Business Structures

Question 1

Joint Ventures

Answer 1

This is where 2 or more businesses agree to work together on a particular project and to create a separate business

Question 2

Examples of Joint Ventures

Answer 2

Sony and Ericsson with SonyEricsson cell phones, News Corp (which owns Fox), Disney (which owns ABC) and Comcast (which owns NBC) with video streaming site Hulu

Question 3

Why do Joint Ventures?

Answer 3

Shared costs and risks
Benefit from others expertise
Able to exploit each other’s strengths

Question 4

Risks of Joint Venture

Answer 4

Management and culture clash

Different external forces

Question 5

Holding companies

Answer 5

This is where a business that owns and controls a number of separate business, but doesn’t unite them into one company (they are all legally separate)

Question 6

Examples of Holding Companies

Answer 6

Airline Industry

Question 7

Advantages of Holding Companies

Answer 7

• Can operate in different markets to allow a high degree of diversification
• Easier to manage separate companies compared to one big one

Question 8

Disadvantages of Holding Companies

Answer 8

• Cannot fully benefit from economies of scale if they are run indepenedently
• Diseconomies of scale; hard to make management and cultural changes if not united

Question 9

Privatization

Answer 9

• The selling of state-owned and controlled businesses to the private sector
• Opposite to nationalization where a private business/sector becomes run by the state (e.g. some banks in Europe)

Question 10

Examples of Privatization

Answer 10

State schools becoming private schools

1980’s in the UK: any business starting with the name British was a government run business; now they are all privatised.

Question 11

Advantages of Privatization

Answer 11

• Increased competition (no more monopolies)
• More efficiency
• Faster Decision Making
• Lower Prices for customers
• More choices for customers
• Increased income for governments (opportunity costs)
• More income generated in economy (may lead to economic growth)

Question 12

Disadvantages of Privatization

Answer 12

• Some industries can’t be privatised as they cannot be ran for profit.
  Eg:

Lighthouse, army, search and rescue, refuse collection, police, fire

• Increased competition may not in reality lead to a better service.

Question 13

Local businesses

Answer 13

• operate in a small and well-defined part of the country.

• They do not have expansion as an objective and make no attempt to expand to obtain customers across the whole country.

Question 14

National businesses

Answer 14

• have branches or operations across most of country.

• They make no attempt to establish operations in other countries.

Question 15

International business

Answer 15

• operate in more than one country.

• These are often called multinational businesses.

Question 16

Multinational business

Answer 16

a business which has its HQ in one country but operates in many other countries/worldwide markets in:
• products,
• capital
• labour,
• These are unrestricted by barriers to entry

Question 17

Globalization

Answer 17

• This is the increasing freedom of movement of goods, capital and people around the world.

Question 18

Globalization Benefits

Answer 18

Global food production has led to malnutrition rates falling.

Better healthcare (AIDS medicine e.g.)

Less poverty

Opportunities for local employment

Question 19

Business strategies to adopt to benefit from globalization:

Answer 19

• New location/outsourcing jobs
• Mergers and takeovers
• Increased sales, revenues and profits (huge markets)
• Cheaper resources (cost minimisation)
• Economies of scale
• Developing different products for different markets (Ansoff Matrix)

Question 20

Problems of Globalization

Answer 20

Transport and translation costs

Different local markets trends and consumer tastes

Cultural backlashes

In India consumers wrecked McDonald’s restaurants for violating Hindu Dietary Laws

Canadian communities are fighting to keep Walmart out which will destroy their local shopping centres

Can lead to companies having to develop slightly different strategies, cultures and products to suit diverse communities around the world. This is referred to as ‘global localisation’

Question 21

Emerging Markets

BRICS

Answer 21

Brazil, Russia, India, China, South Africa

Question 22

MIST

Answer 22

Mexico, Indonesia, South Korea, Turkey

Question 23

International Trade

Answer 23

• All of us are affected by international/global trade in goods and services.
• Trade is huge and, over the last decade, international transactions have been growing far quicker than expansion of the internal economies of countries around the world.
• This trade has major impacts on our economic performance.
• Free trade= When trade between nations is allowed to occur without any form of import restriction.
• The World Trade Organisation helps to promote free trade by persuading countries to abolish import tariffs and other barriers to open markets.

Question 24

Benefits of free trade

Answer 24

1. Specialisation- Free trade forces domestic firms to produce quality goods and services as they face much foreign competition
2. Trade allows firms to exploit economies of scale by operating in larger markets.
3. Economies of scale lead to lower average costs – a gain in efficiency that might be passed onto consumers through lower prices.
4. Free trade encourages firms to export and import. This should encourage a greater choice for consumers and a higher standard of living
5. Due to increased competition globally, free trade also stimulates product and process innovation

Question 25

The limitations of free trade

Answer 25

Domestic firms will face fierce competition Smaller domestic firms may struggle to compete against larger foreign firms Could lead to these firms closing down Less domestic firms producing goods = higher national unemployment Could result in ‘undesirable’ lower quality goods entering the market

Question 26

Protectionism

Answer 26

* Protectionism represents any attempt by a government to impose restrictions on trade in goods and services between countries * Countries can implement barriers to the free movement of goods and services

Question 27

2 main methods of protectionism

Answer 27

Tariffs and Quotas

Question 28

Tariff

Answer 28

tax on imports and is used to restrict the demand for imports and at the same time raise revenue for the government.

Question 29

Quotas

Answer 29

* An import quota directly reduces the supply of a product that is imported and reduces the amount of money that the export producers receive. * These restrictions reduce the supply of imports to a market * This leads to a rise in the price higher than the free market * These benefit domestic producers who then face less competition in their markets. * With less competition, this can lead to a rise in the price of the product * So more £ for domestic firm

Question 30

Other types of/methods of protectionism

Answer 30

- Voluntary export limits - Embargoes - Import licensing - Regulations - Bureaucracy - Export subsidies

Question 31

Voluntary export limits

Answer 31

an exporting country agrees to limit the quantity of goods sold abroad

Question 32

Embargoes

Answer 32

total ban on imported goods

Question 33

Import licensing

Answer 33

government grants importers the license to import goods

Question 34

Regulation

Answer 34

this includes laws and safety guidelines – e.g. quality standards

Question 35

Bureaucracy

Answer 35

lots of ‘red tape’ to make it confusing to sell imported goods

Question 36

Export subsidies

Answer 36

payment to encourage domestic production by lowering their costs Example = used by the EU is the Common Agricultural Policy (CAP) for European Farmers

Question 37

The limitations of Protectionism

Answer 37

1) Protectionism keeps domestic firms away from genuine competition. They may become lazy and inefficient • Firms that are protected from competition have little incentive to reduce production costs. 2) Protectionism – Hurting Consumers • If the UK puts up trade barriers then other countries are likely to retaliate. • Tariffs, non-tariff barriers and other forms of protection serve as a tax on domestic consumers. 3) Higher prices for consumers: • Trade barriers in the form of tariffs push up the prices for imports

Question 38

National vs. International business Strategies

Answer 38

* Decision of whether a firm chooses National or International business strategy depends on: * Corporate objective (i.e. growth, new markets etc.), * type of business, * size, * industry * competitors reactions

Question 39

Benefits from international business

Answer 39

* Growth * Profitability * Spreading risks * Understanding of markets improved

Question 40

Common problems with International business Strategies:

Answer 40

* Misunderstanding the culture * Legislation * Political factors * Language/interpretation problems * All of these can be minimised by….. careful research of the new markets