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8/7/2019 Business syllabus notes (marketing)
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9 Content: Business Studies HSC Course
9.1 HSC topic 1: Business Management and Change
20% of indicative time
The focus of this topic is to examine the nature and responsibilitiesof management within a changing business environment from atheoretical and practical perspective.
Outcomes
The student:
H2.1 describes and analyses business functions and operations andtheir impact on business success
H3.1 explains management theories and strategies and their impact
on businessH3.2 evaluates the effectiveness of management in the organisation
and operations of business and its responsiveness to change
H3.3 analyses the impact of management decision-making onstakeholders
H4.1 critically analyses the social and ethical responsibilities ofmanagement
H4.2 evaluates management strategies in response to internal andexternal factors
H5.1 selects, organises and evaluates information and sources for
usefulness and reliabilityH5.3 communicates business information, ideas and issues, using
relevant business terminology and concepts in appropriateforms.
Content
Students learn to:
use existing business case studies to investigate and communicate
ideas and issues related to business management and change. Thefocus of these case studies will be to:
analyse how management theories apply to various businesssituations
explain and evaluate how change is managed in one or morebusinesses.
Students learn about:
the nature of management
the importance of effective management
Traditional definition of management: the process of coordinating
a businesss resources to achieve its goals
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responsibility to stakeholders; reconciling conflicts of interestunderstanding business organisations with reference tomanagement theories
Stakeholders are groups and individuals who interact with thebusiness and thus have a vested interest in its activities. Many groups have an interest (a stake) in a businesss
activities. Society expects businesses to accept responsibilityto all stakeholders.
classical-scientific
management as planning, organising and controlling
Management skills
People (soft) skills
communication
interpersonal skills
Adaptable tochange
proactive
leadership
Visionary
sense of purpose
Self-managing
delegation
time management
Team player
team building
facilitating
Ethical/highpersonal standards
honest and fair
Strategic thinker
conceptual skills
decision making
Problem-solveranalytical skills
data analysis andinterpretation
Responsibility
of management
to stakeholders
Manage changeBeing adaptable
to maintain
competitive
advantage
Social justice
Responsibleuse of
economic
resources and
market power
Codes of practice
Acceptable
standards of
business behaviour
Ecological
sustainability
Develop long-
term strategiesCompliance
with the law
Abide by the
countrys
laws
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hierarchical organisational structure based on division oflabour
autocratic leadership style
The management philosophy adopted by a business will have an
enormous impact on all aspects of the businesss operations.
A classical perspective on management, pioneered by Max
Weber and Henri Fayol, emphasises how best to manage and
organise work so as to improve productivity.
A scientific approach to management, pioneered by Frederick
Taylor, studies a job in great detail to discover the best way toperform it.
Classical and scientific management theory:
- Time and motion studies used to reduce inefficiencies
- Hierarchical organisational structure (bureaucracy)
- Clear lines of authority (chain of command)
- Narrow span of control- Productivity improvements through division of labour
- Production line methods
- Discipline as a feature of leadership
- Autocratic leadership style; rules and procedures.
behavioural
management as leading, motivating, communicating
flat organisational structure, teams
participative/democratic leadership style
Management functions:
- planning: a predetermined course of action. Involves
strategic, tactical and operational planning.
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Key feature Autocratic orauthoritarian
manager
Participative ordemocraticmanager
Laissez-fairemanager
Decisionmaking
Makes alldecisions andinforms employees
Consults withemployees, asksfor suggestionsthen decides
Team baseddecision-making.Highly qualifiedemployees
working in teams.Control Centralised -controls allactivities
Shares decision-making withemployees
Little or no centralmanagement role.
Staffparticipation
Expectsemployees tofollow orders
High level ofemployeeempowerment
Very high level ofemployeeempowerment.
Communication
Top-down Two-way Two-way
The behavioural approach to management, pioneered by EltonMayo, stresses that people (employees) should be the main focus
of the way in which the business is organised.
Behavioural management theory:
- Humanistic approach; employees are the most important
resource
- Economic and social needs of employees should besatisfied
- Employee participation in decision-making
- Flatter organisational structure
- Broader span of control
- Teams increase output and job satisfaction
- Managers need good interpersonal skills.
- Democratic leadership style emerging.
Authoritarian orautocratic Participative or Laissez-faire
(total management control) democratic (more employee involvement)
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Management functions
- leading: having a vision of where the business should be
in the long and short term.
- motivating: energising and encouraging employees.- communicating: exchanging information between people.
The hierarchical management structure has been
criticised as being too:
- slow and unresponsive to rapid change
- expensive to maintain
- difficult to manage due to the different layers- stifling of creativity.
In response, businesses are adopting a flatter
management structure.
Employees or work teams
Flatter organisational/management structures have evolved due
to the elimination of one or more management levels. Main
characteristics include:
- de-layering of traditional hierarchical structure
- establishment of market-focused work teams
- making each work team responsible for a wide range of
production functions.
Manager
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Reducing the levels of management gives greater
responsibility to individualsin the organisation.
Closely associated with the emergence of flatter organisationalstructures is the development ofwork teams.
political
uses of power and influence, management as negotiating andbargaining
structure as coalitions
stakeholder view
Political management theory:
- Managers use power and influence to achieve business
goals.
- Organisational politics (unwritten rules of work).
- Informal coalitions and networks of stakeholders.
- Cooperation and conflict between coalitions.
- Manager must negotiate and bargain between competing
interests.
- Match sources of power to situations.
Sources of power Description
1. Legitimate2. Expert3. Referent4. Reward5. Coercive
Status or positionSkills and abilitiesIndividuals charismaAbility to compensateActions or words
Managers need to be aware of both the formal and informal
coalitions within the workplace.
A coalition is two or more people who combine their power to
push or gain support for their ideas.
strengths and weaknesses of the classical, behavioural andpolitical approaches
Strengths and weaknesses of management theories:
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Theory Strengths WeaknessesClassical-scientific
- based on scientificprinciples
- division of labour- high worker productivity
- clear chain of command- rules and regulations
- employee boredom andexploitation
- autocratic leadership style- job satisfaction ignored
- alienation betweenemployees and managers
Behavioural
- human needsrecognised
- high morale- employee empowerment- motivated team
members- flatter structure
improves
communication
- difficult to predict humanbehaviour
- slow decision-makingprocess
- no clear chain ofcommand
- conflict between theories
Political - recognises power plays- acknowledges coalitions
and networks- explains power bases- highlights need for
negotiating andbargaining
- explains stakeholdersrole
- acknowledges individual
self-interest
- misuse of power- shifting power bases- source of real power
difficult to analyse- internal conflict- not based on scientific
measurement- perceived manipulative
strategies
systems/contingency
adapting management and organisational approaches tocircumstances
The systems management approach views organisations as an
integrated process in which all the individual parts contribute to
the whole.
A system contains:
- inputs the resources used within the business
- transformational processes converts the inputs into a
finished product
- outputs information about how well the organisation
has performed in relation to its stated goals.
- feedback the products and other outcomes.
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Contingency management approach stresses the need for
flexibility and adaptation of management practices and ideas to
suit a particular situation.
Management is a discipline that is continually evolving.
managing change
Change is any alteration in the business and work environment.
The ability to manage and, embrace and adapt to change will
increasingly determine a businesss competitive advantage and
survival.
