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Content: Business Studies HSC Course

9.1 HSC topic 1: Business Management and Change

The nature of management


• The importance of effective management
o For the economy
 Increase competitiveness of the economy
 Job creation
 Achieve worlds best practice
o For individual businesses
 Provide vision
o Implement change
 Coordinate activities within the business
 Determines weather the business will be successful

• Management roles
Interpersonal
o Involves relating to people within and outside the business
o Figure Head – represents the public face of the business eg.
Manager announces new campaign (Richard Branson)
o Leader – manager motivates and directs their subordinates
(staffing, training, maintaining, discipline)
o Liaison – developing networks with people within and outside the
business
Informational
o Monitoring – manager collects and understands information
relating to internal/external environment
o Disseminator – transferring information to subordinates within the
business
o Spokesperson – communicating the organisations plans, policies
and results to the public
Decisional
o Entrepreneurial - able to coordinate the factors of production to
improve the organisations performance
o Disturbance Handler – able to deal with unexpected disturbances
o Resource Allocatur – manager is responsible for allocating
resources mainly human, monetary and physical. Involves setting
budgets
o Negotiators – responsible for acting on the businesses behalf in
negotiating with suppliers, distributors and unions

Skills of management
• People skills
o Active Listening Skills – concerned with an active search for
meaning in what a person is telling you eg making eye contact,
asking questions
o Feedback skills – giving subordinates feedback on who well
they are performing their job
o Delegation Skills – giving the authority or responsibility to
complete a task or activity to another person
o Discipline skills – necessary to enforce business standards
such as absenteeism, lateness and theft

• Strategic Thinking
o Concerned with thinking about the future of the business
o Involves finding, choosing and implementing business activities
that will make the business stronger and better in the future
• Vision
o What the business wants to achieve in the future
o Sets the direction of the business, purpose and character
• Flexibility and adaptability to change
o Managers must be flexible and be able to adapt to changes in
order to be successful
• Self –Management
o Self managed groups where no leader is appointed
o Members responsible for making sure the business achieves its
goals
• Teamwork
o There has to be effective teamwork between various functions of
the business
o Teamwork results in higher productivity
• Complex Problem solving
o Follows this method:
 Define the Problem > Generate alternative solutions >
implement and follow up on the solution
• Decision Making
o A choice made from two or more possibilities
o Manager needs to follow processes in order to be successful
• Ethical and social Responsibility
o Global trend towards social and ethical rights
o Managers can employ people with high personal
standards and ethics for the business

• Responsibility to stakeholders; reconciling conflicts of interest


o Customers – provide customers with quality product and
safe standards
o Suppliers - pay balances and sales credit on time and be
reliable
o Government – Ethical competition and no collusion
o Environment – ecological sustainable development
• Reconciling Conflicts of interest
o There will be conflicts between different stakeholders
because they will place a different emphasis on the
business goals
o Eg. Conflict between managers and employees relating to
remuneration agreements and there will be aggressive
arguments when these contracts are negotiated

Understanding business organisations with reference to management theories


• Classical-scientific
– Management as planning, organising and controlling
o Planning – Concerned with what the business is to
achieve in the future and includes:
 What the business is to achieve
 How this will be done
 Coordinating activities needed to achieve objective
o Organizing – concerned with designing the structure or
framework of a business includes:
 Deciding what tasks are to be done
 Who will carry out the tasks
 How the tasks will be grouped
o Controlling – measuring the actual performance with the
planned performance
 Involves managers deciding how to effectively
measure what is happening in a business
 What was actually happening to what was planned
– Hierarchical organisational structure based on division of labour
o Organizational structure – the formal way in which the business sets
out how people will interact with each other
o Chain of Command – the line of authority from the top of the
business to the bottom
o Span of control – the number of subordinates who report directly to
the manager
– Autocratic leadership style
o Where managers use a high degree of direction and permit little or no
participation in the decision making by subordinates
• Behavioural
o Organizational behaviour – the study of how people act in the
work environment
– Management as leading, motivating, communicating
o The leading function of a business involves managers in directing
people, motivating people, communicating and resolving conflict
– Flat organisational structure, teams
o Theorists argued that productivity would increase if the workers had a
greater degree of accountability for their work
o Teams – a group of people who work intensively together on a
particular task to achieve a common goal
– Participative/democratic leadership style
o Where managers encourage a high degree of employee participation
in decision making as well as open communication channels
• Political
– uses of power and influence, management as negotiating and
bargaining
o Power – the ability of a person to influence the beliefs of actions of
other people
– Structure as coalitions
o Working together to achieve common goals, but at the same time for
different reasons
– Stakeholder view
o Various views of stakeholders have to be reconciled if a business
wants to achieve its goals
o Better to identify the strongly held views of many stakeholders than
separate views of each stakeholder
• Strengths and weaknesses of the classical, behavioural and political
approaches
Theory Strengths Weaknesses
Classical/Scientific Matching skills to May lead to repetitive,
workers abilities can boring, tedious tasks for
raise profitability. Clearly employees and low
defined chain of morale. Lack of
command leads to communication
certainty of decisions between management
and employees
Behavioural Emphasis on rewards to Flat management
motivate employees. structure may lead to
More open channels of lack of control.
communication Democratic decisions
may be ineffective
political Recognition of views of Sectional interests may
interest groups. override business
Encouragement of interests. Can
Negotiation/bargaining encourage division and
undermine leadership
• Systems/contingency
– adapting management and organisational approaches to
circumstances
o Systems theory – systems theorists recognised that a business
should be seen as a system. They
 Recognised that systems involved inputs, transformation
process, outputs and feedback
 Saw the role of managers as coordinating all parts of the
business so it can achieve its goals
o Contingency Theory
 Focuses on the idea that managers must make decisions
according to the needs of a particular situation
 Recognises that there are many factors that can impact
on a business and that one particular theory does not
work in all situations
Managing change
• Nature and sources of change in business
– External influences - Things that cause the business to change that
occur outside the business
o Economic
 economic environment has an important influence on
business (during a recession there is difficulty in selling
products)

o Financial
 Deregulation of the financial sector and the entry of
foreign banks
 Compulsory superannuation on businesses by adding to
costs and pool of funds is source for growth
o Geographical
 Businesses target customers in certain areas eg.
Metropolitan areas
 Moving to different country may encounter problems such
as language, customs, business ethics, regulations,
currencies and high costs
 Drought has impacted on production and employment
o Social
 Australians worried about environment
 Ageing population
 Changing role of women in society
 Trend towards healthier lifestyle
 Population becoming multicultural
o Legal
 Laws regulate businesses in relation to location,
ownership, incorporation, what they make/sell, who they
sell to, cessation, provision of credit, protection of
consumers, licensing and taxation
o Political
 Views of different political parties have potential to create
significant change for a business (Taxation, consumer
protection)
 Managers have to be aware what each political party is
proposing to do
o Technology
 Developments make machines and software more
efficient and productive
– Internal influences – sources of change that come from within the
business
o The Effects of Accelerating Technology
 The innovations in technology make it essential for a
business to introduce new equipment – cost
 Impacts on job design, training, development of new
relationships between workers
o E-commerce
 Greater use of the internet to buy or sell products
 Still small percentage of total commerce
o New Systems and procedures
 Businesses need to adopt worlds best practice (doing things
in the business at a standard achieved by the most
competitive business in the industry the business is part of)
o New Business Cultures
 Shared values, attitudes and beliefs of people in a business
– Structural responses to Change
o Changing conditions often require changes in the structure of
the business and include:
 Outsourcing
• The partial contracting out of a business activity,
usually non-core activities. ie. Accounting and
finance, employment relations, marketing
• Increasing trend in businesses in order for businesses
to specialise in core activities and reduce costs
 Flat Structures
• Reducing levels of management giving greater
responsibility to individuals in the organisation
• Shorter chain of command and wider span of control
• Enables businesses to adapt to change in
environment easily
• Reasons for resistance to change
– Financial costs — purchasing new equipment, redundancy payouts,
retraining, reorganising plant layout
– Inertia of managers, owners – Unaware of changing environment, lack
skills or leadership to implement change
– Cultural incompatibility in mergers/takeovers - loss of status and power,
having to adopt new ethics and values, changing cultures
– Staffing — de-skilling, acquiring new skills, loss of career
prospects/promotional opportunities
• managing change effectively
– identifying the need for change
• Technology – updating equipment to maintain competitive advantage
• Products may be loosing their appeal as fashion evolves
• Return on investment is falling
• Community attitudes and expectations change
• Hierarchical structures may be unresponsive/slow to respond to customer
needs
• Mergers or takeovers > new work cultures
– setting achievable goals
• It is necessary to set plans on how to achieve goals once the goals are
identified
• Successful change takes place in stages with objectives set for each stage
– creating culture of change (encouraging teamwork approach using
change agents)
• Change Agents – the key group of influential people in a business who
must be convinced to support change and who then manage the change
process
• Managers may need to:
o Convince employees of the need to change
o Get employees to agree with the nature of the changes that will
happen
o Give these people the power to implement the change
effectively
– Change models — force-field analysis, Lewin’s
unfreeze/change/refreeze model
• Unfreeze – managers explain why there is a need to
change and try to gain acceptance for the need to
change as widely as possible
• Change implementation – change implemented into
the workers behaviour or actions and they have to
adopt new values or actions
• Refreeze – consolidating these changes by providing
support systems, resources, and skills needed to
ensure the changes behaviour continues
Change and social responsibility
Ecological Sustainability
• The ability of current businesses to achieve their needs without
compromising the ability of future businesses to meet their needs
Quality Working Life
• Important aspect of job satisfaction and affects productivity,
participation and absenteeism
• To create a working life that is enjoyable, active or friendly;
businesses could offer teamwork, self directed projects, flexible
working hours, ect…
Technology
• Businesses have a social responsibility towards its work force
which regards the rate of technological development and how its
implemented
• Accelerated technological development can be detrimental to the
moral and productivity of the work force
Globalisation
• The move towards the situation where individual businesses
compete in a global market
• Running businesses in different countries mean you have to
accept different values and thus must be sensitive towards
countries cultures
Managing Cultural Diversity
• Concerned with using the skills and talents of Australia’s
multicultural workforce
E-commerce
• Buying and selling of products through the internet
• Businesses operating with e-commerce have social responsibilities
in terms of honesty, confidentiality, accuracy of information
provided, and quality products.

