Higher Business Understanding Business Tracey Thaw Homework review

Higher Business Understanding Business Tracey Thaw

Homework review As part of your homework you will have looked at Franchises. With a partner summarise the advantages and disadvantages that there are for the Franchisee and the Franchiser. You have until 2. 15 pm to complete this task

Franchise not A franchise is a type of business, but a way the business can be run For example, a Sole Trader can have a Burger King Franchise

Franchise For the Franchisee ADVANTAGES DISADVANTAGES Reduced marketing costs Products, prices and layout of store may be dictated Reduced risk as the brand is already established A royalty payment must be paid (often a % of revenue) Franchiser may produce training and administration duties Initial cost is expensive

Franchise For the Franchiser ADVANTAGES DISADVANTAGES Fast method of expanding without heavy investment Only receives a share of the profits Provides a steady cash flow from royalty payments Poor franchisee can damage company reputation Shared risk between Franchiser and Franchisee A weak franchisee may not return much profit

Limited Companies What is the difference between a Private Limited Company and a Public Limited Company?

Limited Companies Private Limited Company (Ltd) A company whose shares are owned privately Shares are not available to the public on the Stock Market Minimum of one Shareholder Owned by the Shareholders Public Limited Company (plc) A company whose shares are available for purchase by the public on the Stock Market Minimum of two Shareholders Controlled by a Board of Directors Must produce a Memorandum and Articles of Association

Public Limited Companies (Plc) • Public limited companies (PLC), like private limited companies are owned by shareholders who have limited liability. • They are also controlled by a board of directors who are elected by the shareholders. • However, unlike private limited companies, public limited companies can sell their shares publicly, through the stock market. • The FTSE 100 (Financial Times Stock Exchange) is a list of the 100 highest valued PLCs in the UK. • Their shares are traded (bought and sold) on the London Stock Exchange. The FTSE 100 contains companies such as Tesco, SKY and AG Barr’s. PLCs aim to dominate the market, increase market share and increase market value (the total value of all their shares).

Public Limited Company (plc) ADVANTAGES DISADVANTAGES Huge amounts of finance can be raised by selling shares Set up costs may be high Plc’s often dominate the market No control over who buys shares Easy to borrow money due to their large size Must publish annual accounts Limited liability Must abide by the Companies Act

Public Limited Company (plc)

Multinational Corporations A Multinational has branches (called subsidiaries) in more than one country. The distinguishing feature of an MNC is that it sets up production facilities in more than one country. Increase market share Cheaper labour and production Take advantage of Government Grants Avoid or reduce tax Save costs of transport Avoid trade barriers

MNC Multinationals • A business that has operations in more than one country. • In recent years it has become easier to operate as a multinational due to the improvement in infrastructure, such as inexpensive air travel. Single currencies, for example the Euro, and the growth of e-commerce have also benefitted multinationals. • All of this has helped the world become one big market place, this is known as globalisation. • The effects on the host countries are debatable. – On one hand multinationals provide jobs, training and can have a positive effect on the local economy. – On the other hand they can exploit low-paid labour, use up natural resources, put local firms out of business and take their profits back to their ‘home’ country.

Multinationals Advantages Wage and raw material costs are lower in other countries Can avoid legislation in home country Disadvantages Language barriers can slow down communication Cultural differences can affect production, e. g. ‘Siestas’ in Spain. Grants can be issued by governments to Exchange rates can affect purchasing and locate in their country paying expenses in different countries Avoid quotas (retraction on amount of imports/exports) and tariffs (taxes on imports/exports) issued by their own governments Time differences can hinder communication between head office and branches around the world

Public Sector The Public Sector aims to To provide a high quality service to everyone in a country To make good use of taxpayers’ money and provide the services needed

Public Sector Organisations Police Schools Hospitals Fire Brigade Army BBC

Public Sector Organisations Owned by the government Controlled by a Local or National government Financed by taxes

Central Government UK Parliament Defence Social Security Emergency Services Scottish Parliament - Devolved • agriculture, forestry and fisheries • education and training • environment • health and social services • housing • law and order (including the licensing of air weapons) • local government • sport and the arts • tourism and economic development

Central Government • The overall control comes from elected politicians. Individual departments are controlled by employed citizens, called civil servants. In Scotland, the Scottish Parliament oversees devolved services such as Education and Police. • The government finance this through taxation and, in the case of the NHS, through National Insurance.

Local. Government • Local government in Scotland is split up into local authorities, such as Fife Council, South Lanarkshire Council, and Stirling Council and so on. • They provide essential services such as schools, refuse collection and street lighting free of charge at the point of use • they are in part financed through council tax collected from local citizens. • Top- level strategic decision making is carried out by elected councillors while the tactical decisions and operational day-to -day running of individual organisations are in the hands of managers and employees of the council, such as the Head teacher of your local state secondary school.