The crucial management issue is how to manage change to make
it as productive as possible.
nature and sources of change in business
external influences the changing nature of markets;economic, financial, geographic, social, legal, political andtechnological developments
External changes result from factors outside the control of the
business but which may affect its performance.
External influence ExplanationChanging nature ofmarkets
- globalisation has integrated worldmarkets
Economic - economic fluctuations impact on themarket place and influence demand
Financial - deregulation created a more openfinancial system
Geographic - adoption of a global outlookSocial - demographic, attitudinal and cultural
trendsLegal and political - federal, state and local government
policies and legislationTechnology - scientific, technological innovations
can improve productivity
internal influences effects of accelerating technologyincluding
e-commerce, new systems and procedures, new businesscultures
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Internal changes are largely within the control of the business
and come from the desire to improve business operations.
Internal influence Explanation
Acceleratingtechnology
- office equipment, computers,- robotics used in the production
- processe-commerce - the use of the Internet to do
business. Business-to-business(B2B0 and business-to-consumer(B2C).
New systems andprocedures
- technology can revolutionise abusinesss activities and operatingprocedures
New business cultures - Workplace culture will need tobecome more flexible andadaptable.
structural responses to change outsourcing, flatstructures, strategic alliances and networks
As the business environment changes, organisations examine
and modify their business structures.
Structural change refers to changes in how the business is
organised the organisational structure.
The aim of these changes is to make business operations run
smoothly, improve efficiency, streamline coordination and
empower employees to make their own decisions.
Management must respond to change by:
- being flexible and innovative
- constantly reassessing the businesss position
- restructuring the business to maintain a competitive edge.
The main structural changes include:
- Outsourcing: contracting out non-core functions due todownsizing.
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- Flat management structures: reduced levels of
management.
- Strategic alliances: two or more businesses join
together.- Network structures: subcontracted production and
related business functions.
Resistance to change can sometimes be common among
businesses, managers and employees.
reasons for resistance to change
financial costs purchasing new equipment, redundancy
payouts, retraining, reorganising plant layout
inertia of managers, owners
cultural incompatibility in mergers/takeovers
staffing de-skilling, acquiring new skills, loss of careerprospects/promotional opportunities
The main reasons for resistance to change are:
- Financial costs: new equipment; redundancy payments;
retraining workforce; reorganising plant layout.
- Inertia: lack of interest; refusal to cooperate bymanagers/employees; fear of failure.
- Cultural incompatibility in mergers and takeovers:
possible culture clash; different work practices.
- Staffing considerations: de-skilling; acquiring new skills;
loss of career prospects or promotional opportunities.
A change agent, is a person, or group of people, who act as a
catalyst, assuming responsibility for managing the changeprocess.
managing change effectively
identifying the need for change
setting achievable goals
creating culture of change (encouraging teamwork approachusing change agents)
change models force-field analysis, Lewinsunfreeze/change/refreeze model
Five steps to successful change:
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1 Identify change issue.
2 Set achievable goals.
3 Create a culture of change: teamwork; change agent.
4 Implement the change.
5 Evaluate and modify the change as appropriate.
Lewin force-field analysis: identify, analyse and balance the
driving and restraining forces.
The Lewin change process:
- Unfreeze: employees made aware of the reasons for
change (possible use of outside change agent)
- Change: Implement changes. New skills and behaviours
introduced.
- Refreeze: Changed behaviour rewarded to make sure it
lasts.
change and social responsibility
ecological sustainability, quality of working life, technology,globalisation/managing cultural diversity, e-commerce.
A socially responsible business will attempt to achieve two goals
simultaneously: maximising profit (double bottom line) and
providing for the greater good of society (triple bottom line).
Social responsibility: how well a business manages the social,
environmental and human consequences of its actions.
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Ecological sustainability: production methods that conserve
and protect the environment.
Quality of working life: workplace practices that improveemployees wellbeing.
Technology: cushion its negative impact on employees.
Globalisation/cultural diversity: manage multiculturalism and
employee diversity.
E-commerce: training of employees, privacy and security
issues.
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9.2 HSC topic 2: Financial Planning and Management
20% of indicative time
The focus of this topic is to develop an understanding of the role offinancial planning within business operation and management and
the interpretation of financial information.
Outcomes
The student:
H2.1 describes and analyses business functions and operations andtheir impact on business success
H3.2 evaluates the effectiveness of management in theorganisation and operations of business and itsresponsiveness to change
H3.3 analyses the impact of management decision-making onstakeholders
H4.1 critically analyses the social and ethical responsibilities ofmanagement
H4.2 evaluates management strategies in response to internal andexternal factors
H5.1 selects, organises and evaluates information and sources forusefulness and reliability
H5.2 plans and conducts an investigation into business to presentthe findings in an appropriate business format
H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriateforms
H5.4 applies mathematical concepts appropriately in businesssituations.
Content
Students learn to:
use existing business case studies to investigate and communicateideas and issues related to financial planning and management. Thefocus of these case studies will be to:
interpret the published annual reports of one or more businesses
analyse the financial statements of one or more businesses (realor imaginary)
undertake comparative ratio analysis over a period of time,with similar businesses, against common standards.
Students learn about:
the role of financial planning
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strategic role of financial management
Financial management: plan and monitor the businesss
financial resources to maximise the value of the business to the
owners.
objectives of financial management liquidity, profitability,efficiency, growth, return on capital
Objectives of financial management are:
- Liquidity: ability to pay short-term debts as they fall due.
- Profitability: maximise profits.
- Efficiency: minimise costs and manage assets/resources
efficiently to maximise profits.
- Growth: ability to increase businesss size in the long
term.
- Return on capital: profit returned to owners as a
percentage of their capital contribution.
the planning cycle addressing present financial position,determining financial elements of the business plan, developingbudgets, cash flows, financial reports, interpretation,maintaining record systems, planning financial controls,
minimising financial risks and losses The planning process involves the setting of goals and
objectives, determining the strategies to achieve these goals,
identifying and evaluating alternative courses of action and
choosing the best alternatives of the organisation.
Financial planning is a continuous series of financial activities
undertaken over time. The planning cycle involves:
Address present
financial position Determine financial
Minimise financial elements of the plan
risks and losses
Plan financial The planning Develop budgets
controls cycle
Maintain record Monitor cash
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Budgets provide information in quantitative terms (facts and
figures) about requirements to achieve a particular objective.
- Operating budget: relate to the main activities of an
organisation and may include budgets relating to sales,production, raw materials, labour, expenses and cost of
goods sold.
- Project budget: relate to capital expenditure and
research and development.
- Financial budgets: relate to financial data and include
the budgeted revenue statement, balance sheet and cash
flows.
Cash flow budget records the expected receipts of cash (cash
inflow) and expected payments of cash (cash outflow).
Preparation of budgeted financial reports is an important part of
the planning process.
Record systems must be maintained to ensure the financial
data is accurate, reliable and accessible.
Financial riskis the risk to a business of being unable to cover
its financial obligations.
financial markets relevant to business financial needs
major participants in financial markets including banks, financial
and insurance companies, merchant banks,superannuation/mutual funds, companies, government (ReserveBank of Australia)
Financial markets: consist of financial intermediaries who
receive excess funds from savers and provide finance to
borrowers.
