Unit (2)

Who is involved in business activity?

People in business :

- Business activity exists because of people.

- They employ others to manage the business and work for them.

- Business activity results in goods and services which bought by people.

- The people who buy these goods and services may work for businesses to earn income.

- The people involved in business activity fall into four groups:

(1) Owners and shareholders.

(2) managers.

(3) employees.

(4) consumers.

- There is an overlap between the four groups.

- The owner of a large company may be a shareholder and may also be a manager.

- An employee might also be a shareholder and may be a consumer.

- Most managers will also be employees of the company.

- The first three groups mentioned above are all part of a business, but consumers are not part of a company.

Owners:

- A business is the property of it’s owner or owners.

- The owner of a business can use it to earn income by hiring it out (owner of a van), or wait for it’s value increase and then sell it (owner of jewellery).

- The owner of a small business may be the only person in the business then makes the all decision.

- In very large companies there are thousands of joint owners this entitles them to share in the profit, and elect the directors of the company.

The entrepreneur:

- The entrepreneur is a factor of production.

- Enterpreneur refers to the person who collects and organizes land labour and capital and uses them to produce goods and services.

- Without entrepreneur business activity would not take place.

The entrepreneur has three functions in a business activity.

( 1 ) Innovation :

- Business activity usually begins with the entrepreneur having a business idea.

- He or she forms a new business that did not exist before.

- Even when ideas are copied, it could be an innovation process.

( 2 ) Organizing :

- The entrepreneur, collects land, labour and capital, organises the, and uses them to produce goods and services.

- Making many decisions a bout the location of the premises, the method of production, product design and prices.

( 3 ) Risk taking :

- setting up a business is risky.

- Money has to be paid out in a advance to buy materials equipment and pay wages.

- The entrepreneur may use some personal money to meet these costs.

- There is no guarantee that the final product will be sold .

- It is not possible to insure against unquantifiable risks.

- If goods are unsold the entrepreneur will bear all the cost of failure.

Type of shareholder:

- Certain types of business do not have shareholders such as, sole traders, and partnerships.

- Limited companies raise money by issuing shares.

- Shareholders are the Joint owners of the business.

- The shareholder or group of shareholders with the majority of shares, ie 51, percent, will be the majority shareholder in the business.

Shareholders may be:

• Directors, are elected by the shareholders each year and responsible for running the business.

- They do not have to hold shares in the company they run, but generally they do.

• Managers, are usually appointed by directors and involved in running the business.

- Some managers own shares in their companies, but they do not have to.

- Sometimes they are allowed to buy shares or are given shares as a bonus in order to motivate then to perform well in their jobs.

• Employees, most employees in large business are not shareholders, however in the last decade the government has encouraged employees to own share in their companies.

- Companies has also offered shares for employees as a bonus.

• Individuals it is possible for individuals to own shares in companies.

- Any member of the public is allowed to buy shares .

- They can buy them from stockbroker.

- They buy shares because they want to earn dividends.

- Individuals rarely have any control since own only a small fraction of the total number of shares.

• Institutional investors :

- These are financial institutions, such as insurances companies, pension funds and units trusts.

- They buy shares to earn income.

- They buy very large numbers of shares.

- They rarely participate in the running of the businesses.

- In some cases they may exert control, since they own large blocks of shares.

• Other companies :- Some companies hold or buy shares to earn income.

- Many companies aim at controlling other companies.

- Some companies need to build up stakes in other companies with a view to taking them in the future.

Managers might make a successful decision and then they might be promoted.

- However if the decision is unsuccessful, the manager may be sacked.

- The manager is accountable for carrying out many tasks, Innovating and risk taking.

• Employees :- Employees are hired by firms to carry out business

activities.

- The major role of employees is to follow the instructions of employers.

- Business provide a training programmer for employees to familiarize them with the firms policies and practices.

- Employees sign contracts to carry out all instruction related to their job.

- The employees received a payment as a return.

• The role of employees has began to change in the recent years :

- Copping with the new technologies.

- Participating in problem solving and decision making.

- The employees become more flexible and are expected to be able to change from one job to another.

• Managers :

- A manager can be defined as an individual who is accountable for more work than the could undertake.

- Firms of all sizes employ managers.

- In a small firm the owner is responsible for all managerial tasks.

- In a large business it is not possible for one person to carry out the whole burden.

- The responsibility for some decisions is eften delegated to others.

There are a number of common functions of managers:

• Organizing and decision making .