HSC topic 2: Financial Planning and Management

The role of financial planning


• Strategic role of financial management
• sets out the broad steps that need to be taken to achieve the
businesses overall objectives
• developed by top level management and concerned with a large
timeframe of 3-5 years
• effects marketing plan, human relations, employment relations,
operations
• Objectives of financial management —
• Liquidity – businesses ability to pay its short term debts as they
fall due
o Level of liquidity the business requires depends on its
industry average and amount of cash tied up in stock and
debtors
• Profitability – return on the business that results from its
activities
o High levels attract investment into the business, employees
consider profitability when taking a job with a company
• Efficiency – relationship between inputs and outputs
o More output from input means higher efficiency
• Growth – growth strategies attempt to increase the size of the
business
o Direct expansion – increase using existing resources
o Merging – joining with a business producing similar
products
o Acquisition – purchasing other businesses providing
similar products
o Diversification – combining with or purchasing a business
producing products unrelated to the business
• Return on capital – profits made on investments in areas such
as land, labour, machines and buildings
o Business creates cash outlay in order to gain future
economic benefits
• The planning cycle —
• Assessing the present financial position – businesses will
scan and analyse its reports in order to obtain an accurate picture of its
present financial position. Reports include:
o Profit/Loss statement
o Balance sheet
o Cash flow statement
o Cost/Profit centre reports
• Determining the financial elements of the business plan -
financial aspect of the business plan outlines and details how the
strategies in the plan will be funded
o Eg. Operations manager may decide to achieve an
increase on the return on investment by lowering costs
through technology
• Developing Budgets – formal statements of the financial
resources set aside for carrying out specific activities in a given period
of time
o Useful financial tool for planning and controlling
• Planning cash flows – this is a key aspect because a business
may become insolvent if there is insufficient cash flow
• Financial reports – summarise financial activities of a business
during a particular period of time. Prepared for uses including:
o Managers concerned with meeting requirements of
regulations eg ASX, ASIC
o Creditors who wish to evaluate the businesses ability to
pay debts
o Owners who asses the businesses financial condition
• Interpreting financial reports - people reading reports need
knowledge of how the reports were compiled including the principles
that underpin the recording of the transactions and the presentation
• Maintaining record systems – managers need information
from internal and external environments
o Internal – managers need information for what is
happening within the business to determine the
successfulness of their plans
o External – changes in the environment will create
opportunities and threats to the business
• Planning financial controls - tools that enable managers to
compare the actual financial performance of their business with the
planned performance and include:
o Budgets
o financial statements
o financial ratios
• Minimising financial risks and losses – financial risk is the
risk of not being able to repay a debt as it falls due which results in
insolvency and potential failure of the business.
o By hedging a business transfers some of the risk to
another business. For example, insuring a building in case
of fire

Financial markets relevant to business financial needs


• Major participants in financial markets
• Banks
o Largest lender of finance/most important
o Ever increasing range of services
o Aust. Banking dominated by CBA, NAB, Westpac, ANZ
• Finance Companies
o Gets funds by issuing debentures and borrowing from the
general public
o Provide short term to medium term funds to businesses
• Insurance Companies
o Issues contracts to provide a future payment if a particular
event happens. Eg fire
o Uses fees from contracts to invest in equity, debt and
property
• Merchant Banks
o Get funds through short term borrowings
o Lend mainly to corporations in such things as commercial
bills and foreign currency
• Superannuation funds
o Get funds from savings of people preparing for retirement
o Invests in equity, debt and property
• Mutual fund
o Unit trust where small investments are combined and invest
into large projects, investors receive a return on each unit
they have in their fund
• Companies
o Often have surplus funds from operations
o Invest these funds on the money market, commercial bills
and shares in other companies
• Role of the Australian Stock Exchange as a primary market
• The ASX helps the flow of funds from investors to companies.
This encourages economic growth, creates wealth and generates
employment
• Primary Market – concerned with the formation of new
securities. Eg. When company floats
• Secondary Market – where existing securities are bought and
sold
• The ASX has supervisory responsibilities to ensure companies
and stock brokers comply with the regulations set by the ASX. This
gives investors confidence in the system
• Overseas and domestic market influences and trends in financial markets
and their implications for business financial needs
• Technological Developments – technological developments in
communication has increased the speed of transactions in financial
markets.
o Implication – business has greater access to up=to-date
information and faster transactions
• Globalisation of financial markets – technological
developments in communication has increased the opportunity to buy
and sell securities on world markets
o Implication - more opportunities to conduct financial
transactions throughout the world
• Taxation – changes to the taxation system, such as the change
in personal income tax, introduction of GST and reductions in rate of
capital gains influence financial markets.
o Implication – businesses may have to change the type of
security to fund their operations
• Commodity Prices – lower prices for commodities such as
coal, wheat and wool as a result of the Asian Crisis resulted in
Australia receiving less for our commodities
• Risk Management Securities – securities such as insurance
lessen the risk for businesses. This allows the business to manage its
risk by transferring it to another business
• Accounting Standards – increase in the convergence of
accounting standards and the development of high-quality global
financial reporting standards
• Share Ownership – increasing proportion in population who
own shares due to the government privatisation program during the
mid 1990s.

Management of funds
• Sources of funds
• Internal
o Owners Equity – usually the first source of funds for a
business. When an owner puts his own money into the
business, it shows a level of commitment and conveys a
belief that the business will become successful
 Retained Earnings – money kept by the business
after taxation and expenses are taken out and
dividends issued. Source of funds for future
business operations
• External
Advantages Disadvantages
• If return on funds is • Risk of the company
bigger than the interest rate being unable to repay the debt
then the business gets to keep (insolvent) leads to
the difference administration > receivership >
• Interest paid on debt is liquidation
treated as a tax deduction

o Short term borrowings – debts that will be repaid within


the year. Include overdrafts and bank bills
 Overdraft – short-term loan agreement between a
bank and a business that allows the businesses
cheque account to go into deficit to a limit established
in an agreement. Helps improve cash-flow
 Bank Bills – these are bills of exchange, they are
written, unconditional orders for a sum of money to
be paid on a specific date in the future. The bank
does this by substituting their credit rating for the
customers credit rating
o Long Term Borrowings – debts that will be repaid over a
period longer than a year
 Mortgage – charge over property that allows the
lender to sell the property to recover the loan of the
borrower is unable to pay. 20 – 30 years. Low
interest rate because of the security
 Debentures – fixed interest, fixed term loan to a
company from the general public. Company rasing
funds for a debenture is required to make a
prospectus. Loan secured by the companies’
property assets.
o Other sources of finance
 Leasing – allows a business to use certain long term
assets. Contract between to owner of the asset
(lessor) and the business that wises to use the asset
(lessee)
 Factoring – where a business sells its accounts
receivables to a factoring company at a discount.
Funds are used to improve cash flow
 Venture Capital – finance provided for new small
businesses, or for expanding businesses that have
management, product and processes that have been
tested in the market place. Businesses have to rely
on equity finance
 Grants – non-repayable financial benefits to a
business. They are provided by governments,
however large companies often issue grants.
• Financial considerations - most businesses use a mix of equity
and debt finance. It is best to match the terms and source of funds to
the business purpose and structure
o Matching terms and source to business structure – the
business purpose is a key factor in determining the level of
gearing
 Businesses with predictable cash flow will be best
funded with debts and thus will he highly geared
 The amount of debts that is appropriate for a
business will depend on how predictable cash flow is
• Comparison of debt and equity financing, including costs and benefits,
risks, gearing/leverage

Finance Cost Benefits Risks


Debt Interest paid to Is tax deductible Not being able to
lender for expense for the pay rate as
borrowed company, interest rates are
amount cheaper to set up high & may rise
& often faster
Equity Rate of return a Retained Under
company needs earnings are a subscribed,
to achieve in cheaper source where business
order to maintain of capital, able to has set up the
market value of raise large selling of shares
shares amounts but is no interest
=costs, takes
time & split profit

• Gearing
o A measure of how reliant the business is on debt financing
relative to equity financing
o Highly geared means more reliant on debt financing relative to
equity financing
Using financial information – financial reports attempt to meet general
interests of all its users. Each group of users need to develop skills to extract
specific information from financial reports
• The accounting framework – refers to the principles and standards used
to prepare financial reports and present financial reports. A common
accounting framework leads to:
 Consistent and logical set of accounting standards
 Allows comparison with international businesses – AASB
similar to international rules
o Revenue statements – provides a financial summary of the
businesses operation results for the accounting period
 Sales – COGS = gross profit
 Gross profit – profit from trading before expenses.
Indicated difference between what you pay for your
stock and what you sell it for “mark up”
 Gross profit – expenses = net profit
o Balance sheet – summary of the businesses financial
position at a given point of time
 Assets = liabilities = owners equity
o The Accounting equation and relationships
 Illustrates the relationship between the assets a
business uses to conduct operations and the way
assets have been financed
 Current assets – short-term assets expected to be
turned into cash within the year
 Non-current assets – long-term assets that will
provide economic benefits for a period longer than a
year
 Liabilities – debits owed to people of institutions
other then the owner. Delivered in Current/non-
current liabilities
• Types of financial ratios
– Liquidity
• Refers to the ability of owners to pay short term debts as they fall due
o Current ratio : current assets/current liabilities
 Ratio of 2:1 means that for every $1 of debt, the business
has $2 to service this debt
– Solvency
• Indication of the long term stability of the business. Gearing ratio
indicates the relationship between long-term funds and owners equity
o Gearing ratio : Total debt/owners equity х 100/1
 Presented in a percentage. Anything below a benchmark
of 60% is considered satisfactorily geared.
– Profitability
• Difference between profit and sales. Helps managers determine how
well each dollar of sales generates profit
o Gross profit ratio : gross profit/sales x 100/1
 A GPR of 40% means that for every dollar of sales, 40
cents is generated. Refers to margin of ‘mark up’
between businesses purchasing and selling price
o Net profit ratio : Net profit/sales x 100/1
 A net profit of 5% means that for each dollar of sales, the
business generates a net profit of 5 cents
o Return on owner’s equity – indicates how much the owners
investment in the business is earning.
o Return on owners equity : net profit/owners equity x 100/1
 A percentage of 20% indicates that every dollar of owners
equity earns 20 cents
– Efficiency
• Measures and analyses the efficiency of various aspects of the
business
o Total operating expenses ratio :
Operating expenses/net sales x 100.1
 A reading of 30% means that every dollar of sales is
taken up by 30 cents of expenses
o Accounts receivable turnover ratio :
Accounts receivable/average sales ÷ 360
 A reading of 60 means that it takes an average of 60
days to collect an accounts receivable
• Comparative ratio analysis
• Over Time
o Shows changes in bus liquidity, solvency, profitability &
efficiency over a number of time periods. Can show trends in
pos & neg aspects of the bus.
• With Similar Businesses
o Ratios can evaluate the performance of the bus against similar
bus in industry. Often by comparing the bus to the best bus in
the industry (benchmark), the bus can work out where needs to
improve.