Money market Capital/securities marketDeals in short-term debt
securities.
Deals in long-term debt and
equity securities. Example:
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Example: three-month bonds bonds and shares
Financial markets are important for businesses because they
provide:
- access to funds
- investment opportunities and contacts in managing funds
- expertise in financial market dealings.
Types of financial markets:
- Primary markets: sell new securities.
- Secondary markets: buy and sell existing securities.
- Security: documents representing finance raised by
companies or governments.
- Financial markets are influenced by overseas and domestic
economic and political factors.
- Major participants in financial markets include:
Participant Source of funds Main financial products
Commercial
banks
Deposit accounts Personal loan, mortgage,
overdraftFinance and
insurance
companies
Debentures and
premiums
Loan, lease, factoring,
equity capital
Merchant
banks
Borrow short-term
funds
Commercial bills,
underwriterSuperannuatio
n funds
Peoples savings Equity capital, long-term
loanCompanies Excess funds,
bonds, debentures
Short-term loan, bills of
exchange, equity loanReserve Bank
of Australia
Government
securities
Governments banker
Australian
Stock
Exchange
New equity capital Share issues
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Financial markets are influenced by a wide range of political and
economic factors from both overseas and within Australia
(domestic).
Financial markets have changed rapidly and offer new tradinginstruments to suit the needs of businesses.
role of the Australian Stock Exchange as a primary market
overseas and domestic market influences and trends in financialmarkets and their implications for business financial needs
management of funds
sources of funds
internal owners equity, retained profits external short-term borrowing, (overdraft, bank bills),
long-term borrowing (mortgage, debentures) leasing,factoring, venture capital, grants
A business cannot establish itself and thrive without funds to
enable it to pursue its activities.
Sources of funds can be either internal or external.
Debt Equity
External lenders
Short-term Other sourcesLong-termborrowing
borrowing
- overdraft - venture capital -
mortgage
- bank bill - grant -
debenture
- factoring -
leasing
- trade credit
Internal
lenders
- owners
equity
- retained
profits
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Internal sources - equity:
- Owners equity is the funds contributed by the owner or
partners to establish and build the business.- Retained profits (profits not distributed) are the most
common source of internal finance.
External sources - debt:
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- Bank overdraft: allows the business to overdraw their
account up to an agreed amount.
- Bank bills: a type of bill of exchange given for largeamounts, usually over $50 000.
- Mortgage: a loan secured by the property of the borrower.
- Debentures: issued by a company for a fixed rate of
interest for a fixed period of time.
- Leasing: a long-term source of borrowing that involves
payment for the use of equipment that is owned by another
party.
- Factoring: the selling of accounts receivable for a
discounted price to a finance factoring company.
- Venture capital: funds supplied by private investors
either to new businesses (seed capital) or to established
businesses ready to expand or diversify.
financial considerations matching the terms and source offinance to business purpose and structure
Financialconsiderations: match the terms and source of
finance to business purpose and structure.
comparison of debt and equity financing, including costs andbenefits, risks, gearing/leverage
Comparison of debt and equity finance:
Debt Equity
Lenders have prior claim in
the event of liquidation.
Debt must be repaid byperiodic repayments.
Interest payments are taxdeductible.
Lenders usually require lowerrate of return.
Interest payments are fixed.
Shareholders have a residual
claim onassets.
No maturity date.
Dividends are not taxdeductible.
Shareholders require higher
return due to higher risk.
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Debt providers have no votingrights.
Dividend payments are notfixed andmay be reduced through lack
offunds.
Equity holders have voting
rights.
Debt finance is a liability to a business as it is money owed to
external sources.
Equity finance is the most important source of funds forcompanies because it remains in the business for an indefinite
time.
The capital structure is determined by the mix of debt and
equity, and the proportion of each is known as leverage, or
gearing.
Leverage (gearing) is the proportion of debt (external finance)and the proportion of equity (internal finance) that is used to
finance the activities of the business.
using financial information
the accounting framework The accounting framework provides most of the financial
information for decision-making purposes.
Financial statements summarise the businesss activities
over a period of time.
financial statements revenue statement, balance sheet
Revenue statement (statement of financial performance):
shows the operating efficiency that is, revenue earned and
expenses incurred over the accounting period with the resultant
profit or loss.
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Balance sheet (statement of financial position): assets and
liabilities at a particular point in time and represents the net
worth (equity) of the business. It shows the financial stability
of the business. the accounting equation and relationships
The accounting equation forms the basis of the accounting process;
shows the relationship between assets, liabilities and owners
equity.
Assets = Liabilities + Owners equity
Assets are what the business owns.
Liabilities are what the business owes.
Owners equity is funds contributed by the business
owner(s).
types of financial ratios
Analysis of financial statements is usually aimed at the areas of:
- financial stability (i.e. liquidity and solvency)
- profitability
- efficiency.
liquidity current ratioFinancial ratios:
o Liquidity: ability to pay short-term debts as they fall
due.
solvency gearing debt to equity Solvency: ability to pay long-term debts as they fall due.
profitability gross profit ratio, net profit ratio, return onowners equity
Current ratio (working capital) = Current assetsCurrent liabilities
Debt to equity ratio = Total liabilities
Owners equity
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Profitability: relationship between profit and sales.
efficiency expense ratio, accounts receivable turnoverratio
Efficiency: management of assets to generate profits.
Financial ratios are one of the main tools used to analyse
financial information.
comparative ratio analysis
over time, with similar businesses, against commonstandards
Comparative ratioanalysis isused for comparing the
businesss performance:
- over time past performance.
- inter-firm between similar businesses.
- against industry standards benchmarks.
limitations of financial reports
historical costs, value of intangibles
Limitations of financial reports
Accounting Limitation
Gross profit ratio = Gross profit
Sales
Net profit ratio = Net profit
Sales
Return on owners equity = Net profit__
Owners equity
Expenses ratio = Expenses
Sales
Accounts receivable turnover ratio = Sales_______
Accounts receivable
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practiceHistorical cost True value of assets may be understated or
overstated.Value of
intangibles
No uniform method of valuing these, especially
goodwill.
effective working capital (liquidity) management
the working capital ratio
Working capital is the funds available for the short-term
financial commitments of a business.
Working capital management is determining the best mix of
current assets and current liabilities needed to achieve thebusinesss goals.
control of current assets cash, receivables, inventories
Control of current assets:
Current asset Control methodCash - cash flow budgetAccounts
receivable
- credit policy
- monitor debtors
- factoringInventories - regular stocktakes
- just-in-time
control of current liabilities payables, loans, overdrafts
Current liabilities are liabilities that a business must settle
within the current accounting period. They usually include
overdraft, accounts payable and short-term loans.
Working capital = current assets current liabilities
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Control of current liabilities:
Current liability Control methodAccounts payable - monitor creditors
- holding back payment - stretching
- early payment discountsLoans - capital budgeting compare return and
riskOverdrafts - regular payments
- monitor budgets and bank charges
strategies for managing working capital leasing, factoring, saleand lease back
effective financial planning
Strategies for managing (improving) working capital:
- Leasing: frees up cash and no upfront fees.
- Factoring: sale of accounts receivable generates
immediate cash inflow.
