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goods like cars, washing machines, or personal computers; or non-durable goods like sweets, drinks, newspapers. › Durable goods can be used regularly over a long period of time while non-durable goods are consumed over a short period, usually soon after they are bought. › Examples of services are going to the hairdresser, being served in a restaurant, or visiting a doctor. 7 BM Activity - Answers on next slide Categorise the following into goods or services > Mobile Phone > Doctor › Dentist › Car > Computer > Fast Food › Banking > Restaurant > Hairdresser > Insurance › Newspaper > Shoes › Petrol > Education 8 B M GOODS Tangible - See & Touch Mobile phone Computer Car Food/Drinks Newspapers Shoes Petrol SERVICES Intangible - things done for us Doctor Hairdresser Dentist Restaurant Banking Insurance Education 9 B M Goods and Services Goods can be split into two categories: CONSUMER GOODS Goods sold to the general public (all familiar with - goods which you and I buy) INDUSTRIAL GOODS Goods which help produce other goods e.g. machinery 10 B M Durable & Non Durable Durable Goods Items which are long lasting, more than 1 year. Examples • Lightbulbs Shoes • Clothes Phones • Laptops Non-Durable Goods Items that are purchased for single use. Examples • Food Drink Petrol 11 B M The Entrepreneur A person who starts a business and is willing to risk loss in order to make money. Examples Jeff Bezos - Amazon Arianna Huffington - Huffington Post Elon Musk - SpaceX Vera Wang - Vera Wang Fashion Steve Jobs - Apple 12 BM M The role of an Entrepreneur Taking the risk of losing what has been invested. Developing a business idea. Organising and sourcing all materials that are needed to create the product/service. > > > > Generating finance to fund the idea through loans, family friends, crowdfunding Producing the product/service through combining the factors of production. 13 BM Factors of Production Understanding Business - Outcome 1.1 Higher Business Management CAPITAL TIM ENTREPRENEURSHIP LABOUR 14 LAND B M Factors of Production › Goods and services can be described as the outputs of business activity. > In order to produce these outputs, business makes use of resources, also called factors of production. > Factors of production are classified into four categories. 15 B M Factors of Production > Land (i.e. all the natural resources of the earth e.g. minerals, land, soil, air, fish, forestry, site of a factory) › › Labour (i.e. the human resources - the human physical effort) Capital (i.e. all resources which have been made by labour, such as machinery and other equipment such as vehicles and also includes money) › Enterprise (i.e. organising the other factors of production and taking the risk of producing goods or services in advance of them being sold - the entrepreneur). 16 BM Activity - Answers on next slide Classify each term from the list below as land, labour, capital or enterprise. Taxi cab • Salesperson Store owner ● • Factory Crane Ice Cream Van Owner of Ice Cream Van ● Teacher School bus • Personal computer Air • Tyres • Interior designer ● River Flowers £20 note Forest Office desk Fish Lumberman 17 BM Activity - Solution LAND Air River Flowers Forest Fish LABOUR Salesperson Store owner Teacher Interior Designer Lumberman CAPITAL Taxi cab Factory Crane Ice cream van School bus Personal computer Tyres Office desk £20 note ENTERPRISE Ice Cream Van owner (can also be labour) Interior Designer 18 BM Wealth Creation › Business activity can be described as 'wealth-creating'. This is because the term 'wealth' is used to refer to the amount of goods and services, or output available - the more goods and services that exist the greater the amount of wealth. > > In this sense, then, wealth is not money as such but the total of goods and services which can be given a monetary value. 19 BM М Wealth Creation Finally, goods and services are sold in markets. These exist where goods and services are exchanged between consumers and producers. > > > Examples of markets are the housing market, the marker for snack foods and the financial services market. Om'omo H McVitie's Hobnobs HULA HOOPS ORIGIN MORE WALKERS 20.000 HOLIDAYS GUINNESS Jaffa Ches HDFC BANK We understand your world Goldman Sachs MasterCard PayPal iberty Bank VISA to bank your way tandard artered HSBCX Ilo 1 e Bani Bank of A CHASE O AMERICAN EXPRESS 20 B M Cycle of Business Activity Consumers buy these goods and services Consumers have wants Business produces goods and services Business sees these wants 21 BM Sectors of Industry Understanding Business - Outcome 1.1 Higher Business Management 22 B M Sector of Industry An industry is a group of businesses which have similar business activities. If you were to divide every business in UK into 4 distinct sectors they would be Primary Secondary Tertiary Quaternary 23 BE Primary > The primary sector comprises of industries that extract raw materials directly from the earth or sea e.g. oil extraction, mining etc. > More common in less well developed countries - in decline in Britain SER BE Secondary › The secondary sector consists of industries that process