• Against Common Standards


o Using ratios to compare the bus against industry average can
asses the relative performance of the bus.
o
• limitations of financial reports
• Historical cost
o this is the practice of valuing the businesses assets by their
cost at the time the transaction took place. This may not
reflect the true worth of the asset because assets
appreciate and depreciate in value ant thus does not reflect
the true worth of the business
o a business applying historical principles in a period of
inflation may report very different results from another
business in the same industry that choose to use current
pricing principles in the preparation of its reports.
• Intangible assets
o These are rights rather than objects and include patents,
copyrights, trademarks, brand names and franchises. They
also include things such as loyal employees, reputation
which are called goodwill
o these assets are not on the balance sheet and can only be
purchased as a part of the business

effective working capital (liquidity) management


• the working capital ratio
• working capital are assets that are used for the day to day
operations of the business. Net working capital is the difference
between the businesses current assets and current liabilities
• current ratio : current assets/current liabilities
• control of current assets
• cash- controlling cash requires a cash budget (detailed plan of
cash inflows and outflows over a period of time)
• Controlling receivables – accounts receivables arise when a
business sells its assets on credit. It is important to make sure
businesses receive cash on time in order to use this cash for its
operations. The business needs to create a credit policy:
o Term of the Credit
o Credit limit
o Discounts for each payment
o Who is eligible for credit
o Credit collection policy
• Factoring – selling accounts receivable to a factoring company.
Improves cash flow because debtors are instantly turned into cash
• Inventory control – inventory includes raw materials, work in
progress and finished goods. Businesses need to have a good
inventory control in order to minimise costs (JIT system)
o cost of not carrying enough inventory
 sales are lost
 expensive machinery is idle
o cost of carrying too much inventory
 expensive to store
 stock can perish, lost or stolen
 opportunity cost -> cash could be used else ware
• control of current liabilities
• Payables – the effective control of payables requires bills to be
paid when they are due. This also makes good business cense.
Suppliers provide a better service to those who pay on time
• Control of Loans – loans must be carefully controlled. The
most effective way of controlling loans is through capital budgeting.
This is concerned with assessing what sort of return can be gained
from borrowing money to finance a particular project and what sort of
risk is involved.
• Control of overdrafts – this is concerned with minimising costs.
Interests paid on overdrafts are operating costs. to control overdrafts,
businesses can invest surplus cash into marketable securities so
interest is earned.

• strategies for managing working capital


• Leasing – decisions to lease assets can reduce working capital
because there is no ‘upfront cost’. This is only for the short term as
leasing assets in the long term are generally more expensive than
purchasing assets
• Factoring – this improves working capital as money is not tied
up whilst the business waits for debtors to pay
• Sale and lease back -

effective financial planning


• effective cash flow management
– cash flow statements
• Operating flows – the inflows/outflows of cash that are directly
associated with making and selling the business products/services
• Investment Flows – the inflows and outflows of cash associated with
the sale of long-term assets
• Financial flows – the inflow and outflow of cash associated with debt
and equity financing transactions
– management strategies
• Distribution Payments – finds going out of the business to pay
creditors. The management of these funds is concerned with matching
debt with the cash inflows
• Discounts for early payments – percentage deduction from the
purchase price if the buyer pays within the specified time shorter than the
credit period.
• effective profitability management
• Concerned with the control of costs and revenues. Involves the
measurement of actual costs and the comparison with planned costs
and revenues
– cost control – based on improving profitability by providing low cost
quality goods and services. Ie “lean mean production machine”
• Fixed and variable costs
o Fixed costs are costs that are unaffected by the change of
output
o Variable costs are costs incurred in proportion to the output of
a particular good or service. They can be reduced by
 Reducing workforce and training workers to be multi
tasked
 Adopting JIT strategies to minimise cost of warehousing
 Substituting variable costs for fixed costs such as
industrial robots or computer controlled machinery
• Cost Centres – unit within the business where managers are
responsible for all costs associated with that unit. All costs are being
controlled.
• Expense minimisation – reduce expenses to the minimum possible
such as by downsizing the workforce to proportion of output and therefore
making wages and salaries a variable cost
• Expense budgets – lists the main activities in a unit within the
business and allocate a dollar amount to each activity
– revenue controls
• Sales objectives – set out in a sales or revenue budget. Managers
then work out strategies to achieve budgeted figures. A revenue budget is
a forecast of future sales
• Sales Mix – refers to the mix of products a business offers for sale.
There is a need to control the product mix by analysing the contribution
margin or break even for each product. Enables sales staff to concentrate
their marketing efforts on particular products
• Pricing Policy – concerned with working out the price for each product
that will protect or improve market share as well as meet profitability
objectives

ethical and legal aspects


• Audited accounts – public and private businesses are legally required
to have their accounts audited by independent auditors to establish their
truth and fairness as owners, managers and shareholders need to be
sure that the reports are valid
• Inappropriate cut-off periods – the requirement of a business to
report regularly means that cut-off periods have to occur. However,
businesses may separate substantial revenues with costs to create a
false profitability
• Misuse of funds – prevention of misuse of funds need to be a part of a
businesses corporate ethics policy. This should include development of
effective internal control system to restrict the ability of people to misuse
funds through:
o separation duties
o computer password control
o requirement of multiple signatures on cheques
o cheques of inventory levels
• ASIC – independent government body that enforces and administers
corporations law and consumer protection law for investors, life and
general insurance, superannuation and banking throughout Australia.
Purpose is to reduce fraud and unfair practices
• Corporate raiders and asset stripping
o Corporate raiders was the name given to a group of
entrepreneurs who use borrowed funds to purchase
underperforming businesses
o Asset stripping is the name given to the process of buying
companies in order to sell, at market value, assets that are
undervalued on the balance sheet
9.3 HSC topic 3: Marketing

nature and role of markets and marketing


• the role of marketing in the firm and in society
• Firm
o Marketing provides the link between the business and its
customers. It also helps the business achieve its goals.
o Marketing objectives dictate how the business functions
operate (operations, Accounting/finance, employment
relations)
• Society
o Increases materialism
o Poor environmental impacts
o Maximise consumer satisfaction
o Increase our standard of living
o Creates employment (30% of jobs marketing related)
• types of markets
• Resource Markets – primary markets involves with the
extraction or raw materials that require no value adding to the process
(iron, ore, crude oil)
• Industrial Markets – where goods and services are sold to go
into production of other products (Kraft buying jars for peanut butter)
• Intermediate markets – businesses that buy finished goods for
the purpose of reselling/renting them to consumers (Coles,
Woolworths, Dick Smith)
• Consumer market – include individuals who buy and rent
goods and services for personal use
• Mass Market – market for goods and services that appeal to a
vast majority of consumers (energy Australia)
• Niche Markets – smaller markets for more specialised goods
and services that only a few people are interested in or can afford.
(Roils Royce, Ferrari)
• production–selling–marketing orientation
• Production Orientation
o Belief that if a business could produce a better quality
product then consumers would naturally want to buy it
(Henry Ford)
o No focus on customers (1900-1920
• Sales Orientation
o Belief that better advertising and marketing will attract
consumers to purchase their product. A sales orientated
business will only think of the consumer after the product is
produced
• Marketing Orientation
o Customer focused
o Belief that customer needs and wants must be established
and then business produces and markets the product in
order to achieve business goals.

• the marketing concept


The marketing concept emphasises focusing the business on understanding
consumer needs and wants and offering products that meet those needs
• Customer Orientation
o Where the business centres its activities around the needs
of the customer
o Goal of the business is to build customer satisfaction into
every aspect of the business (good value, high quality
products)
o This is achieved with the help of TQM
• Relationship Marketing
o The process of developing a strong relationship with
customers and suppliers
o Loyal customers mean repeat sales and word of mouth
advertising
o Achieved through
 Selling high quality products
 Good service
 Fair prices
 After sales service
• marketing planning process
elements of a marketing plan
• situational analysis including SWOT and product life cycle
• This is a snapshot of the current situation the business finds
itself in. it includes marketing analysis, product analysis, competitor
analysis and SWOT analysis.
o Market analysis – the business environment effects how
successful the marketing plan will be. External forces are
forces that can affect the whole industry/economy. The
marketing plan should focus on identifying changes in the
eternal environment and seeking opportunities or avoiding
threats that these changes create. Internal influences
such as the location of the business, the experience and
skill of its employees and the business financial employees
o Product Analysis – this examines the various issues
relating to the goods and services the business provides.
The important aspect is the business life cycle (introduction,
growth, maturity, post-maturity)
o Competitor analysis – the aim of this is to predict the
competitors likely future marketing strategies and how they
may react to moves such as introductions of new products,
price cuts or aggressive advertising
o SWOT analysis
 Strengths – things the business does better than
other businesses
 Weaknesses – things other businesses do better
than our business
 Opportunities – that can arise from external
environment
 Threats – than can arise from the external
environment

• establishing market objectives


• The marketing objectives will be derived from the business
objectives. Objectives guide the business activities. They need to be:
o Specific
o Measurable
o Achievable
o Realistic
o Timed
• identifying target market
• Undifferentiated Marketing – when a business tries to provide
a product for the whole market. Mass market approach (water, gas,
electricity)
• Differentiated Marketing – business groups its customers
according to characteristics such as age, income level, family size.
The business designs a product for each group
• Concentrated Marketing – where a business selects one part
of a total market and focuses on that segment (Ferrari focuses on the
wealthy)
• Niche Marketing – where a business identifies a small segment
in a market that is not being catered for and provides a product for it
• Micromarketing – where a business caters for individual
customers.
• Mass customisation – businesses change a product that was
normally mass marketed to suit individual needs
• developing marketing strategies
• Marketing strategies are broad plans that outline how a business
will achieve its objective. They should satisfy the needs of the target
markets, meet the objectives of business and marketing plans,
capitalise on business strengths and minimise weaknesses
• Marketing Mix strategies/tactics
o Product – positioning of the product, packaging strategies
and product differentiation
o Price – Pricing methods – cost based pricing, market base
pricing, competition base pricing
Pricing strategies – Market skimming, penetration, loss
leader, discounts
o Promotion – Personal selling, advertising, below the line
promotions, public relations, direct marketing
o Place – Distribution channels, distribution intensity
• implementation, monitoring and controlling
• This is the process of turning plans into actions, involves all
actions that put the marketing plan to work
• Successful marketing implementation depends on how well the
business blends its people, organisational structure and company
culture into a cohesive program that supports the marketing plan
• Developing a financial forecast
o First step is to eliminate costs. these include:
 Research costs
 Product development costs
 Product costs
 Promotion costs
 Distribution costs
o Methods used to forecast revenue include
 Sales force composite – using estimates of what
individual sales people expect to sell to work out a
total for the whole business
 Buyer intentions – taking a survey of a group of
consumers to measure how much of a particular
product they will buy in a certain period of time
 Executive judgement – using the opinions of the
executives in the business, of those of expertise, on
how much they feel will be sold.
• Comparing actual with planned results
o Managers can see weather their objectives are being
reached and if not, take action.
o Sales analysis – breaks down the total sales to sales by
product, by market segment, by individual sales
representatives, by sales territory
o Market share analysis – compares the businesses sales
with that of its competitors. Percentage share of the market
o Marketing Profitability analysis – compares the cost of
marketing with the profits of sales
• Revising the marketing strategy
o if the actual results of the sales analysis, market share
analysis and marketing profitability analysis do not meet the
forecast results, then the marketing strategy must be
revised
 Product – new products, packaging, after sales
service
 Price – prices reduced, discounts offered
 Promotion – change advertising media used
 Place – find new places to position outlets, change
distribution intensity