- Sale and lease back: cash is obtained from asset sales.
effective cash flow management
cash flow statements
Cash flow management is the movement of cash in and out of a
business over a period of time.
Cash flow statements show the movement of cash receipts and
cash payments. In preparing a statement of cash flows, the
activities of a business are generally divided into three categories:
1. Operating flows: Sales revenue and operating expenses
related to the businesss main activity.
2. Investment flows: purchase and sale of non-current assets.
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3. Financing flows: borrowing, debt and equity, of the
business.
Many businesses use bank overdrafts to cover temporary cash
shortfalls.
management strategies distribution of payments,discounts for early payments
Cash flow management strategies:
- Distribute payments throughout the year to avoid cash
shortfalls.
- Discount for early payment to minimise late payment and baddebts.
effective profitability management
cost control fixed and variable, cost centres, expenseminimization
Effective profitability management requires control of both the
businesss costs and its revenue.
Profit is the difference between costs and revenue.
Cost-control measures:
- Fixed and variable costs identify and account for expenses.
- Cost centres managers accountable for their business unit
expenses.
- Expense minimisation expenses budgets assist in cost
control.
revenue controls sales objectives, sales mix, pricing policy
Revenue is the income earned from the main activity of a
business.
Revenue-control measures:
- Sales objectives set to generate maximum revenue.
- Sales mix review each products profit margin contribution.
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9.3 HSC topic 3: Marketing
20% of indicative time
The focus of this topic is to develop an understanding of the nature
and role of marketing in a business and the main elements involved inthe development and implementation of successful marketingstrategies.
Outcomes
The student:
H1.2 critically analyses the role of business in Australia
H2.1 describes and analyses business functions and operations andtheir impact on business success
H3.2 evaluates the effectiveness of management in the organisationand operations of business and its responsiveness to change
H4.1 critically analyses the social and ethical responsibilities ofmanagement
H5.1 selects, organises and evaluates information and sources forusefulness and reliability
H5.2 plans and conducts an investigation into business to present thefindings in an appropriate business format
H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriateforms.
Content
Students learn to:
use existing business case studies to investigate and communicateideas and issues related to marketing. The focus of these case studieswill be to:
analyse and evaluate marketing strategies for a product or service
analyse the marketing plan of a business
construct a marketing plan for a single product/service (real orimaginary).
Students learn about:
nature and role of markets and marketing
the role of marketing in the firm and in society
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Marketing is a total system of interacting activities designed to
plan, price, promote and distribute products to present and
potential customers.
Role of marketing:
- Find out what customers want and then attempt to satisfy their
needs.
- Bring together the buyer and seller.
- Generate revenue for the business.
A market is a group of individual, organisations or both that:
- need or want a product
- have the money to purchase the product
- are willing to spend their money to obtain the product
- are socially and legally authorised to purchase the product.
types of markets resource, industrial, intermediate, consumer,mass, niche
- Resource markets:
Resource markets refer to business buyers who purchase thefactors of production which are:
o Land: agricultural, mineral deposits and forests
o Labour: people who provide skills for business needs
o Capital: economic sense (equipment)
o Enterprise: the risk- taking by entrepreneurs
- Industrial markets:
An industrial market provides products needed to manufactureother products. E.g. coke buying aluminum cans for Alcom tocreate a finished product
- Intermediate markets:
The intermediate market consists of goods purchased for resale.
These businesses buy these goods to resell them to its retailcustomers.
- Consumer markets:
The consumer markets consists of personal buys such as clothes,cds and foods.
- Mass markets:
The mass market refers to the larger number of customers whowant to buy a standard product such as electricity and petrol.
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- Niche Markets:
Niche markets consist of buyers with specialized needs e.g. A firstclass ticket on the Virgin Space flight or a rolex watch.
productionsellingmarketing orientation
Changes in marketing over time:
1. Production approach - Taking orders and delivering goods.
- 1820s to 1920s
- Emphasis on producing goods
- Demand for goods is greater than supply.
Just producing a product to fulfil customer requirement without offering
choice (sacrificing choice ) for a cheaper and low cost manufacturing
through large scale production. The model T manufactured by HenryFord in the 1920s is an excellent example. Henry boasted the customer
could have any colour so long as it was black.
2. Sales approach - Advertising and personal selling.
- 1920s to 1960s
- Emphasison selling goods
- Demand is weaker.
This was done through advertising and producing products to compete
with competitors and hence increase sales and market share.
3. Marketing approach Aimed at satisfying customers needs.
- 1960s to present
- Emphasis on identifying customer needs through market
research
- Establishing and maintaining customer relationships
- Development of the marketing concept.
Researching the needs of their customers and developing products to
effectively meet the needs.
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4. Ecological approach Ecologically sustainable development is
based on consumer choices as they may want to buy only
environmentally friendly products or may want to see the business
incorporate ecological sustainability. An e.g. of this is McDonalds using
recycled paper packaging after consumer backlash to the previous
Styrofoam.
the marketing concept customer orientation, relationshipmarketing
The marketing concept is a business philosophy that sates that all
section of the business are involved in satisfying a customers
needs and wants while achieving the businesss goals. It is based on
four principles:- customer-oriented
- supported by integrated marketing strategies
- aimed at satisfying customers
- integrated into the business plan so as to achieve the
businesss goals.
Marketing concept accomplished through:
- Customer orientation: marketing decisions and practices
are based on customers needs
- Relationship marketing: long-term relationships with
individual customers to create customer loyalty.
marketing planning process
Marketing planning process is the process of developing and
implementing marketing strategies to achieve marketing strategies,
and consists of five steps:
1. Performing situational analysis
2. Establishing market objectives
3. Identifying target markets
4. Developing marketing strategies
5. Implementing, monitoring and controlling the marketing plan.
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elements of a marketing plan
situational analysis including SWOT and product life cycle
establishing market objectives
identifying target market
developing marketing strategies
implementation, monitoring and controlling developing afinancial forecast, comparing actual and planned results, andrevising the marketing strategy
An integrated marketing plan gives purpose and direction to all
the businesss activities.
There are five steps involved in developing a marketing plan.
Step 1 Situational analysis: A precise understanding of the
businesss current position and where it is heading.
- SWOT (strengths, weaknesses, opportunities and
threats) analysis: provides the information needed to
complete the situational analysis and assesses the
businesss position compared with its competitors.
- Product life cycle analysis: At each stage of the cycle
a different marketing strategy is necessary. A business
must be able to launch, modify, and delete products inresponse to changes in the product life cycle.
Step 2 Establish marketing objectives: The realistic and
measurable goals to be achieved through the marketing plan.
The marketing objectives should be more customer oriented than
the objectives for the entire business, and should include specific
targets to be met for example, Increase market share by 5 per
cent over twelve months. Marketing objectives include:
- Increase market share. Market share refers to the
businesss total share of the total industry sales for a
particular market.
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- Expand the product range. Product mix is the total
range of products offered by a business.
- Expand existing markets. Geographical
representation refers to the presence of a business
and the range of products across a geographical area.
- Maximising customer service. Customer service
means responding to the needs and problems of the
customer.
Step 3 Identify target markets: Specific groups of
customers with similar characteristics. Two broad approaches
can be used when selecting a target market:
1. Total market: a vast number of people. Example:
Basic food items.
2. Market segmentation: the total market is
subdivided into groups of people who share common
needs. Example: HSC Business Studies students.
