Management

Ch1 Hong Kong Business Environment

Role and Importance

1. Provision of Goods and Services

- No guarantee will make a pro t
- Survive + earn pro t -> products produced and service o ered should meet customers’ need
- Continually introduce new products to the market
- Many products and services available in the market for consumers to choose and purchase

2. Provision of Employment Opportunities

- Besides the owners, other people need to be hired to operate and manage the business

3. Raising Productivity and Competitiveness

- Try their best to raise productivity and competitiveness by replacing existing equipment and methods
of operations with more e cient ones

4. Source of Government Revenue

- Pay pro ts tax (one of the most importance)

5. Improvement of Living Standard

- People bene t from having more choices of goods and services
- By working in the business sector -> earn income for consumption

Additional
• Foreign exchange is earned from the business sector to pay for HK’s imports
• Fishing village -> Entrepot -> Manufacturing centre -> International nancial centre
• HK Government does not control the in ows and out ows of capital

*Characteristic
1. Lack of primary industries : lack natural resources
2. Dependence on external trade : depends on other countries to supply food, fuel, capital goods
3. Concentration on tertiary industry
4. Free trade : does not impose any trade barriers + no foreign exchange control
5. Simple taxation : low tax rates sustain workers’ work incentive and entrepreneurs’ incentive to invest
• Good transportation network between Hong Kong and other Asian cities
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 Closer Economic and Business Relationship with the Mainland

1. Mainland is HK Largest trading partner

• HK imports lots of goods but most of them will be re-exported to other destinations
• Largest market for HK total imports and exports
• HK is Mainland 3rd largest trading partner (after US and Japan) in 2019
• HK is Mainland 2nd largest export market

2. Source of Capital
• One of the most open economies + biggest markets for equity and debt nancing
• Because of its good nancial infrastructure + sound legal system
• Major funding centre -> raise capital by borrowing money from nancial institution / issuing shares on
stock market
• Key o shore capital-raising centre for Chines enterprises
• Shanghai / Shenzhen - Hong Kong Stock Connect
• Main gateway for foreigners to buy mainland stocks

3. Mainland and HK Closer Economic Partnership Agreement (CEPA)

• First free trade agreement (2003)
• Bring new business opportunities
• gain greater access to the Mainland market
• Bene ts Mainland as HK serves as a perfect “springboard”(跳板) for mainland enterprises to reach out
the global market + accelerating the mainland’s full integration with the world economy
• Foreign investors are welcome to establish business in HK

Covers 4 broad areas

I) Reduce barriers to trade in goods

• Mainland: fully implement zero tari on all imported goods of HK origin upon applications by local
manufacturers + the CEPA “rules of origin” (原產地標準)
• Deepen the liberalisation and facilitation (⾃由便利)

II) Promote free trade in services

• Trade in services
- Service suppliers (natural / juridical) enjoy preferential treatment in entering into mainland market
- Professional bodies of HK and the regulatory authorities in the mainland = mutual recognition of
professional quali cation
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III) Facilitate cross-border investment
• HK investors enjoy preferential treatment in non-service sectors
• Promotes and protects investment and provides for investment facilitation
• Mainland commits to providing national treatment to investment (enjoying the same treatment as the M
enterprises and subject to the same law and regulations)
• Facilitation measures such as simpli cation of formalities and requirements for investment
• Protection measures such as restriction on expropriation (撤走) of investments / compensation of
losses / transfer abroad of investment and return

IV) Economic and technical cooperation

• Deepening cooperation in economic and trade areas of the “Belt and Road” Initiative (建設經貿領域)
• Cooperation in Legal and Dispute Resolution Services
• Cooperation in Intellectual Property
• Deepening Economic and Trade Cooperation in Pan-Pearl River Delta Region (泛珠三⾓區域)
• Supporting the participation of HK in the development of Pilot Free Trade Zones（試驗區）
• Quality Supervision, Inspection and Quarantine （監督檢驗檢疫）
• Deepening the Cooperation between HK and Qianhai, Nansha, and Hengqin
• Transparency
• Companies owned by HK residents are also taxed in the Mainland
• No free ow of capital between HK and Mainland

*Impacts on Globalisation

1.Keen (global) competition

• Face competition in the local market and from multinational corporation = severe market competition
• Only business which provide innovative products at a lower price and are able to develop new markets
can survive

2. International ow of capital and information

• General reduction in capital barriers = easier for capital to ow between di erent economies
• Make good use of capital to explore business opportunities
• Diversify their investment around the world to reduce their risk
• Raise capital in other countries for business expansion : borrowing from overseas banks listing on
foreign stock markets
• Get most updated market information around the world
• Explore new markets in other countries and sell their products to foreign buyers worldwide by setting up
online stores = reduce information cost

