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Summary - Introduction to Business: Processes and Context
1 System Theory and Contingency Approach
What is a business?The organized effort of individuals to produce and provide goods and services to meet the needs of society. Both profit and non-profit organizations are included in this definition.
What are the 5 business activities?- Innovation
- Human resource management
- Finance and accounting
What are the 3 contexts in which we view the 5 business activities?- Strategic
(globalization as biggest context)
What is examined in the strategic context?The management decisions that determine the direction of the business activities within an organisation. Strategic issues are inseparable from the organisation, as these decisions can alter the context.
What is a strategy?A set of aims and the means to achieve those aims.
What are the 5 issues concerning the organisational levels?1. Goals
5. Organisational/corporate culture
What is an organisation?The way people are grouped and how they operate to carry out business activities.
What are the 5 key elements of an organisation?1. Goals of the business
2. How they are executed
3. Ownership and control
5. Structure and organisational culture
What are the 5 factors of the environmental level?1. Economy
5. Cultural and institutional differences
How does the systems approach look at businesses?As one entity made up of many small parts, that can only be understood as a whole, and which (just like a living organism) needs to fit into its environment in order to exist.
How does the contingency approach look at businesses?It analyses the environment and how it could potentially change, and how businesses adapt to that. Business activities and their processes result from the environment.
What are the similarities between the systems and contingency approach?1. Both discuss businesses dealing with the environment and their adaptations to it
2. Both are deterministic and only focus on a limited range of environmental variables
3. Both ignore the influence of organisation on the environment and behaviour of management/workforce, i.e. it is only a one way street
What are the two views on technology?1. (Woodward) Technology has the upper hand over the business manager and is the determining force
2. Other factors can also be determinant influences, and technology can also be seen as a means for the managers to adapt to external challenges.
2 Globalisation, Business Cooperation and Integration
What is globalisation?The global circulation of goods, services, capital, information, ideas and people. It is making national borders become irrelevant, and is the process of the world converging economically, politically and culturally.
How does globalisation work on an economic level?Production of goods for the world market, use of labour in different locations, global sources are used for raw materials.
How does globalisation work on a cultural level?There are exchanges across the globe due to communication
How does globalisation work on a political level?Supranational groups such as the EU and UN work on a global level.
What effect does globalisation have on an environmental level?The world economy is becoming linked through global markets, which often increases trade, there is a mixing of cultures, a quick spreading of technology and information and nations might join trade and defence alliances.
What effect does globalisation have in an organisational context?Ownerships patterns are getting more complex due to cross-border acquisitions, joint ventures, etc. --> dramatic changes for small businesses
New structures and cultures are integrated to adapt to social changes.
How does globalisation impact strategy?It made the technology transfer easier, has impacts on innovation, R&D and production processes, there is marketing on a global scale, policies are devised for staff working globally, finance becomes a global resource.
What are the 5 elements of globalisation?1. Internationalisation (increased international trade --> development of global networks)
2. Liberalisation (creation of free markets, making information widely available)
3. Universalisation (Process of standardisation due to regulatory structures)
4. Westernisation (dominance of western culture, especially from the USA)
5. Deterritorialisation (national boundaries are becoming less important --> the distinct feature of globalisation)
What is the difference between outsourcing and off-shoring?Outsourcing is when a firm delegates another company to carry out part of the process in form of a contract (e.g. cars, the engine is made by another company, etc.) while off-shoring is when the business activities and processes are moved to another country.
What is off-shoring outsourcing?When a firm moves activities to another country and also outsources certain parts of the process to another country in form of a contract.
What are reasons for a company to start off-shore outsourcing?The often cause increased competition, lower costs, are cheaper and make for faster telecommunications.
What do the terms home country and host country refer to?Used to refer to the MNC's country of origin, and to the new location in which they now operate.
What is a global factory?When different components of one product are made by different firms around the world, and then brought together for final assembly. Driven by the need to reduce costs.
What are the key features of a global factory?- Technology: Mass production of standardised products as to ensure same quality all throughout the world
- ICT: Allows for low global communication costs and for better information flows and better control over processes
- Access to cheap (unskilled) labour
What is a modular system of production?When the contract firms must be able to be flexible when dealing with change in demand, and still stay cheap enough to keep the contract.
What is the global value chain?Represents the build-up of value in a supply chain, that consists of a number of international partners.
What are the 2 types of global value chains?1. Producer driven chains - Original designer oversees entire process across several sub-contractor firms
2. Buyer-driven chains - Companies set up shop in low-wage countries to mass-produce cheap products that are later branded
What 3 types of supply chains are there?1. Modular chains - Range of suppliers produce components as ordered by the lead firm
2. Captive chains - Small supplies depend on powerful large buyers
3. Relational chains - Main and supplier have a relationship based on trust, that creates synergy and teaches them to become mutually flexible
What is a multinational corporation?A corporation that operates and is managed from different bases around the world, and is a coordinated system or network of cross-border value generating activities.
What are the characteristics of a MNC (multinational corporation)?1. Headquarters located in one country, but operations take place in more parts of the world
2. FDI (Foreign Direct Investment) for ownership and overseas operations purposes
3. Controlled globally networked supply chain and systems of production
4. Strong management presence overseas
5. Centrally designed global strategy
6. Spread of management ideas and practises
What are the main reasons for development of MNCs?1. Protection against cyclical problems of economies
2. Access to (cheaper) raw materials - through vertical integration and acquisition of firms
3. Need for new markets
4. Protection against competition owing to expansions
5. Need for reducing costs (low-cost labor, low-cost rent, etc.)
6. Avoid import controls and tariff barriers
7. Help control organisational structure
Why is it appealing for companies to join in a joint-venture or strategic alliance?It is a fast and effective way to enter a new market and a cost-effective way of product development and distribution.
What is a strategic alliance?When two companies agree to work together on a specific product or share facilities. Less contractual relationship than a joint venture. (e.g. airlines working together to make booking between both of them easier for a customer)
What is a joint venture?Involves an element of shared ownership and restrictive contract terms.
What are the problems of a joint venture?1. Organisational complexities --> increased costs
2. Capability - skills/assets that one company brings to the other needs to live up to the other's expectations
3. Compatibility - e.g. do the management styles mix?
4. Commitment - if it lasts long enough to ensure success of the venture
5. Control and dominance - should a firm try to get the upper hand
6. Measuring performance outcomes - both might have had different reasons to engage in the venture
What types of mergers are there?1. Horizontal mergers - Firms who produce similar products in similar markets merge, causing competition to decrease (e.g. two airlines come together)
2. Vertical mergers - Firms that work at different but related levels in production and marketing of the product (e.g. Computer company acquires software company)
3. Conglomerate mergers - Between firms in completely different industry, usually because of the firms great (financial) potential.
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2. Sinking fund - sum of money where deposits are made to prepare for redeeming bond issue
3. Trustee - individual or firm that represents the owner of the bond
2. Mortgage bonds - Safe due to assets of issuing corporation
3. Convertible bonds - can be exchanged for number of shares, carry lower interest rates, attract investors, if it's converted, firm does not need to pay by maturity date
2. Angel investor - gives financial support to small startups, can become owner with equity
3. Private placement - when stock and corporate securities are directly sold to insurance companies, pension funds or big investors. Give fewer costs.
2. Preferred stock - owners do not have voting rights and claims on dividends and assets are paid
2. Secondary market - securities exchange