9uity.

• #n [asset[ is anything of $alue owned y a usiness.• # [liaility[ is any amount owed to a creditor.

• 5hareholders[ e9uity (C owners[ e9uity) is what remains from the assets after allcreditors ha$e theoretically een paid. It is made up of two elements3 share

capital (representing the original in$estment in the usiness when shares werefirst issued) plus any retained profit (C reser$es) that has accumulated o$er time.

Fote the order in which items are listed3

• #ssets are listed according to how easily they can e turned into cash, with[current assets[ eing more li9uid than [fi2ed assets[.

• 4iailities are listed according to how 9uickly creditors ha$e to e paid, with[current liailities[ 56 ank det, money owed to suppliers, unpaid salaries and

ills) eing paid efore [long-term liailities[.igures for [current assets[ and [current liailities[ are particularly important to a usiness. The amount y which the former e2ceeds the latter is called [workingcapital[. This gi$es a 9uick measure of whether there is enough cash freely a$ailale tokeep the usiness running.

Cash >low Statement

ompanies need a separate record of cash receipts and cash payments. Why is this?

irstly for the reason gi$en ao$e - it shows the real cash that is a$ailale to keep the usiness running day to day (profits are only on paper until the money actually comesin). 5econdly, there are many sophisticated techni9ues that accountants can use tomanipulate profit, whereas cash is real money. It[s cash that pays the ills, not profits.

There are many reasons why companies can ha$e a prolem with cash flow, e$en if the usiness is doing well. #mongst them are3



• Bne2pected late payments, and non-payments (ad dets).• Bnforeseen costs3 a larger than e2pected ta2 ill, a strike, etc.

• #n une2pected drop in demand.

• In$esting too much in fi2ed assets.

5olutions might include3

• redit control3 chasing o$erdue accounts.• 5tock control3 keeping low le$els of stock, minimizing work-in-progress,

deli$ering to customers more 9uickly.

• 2penditure control3 delaying spending on capital e9uipment.

• # sales promotion to generate cash 9uickly.

• Bsing an outside company to reco$er a det (called [factoring[).

Accountin" and >inancial Statements

5tudy the simplified financial statements for an imaginary retail store. #ll figures are in <<<s. The con$ention in accounting is that a negati$e figure is shown y a racket. Tounderstand the figures, work from the right3

• the right-hand column shows totals for each ma@or category• the central column shows information that is used in producing the figures to the

right• the left-hand column shows details of the calculations in the central column.

Kocaulary in financial statements is surprisingly non-standard, with many companiesusing a mi2ture of B5 and uropean terms. 5ee the right-hand column for alternati$es,more detail, etc.

%rofit and <oss Account ncome Statement

G!e3enue@ (C income \ turno$er \ sales \ the top line)

HCost of "oods soldH (C direct costs) includes manufacturing costs, salaries of manual (C lue-collar) workers etc.

H#peratin" e-pensesH (C indirect costs \ o$erhead) include salaries of sales and officestaff, marketing costs, utility ills etc.



H&on7operatin" incomeH includes profits from in$estments in other companies.

H)B(0AH stands for arnings &efore Interest, Ta2, *epreciation and #mortization.

H)arnin"sH (C profit \ the ottom line)

H0epreciationH and HAmorti,ationH are $ery similar, and are often used in the same way.8owe$er, [depreciation[ can refer to the loss in $alue of a tangile asset (e.g. a $ehicle),and [amortization[ to the loss in $alue of an intangile asset (e.g. the purchase of a licenceor trademark). This loss o$er time is treated as a cost and written off (C sutracted from the profit) o$er se$eral years.

HnterestH refers to money paid to the ank for loans (or recei$ed from the ank for cash alances).

H0i3idendsH is money paid to shareholders.

H!etained profitH is transferred to the &alance 5heet, where it @oins the amounts from pre$ious years.