3. Global sourcing // outsourcing

• Save costs by global sourcing of inputs and outsourcing of production processes
• Lowered communications and transport costs = more economical to transport raw materials and
products around the world
• Source raw materials and components from suppliers globally for the best quality and lowest price
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• Outsourced : to foreign subcontractors (low-cost region) with cheaper labour force and take advantage
of the skills and technologies
• Shipped nal products to the world for sale
• Reduced COGS / increased international trade

4. Technology transfer / Greater mobility of factors of production

• When business set up branches overseas and outsource production processes, they bring technology to
other countries // import advanced technologies from MDCs
• Foreign workers’ skills and knowledge can thus be enriched and improved
• Improve production techniques and labour productivity = help raise productivity
• Relocate plants from mainland to Vietnam, Bangladesh (孟加拉) etc. = reduce production costs
• Transfer advanced technology

Major International Trade Organisation

World Trade Organisation (WTO)

• dealing with the rules of trade among states and separate customs territories
• Provide legal ground rules for international commerce
• Essentially contracts -> binding governments to keep their trade policies within agreed limits = decision
made by WTO are binding on all members = generally taken by consensus
• Goal : to help producer of goods and services , exporters, and importers conduct their business, while
allowing the gov to meet social and environmental objectives

Main objectives : to help trade ow smoothly, freely, fairly and predictably :

- Provide a forum for negotiating the reduction or elimination of obstacles to trade and agreeing on rules
governing the conduct of international trade (eg. Antidumping, subsidies, products standards etc.)
• Not just about liberalisation trade, in some circumstances its rules support maintaining trade barriers
eg. Protect customers, prevent the spread of diseases or protect the environment
- Administering and monitoring the application : trade in goods / services and trade related intellectual
property rights
- Provides a mechanism for setting trade disputes
- Building capacity of LDCs government o cials in international trade matters
• Organises technical cooperation missions to LDCs annually
• Hold courses for gov o cials
• Aid for trade aims to help LDCs develop the skills and infrastructure needed to expand their trade
- Assisting the process of accession (not yet members)
- Conducting economic research and collecting and disseminating trade data in support of the WTO’s
other main activities
- Explaining and educating the public about the WTO (mission and activities)
• aim of enhancing cooperation and increasing awareness of WTO activities
• Maintain regular dialogue with non-gov org., parliamentarians, other international org., the media and
the general public on various aspects
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HK participation
• WTO has 76 founding members that started the organisation on January 1, 1995 including HK
• As an independent economy (also Taiwan)
• Mainland join on 11 December 2001
Additional
• X provide loans and subsidies to developing countries for trade development

Asia-Paci c Economic Cooperation (APEC)

Background
• Mission : Encourages cooperation on trade and investment in the Asia-Paci c region through high-level
government-to-government dialogues
• Primary goal : support sustainable economic growth and prosperity
• Member : 21 members
• Ensures goods, services, investment and people move easily across borders
• Facilitate trade through
• Faster customs procedures at borders
• More favourable business climates behind the border
• Aligning regulations and standards across the region

Three Pillars of APEC’s agenda focus on :

1) Trade and Investment Liberalization

• Members take action to reduce tari and non-tari barriers -> boosts job creation, incomes, growth
2) Business Facilitation
• Pursue measures to reduce time, cost and uncertainty of doing business
• Open new economic opportunities including for small rms, women and youth
3) Economic and Technical Cooperation
• ECOTECH builds the technical capacity of APEC’s diverse members to promote trade, investment and
robust (蓬勃發展), secure and sustainable economic growth
• Strengthening anti-corruption
• Cross border education and skills training
• Emergency preparedness
• Energy security and Environment Protection
• Defence against pandemics
• Infrastructure development

Cooperation and Consensus

• Operates on the basis of non-binding commitments : open dialogue and equal respect for the views of
all participants
• Has no treaty obligations
• Decisions made are reached by consensus and commitments are undertaken on a voluntary basis
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 Additional
- X provide loans to LDCs
- X settle trade disputes
- X issue certi cates of origin for products manufacture

***Factors A ecting Business Decision (external)

1) Economic
• Wages level : operating cost (unemployment rate)
• Level of national income : high = strong purchasing power = a ord luxury goods (各地不同)
• Di erent pricing / products
• Price level : including rent = operating cost eg.infaltion
• Interest rate : cost of debt nancing
• Exchange rate : HK dollar linked with US dollar by Linked Exchange Rate = stable
• RMB risk of devaluation = foreign currency uctuations