Local Government Provide services for their own area Schools Council Houses Refuse Collection Libraries Leisure Centres

Local. Government • Finance comes from taxation collected by Central Government, local council tax and local business rates. • Some organisations, such as a council owned leisure centre, charge for services to fund running costs. • All local government organisations aim to provide a quality service. • They don’t aim to make profits • public sector organisations, such as schools, do aim to stick to their given budget and not overspend.

Public Corporations Set up and run by Acts of Parliament BBC – initially set up to give public information Bank of England – controls Finances in the UK

Third Sector The Third Sector aims too To provide support for worthy causes Shelter, food, clothing, funding To promote awareness of “good causes” To provide the best service possible

Third Sector Organisations Charities Voluntary Organisations Social Enterprises Co-operatives

Charities Set up with the sole purpose of helping others They raise finance through donations, sponsorship and fundraising There is no individual owner, instead it is set up as a TRUST They may also have a ‘TRADING ARM’ - a shop to raise funds Charities rely heavily on VOLUNTEERS

Charities ADVANTAGES Charities are exempt from paying some taxes, such as VAT and Corporation Tax. There are low wage costs due to volunteers working for free. Private companies are more willing to donate to and sponsor charities than ever before as it is good ‘PR’. DISADVANTAGES It can be difficult to compete with the large marketing budgets of organisations within the private sector. Charities rely heavily on volunteers who may leave for paid work.

Voluntary Organisations Aim to provide a service for their members and the local community They are controlled and ran by an elected committee They raise finance through membership subscriptions

Social Enterprises Are organisations that aim to make profit to benefit a specific group/cause Unlike non-profit organisations they operate more like private sector organisations Unlike private sector organisations though their profits benefit a social, environmental or cultural cause

Social Enterprises ADVANTAGES Social aims can make a social enterprise attractive to customers. Good quality employees who believe in the social ‘mission’ are attracted to the organisation. They are likely to receive government grants due to their positive impact on society. “Asset lock” means that, should the enterprise be closed down, the sale of any assets and any profits will be used to benefit their cause.

Co-operatives Are examples of a DEMOCRATIC ENTERPRISE Their main aims are to provide a quality service for the benefit of its members and customers They invite their customers and employees to become members, who then share ownership They subscribe to an internationally agreed set of values and principles, which define their ethical approach

Co-operatives • A good example of a democratic enterprise is a co-operative whose main aim is to provide a quality service for the benefit of their members and customers but not necessarily maximise profits. • Co-operatives invite their customers and employees to become members who share ownership, decision making and profits (known as dividends). • Mutual organisations are similar and operate for the ‘mutual’ benefit of all their customers, for example the Nationwide building society. • Co-operatives also subscribe to an internationally agreed set of values and principles, which define their ethical approach to business. • These values and principles along with their democratic structure are what distinguishes co-operatives from organisations following the social enterprise model.

Employee Owned Organisations Employee owned organisations are businesses that are all or part owned and democratically controlled by the employees. These can range in size, for example, from • the John Lewis Partnership (91, 000 members) • the Edinburgh Bicycle Co-operative (120 members).

Take a look at the social enterprise movement in the UK for yourself at www. socialenterprise. org. uk.

Sectors of the Economy Sector Private Public Third Owned By Controlled By Financed By Main Aims

Sectors of the Economy Sector Owned By Controlled By Financed By Main Aims Private Shareholders Board of Directors Selling of Shares Make a profit Public Government Elected Taxes politicians/gover nment appointed managers Provide a service Third Trust Board of Trustees Donations Help the needy

Report Prepare a brief report, or presentation, about the different sectors of the economy. You should include: • Information on the ownership, control, finance and objectives of businesses in each sector. • An example of at least one business in each sector and some background information on each business. Private Sole Trader and Partnership Private and Public Limited Company Franchise Multinational Public Sector Organisation Third Charity Local Council (Government) Social Enterprise Public Corporation Voluntary Organisation

Activity

Public Limited Company (plc) Local Council Public Limited Company (plc) Franchise

Charity Franchise Private Limited Company (Ltd)

Public Limited Company (plc) Franchise Charity

Public Limited Company (plc) Charity

Public Corporation Voluntary Organisation Public Sector Organisation

Exam Style Question Shares can be sold on the stock exchange meaning large amounts of finance can be raised. Investors will have limited liability meaning PLCs will find it easier to attract shareholders. PLCs often dominate their market meaning they can force smaller organisations out of business OR This also means they can dictate market prices. Lenders are more likely to give money as they have greater confidence it will be paid back. Initial set-up costs will be high resulting in poorer profit results for the first few years. There is a large amount of legislation which must be complied with or the company may be fined OR have legal action taken against them. PLCs have no control over who buys shares which might mean investors can plan a hostile takeover. PLCs are required by law to publish annual accounts which will be costly to produce.

Homework Task 1. Compare a public limited company and a public sector organisation 2. Define the term ‘franchise’ 3. Describe the different organisations operating in the third sector 4. Explain the impact of potential barriers to a multinational company You can check your understanding of types of organisations by clicking on the link below and completing the online test: https: //www. bbc. co. uk/bitesize/guides/z 4 br 87 h/test