market research process


• determining information needs, data collection (primary and secondary),
data analysis and interpretation
• Market Research – an organises system of collecting and
analysing information to help in making marketing decisions
• Market research process involves:
o Determining information needs
o Data collection
o Data analysis and interpretation
• Determining Information needs
o Firs step is to identify what information the business
needs
 Characteristics of the market
 Success of promotional activities
 Economic and business trends
 Competing goods and services
 Ethics of price changes
 Success of new products
 Market share
o Exploratory research – clarifies the problem and searches
for ways to address it
o Descriptive research – used to measure and describe the
markets potential for a product and the characteristics of a
market
o Casual research – used to test a hypothesis about a cause
and effect relationship
• Data collection
o Primary data – original information specifically collected for
the particular problem
 Observational research – collected by watching
peoples behaviour in certain situations
 Focus Groups – involves a group of people selected
because they match the characteristics of the target
market. They are involved in discussions and
questions with an experienced researcher in order to
identify feelings and attitudes
 Experimental research – attempts to prove cause
and affect relationships between two things. It allows
a business to test consumer to goods and services
by testing responses to changes in a product
 Surveys – where people are questioned in person,
over the telephone or through questionnaires in the
mail
o Secondary data – information that is already collected.
The advantage is that as it already exists it is much easier
to obtain than primary data
 Sources of secondary data include:
• Media – AFR, internet
• Government – ABS
• Trade associations – retail traders association
• Research firms – AC Nielson
• Company reports
• Data analysis and interpretation
o Data refers to raw facts and figures obtained from primary
and secondary research.
o Information is data that has been analysed in order to make
it useful. Eg. Survey results are entered into a computer
which then produces tables and charts for analysis and
presentation of important results

customer and buyer behaviour


• types of customers
• People and Households
o A business needs to categorise its customers. Eg.
Consumer market is individuals and households where as
industrial market are businesses of different sizes. Different
types of customers have different buying patterns
• Firms and Business customers
o people and households make up the consumer market. As
the family is the most important consumer buying
organisation, businesses are interested in the influence
family members have on buying decisions,
• government
o this market is made up of federal, state and local
government departments. As well as households, they buy
furniture, cars, multi-billion dollar military contracts,
• Institutions
o The institutional market is made up of Art galleries,
museums, universities, prisons, churches, nursery homes…
• the buying process
• Need recognition – customer identifies problem (thirst, hunger)
• Information Search – customer may start actively seeking more
information from a variety of resources (internet, newspaper,
friends)
• Evaluation of alternatives – consumer evaluates alternatives
according to what they see as important (sound system: sound
quality, price, size)
• Purchase decision – the consumer purchases the product.
• Post purchase decision – after purchasing the product,
customers will either be satisfied or dissatisfied with the product.
As happy customers are valuable, it is important for a business to
be aware of customer satisfaction
• Buyers and Users
o In a consumer marker, users are usually the one who buys
the product. In businesses, the buyer may not be the user
as businesses employ people with the specific role to
purchase resources.
• Business Buying Process
o Problem recognition
o General need description
o Product specification
o Supplier search
o Proposal solicitation
o Supplier selection
o Order-routine specification
o Performance review

• factors influencing customer


• Psychological factors
o Psychological factors are influences within an individual that
affect his or her buying behaviour. These include:
 Motivation – this is usually the reason the makes
someone do something. These may include taste,
health, safety, pleasure, fear, amusement
 Perceptions – how we receive, organise and
interpret information. As humans react more to
perceptions rather than reality, marketers need to be
aware of this and create positive perceptions about
their product.
 Lifestyle and personality – an individuals
personality is the collection of behaviours and
characteristics that make up the that person.
Lifestyle and personality will thus determine what we
buy
 Attitudes – an individuals overall attitude towards
something. Consumers attitudes towards products
determines its success
 Culture – societies values, customs, beliefs and
patterns of behaviour. These things influence our
perceptions on life and thus will influence our buying
behaviour (fitness, sport)
 Subculture – subset of people with shared values
and beliefs within a culture (age, gander, religion)
 Socio-economic status – division of society based
on income, occupation, education
 Family – most buying decisions are family decisions
because most members are likely to share the
good/service (TV, Animals, Furniture)
 Reference Groups – groups which a person
identifies. (friends, sporting). This will influence our
behaviour as we may purchase products in order to
fit in to these groups
• Economic Factors
o Business – effects businesses ability to produce and
compete
 Boom, Recession, Recovery
o Customers – economic situation effects consumers:
 Level of income
 Level of savings
 Consumer confidence
 Ability and willingness to borrow
o Disposable income – income after tax is deducted
o Discretionary income – anything left of disposable income
after spending on necessities such as food, clothing and
housing
• Government Factors
o Governments use a number of economic policy measures to
expand or contract the level of economic activity. This can
be done through:
 Fiscal Policy – budgeting (taxation, Gov. spending
ect.)
 Monetary Policy – RBA (Interest rates)
 Government Policy – Gun Laws, Alcohol/tobacco tax.
developing marketing strategies
• market segmentation and product/service differentiation
• Market Segmentation is the process of breaking the total market
into smaller parts based on similar characteristics
• Target market is the group of customers at which the business
focuses its marketing program
• Ways of segmenting the market
o Geographical segmentation – segmenting groups
according to Geographic characteristics. (people who live
near ski fields will generally buy more ski equipment than
those who live in the desert)
o Demographic segmentation – segmenting groups into
variables such as age, gender, family size, income,
education
 Age/Lifestyle stage – your needs alter with age,
hence businesses alter products or use different
promotional techniques for different age/lifestyle
groups
 Gender – Businesses appeal to different genders by
targeting them with more specific needs and wants.
(a car with a big powerful V8 engine will appeal to
men, Safety and versatility will appeal more to
women)
 Income – what you ear determines what you can
afford to purchase, hence businesses may target
wealthy customers with expensive luxury cars such
and Bentley, Porsche, Ferrari.
o Psychographic Segmentation – segments customers on
personality, interests and activities. (cool products for
teenagers)
 Socio Economic status – occupation, income and
education
 Lifestyle – individual’s hobbies, careers.
(magazines target car, boating, gardening
enthusiasts)
o Behavioural Segmentation – dividing a market up into
groups based on attitudes and responses to a product
 Purchase occasion – different products are
purchased at different times of the day or year (winter
clothes, Easter eggs, breakfast cereal)
 Benefits sought – customers purchase products as
they think it will give them some sort of status or
prestige, or for quality and reliability (Luxury Cars,
Designer Clothes)
 Usage rate – customers can be grouped as light,
medium or heavy users of products. Heavy users will
purchase a large proportion of sales as opposed to
light users. (Department store vs. individual)
 User loyalty – consumers develop a loyalty to a
particular product (Coke vs. Pepsi, Holden vs. Ford).
Other consumers may switch depending on how they
feel at the time of purchase. Relationship
marketing aims to develop this cense of customer
loyalty
• Product/Service differentiation - This involves making your
product stand out from the rest
o Ways to differentiate your product
 Offer a wide variety of models (Ford has 4WD,
Compact, Van ect.)
 Differentiate according to the performance of your
product
 Differentiate according to style and design
 Differentiate according to reliability and durability
 Providing: after-sales service, reliable delivery,
friendly service

Marketing Mix

 Product  Place  Promotion  Price


 Quality  Distribution  Personal  List price
 Features channels selling  Discounts
 Warranty  Physical  Advertising  Credit terms
distribution  Public
 Variety
Relations
 Size

• product and service


• Refers to physical goods as well as services. Businesses think
products on three levels
o Core product – the problem solving service and benefits you
get when you buy the core benefits
o Actual product – parts and features of the product that
provides the benefits
o Augmented product – combination of core and actual
product
• Positioning – process of creating the image that the product holds
in the mind of consumers relative to competing products
o Positioning strategies – a business positions its products
in a number of ways
 Position by Benefit – product benefits can be used
by a feature of the product
 Positioning by price or quantity – exclusive
products can be positioned in exclusive stores or
mass quantitated in supermarkets
 Positioned by direct comparison – products can
be positioned next to competitors to give the image
one is better than the other (Coke against Pepsi)
 Position by usage occasion or users – products
are positioned on how much they are used (batteries
are used a lot, hence they are positioned in check-
out isles)
• Brand – distinguished name/symbol which identifies products and
differentiates them from competitors. (entrusted brand implies
good quality and value for money)
o Brand Strategies
 Generic brand strategy – uses non-brand name for
a low cost product (no frills, no-name, home brand)
 Individual brand strategy – special name for each
individual product (Unilever has individual names for
its products such as Dove, Lux, Rexona, Pears )
 Family brand strategy – single name covers a
whole group of products by one business (Sony,
Panasonic)
 Manufacturers brand strategy – naming the brand
after the name of the manufacturers (Country Road)
 Private brand strategy – resellers place their own
names on products (Sony placing their names on
Energiser batteries)
 Hybrid brand strategy – combination or two or more
strategies (country road used manufacturers brand
strategy and also sells their product to other
companies who put their own label on the country
road clothes)
o Brand Equity – refers to the value of the brand. Increased
by brand awareness, loyalty and association
• Packaging – serves a number of uses in marketing
o Protects product on transportation
o Informs the consumer about the use of the product
o Promotes the product and differentiates it from competitors
o Protects against misuse or tampering of the product
• Price
• Businesses are required to assign a price that is attractive to
customers, and at the same time providing a reasonable profit
• Pricing Methods
o Cost Based Pricing
 cost plus pricing – prices are based on the costs of
production with a set mark. Eg. 25%. The cost of
production sets the price
 Break even pricing – setting a price that will cause a
business to break even. This ignores the amount
customers are willing pay
o Market based pricing – price set by level of demand and
supply within the economy. Does not reflect the cost of
production (property boom)
o Competition based pricing – price of competitors products
is used as a guide to set prices of products
 Leader follower pricing – smaller businesses will
follow decisions made by larger businesses who own
a larger share of the market
 Going-rate pricing – businesses set its prices
similar to that or their customers
 Discount or premium pricing – positions a product
in relation to differences with its competitors
 Sealed-bid pricing – occurs where businesses have
to put in a tender for the job. Business sets its price
on what it thinks its business is doing (buying
contracts)
o Value Based Pricing – sets prices based on buyer
perceptions of value rather than sellers costs
• Factors to consider when setting price
o Internal Factors – if a business is aiming for profit
maximisation, it will set a price higher than its competitors
o External Factors – a low level of demand will force a
business to lower its prices to increase sales
• Pricing Strategies and Tactics
o Market skimming – when a new product enters the market,
a high price can be charged in order for the business to get
as much profit as possible to meet research costs, until
competition enters
o Penetration Pricing – businesses set their price below their
competitors in order to gain market share by making their
product more attractive
o Loss Leaders – products are priced below cost of
production in order to attract customers. This is to attract
customers into the shop so they may purchase other goods
o Price Points – products within industries are priced on
quality and popularity (CD’s are priced at $15, $20, $30)
o Discounts
 Quantity Discount – reduces amount as more of the
one product is purchased
 Seasonal discount – out of season products are
made less expensive in order to make way for next
years seasonal gear (ski-equipment)
 Cash Discounts – Discounts offered for cash
payments as credit payments are more expensive for
the business
• Price and Quality interaction – studies have shown people use
price as a guide to quality of a product.
• promotion
• Part of the marketing mix that a business uses to inform, educate,
persuade and remind customers
• Elements of the promotion mix
o Personal Selling – where a sales person directly
approaches or interacts with a customer. It allows
consumers needs, uncertainties and questions to be
answered. Advantageous in developing customer-business
relations, but is expensive to hire and train employees.
o Advertising – conveys messages to consumers through
mass media. Main mediums include TV, Radio, Billboards,
Newspapers, Magazines and Internet. Advantageous in
reaching a large number of people and for the message to
be repeated a number of times, but it is expensive,
impersonal and sometimes avoided by consumers
o Below the line promotions – these promotional activities
are not main stream advertising activities. Include contests,
coupons, free samples and point of purchase displays
o Public Relations – involves publicity (often unpaid) about a
business or its products (reviews in magazines or
newspapers)
• Communication Process – important for businesses to
understand the communication process so that messages can sent
out as best as possible. The communication process includes
o Senders
o Encoding
o Message
o Media
o Decoding
o Receiver
o Response
o Feedback
o Noise/interference
• Steps in developing effective communication
o Identifying the target audience – this will determine what
is said, how it will be said, who will say it and when and
where the message will be delivered
o Determining the response sought – Awareness >
Knowledge > Deference > Conviction > Purchase
o Choosing a message – An effective message should grab
the attention of consumers, hold their interest and raise their
desire about the product, and then get action
o Choosing Media
 Personal Communication channels
 Word or mouth
 Non-personal communication channels
 Opinion leaders
o Collecting Feedback – once the message has been sent
out, the business needs to research whether it has worked
or not. This can be done by surveying the target audience

