UNIT 1. Chapter 2.

Business Structure
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FLASHCARDS IN UNIT 1. CHAPTER 2. BUSINESS STRUCTURE DECK (16)
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Def. Privatisation

Selling state owned and controlled business organisations to investors in the private
sector.

Arguments for privatisation (6)

• Higher efficiency due to the profit motive of private sector businesses

• Greater sense of empowerment by managers and higher motivation due to direct

involvement with the business.

• No constraints of the government's limit of growth

• Decisions not made for commercial reasons but for influences on the economy.

• Sales of nationalised industries raises finance for the government

• Increased investment in industries of the sold national businesses.

Arguments against privatisation (5)

• Governments can still attain some control over the businesses and keep the business
activities that may be considered unprofitable.

• Competition between private businesses makes it difficult to benefit the whole country
e.g. privatised railway system.

• Many privatised industries could act as 'monopolies' and exploit consumers.

• Breaking up nationalised industries (by privatising some) will reduce opportunities for
economies of scale.

• The industries could be made accountable of much more responsible figures e.g.
ministers.

Def. Public Private Partnerships (PPP)

These are government services or business ventures that are funded and managed
through a partnership of government and one or more private sector companies.

What are the two main types of PPP. Explain.

• Government funded - Privately managed schemes. Here government provides all of

the funding but the management is done by the private business.

• Private sector funded - Government or state managed. Vice versa.

Risks of international trading (3)

• Loss of output and jobs due to lack of competition from domestic firms against imports.

• May be a decline of domestic 'strategic' goods e.g. coal.

• If the value of imports exceeds the value of exports, it may lead to loss of foreign
exchange.

Def. Free trade

No restriction or trade barriers exist that might prevent or limit trade between countries.

Types of trade barriers (name) (4)

• Tariffs

• Quotas

• Voluntary export limits

• Protectionism

Types of trade barriers (define) (4)

• Tariffs: Taxes imposed on imported goods to make them more expensive than they
would otherwise be.

• Quotas: limits on the physical quantity or value of certain goods that may be imported.

• Voluntary export limits: An exporting country agrees to limit the quantity of certain
goods sold to one country.

• Protectionism: Using barriers to free trade to protect a country's own domestic

industries.

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 Def. Globalisation

The increasing freedom movement of goods, capital and people around the world.

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Benefits of free trade (5)

• Consumers are offered a wider choice

• Wider choice of raw materials for businesses

• Imported raw materials help increase economy's rate of industrialisation.

• Imported goods bring additional competition for domestic businesses.

• Living standards of consumers would increase.

12

Def. Multinational Businesses

Business organisation that has its headquarters in one country, but with operating
branches, factories and assembly plants in other countries.

13

Reasons to become multinational (4 (3) (3) )

• Become closer to main markets

+ Lower transport costs

+ Better market info regarding consumer tastes

+ Easier to gain consumer loyalty

• Lower costs of production

+ Lower labour rates

+ Cheaper rent and site costs

+ Government grants and tax incentives to encourage certain activities

• Avoiding import restrictions by producing in the local country

• Access to local natural resources that are not available in company's home country

14

Disadvantages of becoming multinational (3)

• Poor communication

• Language, law and culture differences

• Skill levels of local employees may be low which would require investment in training.

15

Benefits of multinational operations of host countries (7)

• The investment will bring in foreign currency

• Employment opportunities -> improving quality and efficiency of local people

• Lower unemployment rates

• Local firms have to become more competitive

• Higher tax revenues for the government

• Improvement in local management expertise

• The total output of economy increases -> higher GDP

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Drawback of multinational operations of host countries

• Exploitation of local workforce

• Higher pollution from businesses' plants

• Local competing firms may not survive the competition

• Possible reduction of cultural identity.

• Profits may be sent back to the head office's country

• Expensive depletion of limited natural resources