2) Physical
• General state of nature and conditions of the natural or physical environment
• Use of land and natural resources / geographical and climatic condition / environmental pollution /
infrastructure (eg. Port and airport facilities)
• Eg. air quality
- HK has a good harbor that facilitates import and export trade
• -> easy to import cheap products and ship them to HK
- Situates at the southern coast of mainland -> acts as a gate for business to enter the mainland market
- Very few natural disasters / not located in earthquake zone -> typhoons won’t cause serious damages
- Availability of at land
- Subtropical climate (hot and wet)

3) Political
• Stable political env’t -> investors will have greater con dence
- HK has long been regarded as politically stable region -> foreign investors have con dence to invest/
visit
- Relationship .\. HK / China and the foreign countries is tight

4) Technological
within HK
• Internet / mobile network coverage
• Well connected with broadband network and mobile network = wide coverage = fast stable connection
• Eg. Wi development / 5G network
• Payment platform
• Lots of online payment platform such as credit card, PayPal, Alipay. = receive electronic payment from
foreign customers
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Globally
• Network security
• There are cyber hacking globally -> pay attention to network security and safety
• Leakage of personal information = damage reputation of the company = lose con dence
• Internet connectivity
• Wider mobile connection and more reliable
• More ppl can access the internet and go online shopping -> brings large amount of new customers

5) Social (cultural)
• Population size and structure (demographics) / Market size and potential
• Religious, life style, social values, social class
- Tastes and preferences of target customers in HK
• -> adjust their menu or product, business hour and decoration
• Eg. HK ppl love sharp colours / fast food
- Aging problems
- Consumption habits
- Desire more leisure time
- Demand for more consumer/environmental protection ; strive for human rights , equal opp. + privacy
- Love try new things + follow popular culture -> promote new dishes

6) Legal

I) License requirement
• The Food Business Regulations
• Issued to premises that have satis ed all essential health, building and re safety requirements
• The Places of Public Entertainment Ordinance
• must be obtained for keeping or using any place, building, whether temporary or permanent, in or on
which a public entertainment is presented or carried on whether on one occasion or more
• Eg. a concert, opera, stage performance, sporting contest, a bazaar
• The Hotel and Guesthouse Accommodation Ordinance
• a hotel and guesthouse must apply for a license before commencing operation
• purpose : ensure that premises licensed reach certain standards in respect of building and re safety,
health and sanitation so as to safeguard the patrons and the employees therein

II) Taxation
• the Inland Revenue Ordinance
• Should provide correct information to the inland revenue department and pay pro ts tax

III) Personal Data Privacy*

• the Personal Data (Privacy) Ordinance
• business must take appropriate security measures to protect personal data of their employees and
customers.
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 IV) Employee Protection
• the Mandatory Provident Fund Schemes Ordinance
• employers must join the MPF scheme to cover their employees and any self-employed persons must
join the scheme to cover themselves.
• the Employment Ordinance
• a female employee under a continuous contract is entitled a continuous period of 10 weeks’ maternity
leave -> failure to do so would subject to criminal liability
• the Minimum Wage Ordinance*
• the Statutory Minimum Wage (法定最低⼯資) rated at $34.5 per hour (2017).
• the Employees' Compensation Ordinance
• employer is liable to pay compensation for employees’ work injuries.
• the Occupational Safety and Health Ordinance
• employers should contribute to safety and health in their workplaces by providing all necessary
information, instruction, training, and supervision for ensuring safety and health of their employees
• Labour law in China
• Visa requirement for traveler

V) Consumer Protection
• the Trade Description Ordinance《商品說明條例》
• business should not provide false or misleading descriptions of services.
• eg. a mobile telecommunication service provider promotes its “Unlimited Mobile Internet Access
Service Plan”. During the selling process, the service provider must mention that the plan was subject
to certain restrictions. // If a client’s data usage exceeded the monthly ceiling imposed by the service
provider, the speed of data transmission in the remaining days of the month would be signi cantly
slowed. Otherwise, it violated the Trade Description Ordinance.
• the Sale of Goods Ordinances《貨品售賣條例》
• goods for sale must be correspond with the sample.
• If the sellers fail to meet any one of the above conditions, they are "in breach of contract” = consumers
are entitled to reject the goods and demand a full refund.
• the Consumer Goods Safety Ordinances《消費品安全條例》
• the company should ensure that the consumer goods they supply are reasonably safe
• Any warning or caution with respect to the safe use of any consumer goods must be given in both the
Chinese and English languages.
• the Food Safety Ordinance《食物安全條例》
• any person who carries on a food business (including farmers, shermen, hawkers and market stall
lessees selling food) should note the relevant measures
• introduces a food tracing mechanism to help the Government trace the source of the food more
e ectively and take prompt action when dealing with food incidents : includes a registration scheme
for food importers and food distributors and a record-keeping requirement relating to movement of
food.
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VI) Environmental Protection