• place/distribution
• Place refers to the distribution of the product. This process starts
with the producer and ends with the consumer
• Distribution channels – business or group of business involved in
moving goods from the manufacturer to the point of final use.
Common distribution channels include:
o Manufacturer > Consumer
o Manufacturer > Wholesaler > Consumer
o Manufacturer > Retailer > Consumer
o Manufacturer > Wholesaler > Retailer > Consumer
o Manufacturer > Agent > Retailer > consumer
o Manufacturer > Agent > Wholesaler > Retailer >
Consumer
• Reasons for intermediaries – intermediaries are independently
owned businesses that move products from producers to find
users.
o Intermediaries are used because:
 Ensure efficiency of distribution
 They match supply and demand by providing
customers with a variety of products from different
producers
 Reduce contact lines between manufacturers and
customers, which removes cost
• Distribution intensity – number of locations through which a
business sells its products
o Intensive distribution – product available at every possible
location (coke)
o Selective distribution – where a manufacturer wants to
widely distribute its product, but does not want to use
intensive distribution. (Ripcurl will not sell their product
through cheap department stores such as Target, but may
sell it through upper market stores such as David Jones or
Surfection)
o Exclusive distribution – limits supply of products to
particular stores or outlets (Bentley’s sold only to exclusive
car dealers)
• Physical distribution issues – physical distribution involves all
the activities involved in moving products from the manufacturing
point to the final consumer.
o Order processing – involves all activities used to handle
and fill sales orders
o Warehousing – the storing of goods while they wait to be
moved onto another area or be sold. Businesses need to
decide weather to have lots or small warehouses to improve
distribution efficiency, or have one large warehouse to
reduce costs.
o Materials handling – deals with the equipment used to
physically handle the products (forklifts, conveyor systems,
trucks). Ensures products are delivered quickly and safely
to customers.
o Inventory control – overseas the quantity of product that is
available for sale at any given point in time. Having too
much stock is expensive and it may perish or be stolen,
having too little will loose sales.
o Transportation – movement of products by air, land, sea.
The type of transportation will depends on what type of
product it is, where it needs to go, how quickly it needs to be
delivered.
• environmental effects on distribution
• Technology
o Technology has changed the way people shop and has thus
affected marketing as businesses are required to adopt their
marketing strategies to adopt this change. (internet has
enabled businesses to market and make sales easier and
more efficiently)
• Local Government
o Local government regulations such as zoning regulate the
positioning of businesses to certain zones (residential,
industrial, commercial). It also regulates what sort of
business activities are allowed to be undertaken, hours of
operation, and the size of the sign outside their business.

ethical and legal aspects


• environmentally responsible products
• other issues including creation of needs, impacts of retail developments,
sugging (selling under the guise of research)
• role of consumer laws in dealing with
– deceptive and misleading advertising
– price discrimination
– implied conditions
– warranties
– resale price maintenance.
9.4 HSC topic 4: Employment Relations

the nature of employment relations


• Employment relation is the function that deals with the relationship
between employers and employees. It is a strategic function including:
o Planning the needs
o Acquiring people with the right skills
o Developing and training employees
o Performance management
o Maintaining staff with the right rewards
o Dealing with conflict
o Working within the legal framework and developing relationships
• stakeholders in the employment relations process
o Employers – business owners and managers. Responsible
for wages and working conditions. Shift towards employers
viewing employees as valuable assets as a better employee
will give the business a competitive advantage. Emphasis
on providing employer training, improving quality working
life, improving physical working environment. WRA (1996)
rests workplace issues with the employer at the enterprise
level.
o Employees – people who are paid to work for employer.
Mainly concerned with wages and working conditions, which
can cause conflict with employers. Employees seek:
• Increased wages
• Improved working conditions
• Challenging work
• Autonomy
• Family friendly working conditions
o Employer associations – associations that represent the
employer members. Employers pay membership fees in
return for services such as: (AIG, BCA, MTIA)
• Representing members in negotiations with unions
• Appearing before industrial tribunals
• Participating in enterprise bargaining
o Unions – represent employees in the workplace.
Employees pay membership fees in return for services such
as:
• Legal representation in an industrial dispute
• A collective voice
• Improvement in working conditions
• Increase in pay
There has been a deterioration in the participation of union
membership in the past 20 years. This is due to:
• Shift in employment from public to private sector
• Shift from blue collar to white collar sector
• Shift from manufacturing to services industries
• Shift from full time to part time work
Union representatives in the workplace are called shop
stewards. Their job includes:
• Collecting membership fees
• Recruiting members
• Looking for breaches in awards or working conditions
• managing the employment relations function
• Unions also employ industry officials or organisers who move
between workplaces carrying out union business
o Government organisations – the federal government is
empowered to make laws with respect to coalition and
arbitration for the preservation and settlement of industrial
disputes extending beyond any one state. (AIRC, FCA, OEA)
• AIRC – prevents and settle industrial disputes by
conciliation, ensures a safety net for minimum wages
and conditions for employees, Deals with matters
concerning organisations, particularly registration,
amalgamation, cancellation, representation rights.
• Australian Industrial Registry – keeps register of
organisations, publish decisions, orders and awards of
the commission.
• Federal Court of Australia – applications concerning
the interpretation of awards or certified agreements,
penalties for breaches of awards and orders of the
commission.
• Office of Employment Advocate – provides advice and
assistance to employees and employers, mainly for
small business, approve workplace agreements, handles
breaches of agreements.
• Managing the employment relations function
o Line management and specialist – a line manager
is a person in charge of other employees who work together in
production of goods and services. Their tasks include:
o Motivating staff
o Discipline
o Managing conflict
o Staffing
o Training and development
key influences on employment relations
• social influences
• Increasing amount of females in the workplace
• Growth in part-time work
• Shift from manufacturing to services industry
• Increase in the use of contract work
• Decline in availability of unskilled work
• Growing division between skilled and unskilled workers
• More diverse workforce
• Mobility of workforce
• legal influences
• Australian workplaces are highly regulated compared to other
countries. The laws and regulations that govern the employment
relationship are common, numerous and constantly changing
o WRA (1996) – aims to encourage enterprise bargaining and
discourage intervention by other parties (unions) in settling
disputes
o Enterprise bargaining – process where employers and
employees negotiate the terms and conditions of
employment for their workplace
o Sex Discrimination Act – outlaws the discrimination on the
basis of sex, marital status and pregnancy
o Racial discrimination act – outlaws discrimination on the
basis of race, religion or colour
• new organisational behavioural
• Flat management and team structures - with Flat Management
structures, workers have direct contact with top level management.
There is no need for middle layer management and employees are
empowered to mage certain work related decisions. Teams are a
group of workers who are given the responsibility for a particular
task within the business, without day to day supervision
• economic influences
• The state of the economy and the increase in globalisation have a
significant impact on employment relations
o Globalisation – globalisation refers to the operation of
businesses in many countries. One result of this is an
increasingly mobile workforce. Globalisation means
Australian products must compete worldwide resulting in the
need for worlds best practice in terms of employment
relations.