%rofit and <oss Account ncome Statement

>or the 'ear )nded 0ecember 1 25II

Revenues

Gross sales /012ess3 ales returns /2ess3 ales discount 0

4516(et sales /71

Cost of goods sold Purchases 891alaries of manual workers 71

Trans!ort costs 71

Cost of goods sold 47:16

Gross !ro%t 8;1

Operating expenseselling e'!enses

alaries for sales sta- ;8



Ad"ertising 5; Total selling

e'!enses

511

General e'!ensesalaries for admin sta- :8<nsurance /

=ent 5;2ight, heat and !ower 51>?ce su!!lies 8Miscellaneous 8

Total general

e'!enses

91

Total o!erating e'!enses 4591

6>!erating !ro%t 91(on@o!erating income :*<T)A 9:)e!reciation 4516*<T ;:<nterest !aid on bank loans 4/6(et income before ta'es B9

2ess3 <ncome ta' 4596(et income 4or loss6 after ta' /1)i"idends 4576=etained !ro%t 0B

Balance Sheet 0ecember 1 25II

(echnical terms

HAccounts recei3ableH is the amount owed to the usiness y customers (C creditors).

Hn3entoryH is the $alue of raw materials stock.

HCurrent assetsH may also include [marketale securities[ (C shares intended for disposal withinone year).

H>i-turesH are part of a uilding that cannot e mo$ed, such as lights.

H>i-ed assetsH may also include long-term financial in$estments.

Hntan"ible assetsH include patents, trademarks [goodwill[ (reputation, contacts ande2pertise of companies that ha$e een ought).



ASSETS

Current assetsCash at bank 5:Accounts recei"able 811

<n"entory 5;1 Total current assets 79:

Fixed assets*uilding and im!ro"ements 711

2ess3 accumulated

de!reciation

4916

851Dui!ment and "ehicles 581

2ess3 accumulated

de!reciation

4;16

01urniture and %'tures 81

2ess3 accumulated

de!reciation

4;6

58 Total %'ed assets 8/8

Intangible assets Total intangible assets 81

Total assets 677

HBan* debtH (C loan capital) also includes any o$erdraft (C temporary negati$e alance).

HAccounts payableH is the money owed to suppliers.

HAccruedH items are those where an e2pense has een incurred, ut the money is not yet paid.[#ccrued salaries[ typically includes future onuses.

#nother item, Hpro3isionsH can appear under current liailities. These are amounts set asidefor anticipated one-time payments that are not part of regular operations - perhaps a lawsuit, or a compensation package for employees eing laid off.



A Hmort"a"eH is a long-term ank loan to uy a property. With onds, the HprincipalH (Camount raised y issuing the onds) is repayale to the ond holders at [maturity[.

HShare capitalH (Ccommon stock, #m..) is amount raised at initial flotation on the stock market.

H!etained profitH (C 1eser$es \ 1etained earnings). The figure showing here is more than the /,;;; transferred from the income statement ecause it is an amount accumulated o$er se$eral years.

LIABILITIES AND EQUITY

Current liabilities*ank debt 81

Accounts !ayable 71Accrued ta'es 88Accrued salaries 0:

Total current liabilities 55B

Long-term liabilitiesMortgage 511*onds !ayable 4due mar 815;6 81

Total long@term liabilities 581 Total liabilities 87B

Shareholders’ equity hared ca!ital 4711,111

shares E 56

711

=etained !ro%t 501 Total owners& eDuity 001

Total liabilities F

eDuity

677

)-ercise 1: >ill in the missin" letters

". <n a alance sheet, EassetsD are what you ow and EliailitiesD are what you ow.%. The loss in $alue of a tangile asset o$er time is called Ed nD. this

loss is Ew en o D in the accounts o$er se$eral years. The loss in $alue of anintangile asset is called Eam nD.

'. The term EdetorD is now often replaced with Eaccounts rec leD. 5imilarly,EcreditorD is often replaced with Eaccount p leD.



. The total $alue of raw materials b work-in-progress b unsold stock is called Ein yD.

+. 2penses that ha$e een incurred ut are not yet paid are called Eacc d e2pensesD.

. The e2tent to which a firm relies on det financing rather than e9uity financing iscalled its Ele$ ageD.

)-ercise 2: Underline the correct words from those in italics

The terms [direct costs[ and E$ariale costs[ are close synonyms. They oth refer tothings like raw materials costs and the wages of manual (C lue collar) workers. &ut3

• to emphasize costs which increase in proportion to any rise in output, say (")direct costs7 varia'le costs

• to emphasize costs which can e identified with one particular product, say (%)direct costs 7 varia'le costs.