• the Air Control Ordinance

• motor vehicles should have been properly installed with particulate reduction devices and are
maintained in good working condition
• the Noise Control Ordinance
• business should not produce any noise causing annoyance to any person at night (11 p.m. to 7 a.m.)
or on a general holiday
• If loudspeakers are used, business should ensure that it will not cause annoyance to any person at any
time of the day or night.
• the Water Pollution Control Ordinance
• waste water produced should be disposed by connecting to public sewers leading to government
treatment plants

VII) Fire Safety

• Fire Safety (Commercial Premises) Ordinance《消防安全(商業處所)條例》

• an owner/occupier of the prescribed commercial premises or speci ed commercial building may be
required to comply with all or any of the following re safety measures:
• [記⼀兩個就可以, 知下啲名, 唔駛背晒]
- Provision of or improvement on re service installations and equipment
• automatic sprinkler system
• emergency lighting
• manual re alarms
• portable re extinguishers
- Construction requirements
• provision of adequate means of escape from the premises or building in the event of re
• \\ of access to the premises or building to facilitate access for re ghting and rescue
• provision of measures to inhibit the spread of re + ensure the integrity of the structure of the
building
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 Ch2 Forms of Business Ownership I

Sole proprietorship

Characteristics
• Owned by one person
• Unlimited liability
• No legal entity
• Managed by the owner
• Simple set-up procedure

Advantages

• High exibility in management and quick decision making ( Vs. Ltd / partnership)
• takes full responsibility on controlling and decision-making
• make decisions quickly according to the changes in market demand
• Lower pro ts tax rate ( Vs. Ltd )
• The pro ts tax rate of a sole proprietorship (15%) is lower than that of a limited company (16.5%)
• enjoys a higher net pro t because he pays less tax than that of limited company
• Simple set-up procedure and low set-up cost ( Vs. Ltd )
• In accordance with the Business Registration Ordinance《商業登記條例》
• apply for the business registration Certi cate (商業登記) from the Inland Revenue Department
• pay the business registration fee and levy
• Not required audit of the nancial statements
• it is easy to start up + the set-up cost and accounting cost is much less than Ltd
• No disclosure of nancial information ( Vs. public Ltd)
• not required to disclose its nancial position to the public = keep the business information secret
• Easy transfer of ownership ( Vs. private Ltd / partnership)
• easily transfer the ownership of the business to others without other people's approval
• Close customer relationship (Weak point)
• Because of the simple business structure -> provide services according to the customers’ needs
• maintain a close relationship with the customers
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Disadvantages

• Unlimited liability ( Vs. Ltd )

• business fails = the owner has the responsibility to pay all the debts
• may lose not only the business, but also his personal assets
• Limited capital ( Vs. Ltd / partnership)
• The capital is mainly raised by a single owner
• Banks may not be willing to lend money due to the small business size and higher risk involved
• not allowed to raise capital or issue debenture from the public ( Vs. public Ltd )
• can’t pool capital from other partners and other shareholders ( Vs. Ltd / partnership)
• hard to expand the business
• Lack of continuity ( Vs. Ltd )
• does not carry on the business, retire or die -> the business will be terminated
• The lifespan of a sole proprietorship depends on its owner = lack of continuity
• Heavy workload and Lack of Skills ( Vs. Ltd / partnership)
• The owner is responsible for making all the decisions of the business = heavy workload
• he may not capable in all the management work
• not easy to employ management experts due to limited capital available
• Not a Legal Entity ( Vs. Ltd )
• no independent legal status and cannot sue or be sued in court
• The sole proprietor has to bear all the legal obligations of the rm

Partnership

Characteristics
• Number of owners : must be at least two owners
• Simple set-up procedure
• Before a partnership is set up, the partners usually draw up a partnership agreement
• agree on the terms of running the partnership eg. the amount of capital contributed by each partner
and the pro t and loss sharing ratio
• No legal entity

Types of partners

General partner (Full partner)

- A general partner has unlimited liability
- He is involved in the planning and management of the business
- He shares pro t and loss of the partnership
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 Limited partner
- limited liability -> limited to his/her invested capital in the business.
- He is still liable for the debts of a partnership -> limited to his/her investment
- He needs not be involved in the management of the business
- If a limited partner takes part in the management, he shall be liable for all debts and obligations of the
rm incurred while he takes part in the mgt as though he were a general partner.
- He does not take part in running it
- He needs not to disclose his identity
- He shares pro t and loss of the partnership

**Nominal partner
- Nominal partner is a person who has an interest in the success of a partnership rm
- is not a partner legally : he or she neither owns a part of the rm nor actively participates in its a airs
- Often a nominal partner is a well-known, well connected individual whose name lends credibility and
recognition to the rm, and is paid a fee for this service.
- On the strength of his name, the rm can promote its sales in the market / get more credit from the
market
- eg. A partnership is executed between the partner and the celebrity or a business tycoon for the sake of
value addition to the rm and also for promoting branding by using the person’s fame and goodwill
- A nominal partner does not invest in the business = he is not an owner of the rm
- He needs not be involved in the management / does not take part in running it
- He is NOT liable for the debts of the partnership
- He will not share pro t or loss of the partnership as normal partners.

