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BS Structure F6

The document outlines various business structures, including local, national, and international businesses, and discusses the implications of international trade, free trade, globalization, and privatization. It highlights the benefits and drawbacks of multinationals, external growth through mergers and acquisitions, and the challenges of rapid business growth. Additionally, it addresses the importance of strategic alliances and the potential financial and managerial issues that can arise from expansion.

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Taurai Chigodora
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0% found this document useful (0 votes)
3 views6 pages

BS Structure F6

The document outlines various business structures, including local, national, and international businesses, and discusses the implications of international trade, free trade, globalization, and privatization. It highlights the benefits and drawbacks of multinationals, external growth through mergers and acquisitions, and the challenges of rapid business growth. Additionally, it addresses the importance of strategic alliances and the potential financial and managerial issues that can arise from expansion.

Uploaded by

Taurai Chigodora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

BUSINESS STRUCTURE

Local businesses operate in a small and well defined part of the country. They do not have
expansion as an objective for eg single branch shops, carpentry firms and hairdressing ban.
National business have branches or operations across most of the country and make no attempt
to establish operations in other countries for eg car retailing firms, national banking firms, etc.
International business operate in more than one country for eg international banks and
multinational companies.
International trade
Nowadays world trade is increasing and all countries are participating. It also have great impact
on economic development in other countries like USA, china, etc.
Demerits
-there may be loss of output and jobs from those domestic firms that cannot compete effectively
with imported goods
23- It prevent infant industries from growing domestically.
- Some importers may dump goods at below cost in order to eliminate competition from
domestic firms.
- It can lead to loss of foreign exchange for eg in Zim in 2008.
- foreign competition
- Decline of strategic industries.
FREE TRADE AND GLOBALISATION
Free trade - no restrictions or trade barriers exist that might prevent or limit trade between
countries. The most forms of trade barriers are tariffs, quotas and voluntary export restraints.
Tariffs are taxes imposed on imported goods to make them more expensive than they would
otherwise be.
Quotas are limits on the physical quantity or value of certain goods that may be imported.
Voluntary export limits occurs when an exporting country agrees to limit the quantity of certain
goods sold to one other country.
Protectionism - using barriers to free trade to protect a country’s own domestic industries.
Benefits of free trade between countries
- By importing consumers are offered a much wider choice of goods and services.
- They will be access to r/m from other countries eg the UK steel industry depends entirely
on imports of foreign iron ore.
- Imports of r/m can allow developing economies to increase its rate of industrialization.
- Domestic industries may be forced keep costs and prices down and make their goods as
well designed and of as high quality as possible due to competition from foreign firms
- Countries can begin to specialize in those products that they have comparative adv.
- Specialization can lead to economies of scale and further cost and price benefits.
- Living standards of all consumers of all countries together will increase.

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Globalisation
It refers to the increasing interconnectivity freedom of movement of goods capital and people
around the world. The recent moves towards towards free trade have been driven by;
The world trade org (WTO); this is made up of countries committed to the principle of freeing
world trade from restrictions. It holds regular meeting to discuss reductions in tariffs and quotas
and these have to be agreed by all members.
Free trade blocs these are groups of countries, often geographically grouped, that have arranged
to trade with each other without restrictions. Eg EU
Multinational Businesses
It is a business org that has its headquarters in one, but with operating branches, factories and
assembly plants in other countries. They can produce and sell goods and services in more than
one country.
Benefits of being a multinational business
- Closer to main markets this will lead to lower transport costs for the finished goods and
better market info about consumer tastes.
- Lower costs of production as result of lower labour rates, cheaper rent and site costs.
- Avoid import restrictions
- Access to local resources
Potential problems for multinationals
- Setting up operating plants in foreign countries is not without risk
- Communication links with headquarters may be poor
- Language, legal and cultural differences with local workers and government officials
could lead to misunderstandings
- Coordination problems.
- Investment in training programmes as local employees may not have enough skills that
are required by your business.
Benefits of multinationals on host countries
- The Investment will bring foreign currency and if output from the plant is exported,
further foreign exchange can be earned.
- Employment opportunities will be created and training programs will improve the quality
and efficiency of local people.
- Local firms are likely to benefit from supplying services and components to a new
factory
- Local firms will be forced to bring their quality and productivity up to international
standards either to compete with the multinational or to supply to it.
- Increased tax revenue for the government from the multinational’s profits
- Management expertise in the community will slowly increase.
- GDP will increase due to an increase of national output.
Drawbacks
- Exploitation (to use for one’s own advantage) of the local workforce might take place.
- Pollution from plants might be at higher levels than other countries

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- Local competing firms may be may be squeezed out of the business due to inferior
equipment and much smaller resources than multinationals.
- Reduction in cultural identity thru promotion and advertising of their cultures.
- Profits may be sent back to the country where the head office of the co is located
- Extensive depletion of the limited natural resources.
Privatization
It is the selling of state owned and controlled business org to investors in the private sector. Eg
British airways and DMB.
The main argument for privatisation is that the business will use resources much more efficiently
in the private sector, as they will be driven by the profit motive.
Benefits
- The profit motive of the private sector business will lead to much greater efficiency than
when a business is supported and subsidised by the state.
- Decision making in state bodies can be slow and bureaucratic (structure and regulations
in place to control activities.
- It puts responsibility for success firmly in the hands of the managers and staff who work
in the org
- Market forces will be allowed to operate; failing business will be forced to change or die
and successful ones will expand unconstrained by get limits on growth.
- Decisions will be taken for commercial reasons and political biases are eliminated.
- Sale of nationalized industries can raise finance which can be spent on other state
projects.
- Private businesses will have access to private cap markets
Drawbacks
- The state should take decisions about essential industries based on the needs of the
society.
- With competing privately run businesses it will be much more difficult to achieve a
coherent and coordinated policy for the whole country for eg railway system, electricity
grid
- An industry can be made accountable to the country.
- Many strategic industries could be operated as private monopolies and privatisation can
lead to consumers being overcharged.
- Loss of economies of scale