5imilarly, the terms [fi2ed costs[, [indirect costs[ and [operating costs[ are close

synonyms. They all refer to things like ad$ertising, rent and the salaries of office staff.&ut3

• to emphasize costs which stay the same at all le$els of output in the short term,say (') fixed costs 7 operating costs

• to emphasize costs which result from the whole usiness (rent, utilities, etc), notany particular products, say () indirect costs 7 operating costs. # synonymhere is [o$erhead[ (&r o$erheads).

• to emphasize costs resulting from the day-to-day acti$ities of the usiness(products and processes), say (+) fixed costs 7 operating costs.

There are many other types of [costs[ referred to in finance and accounting. Two of themost important are3

• () capital expenditure 7 capitalism expenditure 8 the costs of uying or upgrading physical assets like uildings and machinery often referred to in usiness as [cape2[

• 5)9 mark8up costs 7 marginal costs - the costs of increasing output y one moreunit.

)-ercise : %ut the words into the correct column.

Accounts !ayable Cost of goods sold 2edger

hareholders& eDuity

*<T)A Trial balance <n"oices >!erating e'!enses

Current assets



Preparation of

aount!

Pro"t an# lo!!

aount

Balane !heet

)-ercise 8: !ead the passa"e and answer the questions that follow

ompanies are re9uired y law to gi$e their shareholders certain financialinformation. !ost companies include three financial statements in their annualreports.

The profit and loss account shows re$enue and e2penditure. It gi$es figures for totalsales or turno$er (the amount of usiness done y the company during the year), andfor costs and o$erheads. The first figure should e greater than the second3 there shouldgenerally e a profit - an e2cess of income o$er e2penditure. =art of the profit is paidto the go$ernment in ta2ation, part is usually distriuted to shareholders as adi$idend, and part is retained y the company to finance further growth, to repaydets, to allow for future losses, and so on.

The alance sheet shows the financial situation of the company on a particular date,

generally the last day of its financial year. It lists the company[s assets, its liailities,and shareholders[ funds. # usiness[s assets consist of its cash in$estments and property(uildings, machines, and so on), and detors - amounts of money owed y customersfor goods or ser$ices purchased on credit. 4iailities consist of all the money that acompany will ha$e to pay to someone else, such as ta2es, dets, interest and mortgage payments, as well as money owed to suppliers for purchases made on credit, which aregrouped together on the alance sheet as creditors. Fegati$e items on financialstatements such as creditors, ta2ation, and di$idends paid are usually printed in rackets thus3 (+%;;).

The asic accounting e9uation, in accordance with the principle of doule-entry ookkeeping, is that #ssets C 4iailities b <wners[ (or 5hareholders[) 9uity. This can,of course, also e written as #ssets - 4iailities C 9uity. #n alternati$e term for 5hareholders[ 9uity is Fet #ssets. This includes share capital (money recei$ed from theissue of shares), sometimes share premium (money realized y selling shares at ao$etheir nominal $alue), and the company[s reser$es, including the year[s retained profits.# company[s market capitalization - the total $alue of its shares at any gi$en moment,



e9ual to the numer of shares times their market price - is generally higher thanshareholders[ e9uity or net assets, ecause items such as goodwill are not recorded under net assets.

# third financial statement has se$eral names3 the source and application of fundsstatement, the sources and uses of funds statement, the funds flow statement, the cashflow statement, the mo$ements of funds statement, or in the B5# the statement of changes in financial position. #s all these alternati$e names suggest, this statementshows the flow of cash in and out of the usiness etween alance sheet dates. 5ourcesof funds include trading profits, depreciation pro$isions, orrowing, the sale of assets,and the issuing of shares. #pplications of funds include the purchase of fi2ed or financialassets, the payment of di$idends and the repayment of loans, and, in a ad year, tradinglosses.

If a company has a ma@ority interest in other companies, the alance sheets and profitand loss accounts of the parent company and the susidiaries are normally comined inconsolidated accounts.

Accordin" to the te-t are the followin" (!U) or >A<S)/

". ompany profits are generally di$ided three ways.

%. &alance sheets show a company[s financial situation on '" *ec.

". The totals in alance sheets generally include sums of money that ha$e not yet een

paid.. #ssets are what you own liailities are what you owe.