Contribution
• Enhance reputation of the business
• usually some famous people = help to enhance the reputation of the business
• boost the con dence of the customers and therefore sales will increase
• eg a famous judge join a law rm (celebrity e ect)
• Works as a consultant to provide professional advice
• usually some experts with professional knowledge = act as a consultant to professional advice to the
partnership
• eg. a lawyer -> consult other partner on business regulations to ensure that the partnership is
operated with compliance of laws
• eg. an accountant -> consult other partner to ensure that the partnership’s nancial statement is
prepared with compliance of the Hong Kong accounting standard.
• Strengthen business linkages
• may have good connection with the suppliers -> help the business to get the goods in a lower price
• may also bring in customers of his own = may have his/her own customers before joining the
partnership -> these customers may want to continue buying goods from the nominal partner
• thus bring more sales to the partnership
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 • Types of partnership
• General partnership: All are general partners + have unlimited liability
• Limited partnership: includes one or more limited partners / must be at least one general partner
• Unlimited liability
• If the business fails, the general partners have the responsibility to pay all the debts
• If one of the partners goes bankrupt / the partner is unable to pay o the debts of a partnership ->
other partners are responsible for all the debts
• Bound by decisions made by partners
• All partners are legally bound by decision made by any one of the general partners in the name of the
rm + are held responsible for the consequences of the decisions
• Some professional must be formed as partnership
• eg.accountants and lawyers
• Dissolution by bankruptcy, death, or charge
• general partnership : will be dissolved when a partner dies / becomes bankrupt, unless the
Partnership Agreement states otherwise
• limited partnership : will not be dissolved by the death / bankruptcy of a limited partner

Note:沒有 partnership agreement 情況下, 未經全體現有合夥⼈同意，不可引入任何⼈為合夥⼈, 但有新⼈加

入時 partnership 無須 Dissolution。

Advantages

• Share of risk and workload ( Vs. sole proprietorship )

• losses can be shared among partners -> business risk is shared
• each partner has responsibility to control and make decision = workload can be shared
• More capital can be pooled ( Vs. sole proprietorship )
• each partner can contribute capital to the business = easier to raise capital from partners for
expansion
• More expertise / innovative ideas ( Vs. sole proprietorship )
• Each partner can contribute specialised knowledge and ability to the business
• Through division of labour, the business can be run more e ciently
• there would be more innovative ideas for business development from partners with di erent
expertise
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 • Lower pro ts tax rate ( Vs. Ltd )
• The pro ts tax rate of a partnership (15%) is lower than that of a limited company (16.5%)
• enjoys a higher net pro t because it pays less tax than that of limited company
• Simple set-up procedure ( Vs. Ltd )
• In accordance with the Business Registration Ordinance
• only requires to apply for the business registration Certi cate from the Inland Revenue Department
• pay the business registration fee and levy
• Audit of the nancial statements is not required
• No disclosure of nancial information ( Vs. public Ltd )
• not required to disclose its nancial position to the public = owners can keep the business
information secret

Disadvantages

• Unlimited liability ( Vs. Ltd )

• If the business fails, all the general partners have the responsibility to pay all the debts
• If one of the partners is unable to repay the debts, creditors can ask other partners to settle all the
debts
• Limited source of capital ( Vs. public Ltd )
• The owner has di culty in raising capital
• Banks may not be willing to lend money due to the small business size and higher risk involved
• not allowed to raise capital or issue debenture from the public = hard to expand the business
• Lack of continuity ( Vs. Ltd )
• When one of the partners does not carry on the business, retire or die -> dissolved
• Lower e ciency in decision making ( Vs. sole proprietorship )
• Since decisions made by a partnership should be agreeable to all partners, the exibility and
e ciency of decision-making and the running of the business may be lower
• Sometimes, con ict may even break out and lead to termination of the business.
•No legal entity ( Vs. Ltd )
•not a separate legal entity.
•When a partnership is sued, the
partners of the business have to
bear all the legal obligations of the
rm
•all owners are liable for the
business decisions of one another
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Limited Company

Characteristics
• Legal entity
• is a separate legal entity from its shareholders and directors
• The company may form contracts, sue and be sued in its own name
• Limited liability
• The shareholders of a limited company enjoy limited liability
• If the company fails, their maximum loss is limited to what they have invested
• do not need to repay the debts of the company out of their personal assets.
• Separation of ownership and management
• The ownership and management of a limited company are separate
• As there are many shareholders in a limited company, they may not have time to manage the
company. Instead, they elect a board of directors to manage the company. Directors are responsible
for making decisions on the company's policies.
• Complicated set-up procedure
• Restriction on the company's name
• must have the word 'Limited' or 'Ltd' as the last word in its name
• Chinese name must have ‘有限公司’ as the last four characters.