and manufacture products from raw materials e.g. ship building, brewery, manufacturing > This sector is also in decline in Britain - cheaper to make things abroad due to, for example, cheaper labour costs BE Tertiary › The tertiary sector is made up of industries that provide a service e.g. supermarkets, hotels, call centres > This sector is the biggest sector in Britain and is continuing to grow. > Due to increase in disposable income, more leisure time, ageing population (more health care required etc) BE Quaternary › The quaternary sector is made up of industries that incorporate a high degree of research and technology in their processes and employ highly qualified people e.g. financial services, consultancy, research and development. DIS Me Me 27 BE Sectors of Industry › The easy way to remember the sectors is that they all end in 'RY' as does the word 'industRY' > An easy way to remember what each sector does: - - Primary - TAKES - Secondary - MAKES - Tertiary - SERVES BE Sectors of Industry Task - Answers on next slide > Read the list of organisations and jobs below and decide which sector of industry it is in. > List the organisations/jobs in your jotter and next to it, write if it is primary, secondary, tertiary. Doctor Farming Vodafone Nescafe (Instant Coffee) British Airways Taylor Wimpey Construction Mining Hairdresser Carluke High School BE Sectors of Industry Task Primary Mining Farming Secondary Nescafe Taylor Wimpey Tertiary Doctor British Airways Vodafone Hairdresser Carluke High School BE Changes in the Labour Market › In the UK in 1800 most people would have been employed in the primary sector. Many people worked on the land, and made their living from agriculture and related products. › The demand for work increased in schools, hospitals and retail industries. Many people left the rural areas in the search for jobs in the towns and cities. By the year 2000 over half of the UK workforce were employed in tertiary industries and only a small number were employed in primary industries. This has changed the work that people do, and also where they work. 31 BE Changes in the Labour Market › During the industrial revolution, more people were needed to build ships, work in steelmaking and with textiles. All of these jobs are found in the secondary sector. By 1900 over half of the workers in the UK were employed in secondary industries. > Foreign industries also became more competitive and imports such as coal became more affordable. As the availability of coal declined in the UK and also became more expensive to extract more coal was imported. This led to a further decline in primary sector employment in the UK. 32 BE Changes in the Labour Market › Quaternary industries are a relatively new concept, and it is only recently that they have been added to these figures. However it is becoming an important and growing sector in the UK as many firms want to carry out research and development for their products. 33 Change Total Workforce Average wages Women in the workforce Part-time jobs Working hours Why 1960: 24 million 2010: 27 million Full time wages 1960: £14 (worth £220 today) 2010: £450 1960: 35% 2010: 49% 1960: 5% 2010: 25% 1960: 42 hours a week 2010: 32 hours a week (37 for full-time) Despite the UK's population growing 10 million in this time period, the total work force only grew by 3 million. This is because young people are staying in education for longer and there are more elderly people who aren't or unable to work. The decline in unskilled and skilled manual jobs means to get a job people need some qualifications and skills, and therefore will earn more money. In 1960, women only received 20% of university degrees, today it is up to over 50%. Women are focusing more on their careers, being more independent, deciding to marry later on in life and have fewer children. The 1960s workforce wasn't as flexible as it is today. Part-time work also suits people with families more than full-time work. More people are working part-time or working at home. BE Sectors of Industry > In the richest country (USA), most people work in the tertiary sector. In the poorest country (Nepal), most people work in the primary sector. In Brazil, the labour force is more evenly distributed between the three sectors. USA 2% 23% Primary Secondary Tertiary 75% Brazil 24% 23% 53% Nepal 16% 81% 3% BM Sectors of the Economy Understanding Business - Outcome 1.1 Higher Business Management 36 BE Organisations › A sectors of the economy is a group of businesses which share the same main objective. All businesses can be categorised into 3 main sectors. > Private > Public › Third/Voluntary 37 Sectors of the Economy Private Sector organisations are owned and controlled by private individuals/investors and aim to make a profit. Public Sector organisations are owned and controlled by the government on behalf of the taxpayer and aim to provide a service to the general public. Third Sector organisations consist of non-profit making organisations and social enterprises. BE Sectors of Industry (All end in Y) Primary Secondary Tertiary Quaternary Sectors of Economy Private Public Third 39 BE Sole Traders Partnerships