Step 4 Develop marketing strategies: Actions to achieve
marketing objectives based on the four Ps which make up the
marketing mix: product, price, promotion and place.
A business controls four basic marketing strategies (the four Ps) to
reach its target market.
1. Product anything that satisfies a need or want and can be
offered in exchange.
2. Price the value placed on what is exchanged.
3. Promotion activities used to communicate to a targetmarket persuasive, positive information about a business and its
products.
4. Place methods used to get the product to the customer.
The four Ps make up the marketing mix.
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Step 5 Implement, monitor and control the marketing plan:
- Implement: decide which marketing strategies will be
put into action.
- Monitor:
o check and observe progress of the marketing
plan.
o establish a performance standard
o develop a financial forecast
- Control: compare actual performance against
planned through the use ofsales analysis, market
share analysis/ratios, marketing profitability
analysis.
- Corrective action may need to be undertaken and revise
the marketing strategy through:
o changes in the marketing mix
o new product development or product deletion.
market research process
determining information needs, data collection (primary andsecondary), data analysis and interpretation
Market research is the process of systematically collecting,
recording and analysing information concerning a specific
marketing problem.
Marketing data refers to the information, usually facts and
figures, relevant to the defined marketing problem.
- Primary data: information from original sources. Example:
Interviews and surveys.
- Secondary data: information collected by other organisations.
Example: ABS.
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factors influencing customer choice psychological, sociocultural,
economic, government
Customers choices are influenced by four main factors:
1.Psychological: the buyers perceptions, motives, attitudes
and personality.
2.Sociocultural: the buyers family role, peer groups, social
class and culture.
3.Economic: the level of economic activity and individual
incomes.
4.Government: the influence of regulations and policies on
marketing activities.
developing marketing strategies
market segmentation and product/service differentiation
Market segmentation allows the business to direct its marketing
strategies to specific groups of customers. Consumer market
segmented according to demographic, geographic, lifestyle and
behavioural variables.
Mass market
A primary target market is the market segment at which most of
the marketing resources are directed.
Marketing plan
consisting of:
objectives
strategies
marketing mix
Product Price Promotion Place
Segment 1
Segment 2
Primary target
Segment 3
Secondary target
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A secondary target market is usually a smaller and less
important market segment.
A mass marketing approach seeks a large range of customers.
A concentrated market approach requires the business to directits marketing mix towards one selected segment of the total
market. A niche market is a narrowly selected target market
segment, a segment within a segment; a micromarket.
Segmentation results in product differentiation: when products
that are the same or similar are made to appear different and/or
better than those of their competitor.
product and serviceA product is a good or service, an idea or any combination of the
three which can be offered for sale. It consists of tangible and
intangible benefits a total product concept. All products are a
combination of tangible and intangible attributes.
positioning Positioning: developing a productimage.Assists with
product differentiation. Examples: Rolex, No Frills, Nike.
branding Branding: name, term, symbol or logo identifying a specificproduct. Brands can be manufacturers, house, or genericdepending on ownership
packaging Packaging: a container and graphic designs helping preserve,
protect and promote the product.
price including pricing methods cost, market and competition-based
Selecting the most appropriate pricing method is important.
Pricing method Explanation1.Cost plus
margin
This is the simplest method. The business
determines the total cost of production and then
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adds an amount for profit. The extra margin is
referred to as the mark-up.2. Market Instead of using costs to determine price,
businesses sometimes set prices according to
the level of supply and demand whatever the
market is prepared to pay. When demand is
high, prices are high. When demand is low,
prices fall.3. Competition-
based
This method is often used when there is a high
degree of competition from businesses
producing similar products. A business can
choose a price that is either below, equal to or
above that of the competitors.
pricing strategies/tactics skimming, penetration, lossleaders, price points
Four pricing strategies can also be used to determine price:
1.Price skimming charge the highest price possible for
innovative products.
2.Price penetration charge the lowest prices possible to
quickly achieve a large market share.
3.Loss leader sell a product below its cost price to attract
customers to the business.
4.Price lining (price points) a limited number of key prices or
price points for selected product lines.
price and quality interaction
promotion
elements of the promotion mix personal selling,advertising, below-the-line promotions, public relations
Promotion mix is the various promotion methods used to
inform, persuade and remind a target market about a product.
Promotion
method
Explanation
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Personal sellingSalesrepresentative dealing directly with a
customer. The message can be modified to
suit the specific circumstances. Complex and
technical products require this approach.
AdvertisingPaid, non-personal message communicated
through a massmedium such as electronic or
print. Advertising is an essential tool for
successful marketing.
Below-the-linePromotional activities designed without the
use of an advertising agency. The activities
are designed in-house. These activities
include exhibitions, point-of-sale material,
demonstrating and directmarketing.Publicity and
public relations
Publicity is any free news story about a
businesss product. Its main aim ism to
enhance the image of the product. Public
relations involves activities aimed at creating
and maintaining a favourable relationship
between a business and its customers.
the communication process including opinion leaders andword of mouth
Opinion leaders and word of mouth assist the
communication of a promotional message.
place/distribution
distribution channels and reasons for intermediaries Place refers to the channels of distribution (marketing
channels) which are the routes taken to get the product from
the producer to the customer. This process usually involves a
number ofintermediaries (retailer, wholesaler, agent).
channel choice including intensive, selective, exclusive
Market coverage refers to the number of outlets a firm
chooses for its product including:
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Content
Students learn to:
use existing business case studies to investigate and communicate
ideas and issues related to employment relations. The focus of thesecase studies will be to:
analyse how conflict and change are managed in a business
prepare and justify possible ways of resolving conflicts in theselected business organisations.
Students learn about:
the nature of employment relations
stakeholders in the employment relations process employers,employees, employer associations, unions, governmentorganizations
Employment relations refers to thetotal relationship between an
employer and employee.
Stakeholders in the employment relations process:
Conflict or cooperation
possible at all levels
Employees
Objectives
better wages and
conditions
job security
participation in
decisions
Employers
Objectives
increase profit
increase
flexibility
minimise costs,
be competitive
Governments
Objectives
global competitiveness
higher living standards
and employment
workplace reform
compliance withle islation
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managing the employment relations function
line management and specialist
Employers and mangers deal with employment relations on a daily
basis.
Under recent legislation, employers have gained more power to
make arrangements relevant to individual workplaces.
Employees are more highly educated than in the past. There are
many changes to employment conditions and basis of employment.
Trade unions are organisations formed by employees in an
industry. Unions have played a powerful role in employment
relations. Union membership has been declining over the last two
decades.
Employer associations act on behalf of employers:
- in collective bargaining sessions
- provide advice
- make wage submissions
- negotiate agreements
- lobby governments.
Governments are an important stakeholder in the employment
relations process. Their key roles are:
Australian Industrial
Relations Commission,Federal Court,
Employment Advocate
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- Legislator: pass laws, which provide the legal framework for
industrial relations.
- Employer: employ almost one-third of Australian workers.
- Responsible economic manager: ensure stable economic
growth.
- Administrator of government policies on industrial
relations: implement legislation they pass.
- Representative of Australia in the international arena:
implement international treaties.
Industrial tribunals and courts: operate to:
- settle industrial disputes through conciliation and
arbitration.