effective employment relations


• role of employment relations
• Employment relations function is to manage the relationship
between the employer and employee effectively in order to develop
competent, flexible, and productive employees. In small
businesses, the owner may undertake this task, however, large
businesses may have specialist managers or departments. Most
businesses incorporate employment relations in their strategic
plans directly involving human resource managers in the long term
business plan.
• communications systems
Communication within the business is a key issue for effective employment
relations. Typical methods of communication between managers and
employees are:
• Daily walk around by management
• Regular meetings
• Email
• Notice Boards, newsletters
• Formal meetings
• Social functions
• Grievance procedures –
• Dispute
• Meeting between workers and supervisors
• Meeting between workers and higher
management
• Conciliation involving disputing parties and
IRC commissioner
• Formal hearing of the dispute
• Final decision made by IRC which is legally
binding
• Worker Participation – involves workers along with their
managers making decisions about matters that affect them in the
workplace (eg. Job design, pay conditions, OH/S, New technology,
discipline). Common approaches to improve worker participation
include:
o Joint-consultative committee
o Self managing work teams
o Quality circles
o Employee representatives board
o Profit sharing schemes
• Team Briefing – meeting between managers and a team of
workers where discussion takes place. Some benefits of team
briefings include:
o Reinforces management
o Prevents misunderstanding
o Helps people accept change
o Improves upward communication
• rewards
• Financial – usually in the form of wage or salary increases,
commissions and bonuses, share ownership schemes or general
pay increases. An employees pay can be determined by:
o Awards – legally enforceable documents made by the
industrial tribunal and set the minimum wage for an industry
o Enterprise Agreement – Agreements made between the
employer and the employees at a particular enterprise or
business
o Over-award payment – payments to employees that are
above award, enables employees to reward staff
o Individual contract – employment contract between
employer and employee setting out pay and working
conditions
o Performance-related pay schemes – some of the
employees remuneration is based on the performance of
the individual or the workgroup which they belong
• training and development
• Induction – training given to new employees when they start their
employment. This includes information about specific companies
and work rates. A comprehensive induction will help workers
adapt to a new environment, new management, colleagues, new
ethos, standards and expectations and will:
o Reduce initial anxiety of new employees
o Enable relations with existing employees
o Reinforce the attitudes that the organisation values
o Develop positive perceptions about the organisation
o Help understand the organisations procedures and
practices
• flexible working conditions
• Family Friendly programs
o Permanent part-time work – worker works less than a full
working day, week, month or year, but entails the same
entitlements as full time workers (eg. sick leave)
o Job Sharing – arrangement allowing two people to share
one full time job. This arrangement is commonly found in
Australia in teaching, law, Hospitals
o Career breaks – employee arranges a fixed period away
from work to undertake study or take care of family
commitments, with a guaranteed job upon return
o Home-Based Work – known as teleworking or
telecommuting, involves employees working away from
work on a full-time, part time, temporary or permanent basis
o Parental leave – time taken off work in order to take care of
children in their first year after birth.
o Personal Careers leave – employers, under federal
awards, are allowed to use a combination of sick and
bereavement leave to care for sick family members
o Childcare – two main issues include cost and availability of
childcare. Various schemes include school-holiday,
vacation care, long day care and family day care.
• measures of effectiveness
• Levels of staff turnover – refers to the rate at which employees
leave the business. This can be in the form of:
o Involuntary separation – eg dismissal, retrenchment
o Voluntary separation – eg resignation and retirement
High levels of staff turnover can indicate to managers that employees
are not satisfied with the working conditions in the workplace
o High levels of staff turnover is costly (training, recruitment,
loss of experience/culture)
o Some staff turnover is healthy (fresh ideas, wider
experience)
• Absenteeism – absenteeism is the percentage of employees on
an average day, who are away from work on sick leave without
being approved at advance. High levels of absenteeism are an
indication of poor employment relations, low morale, and poor job
satisfaction. It is costly as it lowers job satisfaction
• Disputation – industrial disputes often involve the withdrawal form
work by employees who are unhappy about an issue (Strike, stop
work meeting).
• Quality – the level of quality is a good indication about the level of
effectiveness of employment relations. Without cooperation of
employers and employees, the quality of work will suffer. Work
groups, team briefings, TQM, Benchmarking and quality circles are
various practices the improve quality and involves employees in
decision making, improving employment relations.
• Benchmarking – Benchmarking is a measure of business
performance compared with the best achievements of similar
organisations around the world. Employment relations can be
benchmarked against Aust. Practices or worlds best practice.

legal framework of employment


Employment relations is highly regulated by law. The main areas include
common law, statute law, awards and agreements
• the employment contract
an individual contract of employment is an agreement between an employer
and employee, which creates rights and obligations for both parties that
are enforceable by law.
• Contract of service – employer/employee relationship where the
employee must perform tasks under the control and direction of the
manager
• Contract for service – relationship between employer/individual
contractor where the contractor controls how the task is done, what
materials will be used ect..

Employee Contractors
Workers Compensation Law requires employees Expected to provide
to provide compensation own coverage through
coverage private insurance
Tax Employer liable for Expected to arrange
payroll tax, compulsory own taxes
superannuation
entitlements, fringe
benefits tax, and PAYE
tax deductions for
employees
Leave Entitlements Entitled to statutory or Self-employed and
award leave entitlements must make allowances
that are made up of for the various leave
annual leave plus loadings
loading, long service
leave, statutory holidays
and a set number of
days for illness
• Duties of employers/rights and obligations
o Employers have certain obligations under common law
including:
 Duty of care – obligation to take reasonable care for
the safety of employees by providing safe
equipment, safe system of work, warning employees
of risk and training employees thoroughly
 Duty to pay remuneration – employers must pay
correct wages as set in awards and agreements and
reimburse employees for expenses
 Duty to provide work – employers must provide
work except in casual employment contracts.
 Right to dismiss – employers have the right to
dismiss any worker on the spot in particular
situations where employees have failed to:
• obey lawful instructions
• perform duties over a period of time
• perform duties with necessary safety
• meet conditions of the employment contract
• Duties of employees
o Employees have certain obligations to:
 Duty to obey employers lawful, reasonable and
safe standards – employees must follow all lawful
and reasonably commands of their employers and
comply with award agreements
 Duty to work with skill, competence, and care –
employees have a duty to use care and skill under
the OH&S legislation
 Duty of good faith and confidentiality –
employees must not give out private information or
trade secrets which is private property and must
account for all money/materials received or lost
 Duty to disclose information relevant to the
employer – the employee must disclose information
requested by the employer is specifically asked and
of directly relevant tot the employment activities.
• Regulating the relationship between employer/employee
o Statutes – there are numerous pieces of legislation that
are designed to regulate the relationship between
employers and employees (1996 WRA)
o Awards – legal documents made by industrial tribunals that
set the minimum wages and working conditions that must
be provided to employees. The WRA 1996 has set the
awards to 20 allowable matters, further legislation will
simplify this to sixteen.
o Agreements – agreements between employers and
employees can be formal or informal
 Informal Agreements: agreements that are not
registered by an authority or tribunal. Informal
agreements can not undercur awards or formal
agreements
 Formal Agreements – written agreements made
under legislation and are registered under the AIRC.
They can be collective (certified agreement) or
individual (AWA)
o AWA’s – individual agreements between employees and
employers about terms and conditions of employment.
AWAs have no role for unions or other third parties. They
must be approved by the employment advocate who apply
a no disadvantage test
o Certified agreement – an agreement made between an
employer and an group of employees or between an
employer and a union representing employees. Certified
agreements are generally for:
 small businesses
 geographically distinct part of a business
 organised unit within a business
• types of employment contract
• Permanent and part time – the number of hours worked per week
will determine the type of employment. Both full and part time
workers have an arrangement of contract to work specified hours
per week
• Casual employment contract – casual employees are employed
for short term irregular or seasonal work. There is no promise to
provide work or to be available for work on other occasions.
Casual employees are paid above the award as a result of not
having access to annual or sick leave.
• Fixed term employment contracts – fixed term employees are
often employed for a specific project or to replace employees who
are absent on long service leave. They are not covered by federal
legislation
• Apprenticeships and traineeships – agreements between
employers and trainees/apprentices for training and employment.
They are educated in on-the-job and off-the-job in structured
training and are guaranteed work at the end.
• Tradespeople – include motor mechanics, fitters, hairdressers,
and chefs. State legislation requires the employer does not
employ anyone under 21 unless they are an apprentice or have
completed an apprenticeship.
industrial conflict
• definition and causes
• Industrial conflict is defined by the ABS as withdrawal from work
by a group of employees or a refusal by employer to allow them to
work. Industrial disputes are a result from disputes concerning
wages, working conditions, leave and managerial policy.
o Wage demands – demand by employees for an increase in
wage rates
o Working Conditions – include protective clothing, first aid
services, uncomfortable working conditions, poor equipment
o Management policy – caused by:
 Terms and conditions of employment
 New awards and agreements
 Discipline matters
 Disagreement with managerial decisions
o Political goals and social issues – unions have become
more involved in political and social issues. These include
conscription, urban development, rainforest conservation.
• perspectives on conflict
• Unitary view – assumes all employees within a business share
goals of the business as defined by senior management
• Pluralist view – pluralists are made up of many parts and have
many stakeholders; as a result they will not share the same views.
Managers need to develop an effective system of communication
that allows employees to express their views and resolve them
• Radical view – focuses on the imbalance of power between
employers and employees. This imbalance is believed to be so
great that employees believe they have to overthrow their
employers.
• Traditionalist view – views conflict as bad and would always have
a negative impact on an organisation (associated with violence,
destruction)
• Human Relations View – believed conflict was natural and
unavoidable occurrence in all organisations and it sometimes may
benefit the organisation
• Interactionist view – view encourages conflict on the grounds that
a harmonious, peaceful, tranquil and cooperative organisation is
likely to become static and non-responsive to the need for change
in an organisation
• types of industrial action
– overt
o Lockout – action taken by employers where employees are not
allowed to enter the workplace
o Pickets - Striking workers gather outside and do not allow
anyone to enter the workplace
o Strikes – where employees withdrawal their labour (most
common form)
o Ban – where employers refuse to take certain action
o Work to Rule – where employees work to the strict letter of
their award or agreement and refuse to do anything else
– covert
o Absenteeism – dissatisfied workers mar take more sick days
as a form of industrial action
o Sabotage – deliberate damage/vandalism to company property
o Labour turnover – some employees may leave the workplace
if they are dissatisfied with their work
o Exclusion from decision making in business – conflict can
arise if employees believe they have not had their fair say
• roles of stakeholders in resolving disputes
• The main stakeholders in disputes are employers and employees.
Australia’s industrial relations system has encouraged growth in
unions and employer associations. The federal government acts
as a reference and a judge in disputes, providing the framework
and the rules which workers and management negotiate. The
centre of most industrial relations disputes is usually a grievance:
o Small business – grievance are negotiated directly
between employer and employee
o Medium business – grievance are represented by human
resource managed
o Large organisation – usually a full time human resource
manager and department and industrial relations specialist
• Employer Association – represents individual employee who are
their members. They provide information to their members and
often this is enough to enable a dispute to be resolved at the
workplace level