Limited Private Companies Franchises Multinationals 4 Local Government Sectors of the Economy Scottish Public Government UK Parliament Non-Profit Making Organisations eg Charities Third Social Enterprises BE Ownership Private Sector Public Sector Owned and controlled by individuals Owned and controlled by the Government on behalf of the taxpayer Third Sector Non-profit making Social Enterprises • Not Owners/ owned by shareholders anyone • Controlled by a Board of Trustees CONTINUED... Non-profit making organisations such as charities and voluntary organisations are set up to support specific causes. Any proceeds made are re-invested into the organisation. Social enterprises have a main social or environmental aim rather than to make profit for owners or shareholders, but they are run in a business-like way. At least half of the profit that social enterprises make must be invested into meeting the stated aim. Social enterprises are less regulated by the government. BE Purpose Private Sector To make a profit by selling goods and/or services Public Sector To provide services to the general public Third Sector Non-profit making Social Enterprises group of people or to provide for a worthy cause To ease the pain or suffering of a aim particular Main social or environmental BE Raises finance from Private Sector Public Sector • Funded by individuals themselves • Bank loans etc • Taxes Third Sector Non-profit making Donations Fundraising Lottery grants Social Enterprises Funded by individuals /investors Loans Grants etc BE Examples Private Sector McDonalds Marks & Spencer • Local Newsagent • Hairdressers Local Govt (32 in Scotland) eq SLC: ● Public Sector ● Education Leisure Library • Waste • Roads UK Parliament: • NHS • Police • Defence Prison service Third Sector Non-profit making ● Oxfam • Red Cross ● • Greenpea ce • Help the ● Aged Girl Guides Boys Brigade Social Enterprises ● ● Credit Unions The Wise Group Ness Soap • Big Issue The Difference Between Social Enterprises and Charities: Social Enterprises generate their income by selling goods and services, rather than through grants and donations. Many organisations that describe themselves as Social Enterprises are registered as a charity. BM HORT Private Sector Organisations Understanding Business - Outcome 1.1 Higher Business Management 47 Private-sector Organisations The most common forms of business organisation in the private sector are: Sole proprietor (sole trader) Partnership Private limited company (Ltd) Public limited company (Plc) Multinational Franchise BE Multinationals Sole Trader PRIVATE SECTOR Franchises Partnership Limited Companies Public (plc) Private (ltd) BE Sole Proprietor (Sole Trader) > Definition: an organisation which is owned and run by a single individual. > The owner provides the capital (the money required to start up the business). > They typically tend to be smaller business with fewer, if any, employees. 50 Advantages It is easy and cheap to set up as there are no legal formalities. The owner has complete control and takes all decisions. There is no division of profits - all profits are kept by the owner. DISADVANTAGES It can be difficult to raise finance – the sole trader may have to rely on savings or finance from relatives to get started. Banks may provide finance but may charge higher rates of interest if they are willing to lend at all. The proprietor is solely responsible for all the financial commitments. A sole trader has ‘unlimited liability', which means that, should the business fail, the owner can be held personally responsible for its debts, even to the extent of having to sell everything they own. This might mean s/he could face bankruptcy if the business fails. There is no one with whom to share the responsibilities of running the business - many sole traders work long hours with few holidays. BE Examples of Sole Traders > Small newsagents, hairdressers, plumbers, painter and decorators, clothing boutiques etc ce Beec 53 BE Partnerships ● • Definition: a business which is formed by two or more people on the basis of a partnership agreement. The partners provide the capital to start the business. • The maximum number of partners allowed by law is 20, although an exception is made for some professions such as solicitors and accountants. Partnerships in general have unlimited liability, although the Limited Partnership Act allows sleeping partners – those who merely contribute finance but do not take an active part in running the business to enjoy limited liability. 54 BE Advantages of Partnerships The responsibilities of ownership can be shared. Partners can specialise in their areas of expertise. A larger amount of capital is available. 55 Disadvantages of Partnerships All partners except 'sleeping partners’ have unlimited liability for the debts of the business. Thus some partners may end up paying for mistakes made by other partners. There may be conflict between partners over matters such as whom to employ or whether to borrow money. There may be a lack of continuity as partners change. Profits have to be shared. The term 'self employment' is sometimes used in respect of sole traders and partners, because they own the organisations for which they work. BE Limited Company (LTD Co.) > The capital of a company is divided into shares - each member or shareholder owns a number of these shares. > The company must have at least one shareholder. > Limited companies are run by Directors who are appointed by the shareholders - you need at least one Director. 