Unit 1Business Organisation & Environment

Types of organisation

Learning Objectives• Distinguish between organisations in the private sector and

public sector, applying these distinctions to your own country• Explain reasons for starting a business, how to identify a market

opportunity and the problems faced by business start ups• Distinguish between different types of profit based organisations• Evaluate the most appropriate form of legal organisation for

different businesses • Compare and contrast the objectives of non profit and non

governmental organisations and analyse the impact of their actions

• HL – Explain the nature of public-private partnerships, analysing the costs and benefits of co-operation between the public and private sectors

Types of OrganisationPublic Sector

Organizations that answer to or are controlled by

local government

Private SectorBusinesses owned or controlled by groups or

individuals

The sectors may link,

• Government’s usually regulate quality standards• Government’s usually prevent private

monopolies• Government’s usually ensure health and

education services are available to everyone

Privatisation – selling public sector organisation’s to the private sector

But is privatisation good for a country?

• http://www.independent.co.uk/news/uk/the-story-of-a-bad-idea-privatisation-of-br-could-soon-bring-higher-fares-and-higher-state-subsidies-and-reduced-services-so-whose-idea-was-it-who-still-supports-it-and-how-on-earth-did-it-get-this-far-1464062.html

I´m having a TOK moment

To what extent is the state ensuring the well being of the people over profit?

Freedom of choice

On tables discuss, to what extent are the Government of Mexico ensuring the wellbeing of the people over profit?

Compare with a different country

Discuss

Types of EconomiesMixed – economic resources are owned by

private and public sectorsFree-market – economic resources are mostly

owned by the private sector with little state / government interference

Command – state owns, controls, and plans the economic resources

Many public businesses, energy, telecommunications, public transportation, have been sold to private companies

PRIVATISATION

What are the benefits and issues arising from Pemex being

privatised?

Starting a businessThe role of the entrepreneur – Somebody who

takes financial risk to start/manage a: – New venture– New product– New customer service idea

Entrepreneur characteristics

• Innovative – ideas & actions• Committed/self-motivated• Multi-skilled – produce, service, promote, sell,

accounting• Leadership skills• Belief in oneself• Risk taker

Reasons for starting a businessMany reasons, but they can be remembered by G.E.T. C.A.S.H.• Growth: appreciating assets (capital growth) often outpace an owner’s

earnings– Donald Trump – real estate assets

• Earnings: self-employed earnings can far exceed employees’• Transference and Inheritance: passing on business to next generation• Challenge: some people love the struggle to succeed

– Warren Buffet – works beyond retirement age

• Autonomy: the self-employed set their own rules• Security: there is more job security for the self-employed• Hobbies: turn a personal interest/talent into a business

– J.K. Rowling – Harry Potter on a napkin into $

Identifying market opportunities• Market Opportunities: identification of new or unsatisfied consumer

needs• Gap in the market – identify where a small segment of the market is

unfilled– Niche markets

• Innovative ideas – new businesses can make it big with new ideas– E.g. Ebay’s online auctioning, iPod

• Market research is paramount! – Don’t assume things will “fall into place”

Frequent problems for start-ups40% of new businesses fail within one year!

• Lack of finance capital – difficult to obtain money for fixed assets • Cash flow problems – no money for the “day-to-day” affairs• Unestablished customer base – failure to attract customers• People management problems – poor staffing or poor organizational skills• Legalities – businesses often fail to comply to local laws (and pay big fines)• High costs of production – it takes long time to recover start-up costs• Poor location – prime locations usually cost more• External influences – difficult for small firms to recover from external shocks

1st few months are the most dangerous!

Profit-based Organisations

Profit-based Public-sector

business

SoleProprietorship

PartnershipLimited

Companies

Private (Ltd) Public (plc)

Cooperative

Sole-Tradersalso known as Sole-Proprietor

• Sole-trader : individual who owns their own business• Business is unincorporated

– Firm and owner are treated as the same entity• Lawsuits, etc. can affect owner’s personal assets – Unlimited liability

• Advantages:– Few legal formalities– Owner receives all profits– Privacy – they do not have to disclose their records

• Disadvantages:– Unlimited liability – no limit to amount of debt owner is responsible to pay– Limited finances – it may be difficult to obtain money– Workload – sole-traders often do all management

• If owner is absent, business may be jeopardized– High costs of production – sole-traders do not enjoy large economies of scale

Partnerships

• Partnership: profit-seeking business owned by two or more individuals– Max number of partners is 20 (for many countries)

• At least one partner must have unlimited liability (but usually partners share)– Sleeping Partners: not active in firm, but share profits

• Contract should be drawn that addresses contributions, roles, liabilities, and profit-shares of each partner

• Advantages:– More financial strength– Division of labor/specialization– Privacy

• Disadvantages:– Unlimited liability – w/o contracts arguments could arise about whose assets should

be used to pay debts– Conflict about decisions and break of trust– If one partner dies/leaves, the partnership could dissolve

• Private Limited Company: companies that can’t raise share capital from the general public

• Shareholders can’t sell shares without permission from Board of Directors– Usually family-run companies– Advantages - Retain much control

– Disadvantages - Difficult to raise as much capital

• Public Limited Company: companies that advertise and sell shares to the general public through a stock exchange

• Advantages – Permanent capital from selling shares; Managers own shares and have vested interest; Specialists can be hired to run company

• Disadvantages - Suffer from dilution of control; Vulnerable to take-over bids; Disclosure of finances; Shareholders demand dividends

• “Going public” moves a private corporation to a public corporation

• Businesses can also “go private” to retain control

• Can change business form as need arises (usually due to growth or monetary differences)

Public-sector enterprises

• Owned by the state / government– Profit is not usually the main goal

Non-profit Organisations• Non-profit: organisation that is run as a business, but without the

objective of making profit• Non-governmental Organization (NGO): non-profit organisation that

isn’t owned by government• Charities: non-profit organisations that collects donations to support a

cause that is beneficial for society– Advantages:

• Tax breaks for charity and for donors

– Disadvantages:• Lack of profit motive could cause complacency

• Special Interest Groups: non-profit organisations that focuses attention on a specific issue– E.g. anti-gun, anti-smoking, etc.– They aim to raise public awareness and even lobby politicians

Non-profit & non-governmental (NGO)

• Not in business for profit (charity, public interest group)

• Want to help others (humanitarian)

Pressure Groups - Advocates• Greenpeace• Fair trade Foundation• World Wildlife Federation

Try to change:• Government policies• Business policies• Consumer purchasing

habits

By using:

•Media coverage

•Influence consumer behavior (boycott)

•Governmental lobby

Social Enterprise• Society-aiding business using profit for social

good (ie. Salvation Army)– Directly produce goods/service– Social aims and are ethical in their pursuit– Need to make profit to survive

• Aims:– Economic—profit/surplus to reinvest into business– Social—jobs for local (disadvantaged) community– Environmental—protect environment & manage

business in environmental way

Public-Private Partnership

• Sometimes governments partner with private firms to create a ‘joint-venture’

• This gives benefits of both private and public sectors– I.e. efficiency and funding

• Examples include:– Hong Kong Disneyland, New York’s Central Park,

etc.

HL

Relationships Between Organisations in the Private and Public Sectors

• Public goods: products that are enjoyed by the general public, but are unlikely to be provided without government intervention– E.g. national defense, street lighting, etc.

• Public goods must be non-excludable– This means that people cannot be excluded from the

benefits of consumption• Both public and private firms interact to provide public

goods– E.g. Government can contract private firms to construct

highways or build fighter jets HL