• Main role of the AIRC


o Facilitate agreement making between employers and
employees about wages and conditions of employment
o Prevent and settle industrial disputes, as far as possible by
conciliation and at last resort by arbitration
• dispute resolution processes
• Grievance Procedures – formal series of steps which are meant
to be followed when a dispute arises
• Negotiation – involves discussion between the parties concerned
to try to mutually resolve a dispute. If it involves unions it is called
collective bargaining. Resolution can be in the form of AWA or CA
• Mediation – a voluntary negotiation process where a neutral third
person assists the parties to try and find a way to resolve conflict.
The mediator could be a politician, businessmen or any other
mutually acceptable person
• Conciliation – form of mediation in front of an industrial tribunal
• Arbitration – process that occurs when an industrial tribunal
evaluates the arguments of both parties and comes to a decision
which is legally binding
• Common Law Action – occurs where there is no state or federal
legislation governing a particular matter. This may include
o Breach in duty of care
o Vicarious liability
o Breach of contract
• Business/division closure – if a dispute is impossible to resolve it
may result in the closure of the business or division altogether.
Prolonged disputes can force businesses to close due to financial
reasons.
• costs and benefits of industrial conflict
• Financial Cost – significant financial costs are associated with loss of
production due to industrial action. Other financial costs include legal
costs, absenteeism, deliberate accidents, vandalism and theft.
• Social Costs – tension and dissatisfaction in the workplace could be
expressed at home resulting in family breakdown and domestic
violence. Anti-strike and anti-employer sentiment could create social
unrest.
• International Cost – industrial conflict could result in loss of market
share because the business and the supplier could be seen as being
an unreliable supplier (waterfront dispute)
• Benefits
o Provides opportunities for employees to express satisfaction
o New way of doing things (changes in production techniques)
o Productivity can be increased through changes in management
o New communications lines opened between employer/employee
o Health and safety issues discussed.
ethical and legal aspects
• issues in the workplace
• Working Conditions – working conditions are a key issue in
relations between employees and employers. They include:
o Hours
o Job design
o Employment contract
o OH&S
o Leave
o Employee consultation
o Management style
o Physical working conditions
• OH&S – about protecting people in the workforce. These
people include employers, employees and contractors
• Workers Compensation - .workers compensation laws
provide payment for workers if they are injured as a result from
their work. Workers compensation provides regular income
and medical expenses as a result of their injuries. Workers
compensation covers:
o Physical injuries
o Disease
o Psychological injuries
o Injury due to travel
• Anti-Discrimination
o Anti-Discrimination Act (1977)
o Discourages anti-discriminatory behaviour in the workplace,
ensuring that everyone has a ‘fair go’.
o Management must be aware of such legislation when
making decisions regarding employees (not to be
discriminatory)
• Equal Employment Opportunity
o Human Rights and Equal Opportunity Commission Act
(1986 – NSW)
o Aims to reduce discrimination in the areas of sex, disability,
race and religious belief.
o Management must be aware of such legislation when
making decisions regarding employees (not to be
discriminatory)
• Unfair Dismissal
o Industrial Relations Act (1996 – NSW)
o Prevents unfair dismissal of employees – ‘harsh,
unreasonable or unjust’
 Employers must give employees a warning of
dismissal and time to improve
 If they have not improved, employees must dismiss
employees in writing, and given 2 weeks notice (if the
business wants them to leave at that moment, they
must pay 2 weeks salary).
9.5 HSC topic 5: Global Business

globalisation
• nature and trends
• World Wide Level – globalisation is the growing economic
interdependence between countries. The world has become a
single market as a result where cross border trade in goods and
services and capital is increasing
• Specific country level – globalisation refers to the link between
countries economy and the rest of the world. (price rises in
commodities may have impacts on prices of goods in another
country)
• Company Level – globalisation refers to the way businesses can
expand sales and assets across countries. Companies can now
obtain labour and capital from foreign countries.
• Growth of the global economy – globalisation has increased due
to improvements an communication and transport technologies,
liberation of trade policies and through the activities of TNCs
• Changes in Markets
o Changes in financial/capital markets – one of the major
driving forces of globalisation is the development of Global
Financial Markets
 International equity market – made up of all bonds
bought and sold outside the issuers home country
 International bong market – market of all bonds
bought and sold outside the issuers country
 Foreign exchange market – the market for the
exchange of all foreign currencies
o Changes in Labour markets – Labour markets have
become more globalised despite barriers to entry to foreign
countries (immigration, language, culture). This has
occurred due to:
 TNCs accessing foreign markets by locating in
different countries
 Creation of trading blocs (EU, NAFTA, CERTA)
o Changes in consumer markets – consumer mkts have
changed due to:
 Product standardisation by TNCs (McDonalds,
Subway, MTV)
 Use of e-commerce has allowed consumers to buy
products from around the world
 Reduction of trade barriers have not only reduced
prices, but also given consumers a wider choice of
goods and services to choose from
• trends in global trade since World War II
• Over the past 50 years there has been a tremendous growth in the
volume of goods and services trade, financial flows between
countries.
o 1991 > 2000 volume of trade in goods and services rose by
6.7%
o 2000 – total exports of goods and services values at $7.3
trillion, in 1953 this was only $53 billion

• drivers of globalisation
• Role of TNC – the increased activities in TNCs have increased the
integration of national economies
o Multinational – involves foreign subsidiaries that act
independently each with full production facilities in the
countries in which the operate
o Global Strategies – comprises a parent country and
subsidiaries which are part of the integrated production
chain
o TNC – combination of multinational and global strategies.
TNCs have key resources and activities spread around the
globe. Resources integrated into an interdependent
network of world-wide operations.
• Impact of Global Consumers – there has been a growing
similarity between global consumer tastes and preferences around
the world. Increase in telecommunications has allowed cultures
and values of different countries to influence each other. This has
allowed TNC to take advantage through large scale production and
marketing
• Impact of technology – improvements in technology has
contributed to the growth of globalisation. Improvements include:
o Cheaper air transport and shipping (containerisation)
o Improvement in telecommunications
o E-mail
o E-commerce
• The role of government – governments have contributed to the
growth of globalisation through:
o Trade agreements – over the past 50 years trade
agreements between countries has reduces barriers to
trade (tariffs, subsidiaries, quotas). The WTO has been
introduced to manage this trend. EU, NAFTA, CERTA are
trading blocs that contribute to the liberalisation of trade
o Political changes – in particular, the decline of the
communist regimes in Russia have opened up more
countries to free trade.
• Deregulation of financial markets – over the last 30 years
governments have moved or relaxed regulations regarding their
financial sector. As a result:
o Fixed exchange rates have become less common, replaced
with floating exchange rates.
o Overseas investors can invest on a countries capital
markets
o FDI is able to enter and leave a nations economy
• interaction between global business and Australian domestic business
• Australian businesses rely on Australian domestic businesses to
provide raw materials, finished goods and intermediate goods
• FDI in Australian businesses link Australian domestic businesses
with foreign businesses
• Australian business managers have become prominent in the
senior management of the worlds global growth (Rupert Murdoch)

global business strategy


• methods of international expansion
• Exporting – the selling of products in overseas markets.
Businesses often use exporting as a low cost, low risk way of
getting into global business
o Direct Exporting is the practice of using intermediaries to
export products to other countries
o Indirect Exporting occurs where a business sells its
products directly to overseas buyers.
• Foreign Direct Investment – form of expansion where by a
business invests in overseas businesses in order to gain control or
property, assets or companies. Types of FDI include:
o Wholly owned Subsidiary is where a business is owned
and controlled by a parent company
o Joint Venture separate business created an jointly owned
by two or more separate businesses
o Strategic Alliance are arrangements between two or more
businesses with a common objective.
• Relocation of Production – important factors in selecting the
location of production include cost, availability of labour,
management experience, raw materials, parts and energy as well
as government regulations
o Redistribute labour costs by taking advantage of low
wages in developing countries. This is important as labour
is the greatest business expense.
o To get around trade barriers countries may invest large
amounts within countries involved in trading blocs in order
to avoid tariffs imposed on non-member nations
o Be closer to customers by building factories close to
consumers in order to avoid costs associated with transport.
• Management contracts – where one business provides
managerial assistance, technical experience and specialised
services to other organisations. The organisation providing the
service will gain in terms of extra income and entry to foreign
markets. The receiving organisation will receive assistance
without increasing foreign investment. Skills can be passed onto
workers locally.
• Licensing and Franchises
o Licensing – occurs where a business sells the right for their
intellectual property to be used by other businesses. This
may include technology, work methods, patents, designs,
copyrights, trademarks and brand names. Advantage of
taking advantage of foreign production without ownership,
managerial or investment obligations. Disadvantages
include loss of ownership over assets.
o Franchising – an arrangement where one business
supplies another with intellectual property and managerial
support. Franchising gives the franchisor significant control
over sale of its products. They must follow strict guidelines
in relation to quality and promotional aspects of the
business. It is low cost, gives access to local knowledge,
creates strategic deals with suppliers
• reasons for expansion
• Increase sales and find new markets – by expanding overseas,
companies are able to increase sales. Advantages: the product
may be in different stages of its life cycle in different countries,
lengthening the life span of the product.
• Acquiring resources – businesses go global in order to acquire new
resources or find cheaper resources than what are available
domestically. These resources could be labour, capital or technology.
(Nippon Saishi, a Japanese business, is a paper processing plant that
owns forests in America)
• Diversifying Markets and Suppliers – businesses go global in order
to avoid swings in sales in any one country (skiing company may go
global to retain sales year round). Businesses also go global in order
to ensure supplies are reliable and not subject to price fluctuations.
• Minimising competitive risk – by going global, businesses can
minimise competition in any one market.
• Gaining Economies of scale – economies of scale are the cost
reductions a business gains as it increases in size. Going global will
increase the size of the business, allowing it to take advantages in cost
reductions through bulk buying
• Taking advantage of regulatory differences – Domestic laws vary
from country to country affecting businesses competitiveness (higher
wages in Australia than in china). Thus businesses can take
advantage of regulatory differences. However there are some ethical
questions regarding this.
• Minimising Tax – businesses can reduce tax burdens by relocating in
countries with favourable tax laws. Tax havens are countries with little
of no taxation (Monaco, Caribbean)
specific influences on global business
• financial
• The main financial influences on global businesses are:
o Currency fluctuations global businesses undertake more
complicated transactions where two or more businesses are
involved
o Exchange Rates is the price of one countries currency
compared with another. Changes in exchange rates will
impact in global businesses revenue, expenses and profits
o Foreign exchange risk currency fluctuations create many
ricks for businesses
 Transaction exposure occurs when a currency
fluctuations can affect the financial cost or revenues
of an overseas business transaction
 Translation exposure occurs when currency
fluctuations can affect the value of a businesses
foreign assets, liabilities and profits
 Economic exposure is the impact of unexpected
exchange rate changes on the value of a business’
operations
o Influence of currency fluctuations on business
activities
 Fluctuations effect production decisions for TNCs
as they aim to generate costs in weak currencies
whilst earning profits in a strong currency.
 Fluctuations effect financial decisions. When
paying interest/dividends, exchange rates will
influence how much will be paid
• Interest rates are the price of money. Global businesses seek low
interest rates when borrowing to expand their activities. The
exchange rate of a country is linked to interest rates within that
country. (high e/r = strong currency)
• Overseas borrowing has enabled businesses to borrow funds
from many sources.
o Debt > domestic, overseas borrowing
o Equity > Retained Profit, shares sold on domestic
exchange to overseas borrowers
o When borrowing from overseas, businesses can use the
international capital market (network of individuals,
businesses, financial institutions and governments who
borrow funds and invest across borders)
• political
• Tensions between protection and free trade – free trade
agreements between various countries have seen a reduction in
the levels of protection. The outcome of the protection/free trade
debate is curtail fir global businesses as it effects the size of their
profits and their ability to compete in international markets.
• International Organisations and Treaties
o GATT the General Agreement on Tariffs and trade was
formed to promote free trading by reducing tariff protection
and promote international trade, GATT was successful for
reducing protection in manufacturing goods, but less
effective in agriculture (USA, Japan and Europe were the
main offenders)
o WTO the World Trade Organisation has the power to
enforce international trade agreements making it more
powerful than the GATT. WTO promotes the flow of free
trade, the opening of new markets and the settlement of
trade disputes among member nations. The WTO has
powers in dispute settlement. They do this from member
consultation and negotiation and as a final resort can
impose financial penalties on offenders.
o Trade Agreements are formed in order to promote
international trde between countries.
 Multilateral Trade Agreements (more than 2
countries EU, NAFTA)
 Bilateral Trade Agreements (only 2 countries
CERTA)
• Types of Regional Agreement
o Free trade area where member countries remove trade
barriers, but treat non-members as they like (imposing
tariffs, quotas ect…)
o Customs Union where countries remove trade barriers and
agree to a common trade policy against non-members
o Common market economic integration which involves free
movement of labour and capital among members. Free
trade and common trade to non-members
o Economic Union member countries agree to coordinate
their economic policy (monetary/fiscal)
o Political union economic and political integration by
member countries.
• War and civil unrest global businesses are affected by war and
civil unrest in the countries in which they operate. There may be a
change in the political environment which affects business activity.
• legal
• Contracts – contracts vary from one country to another and
managers must ensure they understand the specific practices of
the countries in which they operate.
• Dispute Resolution
o Which countries law applies?
o In which country should the dispute be resolved?
o What resolution methods should be used?
o How will the settlement be enforced?
• Principle of comity – is a legal provision that a country will honour
and enforce decisions of foreign courts as long as these decisions
do not break the laws. Since legal action is expensive and allows
few avenues and the outcomes are uncertain, other methods such
as conciliation and arbitration are used.
• Intellectual Property – a business’ intellectual property can be the
most valuable asset it possesses and therefore it must be
protected. A good step in the protection of intellectual property is
through the WTO who enforces the Agreement on Trade-related
Aspects of Intellectual Property Rights. The WTO sets detailed
minimum standards of protection that each member nation must
provide.
• social/cultural
• Language – language differences can create problems for global
businesses particularly during trade negotiations. Unspoken
language (gestures) also differs between nations and can create
problems for global businesses.
• Tastes – different cultures have different tastes and preferences in
goods/services. Global companies that customise their products to
foreign tastes will be the most successful in foreign markets.
• Religion – religious influences global businesses as it impacts on
the sorts of products that are consumed, work schedules and the
role of individuals in society.
• Varying Business practices and ethics – business practices and
ethical standards vary in different cultural environments. This can
cause conflict for consumers in a number of ways.
o Bribes are accepted as normal business practice in many
countries. The OECD has attempted to stop bribery in
international business transactions
o Gift Giving and hospitality are important means of
business communication in many cultures (Japan)
o Negotiations styles vary from culture to culture. Global
businesses must adapt their own style to fit in with the host
countries practice
o Nepotism refers to favouritism shown to relatives by those
in power