57 BE Limited Company (LTD Co.) > The company must register with Companies House. Limited Companies must complete 2 documents: > The Memorandum of Association which includes details of the company's shares. > The Articles of Association - these set out rules about how the company is run. › A private limited company (Ltd) is not allowed to offer shares to the public through the stock exchange. 58 Advantages of Limited Companies → Shareholders are entitled to limited liability - shareholders do not risk personal bankruptcy. A company is treated as a separate legal entity from its owners. Thus a company can own assets, employ people and be sued. Just as one person cannot be held responsible for the debts of another, so owners of a company cannot be forced to pay the company's debts. Experience and skills can be gained from shareholders. Disadvantages of Limited Companies There are procedures that need to be followed necessary to set up and must register with Companies House. → Profits have to be shared amongst shareholders. BE Examples › Stuarts of Carluke > Tunnock's › Baxters › Arnold Clark Baxters Arnold Clark STARTS OF CARLINE 240X prasgow STUARTS LSV 380 TUNNOCK'S 61 BE Public Limited Companies (PLC) PLC is generally a large company - it must have a minimum of £50,000 share capital. > > > > The shares of PLCs can be bought and sold on the stock exchange - large amounts of capital can be raised by selling shares to investors. PLCs must also complete a Memorandum of Association and Articles of Association. PLCs must also be registered with the Companies House. PARPS TOFFEES BE Advantages of PLCs › Shareholders are entitled to limited liability. > Knowledge that shares in public limited companies can be resold on the Stock Exchange if required encourages people to invest. › Huge sums of capital can be raised from individuals and institutional investors such as Pension Funds and Insurance Companies. 63 BE Advantages of PLCs › Can often take advantage of economies of scale because of their size - can obtain discounts for buying in bulk. › Economies of scale suggest that the more you produce of something, the cheaper it becomes to produce one item. This is because businesses become more efficient the more they make, waste is reduced with practice and discounts become available when large quantities of raw materials are ordered. Many large organisations will manufacture their raw materials in house (backward vertical integration) which reduces costs further. 64 BE Disadvantages of PLCs > Members of the public can examine financial information about companies which is lodged with Companies House. PLCs have to make more information available to the public than private limited companies - for example, they must publish Annual Reports. PLCs may grow so large that they become inflexible and difficult to manage effectively. > In very large companies employees may feel out of touch ('alienated') from those at the top and it may be difficult to take a personal approach to customer service. > The legal procedures necessary to set up companies, especially PLCs, can be very costly. 65 BE Shares Minimum Share Capital At least 1 shareholder, 1 Running director (secretary not essential) Control LTD's Finance Shares sold to founders relatives and friends No minimum capital Founders of company retain control Less status than plc - loans more difficult PLC's Shares listed on Stock Exchange and sold to the public At least 2 shareholders, 2 directors and qualified Company Secretary needed £50,000 Original owners may lose control - shareholders appoint directors Large organisation with high status – banks and financial institutions more prepared to finance BE Multinational Corporations > Many large PLCs operate as multi-national corporations. Multi-national corporations have branches (called subsidiaries) in more than one country. › Many companies establish sales outlets for their products in various countries. However, the distinguishing feature of an MNC is that it sets up production facilities (rather than simply establishing sales outlets) in more than one country. British multi-nationals include BP and GlaxoSmithKline. MNCs are major employers in many countries. > Host country - the country the organisation has production facilities in 67 BE Reasons for Establishing an MNC are: › To increase their sales and their market share (business can operate competitively in the local market without having to rely on other companies to sell them) - increased profits and may ensure they survive in today's competitive world › To secure cheaper premises, raw materials, labour (higher skilled workers may be available for the same cost or lower) - increased profits › To take advantage of government grants available - governments in other countries may offer incentives