- Supervise the making of agreements or awards (legally
enforceable, formal agreements made collectively between
employers and employees that outline the pay and conditions.
Most large businesses train their line managers in general
employment issues.
Specialist managers for employment relations are responsible
for:
- recruitment and selection
- induction and training
- separation
- managing and implementing equal employment opportunity
and affirmative action legislation.key influences on employment relations
social influences changing work patterns, population shifts
legal influences overview of major employment legislation
new organisational behavioural influences flat management andteam structures
economic influences economic cycle, globalisation
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Change is the only constant in the business environment. The main
influences on employment relations are:
Social influence Employment relations response
Changing work patterns Fewer permanent employees
More casual employees
Flexible working hours
Telecommuting
Population shifts Increase in the female participation
rate Family-friendly or work/life
balance
Employees wanting more
involvement
Legal influences Employment relations
response
Employment contracts Greater awareness of social justice
Equal employment opportunities
Anti-discrimination
Centralised to decentralised
system
Organisational influences Employment relations
response
Flatter management Employee participation
structure Alternative motivational strategies
Job enlargement, rotation,
enrichment
Self-managing work teams
Training and development
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Economic influences Employment relations
response
Economic cycle Changes in demand for labour
Downsizing
Structural change
Globalisation Inefficient work practices
removed
Global employment contracts
Cultural awareness training
Manage diverse workforce
effective employment relations
role of employment relations Most organisations that are successful in the long term maintain a
balance between concern for success (expansion and profit) and
regard for their employees.
Well-managed employees ensure efficient and effective use is
made of their skills, time and working relationships.
Effective employment relations provide the competitive edge as
similar raw materials, technology and business systems become
common to all organisations in a global marketplace.
Managing employment relations effectively involves the following
activities:
- Human resource planning: determining future needs, and
changes to the internal and external environment.
- Recruitment: locating and attracting the right quantity of
staff to apply for employment vacancies or anticipated
vacancies.
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- Selection: gathering information about each applicant for a
position and then using that information to choose the most
appropriate applicant.
- Placement: locating the employee in a position that best
suits the needs and utilises the skills of the individual.
- Training and development: training develops skills,
knowledge and attitudes; development focuses on enhancing
the skills of the employee to allow them to accept promotion
within the organisation.
- Rewards management: the provision of monetary and non-
monetary rewards.
- Conflict resolution: the constructive use of conflict and
dispute resolution.
- Legal compliance: abide by the appropriate legislation such
as occupational health and safety (OH&S).
- Separation: employees leaving the organisation. This needs
to be handled properly to avoid claims of discrimination.
communications systems grievance procedures, worker
participation, team briefings Functional communication systems are vital for effective
employment relations. This involves:
1. Grievance procedure: system to deal with workplace
complaints.
2.Worker participation: employee involvement in decision-
making.
3. Team briefings: managers and employees meet to discuss issues.Quality circles and semi-autonomous teams assist in thisprocess.
rewards financial, non-financial
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Rewards can be monetary or non-monetary, and intrinsic (sense
of personal achievement) or extrinsic (rewards given outside the
job itself such as incentive payment).
An effective rewards management system should attract, retain
and motivate employees, and be equitable.
training and development induction
Effective training and development improves employee
performance and productivity.
An effective induction program introduces new employees to the
job, their co-workers, the organisation and its culture.
Ongoing training is critical due to technological change and global
competition, leading many organisations to promote the concept of
a learning organisation within the business.
Key features of an effective training program include:
Step 1: Assess the needs (needs analysis).
Step 2: Determine the objectives of the training program.
Step 3: Consider the internal and external influences.
Step 4: Determine the training process
Step5: Evaluate the training program.
Training can be formal, informal, off-the-job or on-the-job.
Development assists employees to cope with added responsibility
and accountability. It prepares employees for promotion.
Non-monetary rewards Monetary rewards
- Interesting work
- Challenge
- Responsibility
- Satisfaction
- Recognition
- Wage and salary
- Incentive bonus
- Fringe benefits
- Profit sharing
- Commission
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Australia has a dual system of industrial relations, although
changing.
Constitution gives federal government powers to pass legislation on
industrial relations.
The industrial relations system has undergone an evolution from a
centralised to a decentralised system starting with the
Workplace Relations Act 1996 (Cth.)
Further reforms have been implemented under the Howard
government as the move to Australian Workplace Agreement
(AWAs) (individual contracts), the reduction in the powers of the
Australian Industrial Relations Commission, and the establishment
of a Fair Pay Commission.
At the federal level there are three types of agreements available to
businesses and employees:
1. awardscollective
agreements2. certified (enterprise) agreements
3. individual agreements (AWAs)
Certified agreements may cover a single business or multiple
businesses. They are made between an employer and a union, or
unions, or a group of employees.
AWAs are individual contracts, signed individually and are secret.
Certified agreement Australian workplace
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(CA) agreement
(AWA)
- collective agreements for
employees at a specific
workplace
- can replace awards or act as
add-ons
- must pass a no disadvantage
test.
- majority approval required
- individual agreements but
may be agreed collectively
- replace the award for a
specific workplace
- must be registered with the
Employment Advocate
- bargaining agents can be
appointed
- signed individually and are
secret
Individual common law employment contracts mainly apply to the
managerial or professional level and common in the private sector.
types of employment contract casual/part-time/flexible,permanent, casual
Types of employment contracts include:
- casual: employment that is short term, irregular and
uncertain; not entitled to holiday pay or sick leave.
- part-time: continuing employment contract but less hours
than full-time.
- regular or continuing employees: continuing
employment contract and are required to work a specified
number of hours per week.
- fixed-term employees: employed on a contract for a
specific period.
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Overt (highly visible) Covert (not highly visible)Lockout: employers refuse
employees admission
Absenteeism: unapproved
absence form work
Picket: employees stop entry
into workplace
Sabotage: vandalism and theft
Strike: employees withdraw
their labour
Turnover: staff resignations
Bans: selected tasks not
performed
Exclusion from decision-
making: not inviting all staff to
meetingsWork-to-rule: employees refuse
to perform additional duties
roles of stakeholders in resolving disputes
The key stakeholders involved in resolving disputes include
employees, employers, governments, trade unions, employer
associations and industrial tribunals.
Since the introduction of the Australian Workplace Relations Act
1996 a move towards employers and employees resolving disputes
without outside assistance.
Many firms try to develop a corporate culture in which disputes are
minimised through cooperative working relationships and by
training staff in procedures, policies and guidelines for managing
disputes.
dispute resolution processes conciliation, arbitration, grievanceprocedures, negotiation, mediation, common law action,business/division closure
Dispute resolution procedures:
- Commences with grievanceprocedures.
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- Negotiation: discussion between the parties to reach a
solution.
- Mediation: objective third person assists parties to reach a
solution.
Australian Industrial Relations Commission (AIRC)
- Conciliation: mediation involving a meeting of the parties to
reach a solution.
- Arbitration: commissioner makes a legallybinding decision.
- Common law: disputes settled by court action when no
relevant employment legislation exists.