managing global business


• financial
• Methods of Payment – because of the unique nature of
international trade and business transactions, a variety of payment
methods has developed to facilitate trade.
o Advance payment – payment sent to the exporter by mail,
electronic transfer or bank draft. Receiving payment in
advance is safest method
o Open Account – where the exporter delivers the goods and
later bills the importer. Obvious risk for the exporter
o Documentary Collection – export/import financing where a
bank acts as an intermediary without any financial risk.
Commonly used
o Letters of Credit – guarantee by the importers bank when
the exporter fulfils the terms of the document
o Irrevocable letter of credit – can not be changed of altered
without the approval of both parties
o Revocable Letter of Credit – can be changed or cancelled
without the consent of all parties
• Credit Risk – as with any commercial transaction a business
accessing credit should check the credit rating of their customer.
Aust domestic banks and AusTrade also offer credit ratings for
customers. By using a letter of credit an exporter is guaranteed
payment from the importers bank
• Hedging – practice of protecting the business from adverse
changes in exchange rate by entering into a contract at the present
time to buy or sell foreign exchange at a specified rate on a given
date in the future
• Derivatives – this is a financial instrument whose value is derived
from other commodities or financial instruments
• Insurance – global businesses face risks such as war and civil
unrest. The Australian Gov. has created the Export Finance and
Insurance Corporation (EFIC) to ensure Australian overseas
investment.
• Obtaining Finance – because international activities are often
risky, banks are often unwilling to provide finance. EFFIC can
provide guarantees to allow businesses to arrange finance with
banks and/or businesses in other countries
• marketing
• Market Research – while marketing principles remain the same
for some businesses, principles vary between countries making
market research difficult for businesses. These include:
o Different values
o Different political systems
o Different legal systems
o Availability and reliability of secondary data
o Difficulty in collecting primary data (language)
o Differing definitions between developed nations (pepsico
consumption)
• Global Branding – a global brand is a brand name that is the
same in all markets regardless of their respective languages. A
global brand will have the same positioning (image in the mind of
consumers) around the world. However, the marketing mix may
vary from country to country.
o Advantages
 Instant recognition around the world
 Savings in promotion cost
o Disadvantages – translation of brand names into different
languages can cause different meanings (pshitt, sars)
• Standardisation and Differentiation – standardisation involves
offering a common product on a world wide basis. Advantages of
this are:
o Aimed at global consumers
o Achieve economies of scale
o Savings in research and development
o Economies in marketing
There is the same debate that argues businesses should customise their
products. Customisation refers to changes made to a product to fit in with
global needs
• Differentiation – differentiation is a strategy in which a business
develops a marketing mix that makes t stand out from its
competitors. This can be based on quality, reliability, fashion,
product design or brand name
• operations
Operations is the set of activities that transports inputs into finished goods and
services. For global businesses operations management is complex
concerning decisions of: where to acquire inputs, location of offices and
production facilities, transport logistics, managing inventory.
• Sourcing – a set of processes and steps a business uses to
acquire resources it needs to make its own products
o Vertical integration occurs where a business controls the
supply of its inputs and/or the distribution of its outputs
o Make or buy – the level of vertical integration depends on
management decisions to make of buy their inputs
 Reasons to make: lower costs, greater control of
supply and quantity
 Reasons to buy: lower risk, greater flexibility (use of
a number of suppliers)
• Global Web – refers to businesses that locate production facilities
in different countries. Transnational Companies can gain a
competitive advantage by coordinating operations across national
borders.
• employment relations
• Organisational Structure – refers to the way a business divides
its activities among separate units and coordinates the activities
among these units. Global businesses need to choose between
centralised division making (head office tightly controls decisions of
foreign subsidiaries) or decentralised decision making (where
subsidiaries have more autonomy)
o Advantages of centralised decision making
 Manager helps coordinate activities
 Helps to coordinate financial resources
 Allows one corporate strategy
o Advantages of decentralised decision making
 Local subsidiaries have better understanding of the
culture, policies, laws and competitors in their market
 decentralised decisions are able to become more
responsive to changes
 the products could be better suited to the local
customers
o types of organisational structure include:
 Division Structure
 Area Structure
 Product structure
 Global Matrix Structure
• Staffing – for global businesses, staffing involves recruitment,
training and maintenance of management and production staff.
Some businesses prefer to use home country managers
(Ethnocentric)
o Advantages of ethnocentric
 Share common culture with corporate headquarters
 Best to transfer successful business practices in
other countries
o Disadvantages
 Lack knowledge of host countries laws, culture,
social structure and political processes
 Expensive to relocate, train, maintain in host country
 Host countries sometimes restrict number of foreign
employees
• Shortage of Skilled Labour – global businesses will face different
supplies of skilled labour depending on which countries they will
locate operations in
• Labour Law Variations – global businesses face different labour
laws for their employees in different countries this makes
employment relations for global businesses more complex. The
main labour law variations apply to
o Pay and fringe benefits
o Equal employment opportunities/discrimination
o Labour relations
• Minimum standards of labour – standards of labour, wages and
working conditions vary from country to country. Generally,
developed nations have higher paid, better educated and better
protected labour than less developed nations. the International
Labour Organisation (ILO) is a united nations agency. It seeks to
improve human labour rights and promote social justice
o Staffing systems – there are three types of staffing
systems
 Ethnocentric where home countries nationals are
used in senior management positions
• Advantages:
o Helps spread corporate culture
o Better managers than are available
locally
• Disadvantages
o Expensive to relocate
o Managers can suffer culture shock,
where workers feel disorientated
because of the inability to adopt to new
culture
 Polycentric where the host country staffing are
employed in seniour management positions
• Advantages
o Cheaper
o Know the local market
• Disadvantages
o Potential to loose control of operation
 Geocentric is where the best available person is
employed in senior management regardless of their
nationality. They could be home country, host
country, or third country
• evaluation
• As part of the management process, businesses should evaluate
the results of their strategies, asking questions such as:
o How effective have the strategies been?
o What adjustments, if any, are needed?
Control can be defined as the monitoring of activities to make sure that they
are meeting objectives
Measure of actual performance -> compare actual performance against
objectives -> take action to correct performance if necessary
• modifications of strategies according to changes in global market
• Once a business has evaluated its performance, and has identified
success and failures, managers need to take some action. If the
reason for the difference in performance and objectives is poor
performance, managers can re-examine the business strategies,
products, employees or the structure of the business itself.
management responsibility in a global environment
• ethical practice
• Tax Havens and Transfer pricing
o Tax Havens are economies that impose little or no
corporate income tax. Eg Cayman Islands, Bahamas,
Vanuatu, Panama, Luxemburg, Monaco.
o Transfer Pricing can be used by a global business to shift
profits to low tax countries. While this is legal, it could be
seen as unethical. Some governments have began to
regulate transfer pricing by using arms length pricing
• Minimum standards of labour – global businesses can take three
main approaches to applying workplace labour standards:
o Adopt local standards of pay and conditions
o Can set a global standard for their whole business
o Can set a global minimum standard
 Advantages
• Good image/reputation
• May help entering into new markets
• Allows the business to benchmark
• Allows transfer of expertise amongst countries
• Dumping illegal products – because consumer protection laws
vary from country to country, an ethical question arises about
selling products banned in one market but not in others
(pesticides)
• Ecological sustainability – this is the idea that natural resources
should be used to meet the needs of the present generation
without compromising the ability of future generations to meet their
needs.

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