such as tax concessions or grants to entice them to open there - grants do not need to paid back, therefore, improves financial position 68 BE Reasons for Establishing an MNC are: › To avoid trade barriers like the EU Common External Tariff › To save on costs of transporting goods to the market place › Legislation in other countries may be more relaxed (working hours, environmental, minimum wage etc) – can avoid legal restrictions in the organisation's own country 69 BE Disadvantages of MNC's > Legislation may be very restrictive - organisation may have to alter its product/service, marketing strategies etc. › Cultural differences may restrict/affect a way a business operates - must be sensitive to a different cultures (in some cases an organisation will have to employ interpreters) > Host country may be politically unstable or may make political decisions which will have an adverse effect on the multinational 70 BE Advantages to Host Country › Creation of jobs and growth of country › Wages/salaries may be higher in sub companies than in comparative domestic sectors > Training of labour force with improved technologies/processes › Contribution of taxes by company to the country 71 BE Disadvantages to Host Country They can be very powerful - some of them earn more than some small countries in the course of a year - and can therefore exert quite a strong influence on the governments of host countries - for example, by threatening to close down their operations there. > > > > Can destroy local competition - MNC's are so powerful that they can take advantage of economies of scale They may use up non-renewable resources in the host country. May not promote development for the nation's economy 72 BE Examples of MNCs • Unilever •Coca-Cola •Nike • Toshiba • Honda •BMW Unilever B M W NIKE BE Activity › Read the case study "How Should Multinationals Be Taxed" and answer the questions. 74 Describe 3 Advantages of Becoming a Multinational Company. (3) Advantages Increases their market share - access to more customers. Take advantage of cheaper labour etc. Take advantage of government grants. Cut down on transport costs to reach customers. 1 mark per described advantage. Describe the Main Characteristics of a Multi-national Corporation. (4) Will involve operations in several different countries Has a distinct 'home' base country Has a global brand Can dominate markets across many countries Can have budgets that are larger than many individual countries Can greatly influence local economies Cultural variations BE Many Companies Are Now Classed As Multinationals. Explain The Advantages And Disadvantages Of Operating As A Multinational. (5) Advantages • An organisation may be given grants from governments to locate in that country and the grants will not require to be paid back improving their financial position Organisations will become larger which may result in them being safer from takeovers • Can allow organisations to increase their sales which in turn should increase their overall profits ● Will allow organisations to take advantage of economies of scale and reduce unit costs of products • Could allow organisations to employ cheaper staff which will result in greater profitability May help avoid legal restrictions in the organisation's own country which could allow them to sell/produce their products abroad Could allow for tax advantages which will increase profitability • Will mean the organisation can avoid restrictions on imports into a country which will help overall sales ● 77 BE Many Companies Are Now Classed As Multinationals. Explain The Advantages And Disadvantages Of Operating As A Multinational. (5) Disadvantages •Legislation may be different in other countries which may require the organisation to alter its product/service •Legislation may exist on how a product/service is marketed and may result in some marketing techniques having to be changed • Cultural differences will mean that organisations have to be sensitive to different countries cultures •Different languages will exist and this may mean that organisations have to employ specialist linguists to work with the organisation 78 BE Franchises Definition: a business run by one firm under the name of another. The franchiser gives the franchisee a licence permitting them to sell goods or services under the franchiser's brand name. This will involve the franchisee paying the franchiser an initial fee and ongoing fees, which is usually a share of the franchisee's profits. The franchisee's licence permits him/her to use the franchiser's name, publicity materials, decor, uniforms, etc. 79 BE Franchise Many individuals use franchising as a means of starting up their own business. There is less likelihood of failure as support and guidance is provided by the franchiser to the franchisee. • Businesses such as McDonald's operate some branches directly and others as franchises. Other examples of franchises: Kentucky Fried Chicken, the Body Shop and the British School of Motoring (BSM). 