Types of limited company

- Private limited company
- Public limited company (Unlisted /listed)

Characteristics of private Ltd

• Number of owners : 1 to 50 shareholders (Many in HK are family businesses)
• Disclosure of nancial information : does not need to disclose its nancial information to the public.
• Transfer of shares : ownership cannot be transferred freely / can only be transferred privately with the
approval of the board of directors
• Limited capital : limited because the number of shareholders is restricted

Characteristics of public Ltd

• Number of owners : at least one shareholder
• Disclosure of nancial information : need to disclose its nancial information to the public
• Transfer of shares : ownership can be transferred freely
• If becomes a listed company, the general public can buy and sell shares of the company on the
stock market
• More capital can be pooled : can raise capital by issuing shares to the public
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Types of shares

- Preference shares (優先股)

- receive a xed rate dividend before the ordinary shareholders
- In the case of a winding up(分盤), they are entitled to the remainder of the assets before the
ordinary shareholders.
- They usually carry no voting rights at general meetings
- Ordinary shares
- receive dividends only after the preference shareholders have been paid in full
- They are entitled to the remainder of the assets, in the case of winding up, after the rights of
preference shareholders have been met.
- They have voting rights at general meetings

Advantages

• Limited liability ( Vs. sole proprietorship / partnership)

• limited to the amount of their shareholding -> thus avoiding the loss of personal assets
• Legal entity ( Vs. sole proprietorship / partnership)
• A limited company is a separate legal entity from its shareholders and directors. The company may form
contracts, sue and be sued in its own name. The company also has a right to own property.
• Ease of transferring ownership ( Vs. sole proprietorship / partnership)
• Shareholders can transfer their ownership simply by selling their shares of stock.
• private limited companies : shareholders can transfer their ownership after the approval of the board
of directors
• listed public limited companies : their shares are publicly traded and listed in the stock exchange
market = easy for people to buy or sell their shares
• Wider source of capital ( Vs. sole proprietorship / partnership)
• a wider source of capital since it has a large number of shareholders
• listed company can raise further capital by issuing shares or bonds to the public in the stock market.
• Perpetual continuity of business ( Vs. sole proprietorship / partnership)
• The continuity of a limited company will not be a ected by the withdrawal, death, retirement or
bankruptcy of any shareholders.
• Specialised management ( Vs. sole proprietorship / partnership)
• Shareholders elect the Board of Director, which hires expertise to manage the business
• may improve the company’s e ciency and pro tability
[如果只係⼩型Private limited company未必有財⼒請專才管理公司, 咁情況就唔好落依個Point]

Note: An individual can be both sole shareholder and sole director, and hence have total control and full
decision-making power over the company's policies and pro ts.
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Disadvantages

• Higher tax rate ( Vs. sole proprietorship / partnership)

• pay a higher rate of pro ts tax (16.5%) than a sole proprietorship or partnership (15%)
• Complicated set-up procedure ( Vs. sole proprietorship / partnership)
• because more documents are required for registration.
• also required to prepare audited accounts annually
• higher setup cost and operating cost
• Lack of privacy ( public Ltd Vs. sole proprietorship + partnership )
• It is obligatory to publicly disclose the company’s Articles of Association, registered o ce address,
details of shareholders, directors, etc...... at the Companies Registry.
• For public limited company, it needs to disclose much more information including the nancial
information to the public.
• Risk of losing control (For listed company ONLY)
• The shares of a listed limited company are freely transferable in the stock market
• there is always a risk of losing control of the company of other investors want to initiate a hostile
takeover
• Separation of ownership and management ( Vs. sole proprietorship / partnership)
• directors or managers are employed to manage the company
• Owners may not be able to control daily operations
• Prolonged (漫長) and costly procedures for dissolving (Past Paper 冇依個 Point)
• after the business has ceased or if it fails
• To begin a “simple” liquidation, the company must appoint a liquidator to realise the assets of the
company and distribute dividends to creditors and shareholders, and also to clear its obligations to
other parties such as its employees, suppliers, customers, landlords, and etc. Where the company is
solvent, the company can be closed by way of members voluntary winding up. If it is insolvent, the
proper mechanism for closing a company would be creditors voluntary winding up and compulsory
winding up. The procedure itself is complicated and expensive. Quite often it is required to appoint a
solicitors and auditing rm to handle, and the costs of liquidation for even a “simple” company would
be more than HK$50,000.