+. Ideally, managers would like financial statements to contain no itemsin rackets.

. 4imited companies cannot make a loss ecause assets always e9ualshareholders[ e9uity.

/. # company[s shares are often worth more than its assets.

A. The two sides of a funds flow statement show trading profits and losses.

:. *epreciation is a source rather than a use of funds.";.# consolidated account is a comination of a alance sheet and a profit and loss

account.

(he te-t abo3e contains 3arious British terms that are not used in the USA.

$atch up the followin" British and American terms:



Briti!h Amerian

5. Creditors a. Accounts !ayable

8. )ebtors b. accounts

recei"able

7. >"erheads c. income statement

0. Pro%t and lossaccount

d. o"erhead

:. hareholder e. !aid@in sur!lus

/. hare !remium f. stockholder.

Unit 15

$er"ers and acquisitions$ % $ & '(((

Before you read

*iscuss these 9uestions.' What is a merger? What is a takeo$er?+ Why do companies merge?

Why do companies uy other companies?/ Think of recent merger or takeo$er that was reported in the press3 what were thereasons ehind it?

#

&

5uccessful companies generally want to di$ersify to introduce new products or ser$ices, and enter new markets. 7et entering new markets with new rands isusually a slow, e2pensi$e and risky process, so uying another company withe2isting products and customers is often cheaper and safer. If a company is too igto ac9uire, another possiility is to merge with it, forming a new company out of thetow old ones. #part from di$ersifying, reasons for ac9uiring companies include

getting stronger position in a market and a larger market share, reducingcompetition, enefiting from economies of scale, and making use of plant ande9uipment.

There are two ways to ac9uire a company3 a raid or a takeo$er id. # raid simplyin$ol$es uying as many of a companyDs stocks as possile on the stock market. <f course if there is more demand for stock than there are sellers, this increases thestock price. # takeo$er id is a pulic offer to a companyDs stockholders to uy their stocks at a certain price (higher than the current market price) during a limited



*

period of time. This can e much more e2pensi$e than a raid, ecause if all thestockholders accept the id, the uyer has to purchase ";;` of the companyDsstocks, e$en though they only need +;` plus one to gain control of a company. (Infact they often need much less, a many stockholders do not $ote at stockholdersDmeetings.) If stockholders accept a id, ut recei$e stocks in the other companyinstead of cash, it is not always clear if the operation is a takeo$er or a merger >

@ournalists sometimes use oth terms.ompanies are sometimes encouraged to take o$er other ones y in$estment anks,if researchers in their !ergers and #c9uisitions departments consider that the targetcompanies are under$alued. &anks can earn high fees for ad$ising on takeo$ers.

7et there are also a numer of good arguments against takeo$ers. *i$ersificationcan damage a companyDs image, goodwill and shared $alues (e.g. 9uality, goodser$ice, inno$ation). #fter a hostile takeo$ers (where the managers of a company donot want it to e taken o$er), the top e2ecuti$es of the newly ac9uired company areoften replaced or choose to lea$e. This is a prolem if what made the companyspecial was its staff (or Ehuman capitalD) rather than its products and customer ase.urthermore, a companyDs optimum size or market share can e 9uite small, andlarge conglomerates can ecome unmanageale an inefficient. Takeo$ers do notalways result in synergy. In fact, statistics show that most mergers and ac9uisitionsreduce rather than increase the companyDs $alue.

onse9uently, corporate raider and pri$ate e9uity companies look for largeconglomerates (formed y a serious of takeo$ers) which ha$e ecome inefficient,and so are under$alued. In other words, their market capitalization (the price of alltheir stocks) is less than the $alue of their total assets, including land, uildings and > unfortunately > pension funds. 1aiders can orrow money, usually y issuing

ond, and uy the companies. They then split them up or sell off the assets, and then pay ack the onds while making a large profit. Bntil the law was changed, theywere also ale to appropriate the pension funds. This is known as asset-stripping,and such takeo$ers are called le$eraged uyouts or 4&<s. If a companyDs ownmanagers uy its stocks, this is a management uyout of !&<.


8. Understandin" main points

1ead the te2t and match the titles ("- +) to the paragraphs (#-).