80 BE Franchisee SUBWAY Franchiser Franchise Headquarters Franchise Operators 會拿 XVSV XVEV Customer Level 81 BE ● ● ● Advantages & Disadvantages to Franchisor Advantages Fast method of growth - helps to reduce competition Receive share of profits - reliable revenue Still in control of product marketing and standards of quality Risks & uncertainty are shared Disadvantages Reputation depends on franchisees maintaining image Profits depend on ability of franchisees 82 BE ● ● Advantages & Disadvantages to Franchisee Advantages Able to trade under a well established name and reputation Ideas are shared amongst all franchisees Receive training and are supported on an on-going basis by franchiser Disadvantages Can be costly to purchase successful franchise Franchiser still in control of marketing and standards of quality - franchisees have to stick rigidly to franchiser's procedures Percentage of profits have to be paid to franchiser Franchiser might not renew after a certain time 83 DAVE JONES FRANCHISED HIS GAMES TO MANY DIFFERENT GAME PRODUCERS. EXPLAIN THE ADVANTAGES AND DISADVANTAGES OF FRANCHISING FOR THE FRANCHISOR. (3) Advantages More branches are opening all over the world therefore increased market share. Guaranteed income as the franchiser will receive a percentage share of the turnover taken by the franchisee. Shared risk as the franchiser will not be investing their money only their name and reputation. Whole brand benefits from collective ideas therefore if an individual franchise comes up with a new idea and it is agreed upon, it will be rolled out over all the branches. DAVE JONES FRANCHISED HIS GAMES TO MANY DIFFERENT GAME PRODUCERS. EXPLAIN THE ADVANTAGES AND DISADVANTAGES OF FRANCHISING. (5) Disadvantages Only receive a share of profits because the franchisee takes their share too. Reputation of whole franchise is dependent on individual franchisees therefore the whole organisation can be damaged by the problems of one branch. 1 mark per explained advantage or disadvantage Max 4 for any section ● ● ● EXPLAIN 2 ADVANTAGES AND 2 DISADVANTAGES OF FRANCHISING. Shared risk as the franchiser will not be investing their money to set the franchise up only their name and reputation. • Franchiser advertises nationally for the brand therefore franchisee does not need to spend a lot on advertising. ● (4) Increased market share because more branches are opening all over the world. Guaranteed income as the franchiser will receive a percentage share of the turnover made by franchisee. Risk of failure is reduced because they are trading under an established brand name. Training and administration is carried out by the franchiser therefore know the training is appropriate to their needs - saves money. Whole brand benefits from collective ideas therefore if an individual franchise comes up with a new idea and it is agreed upon, it will be rolled out over all the branches. ● EXPLAIN 2 ADVANTAGES AND 2 DISADVANTAGES OF FRANCHISING. (4) Only receive a share of profit however if they set the branch up themselves all the profit would go to them. Reputation of whole franchise is dependent on individual franchisees therefore the whole organisation can be damaged by one branches problems etc. No flexibility on product, selling prices and store layout etc therefore stifling individuality and initiative by franchisee. Percentage of profits has to be paid to franchisor therefore reducing profits for franchisee. Costly to purchase a popular franchise therefore this may not be the right choice for investment for some individuals. Discuss the effects of becoming part of a BE franchise. (5) Using an established name/brand Reduces the risk of failure in the marketplace • Franchiser will provide training Franchiser will advertise nationally • Business idea is already successful Product innovation is shared ● ● • Royalties are paid to the franchiser from profits • Franchiser can demand exactly how a business operates • Bad publicity can affect the whole franchise ● • (Invites the use of positive and negative comments but full marks can be gained by only positive or negative comments.) BM dti BIS Department for Business Innovation & Skills DH Department of Health cdc Children's Workforce Development Council acas making work work Wales Cymru Ceneath Assembly for Ministry of Public Sector Organisations Understanding Business - Outcome 1.1 Higher Business Management HSE audit. commission JUDICIARY OF ENGLAND AND WALES COI Directgov Public services all in one place Uy Cyd Cy Wah Ambly Covement NHS Business LINK Cabinet Office UKI TRADE & INVESTMENT 89 TM IDIAN POL DWP Department for Work and Pensions defra Food and Rural Affairs BE Public Sector Organisations The overriding aim of public-sector activity is to provide services thought necessary for the general public, which the private sector could not provide very well or could not provide at all. Making a profit is not always important. They must operate within an allocated budget. If they go over their budget it may mean taxes will increase 90 BE Local Government Organisation PUBLIC SECTOR Scottish Government Public Corporations (Nationalised Industries) 91 BE ● Housing • Education ● ● ● ● LOCAL GOVERNMENT ORGANISATIONS • Waste Roads Refuse Collection Street Lighting Leisure & Recreation ● ● Police Libraries SCOTTISH GOVERNMENT (Delegated responsibility from UK Parliament) ● • NHS ● Defence Police Prison Service BE Run by Funded by ● ● Local councils & councillors elected in local elections Central Government Council tax ● • Corporate sponsorship ● ● • Lottery money Fees charged for facilities eg sports centre • MSPs (Members of Scottish Parliament) Government Ministers - controls and supervises for UK ● Taxes - given a set amount of money to spend annually BE Local Government > › These provide services such as housing, street lighting, refuse collection, education, leisure and recreation, and environmental health. Most of these activities are financed from receipts from council tax and grants from central government. Some local authority facilities such as local swimming pools are financed by charging users a fee. > > 94 BE Local Government > In recent times there has been a trend to 'contract out' some local authority services, such as refuse collection and school meals. › This means that private firms are invited to submit bids to the local authority for the right to run a particular service (called competitive tendering). > It is argued that this will result in a more cost-effective service for the community because, unlike government-run enterprises, private firms have an incentive to keep costs low and efficiency high in order to survive and to maximise profits. 95 BE Nationalised Industries & Corporations › These are business organisations, called public corporations, which are owned and run by the state on behalf of the people. › Their chairman and board of directors are chosen by the government and are accountable to a government minister who in turn is responsible to Parliament. › Examples are the British Broadcasting Corporation. 96 BE Nationalised Industries & Corporations > Owned and run by the state on behalf of the people - run certain industry or service. > They may have been in the private sector at one time & then were taken over - NATIONALISED > Government appoints a Chairperson and Board of Directors to run the organisation - accountable to a government minister who is responsible to parliament. > Chairperson & Board must report annually to minister who then reports to Parliament and then published for information to general public. > Funded by Central Government and fees paid by the public. 97 BE ● ● PUBLIC SECTOR ORGANISATIONS ADVANTAGES Govt ensures essential services are provided & in good position to plan for overall position for the country Services not duplicated & resources are not wasted Any profits made could benefit taxpayers by reducing the level of taxation ● DISADVANTAGES Very large - can lead to inefficiencies Difficult to motivate employees in an impersonal org such as this If it makes a loss the taxpayer may have to meet higher tax payments BE Examples › BBC (British Broadcasting Corporation) › Bank of England > Scottish Water BBC BANK OF ENGLAND › Post Office › Banks (partially owned - may be sold to private buyers in future: Northern Rock, RBS, HBOS-Lloyds TSB) Scottish Water Always serving Scotland 99 BE Privatisation > In the UK before 1979 over fifty large organisations were owned and run by the government. › Co-ordinating one national network was thought to be more efficient than having competing businesses. > From 1979 successive governments have privatised many industries. 100 BE Privatisation › Nearly all the state owned organisations that constituted the nationalised sector in 1979 have been privatised (returned to the private sector). > It was believed this increased efficiency, with government retaining some control via regulation. › The UK was among the first countries to adopt privatisation and UK-based firms are now recognised as leaders in this field. 101 BE Reasons for Privatisation The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If you work for a government run industry managers do not usually share in any profits. However, a private firm is interested in making a profit, and so it is more likely to cut costs and be efficient. 102 BE Reasons for privatisation It is argued governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense. For example, a state enterprise may employ surplus workers which is inefficient. The government may be reluctant to get rid of the workers because of the negative publicity involved in job losses. 103 BE Reasons for privatisation Often privatisation of state-owned monopolies occurs alongside deregulation - i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest spur to improvements in efficiency. For example, there is now more competition in telecoms and distribution of gas and electricity. 104 BE Reasons for privatisation Selling state-owned assets to the private sector raised significant sums for the UK government in the 1980s. However, this is a one-off benefit. It also means we lose out on future dividends from the profits of public companies. 