Ltd. Private Public

Advantages legal + administrative procedures are less easier to obtain bank loans + make purchases
complex and costly on credit < its higher creditworthiness.

Less subject to public scrutiny If the company is listed, its reputation and
publicity will be enhanced

Subject to less government supervision company get specialists to take up di erent

roles -> improves the management + e ciency

Disadvantage Shares cannot be transferred freely. Complex and costly legal administrative
board of directors may have the power to refuse procedures + Extra accounting costs
to register share transfers

loss of reputation and publicity Subjected to public scrutiny (審查) + government

supervision
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 Large and well established companies : reluctant to get listed on the stock exchange
(Advantage of unlisted over listed)
• the absence of the need for funds
• maintain control of the company / less chance of hostile takeover
• retain pro ts for existing shareholders
• fewer requirements on information release
• less government control / less subject to public scrutiny

Listed company -> private

Advantages
• avoid hostile takeover
• avoid stringent government control on listed companies
• avoid complex and costly legal administrative procedures
• avoid extra accounting costs
• buy back company's undervalued or thinly-traded stock

Disadvantages
• loss of reputation and publicity
• di cult to raise new equity capital from the general public
• more di cult to borrow from the general public

Factors to be considered in choosing the form of business ownership

1. Types of business (e.g. service, trade, or manufacturing)
2. Amount of capital required initially and expansion
3. Scope of operations and plan of internal organisation - volume of business and the size of the
market area served
4. Degree of direct control and pro t distribution desired by the owners
5. Degree of risk and owners' willingness to assume personal liability for business debts
6. Length of life desired for the business
7. The legal requirement and relative freedom from government regulation
8. Comparative tax advantages under the di erent forms of ownership
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 Ch3 Forms of Business Ownership II

***Joint Venture (合資公司)

• two or more businesses form a new business entity to carry out joint project(s)
• Each partner is expected to bring management expertise and/or money to the venture = an entity
independent from all its partners
• A temporary partnership arrangement to carry out a single business operation. After the venture is
accomplished, it is dissolved ( sometimes the venture can be very long lasting)
• In most cases (NOT a must), joint ventures are formed when an international business from a foreign
company and a domestic company entered into a co-operation agreement in order to accomplish a
speci c project

Examples
Starbucks in Hong Kong
- 1990s, Starbucks Co ee Company of the US wanted to expand its business to HK
- -> knew little about the local market
- went into a joint venture with Maxim 's Caterers Ltd of HK by setting up a new company = Co ee
Concepts (HK) Ltd
Pokémon Company
- formed as a joint venture by three copyright holders: Nintendo, the publisher,
- on whose platforms the games exclusively appeared:
• Game Freak, originator and developer of all the mainline Pokémon video games ;
• Creatures, which takes care of the trading card game and some toy production.
Joint Venture Construction Projects
- The construction industry is a highly competitive one
- construction company will want to bid on larger, more complex contracts
- The problem is that they might not have the nancial capital or resources required to pursue them
- To overcome this hurdle, many companies decide to band together to form a joint venture
- help companies bid on otherwise, unattainable contracts.

Characteristics
• Nature
• A contractual arrangement
• usually formed when two or more companies co-operate in developing a particular project
• -> will be terminated upon the completion of the project
• Sometimes it exists in a speci c time frame
• Method of operating
• Each party contributes its own capital, assets, expertise or technology to the joint venture.
• The assets of the joint venture belong to the party who own them
• Each party is not responsible for the liabilities of the other party (or parties)
• Control
• Each party has control on the project / Dominant control on the project is not allowed
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 Advantages

Business risks and liabilities can be shared among joint venturers

• elaboration 必須講明是甚麼 risk!
• If su ered loss, the loss can be shared among the joint venture partners instead of bearing by one single
company
• In case of insolvency or the failure of the venture, each joint venturer may lose all of its investment in the
joint venture, but it may be only part of the wealth of each joint venturer = risk of each joint venturer is
diversi ed

Easier entry into new market: joint venture partners know local market well and have local connections
[如果題⽬講嘅公司全部都係 local 嘅, 就唔好落依個 Point]
• easier for oversea business to entry into a new market : cooperates with a local company in the form of
a joint venture -> share the goodwill of the local companies.[需要繼續解釋咩goodwill]
• The local companies may already have a large local customer base + have a better understanding of the
local business environment / culture / political system
• may also have a good connection with the local raw material suppliers
• the local joint venturer may be subjected to fewer trade barriers and local regulations
• All these can increase the chance of success of the joint venture