- Business/division closure: if dispute is impossible to
resolve.
costs and benefits of industrial conflict
financial, personal, social, political, international
Costs and benefits of industrial conflict
Type Costs BenefitsFinancial - lost production and
wages- business closure
- increased productivity
after changesimplemented
- improved working
conditionsPersonal - stress, insecurity and
fear
- work problems resolved
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Social - community anger - new career opportunitiesPolitical - voter dissatisfaction - better employment
policiesInternatio
nal
- loss of export
markets
- workplace reforms
improve global
competitivenessethical and legal aspects
issues in the workplace
working conditions Ethical business practices are those practices that are
socially responsible, morally right, honourable and fair.
An ethical framework must be developed for the workplace and
include a code of conduct and a code of ethics.
An ethical employer will provide safe and healthy working
conditions that improve employeewelfare. This is enforced by
the Occupational Health and Safety Act 2000 (NSW).
Employers have a duty of care and employees have a
reciprocalduty.
Occupational Health and Safety (OH&S) Workcover recommends implementing a six-step approach to
OH&S.
Step 1. Develop an OH&S policy.
Step 2. Set up a consultation mechanism with employees.
Step 3. Establish a training strategy for new and existing staff.
Step 4. Establish a hazard identification and workplace
assessment process.
Step 5. Develop and implement risk control.
Step 6. Promote, maintain, and improve these strategies.
workers compensation state and/or federal agencies andcommon law redress
Employers are legally obliged to take out workers
compensation insurance, a no-fault system emphasising
rehabilitation and monetary compensation.
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Employees must notify their employer as soon as possible of an
injury or work-related illness.
Common law redress may be available for injured employees
to sue for negligence.
anti-discrimination Discrimination occurs when a policy or a practice
disadvantages a person or group because of a personal
characteristic that is irrelevant to the performance of the work.
Employers and managers working in employment relations
need to be familiar with the following legislation:
o Human Rights and Equal Opportunity Commission Act
1986 (Cth).
o Affirmative Action (Equal Employment Opportunity for
Women) Act 1986 (Cth).
o Sex Discrimination Act 1984 (Cth) and the Anti-
Discrimination Act 1977 (NSW).
All employers are required to take reasonable steps to
eliminate discrimination. Equal Employment Opportunities (EEO)
Equal employment opportunities (EEO)encourages equitable
practices in recruitment, selection, training and promotion.
Private sector employers with more than 100 employees are obliged
to develop an affirmative action program, which aims to remove
discriminatory employment barriers and take action to promote
equal opportunity for women in the workplace.
An employment contract is legally binding, so employers must
terminate the contract in a legally compliant manner.
There are three ways an employee can be sacked:
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9.5 HSC topic 5: Global Business
20% of indicative time
The focus of this topic is to examine the implications of globalisation on
business structure, functions and management.
Outcomes
The student:
H1.1 explains the impact of the global business environment onbusiness role and structure
H1.2 critically analyses the role of business in Australia
H2.1 describes and analyses business functions and operations andtheir impact on business success
H2.2 evaluates processes and operations in global businessH3.2 evaluates the effectiveness of management in the organisation
and operations of business and its responsiveness to change
H3.3 analyses the impact of management decision-making onstakeholders
H4.1 critically analyses the social and ethical responsibilities ofmanagement
H4.2 evaluates management strategies in response to internal andexternal factors
H5.1 selects, organises and evaluates information and sources for
usefulness and reliabilityH5.2 plans and conducts an investigation into business to present the
findings in an appropriate business format
H5.3 communicates business information, ideas and issues, usingrelevant business terminology and concepts in appropriate forms
Content
Students learn to:
use existing business case studies to investigate and communicateideas and issues related to global business. The focus of these casestudies will be to:
select a global business and identify its international targets
describe and analyse the reasons for its international expansion
explain the influences on this business in the global market
explain the strategies used by the business to achieve its targets.
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Students learn about:
globalisation
nature and trends growth of the global economy and changes inmarkets (financial/capital, labour, consumer)
The global economy is the world economy and refers to the
economic activity going on in the world.
Global influences on the Australian business environment include:
- Increasing globalisation and a changing international business
environment.
- Changes in protection policies.
- Establishment of overseas operations.
Globalisation is the movement across nations of trade,
investment, technology, finance and labour.
Globalisation is not a new process. However, in the last 20 years the
world has experienced rapid and widespread globalisation.
National economies are merging into one huge, interdependent
global economic system.
Globalisation of markets refers to the combining of once
separate and distinct national markets into one huge global
marketplace.
Globalisation of production refers to the way many businesses
purchase their inputs from around the globe and tend to
manufacture components in low-cost countries.
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interaction between global business and Australian domesticbusiness
Since the 1990s, there has been a heightened sense of awareness
of the need for domestic businesses and managers to increase their
interactions with global businesses.
As globalisation gathers momentum Australian businesses face
increased competition as well as more opportunities.
Australian businesses have three specific advantages in the
transition phase:
1. Networks and relationships are well established.2. Multicultural make-up of the Australian workforce.
3. Governments and private consultant provide advice.
global business strategy
methods of international expansion
export
The different methods of international expansion require
varying degrees of involvement each requiring varying degrees of
involvement in global business.
Exporting: when a business manufactures its products in its home
country and then sells them in foreign markets.
- Can be a relatively low-risk method of entering overseas
markets.
- There are three different methods of exporting:
o Indirect exporting is the most basic level of exporting
where a business sells its products to a domestic
producer, who then exports the product.
o Direct exporting happens when the exporting
business sells its products to an agent or intermediary
or final consumers in another country.
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o Intracorporate exporting (transfer) is the selling of a
product by a firm in one country to a subsidiary firm in
another.
foreign direct investment Foreign direct investment (FDI) occurs when a business
from one country owns property, assets or business interests in
another country.
There are three methods of FDI:
1. Greenfield strategy: a new business venture from scratch.
2. Acquisition strategy: acquiring through a takeover or
merger of an existing business operating in the foreign country.
3. Joint venture: two or more businesses agree to work
together and form a jointly owned but separate business.
relocation of production
Relocation of production (relocation offshore) occurs when
the domestic production facility is closed down and then set up in a
foreign country. The motivation behind this strategy is usually cost
reduction as the relocation is often to a low-cost, developing
country.
management contract Management contract: an arrangement under which a global
business provides managerial assistance and increased
technical expertise to a second or host business for a fee.
licensing/franchises Licensing is an agreement in which one business (licensor)
permits another (licensee) to produce and market its product,brand name etc for a royalty fee.
Franchising is a specialised form of licensing in which the
franchisor grants the franchisee the right to use a companys
trademark and distribute its product.
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Regulatory
differences
Taking advantage of differences in laws of the host
country to gain a cost advantage.Tax
minimisatio
n
Low-tax host countries offer incentives oftax holiday
and taxhaven.
specific influences on global business
financial
currency fluctuations
interest rates
overseas borrowing
A business that operates globally has to deal with a more complex
set of factors compared to a business that operates only in the
domestic market, including:
- difficulty of assessment
- different value systems
- decision making is more complex
- cultural differences.
Financial influences are largely uncontrollable although a
business can put in place appropriate financial management
strategies to minimise their negative effects.
1. Currency fluctuations. In all global transactions it is
necessary to convert one currency into another.
- This transaction is performed through the foreign
exchange (forex or fx) market, which determines the
price of one currency relative to another.- Exchange rate: value of one currency to another.
Example: A$1 = US$0.70 means one Australian dollar is
worth 70 US cents.