- In a small business the owners may appoint one manager to control each department.

- The manager will be responsible for all activities and employees in the department.

• Planning and control .

- Manager is responsible for planning of company activities.

- They also have controlling role in the business.

- Controlling finance, equipment, time and people.

- In the large business managers become more specialist and concentrate on a narrower aspect of management.

Accountability:

- Managers are accountable to the owners.

- If the production department does not achieve satisfactory level of out put, the manager may have to shoulder the blame.

• Entrepreneurial role :

- Managers may risk their own money as well as their job.

Consumers:

- Consumers are not members of business, but they are vital to any business activity.

- Consumers are the customer of goods and services.

- Consumers expending generates income for the firm.

- In some cases consumers can be other businesses

- Firms that produces goods which are not wanted by consumers will fail.

Consumers and business have many different relationships:

- Contact between businesses and consumers takes place when goods or services are bought.

- Businesses communicate with consumers to find out what they want “market research”.

- Collecting information from consumers helps the business to set up the nature of product, the price charged, and where the product might be bought “advertising”.

- Businesses must take the consumer expectations into account when designing, manufacturing, and marketing products.

- Consumer right and protection.

Interdependence:

There is a significant degree of interdependence within business :

- In large business the owners are dependent upon the skill and ability of the management team.

- If manager perform well, then the business will make profit which will benefit the owner.

- Managers and other employees are dependent upon each other.

- Employees rely on the guidance of management in order to do their jobs.

- Management depend on workers to produce out put.

- Management will be accountable to the owners if workers are inefficient.

- Businesses are dependent upon consumers.

- Business activity would not take place if consumers did not buy goods and services.

- Thus business owners are dependent upon consumers for their income, and consumers in their role as employees and managers are dependent upon business owners for their income.

Conflict:

Conflict can exist between many groups that working the business.

What might lead to conflict between the employees and the owner of the business ?

* Levels of pay :

- In most businesses rates of pay are negotiated every year.

- Bargaining takes place between employees and owners .

- Conflict occurs when workers want more than the owners are prepared to pay.

* Working conditions :

- Conflict may occur when the working environment is too cold for employees to do their jobs.

* Changing practices :

- Disputes have occurred when employees have been required to perform new tasks or change the way they perform the existing tasks.

* Redundancy :

- Redundancy happened when the jobs are replaced by machines.

- The world has experienced this phenomena at the early 1980 and early 1990.

* Owners and managers :

- In some businesses the management team may become powerful.

- Management team may pursue their own interest rather than those of the owners.

- They might pay themselves high salaries and organizing their time to suit their own needs.

- In some cases management team may not achieve a reasonable level of profit.

- Such conflicts may result in some owners selling their shares which is often referred to a divorce ownership an control.

*Consumers and Business:

What might lead to conflict between consumers and business?

* Price :

- Consumers want to buy goods as cheaply as possible .

- Owners may want to maximize their profit by setting a high price.

- If the competition exists in the market, consumers will benefit.

- If there is a lack of competition, consumers will not have a choice except to go without.

* Quality :

- Quality plays a vital role in the business world.

- If consumers return goods, businesses will lose income.

- Disagreement often occur as to whether a firm should accept returned goods.

* Delivery time :

- Customers are often keep to get the goods they need on time, as quickly as possible.

- Disputes would occur if the business can not deliver the goods needed on the promised time.

* After sales service :

- Consumers may be upset by poor after sales service.

- If a person buys a T.V, and find that it does not work, a dispute might emerge if the business refuse to investigate the problem.

* Management buy – outs :

- Management buy – outs has been where the management team becomes the owner of the business.

- The management team buys the shares from the existing owners.

- It would raise the finance itself from banks and other institutions.

- Why have buy-outs by the management of a company taken place in the business world?

- It is an alternative to full closure of a family business or it’s subsidiary.

- Sometimes large companies sell off parts of their business which do not fit into their future plans.

- To resurrect a company that had already gone into receivership.

- As part of the privatization programme of the government.

* The advantages of management buy-outs :

- From the sellers “point of view” it lets them to raise finance for a possibly ailing firm.

- From the managers and employees “point of view” it enables them to keep their occupation.

- Following a buy-out enables management team to benefit from any profit made by the company.

- Reducing the conflict between owners and managers because after a buy – out the owners become the managers.

* Management buy-ins:

- Management buy-ins occurs when outside management team takes over a business.

- Many small business owners prefer their companies to remain independent.