" *isad$antages of takeo$ers% 1aiders and assets-stripping' 1aids and ids The Emake-or-uyD decision+ The role of anks

. Understandin" details

ind words or phrases in the te2t that mean the following3



"#dding new and different products or ser$ices

%# companyDs sales e2pressed as a percentage of the totalsales in a market

'1eductions in costs resulting from increased production

!oney paid to in$estment anks for work done

+#ll the indi$iduals or organizations that regularly or occasionally purchase goods or ser$ices from acompany

&est, perfect or idea (ad@ecti$e)

/omined production or producti$ity that is greater than the sum of the separate parts

A =eople or companies that try to uy and sell other companies to make a profit

:4arge corporation or groups of companies offering anumer of different products or ser$ices

";&uying a company in order to sell its most $alualeassets at a profit

$ore )-ercises

Bac*"round

( ' % ) S

# > $ ) ! = ) ! S

ori,ontalTwo companies making the same product comined. #ims3

- To reduce completion and increase market share- To gain access to new markets- To ac9uire additional plants and e9uipment- To achie$e synergy and economies of scale.

Vertical

# company either ac9uires or merges with another company in an immediately-related stage of production and distriution. This may e a supplier or immediatecustomer. #ims3

- To guarantee the supply and cost of raw materials and components.- To e closer to the customer, y cutting out the wholesaler for e2ample,and dealing directly with the retail trade.

0i3ersification

# company ac9uires another company in an entirely different sphere. #im3- To mo$e into a sector which promises greater growth or profits.

'ou are "oin" to read about the mer"er between 0aimler7Ben, and the American

car manufacturer Chrysler



)E*+E* ),ST -,UL 9ega:mergers are the celebrity weddings of the corporate world% and all too often the

shareholders are left heartbroken'

!ast week another marriage appeared to 'e in trou'le when :aimler8(hr$sler

announced thousands of ;o' costs. <ill it ;oin the =3> of corporate tie8ups that end in failure? %ccording to work '$ consultanc$ @+ the$ should have known it was

unlikel$ the$ would 'e a'le to deliver on their promises.

It found that =3> of mergers failed to produce an$ 'enefits or shareholders and more

than half actuall$ destro$ed value. The seeds of a mergerAs destruction are often sown

'efore it is even completed, with management too optimistic a'out prospects for the

enlarged group and too confident the$ can overcome cultural 'arriers. Both accusations

can 'e made at the 2 'illion merger of CS car group (hr$sler with +erman giant

:aimler8Ben&.

ohn Thorp, head of finance and accounting at European Business School in !ondon

said, DThere was a total clash of cultures and the$ were not good at communicating their

strateg$.A The clashes led to man$ of the CS executives uitting after cashing in millions

of share options. ore damaging to shareholders were over confident financial targetsthat were not met and which resulted in a stead$ decline in the share price. The result is

that the compan$ is now worth less than :aimler8Ben& alone was worth 'efore the deal.

o's are 'eing cut and there numerous of a takeover 'id.

Investment strategist ames ontier said that over8optimism '$ management was a

ma;or reason wh$ merged companies failed to perform well. ohn @ell$, C@ head of @+As erger and %cuisition Integration said, D%'out )> of mergers failed 'ecause

of the wa$s the companies were integrated.A

:aimler8(hr$sler en;o$ed a'out six months of improved share price 'efore the pro'lems

started. This is common for mergers where shareholders give companies a short

'reathing space to prove themselves. <ith the evidence so strong against mergers succeeding, it is astounding that last $earF corporation worldwide spent more than 2

'illion on mergers and acuisitions.

If ever$one knows the marriage is doomed wh$ do the$ have the nuptials? %ccording to

Thorp, DIt is a'out survival. Businesses cannot afford to 'e static these da$s. In the car

industr$, for example, economies of scale are vital as is access to an increased num'er of markets. :aimler8Ben& 'elieved its link with (hr$sler would allow it to sell more

ercedes in the CS.A @+As @ell$ said, DThe ke$ strategic rationale at the moment for

mergers is G<hat happens if we donAt?.A % lot of mergers are defensive in nature. He

added that companies are worried that if the$ do not get together for mutual protection,

the$ would either 'e taken over or lose customers to more powerful rivals.