- Exchange rates fluctuate over time.
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- Depreciation: a downward movement of the
Australian dollar (or any other currency) against another
currency. Exports become cheaper but imports dearer. An
appreciation has the opposite effect.
- Fluctuations impact on production costs, revenue
and profitability.
2. Interest rates. Finance is generally required for overseas
expansion. Borrowing offshore to gain a lower interest rate can
expose the business due to adverse currency fluctuations.
3. Overseas borrowing. There is a diverse range of debt and
equity sources within the international capital market. However,
there are two main sources:
- International equity (share) market. This involves
selling shares of ownership to new or existing owners
worldwide.
- International bond market. A bond is an IOU from one
business to another and requires the borrower to repay a
certain amount, plus interest, by a specified date.
political
tensions between protectionism and free trade
international organisations and treaties (World TradeOrganisation)
trade agreements
regionalism
war and civil unrest
Political influences. A political riskis any political event that
results in a drastic change to the countrys business environment
and ultimately has a negative impact upon business operations and
profit.
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Political risks tend to be greater in countries experiencing social and
economic unrest.
Some political influences could act as incentives, encouraging
businesses to relocate.
1. Tension between protectionism and free trade
- Protectionism creates artificial barriers to free trade
- Many governments are encouraging free trade. The debate
causes tension within and between countries.
2. International organisations and treaties
- The actions and decisions of international organisations
have an enormous impact upon global business.
- The main organisations are:
(i) World Bank (WB): Bank lending encourages business
activity.
(ii) International Monetary Fund (IMF): Fosters orderly
exchange arrangements and an international monetary
system.
(iii) Bank for International Settlement (BIS): Provides
stability and certainty to the worlds financial system.
(iv) World Trade Organisation: World Trade
Organisation (WTO): Responsible for managing world
trade, trade negotiations, treaties and investment.
3. Trade agreements and regionalism. The main aim of the
WTO is to remove barriers to international trade. A trade
agreement is a negotiated relationship between countries that
regulates trade between them.
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- Countries that participate in a trade agreement form
economic communities trading bloc. The main trading
blocs are:
(i) European Union (EU)
(ii) North American Free Trade Association (NAFTA)
(iii) Association of South-East Asian Nations (ASEAN)
(iv) Asia-Pacific Economic Cooperation (APEC).
4. War and civil unrest. Business operations can be
significantly disrupted in politically volatile countries.
legal
contracts dispute resolution
intellectual property
Legal influences. There is no one set of international laws. A
global business must be aware of the hosts unique legal system.
1. Contracts: legally enforceable agreements. There are two
main legal systems in the world: common law and civil law.
Rights and responsibilities of contractual parties vary between
countries. A contract should outline a method of resolving
disputes.
2. Dispute resolutions. Negotiation and mediation are less
expensive methods. WTO has a dispute settlement process.
3. Intellectual property refers to property that is created byan individuals intellect.
- Brand names, trademarks, patents and copyrights need
to be protected. Not all countries enforce intellectual
property conventions.
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social/cultural
languages
tastes
religion
varying business practices and ethics
4. Social and cultural influences. Global businesses must be
aware of and appreciate the unique system of values, beliefs,
rules and customs of a host country.
- Language. A difficult barrier to overcome and will impact
on negotiations. Need to appreciate the importance of non-
verbal communication.- Tastes. Exported products should be modified to suit local
tastes.
- Religion. Insensitivity could damage business
relationships.
- Varying business practices and ethics. Vary the world
over. International business managers must research and
accept business practices and ethics of the countries with
which they wish to conduct business. Difficulty in
distinguishing between a gift and a bribe.
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managing global business
financial
methods of payment
credit risks
There are a number of private and government organisations
(Austrade) that offer assistance with a particular aspect of
managing a global business.
1. Financial management of a global business involves methods of
payment, currency exchange fluctuations, credit risks and insurance.
Method of payment and credit risks.
Method of
payment
Explanation Risk to
exporterPayment in
advance
Allows the exporter to receive payment and
then arrange for the goods to be sent. Few
importers will agree to these terms because
it exposes them to the most risk.
Least
Letter of credit A commitment by the importers bank,
which promises to pay the exporter a
specified amount when the documents
proving shipment of the goods are
presented.
Minimal
Clean payment
(clean
remittance)
Easiest and quickest method. Occurs when
the payment is sent to, but not received by,
the exporter before the goods are
transported. Favoured by exporters, but notso much by importers.
Minimal
Bills of
exchange
A document drawn up by the exporter
demanding payment from the importer at a
specified time. Widely used method and
allows the exporter to maintain control over
Moderate
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the goods until payment is either made or
guaranteed. Two types: bills against
payment and bills against acceptance.Open credit
(account)
Allows the importer to access the goods,
with a promise to repay at a later date.
Most
hedging
Hedging reduces the risk of currency fluctuations.
- A spot exchange occurs when two parties agree to
exchange currency and finalise a deal immediately. Spot
exchange rates: the value of one currency in another
currency on a particular day.
Hedging (natural and financial instrument derivatives) can be usedto minimise the risk of having to accept an unfavourable exchangerate.
derivatives Derivatives are financial instruments that may be used to
lessen the risk of currency fluctuations. There are three main
derivatives:
(i) Forward exchange contract: a contract to exchange one
currency for another currency at an agreed exchange rate on a
future date.
(ii) Options contract: gives the buyer (option holder) the right,
but not the obligation, to but or sell foreign currency at some
time in the future.
(iii) Swap contract: an agreement to exchange currency in the
spot market with an agreement to reverse the transaction in the
future.
insurance Insurance: protection against default of payment, product
damage and financial risks.
obtaining finance Obtaining finance.
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(i) Domestic capital market: Australian banks and financial
institutions.
(ii) International capital market: international financial
institutions.
(iii) Eurocurrency market: nominating a currency of choice
US dollar, Deutschmark, British pound, Japanese yen.
marketing
research of market2. Marketing management. A global business must modify its
marketing plan to suit overseas markets.
Market research to determine:
- economic capabilities of host country.
- market potential for a product.
- social, cultural and political features.
global branding Global branding: worldwide use of names, symbols and logos.
Helps global recognition irrespective of language.
standardisation and differentiation A standardised marketing mixcan be adopted based on an
identical product being sold worldwide. A differentiated
approach uses a customised marketing plan to suit the host
countrys local needs.
operations
sourcing (vertical integration, make or buy)3. Operations management. To remain competitive, businesses are
forced to find ways to reduce costs of production and improve their
products.
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Need for an understanding of the different labour laws, wages and
working conditions between countries. Shortages of skilled labour
overcome by recruiting expatriates. Non-managerial staff are
normally host country nationals.
labour law variations Need for an understanding of the different labour laws, wages
and working conditions between countries. Shortages of skilled
labour overcome by recruiting expatriates. Non-managerial
staff are normally host country nationals.
ethnocentric/polycentric/geocentric staffing system Staffing system: concerned with the selection of employees
for particular jobs. One of three approaches:
(i) Ethnocentric: key management staff are relocated from the
home country.
(ii) Polycentric: host country employees are recruited.
(iii) Geocentric: the best employees available are selected
irrespective of nationality.
evaluation strategies with reference to a particular global
market Management strategies
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