105 BE Reasons against privatisation Privatisation would just create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer. 106 BE Reasons against privatisation There are many industries which perform an important public service, e.g., health care, education and public transport. In these industries, the profit motive shouldn't be the primary objective of firms and the industry. For example, in the case of health care, it is feared privatising health care would mean a greater priority is given to profit rather than patient care. 107 BE Reasons against privatisation Many of the privatised companies in the UK are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders. 108 BE Privatisation REASONS FOR Better and quicker decision making Competition encourages efficiency REASONS AGAINST Non-profitable service may be cut Competition can be wasteful as resources are duplicated 109 BE Major Flotations of Public Sector Organisations › British Petroleum (BP) – 1983 › British Gas 1986 › British Airways and Rolls Royce 1987 > Water & Electricity Boards 1990-91 › British Rail 1996 BRITISH AIRWAYS bp # 0 BE Nationalisation › There are times when the government has to step in to take control of privatised companies. > This can happen for a number of reasons: - A company that provides a vital service/product can no longer continue i.e. financial difficulties A company is not operating in the best interests of the public › Examples: HBOS Northern Rock — British Aerospace RBS Lloyds 111 BM bit. The Third Sector Understanding Business - Outcome 1.1 Higher Business Management 112 BE Third Sector: Non Profit Making › These organisations have different aims from those of other private sector enterprises. > They are 'not for profit' organisations and very often their reason for existing is to help a charitable cause in some way. > Any proceeds they do make - is simply ploughed back into the charity. › Thus profitability is not their main aim, but raising funds is a way of achieving their objective of helping certain causes or groups of people. 113 BE Third Sector > OSCR (Office of the Scottish Charity Regulator) was formerly an Executive Agency (part of the Scottish Government, however, it became a Non-Ministerial Department following the passing of the Charities and Trustee Investment (Scotland) Act 2005. › They keep a Register of Charities. Recognised charities are given 'charitable status' which means that they are exempt from paying certain taxes, such as VAT OSCR Scottish Charity Regulator 114 BE Third Sector - Objectives › To be recognised officially as a charity, the organisation must have one or more of the following objectives: The prevention or relief of poverty The advancement of education The advancement of religion The advancement of health (including prevention or relief) The saving of lives The advancement of citizenship or community development The advancement of the arts, heritage, culture or science 115 BE Third Sector - Objectives con’t › To be recognised officially as a charity, the organisation must have one or more of the following objectives: The advancement of public participation in sport The provision/organisation/improvement of recreational activities The advancement of human rights, conflict resolution or reconciliation The promotion of religious or racial harmony The promotion of equality and diversity The advancement of environmental protection or improvement The relief of those in need The advancement of animal welfare 116 BE Co-operatives › A cooperative is an organisation run by a group of individuals with a common interest in the success of the business. > All of the individuals have a financial interest in the business and a say in how it is run. › There are different types of co-operatives including producers' co-operatives, workers' co-operatives and consumer co-operatives. 117 BE Advantages of Co-operatives > Improved business performance - research has found that employee owned businesses were more resilient in the last recession compared to non-employee owned businesses. > Staff are co-owners in the business and therefore are more committed to the company and the success of it. > Staff should be more motivated and absenteeism should be reduced. 118 BE CO-OPERATIVES Co-operatives may be formed between developing and developed countries to help raise the income and employment prospects. Buyers and producers work directly with each other to develop commercial relationships, trust and mutual support. It is advantageous to form a co-operative if you are attempting to meet an economic or social need that cannot be met by individuals acting alone, a co-operative may be the best way to resolve the problem with others who share the same goals. The UK has more than 120 companies with significant employee ownership, including John Lewis Partnership. BE Co-operatives > Co-operatives may be formed between developing and developed countries to help raise the income and employment prospects. > Buyers and producers work directly with each other to develop commercial relationships, trust and mutual support. > It is advantageous to form a co-operative if you are attempting to meet an economic or social need that cannot be met by individuals acting alone, a co-operative may be the best way to resolve the problem with others who share the same goals. > The UK has more than 120 companies with significant employee ownership, including John Lewis Partnership. 120