% less ;ustifia'le reason is management egos and the endless desire of advisers to earn

fees. @+ is a'out to pu'lish research following its initial stud$ of ) cross8'order

deals. It will show that the 0)> of mergers it had found had succeeded did so

spectacularl$ and shares in the new groups 'egan to outperform the stock market and

their peers. ontier sa$s, DSuccessful mergers tend to 'etween companies with similar 'usinesses that can produce ongoing cost efficiencies rather than one8off savings.A Jne

glowing example has 'een B. Its share price has grown from strength to strength following its merger with CS rival %moco two $ears ago. Though successes are rare, the

few that prosper prove that not all corporate cele'rit$ marriages are doomed at the altar.Financial 9ail on Sunday

)-ercise 1: !eadin" comprehension

"ead the first two paragraphs of the article. %ccording to the (onsultanc$ @+As

research a'out mergers/

a. 8ow many are successful\ . What effect do they ha$e on the $alue of a company?

c. What are two key reasons for their failure? "ead the rest of the article. <ho 'elieves/

d. That mergers fail ecause of3- The way the two companies are comined?- *ifferences in culture?- Bnrealistic e2pectations aout the future success of the new company?e. That companies merger essentially3- rom fear of competition?- To ensure their sur$i$al in a gloal market place?

"ead the text again and answer the uestions.

f. Why is the writer so surprised at the money spent on mergers?g. What moti$ated *aimler- &enz to merge with hrysler?h. What were the direct conse9uences of the culture clash?i. 8ow important are indi$idual personalities in mergers? @. Why has the &= #moco merger succeed when others ha$e failed?

)-ercise 2: Vocabulary

The writer uses idiomatic language throughout the te2t.". ind e2amples of words and e2pressions which are related to marriage. Why do

you think the writer uses this metaphor?%. Take a word from o2 # and comine it with word from o2 & to form

collocations.

#cost share @o stock in$estment

financial share takeo$er&options cuts target market price

efficiency strategy id



)-ercise : Summary and %resentation

!ake a few notes under each heading to summarize the article3- 1easons for mergers

- =rolems with mergers

- Types of mergers

)-ercise 8: nternet searchin"

Fow use the notes to present a rief summary answering these 9uestions3- What prolems can occur with mergers?

- If the risks are so great, why do companies merge?5upport your ideas with specific e2amples from Internet.)-ercise : <an"ua"e focus

8ere are some linking words and e2pressions that can e used to descrie cause andeffect3

#B5

soto ring aoutto lead toto result into causeto mean

T

T

as a result of ecauseto result fromto arise fromto e due toto e caused y

#B5

;!amples

I was offered a etter @o in a ank so I left the insurance company.*eregulation 'rought a'out ma@or changes in the financial industry.!a@or changes have arisen from the deregulation of the financial industry.

4ook at the sentences aout =rocter and 0amle and 0illette, and make new sentencesdescriing cause and effect.

2= anuar$ 23 =rocter and 0amle announces that it is going to uy 0illette for O+/ illion.



2= anuar$ 23 0illette rises nearly "'` on Wall 5treet, while =0 drop %."`.=0 predicts cost sa$ings of etween O" illion and O" illion from economies of scale and restructuring of the two companies. The comined companiesD sales will eo$er O; illion a year.0 %pril 23 The B5 ederal Trade ommission (T) appro$es the ac9uisition, aslong as the companies di$est some o$erlapping product lines, so as to restore competition

in the market. ul$ 23 5hareholders of oth companies appro$e the proposed merger.Guly %;;+3 The uropean Bnion appro$es the merger, as long as =0 sells its line of attery-operated toothrushes.0 Jcto'er 23 The purchase is finalized. =0 e2changes its common stock for 0illettestock. 0illette shareholders get an "A` premium on the closing share prices of %/Ganuary %;;+.The 0illette ompany ceases to e2ist and its stocks are no longer traded.=0 ecomes the worldDs iggest household goods maker.,;;; people, ` of the comined workforce of ";,;;;, lose their @os ecause of

o$erlaps in management and usiness support functions. anuar$ 2K 3 =0 announces a %/` increase in sales and a %:` in net earnings.

ESP-New_Ms. Mai Hanh

Documents

Transcript of ESP-New_Ms. Mai Hanh