SIZE OF BUSINESS
External growth
External growth- business expansion achieved by means of merging with or taking over another
business, from either the same or a different industry. External growth often referred to as
integration as it involves bringing together two or more firms.
Merger an agreement by the shareholders and managers of two businesses to bring both firms
together under a common board of directors with shareholders in both business owning shares in
the newly merged business

3
Takeover - when a company buys more than 50% of the shares of another company and
becomes the controlling owner of it. It is often referred to as acquisition.
Synergy - literally means that the whole is greater than the sum of parts so in integration it is
assumed that the new larger business will be more successful than the two formerly separate
businesses were.
Types of integration
1. Horizontal integration
Integration with firms in the same industry and at same stage of production
Advantages
- Eliminates one competitor
- Possible economies of scale
- Scope for rationalizing production, for eg concentrating all output on one site as opposed
to two
- Increased power over suppliers
Disadvantages
- Rationalization may bring bad publicity
- May lead to monopoly investigation if the combined business exceeds certain market
share limit
Impact on stakeholders
- Consumers now have less choice
- Workers may lose job security as a result of rationalization.
2. Vertical integration
There is forward and backward integration
Forward integration with a business in the same industry but a customer of the existing business
Advantages
- Business is now able to control the promotion and pricing of its own products
- Ensures a secure outlet for the firm’s products – may now excludes competitors products
Disadvantages
- Consumers may suspect uncompetitive activity and react negatively
- Lack of experience in this sector of the industry – a successful manufacturer does not
necessarily make a good retailer.
Impact on stakeholders
- Workers may have greater job security because the business has secure outlets
- There may be more varied carrier opportunities
- Consumers may resent lack of competition in the retail outlet because of the withdrawal
of competitor products
Backward integration
Integration with a business in the same industry but a supplier of the existing business
Advantages
- Gives control over quality, price and delivery time of supplies

4
- Encourages joint research and development into improved quality of supplies of
components
- Business may now control supplies of materials to competitors
Disadvantages
- May lack experience of managing a supplying company
- Supplying business may become complacent due to having a guaranteed customer
Impact on stakeholders
- Possibility of greater carrier opportunities for workers
- Consumers may obtain improved quality and more innovative products
- Control over supplies to competitors may limit competition and choice for consumers
3. Conglomerate integration
Integration with a business in a different industry
Advantages
- Diversifies the business away from its original industry and markets
- This should spread risk and may take the business into a faster growing market
Disadvantages
- Lack of management experience in the acquired business sector
- There should be a lack of clear focus and direction now that the business is spread across
more than one industry
Impact on stakeholders
- Greater carrier opportunities for workers
- More job security because risks are spread across more than one industry.
Friendly merger
In a friendly takeover, the management and board of a company agree to a marge/purchase from
another company.
Hostile takeover
It is a type of corporate acquisition or merger which is carried out against the wishes of the board
and usually management of the target company. In a hostile takeover, the target company’s board
of directors rejects the offer, but the bidder continues to pursue the acquisition through a tender
offer or may initiate a proxy fight.
Advantages
The company may gain control by eliminating a competitor
Disadvantages
- The acquiring firm takes a risk and may unknowingly acquire debts or serious technical
problems.
- The loss of key managers and leadership within the company and may cause a shakeup
within the target company that may disrupt its operations and threaten its viability.
- It may be costly especially if it is a tender offer.
Strategic alliances

5
Strategic alliances are agreements between firms in which each agrees to commit resources to
achieve an agreed set of objectives. These alliances can be made with a wide variety of
stakeholders for with a university, with a supplier and with a competitor.
Problems resulting from rapid growth
Rapid business growth can lead to business failure, or retrenchment (cutting back) of activities if
not properly managed.
Financial problems
Causes
- Business expansion can be expensive
- Additional fixed capital and working capital will be required
- Takeovers can be particularly expensive
- Increase in long term borrowing
Solutions
- Use internal sources of finance when possible for example retained earnings
- Raise finance from share issues
- When proposing takeover, offer shares in the new business rather than making a cash
offer to the shareholders of the target business
Managerial
Causes
- Existing management may be unable to cope with problems of controlling larger
operations
- There may be lack of coordination between the divisions of an expanding business
- The original owner may find it difficult to adapt to being leader and manager
Solutions
- New management systems and structures may be required
- Decentralization
- Original owner may need to decide which are the most important areas of the business to
remain heavily involved with and relax control over others
Marketing
- The original marketing strategy may no longer be appropriate for a larger org with a
wider range of products.
- Growth from national to international markets may not succeed if markets may not
succeed if market strategies are not suitably adapted
Solutions
- Adopt focused marketing strategies for each specific product or each country operated in
if this is what the results of market research indicate is essential
Loss of control by original owners
Most likely to occur if a sole trader takes on partners or if a private limited co converts to ltd one
Solution - Almost an invertible consequence of changing legal structure to gain additional
capital but original owners could try to remain as directors

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