More funds (capital) and resources can be contributed by joint venturers

• All joint venturers pool their nancial resources together = more capital can be obtained and shared
• can carry out projects in large scale [唔好寫more source of capital]

More expertise and technology can be pooled by di erent joint venturers

• Each joint venture may have their expertise
• joined together -> form a joint venture -> can be bene ted from their expertise and the nal product can
be in a better quality and a higher sale can be attained

Synergy e ect / Synergistic e ect (協同效應) [建議寫上⾯個 point // for MC]

• occurs when the strengths of the parties are combined
• because the e orts of each side of the joint venture complement one another -> fully utilized resources
to produce higher outputs

Enjoy economies of scale

• can run the business in a larger scale = enjoy economies of scale
• purchase in bulk and enjoy a larger discount = lower the production cost

Technology transfer [如果問對於 local company嚟講有咩好處, 可以考慮寫依個point. 正常情況下唔好⽤]

• The foreign partner brings advanced technology and management skills to the venture
• The local partner in the host country can learn new technology and management practices from this
type of co-operation
• After years of learning and practice -> improve its management skills and production technology
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 Disadvantages

Disagreement among partners

• Con icts may arise among the parties due to di erent views on business development
• hinder decision-making and its operation

Leaking of knowledge and technology

• The parties will bear a risk of losing their competitive advantages if their own valuable knowledge and
technology are disclosed and imitated by other parties eg. patented technology
• these parties may become competitors in the future

Problems of pro t-sharing

• di cult to determine a fair pro t and loss sharing ratio between the partners because di erent parties
contribute di erent types of capital or assets to the venture.

Di erence between Partnership and Joint Venture

Partnership operation has no de nite time limit while joint venture is project-based and will be
terminated when the project is completed
• Joint venture could be a separate legal entity Vs Partnership must not be a separate legal entity.
• Therefore, a joint venture may sue or be sued if it is in form of limited company while the partners of a
partnership must bear legal responsibilities for the business.
• joint venturers may enjoy limited liabilities if it is in form of limited company while the partners of a
partnership must bear unlimited liabilities for the business.
[Joint Venture 可以以 Partnership, Limited Company 等形式成立]
(但不能夠當 joint venture ⼀定有 lower tax rate / limited liabilities) [DSE2016MCQ6]

***Franchising
• is a licensing agreement that permits an individual to own his or her business while bene ting from the
know-how, trademarks, and reputation of the established rm.
• The individual owner (the franchisee) pays the licensing company (the franchisor) an initial start-up fee, a
royalty from part of the business sales or pro ts + sometimes additional royalty for a share in national
advertising programmes
• franchised shop operates under the authorisation of franchisor
• franchised shop can be in form of sole proprietorship, partnership or Ltd

Duties of franchisor [知]

• Provide a certain amount of management training and assistance
• Provide goods to the franchisee at a price competitive with market
• Advise the franchisee on location of business and design of the premise
• Provide new employee training and retraining program for existing sta
• Perform national advertising
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Duties of franchisee
• Operate the business according to the rules and procedures set by the franchisor
• Invest an agreed minimum amount in the business
• Pay the franchisor a certain amount (usually a royalty, being a certain percentage of gross sales)
• Buy supplies and other standard materials from the franchisor or approved supplier

Examples
7-Eleven
- located all over Hong Kong
- 24-hr operating hours + easy-to-reach locations provide fast and convenient services to customers
Gong Cha
- Gong Cha in Chinese stands for the best tea from all over the world as tribute to the Emperor
- representing the tea with the highest quality and strictest expectation

franchisee

Advantages

Wide name recognition

• usually has been proved to be very successful with a good image and sound reputation
• lots of customers in the market who are loyal to its products or services = potential customers of any
new stores owned by franchisees
• able to have sales and earn pro ts right after the commencement of the business

Management training and support

• help the franchisee to register the business, choose the location of the store, design its layout, install the
equipment necessary for operation, and connect the supplier to buy goods in bulk
• newly established -> send some experienced people to the store + give instructions on how the
business is run
• Advice and assistance regarding the operation of the store can also be sought from the franchisor(may
include any personnel problems, stock control, legal advice, etc.)
• training courses will be provided to the franchisee and the newly employed sta = hands-on assistance
and services provided are great importance to young or inexperienced franchisees -> greatly increase
the chance of success

Lower operation costs

• Since the product range or service provided in the franchise chain is the same, the franchisor can
purchase the products in large quantities from wholesalers or even directly from the manufacturers
• easily bargain for lower prices and more favourable credit terms -> more price competitive than other
independent stores selling the same products.
• franchised business, promotion is done through the franchisor and the whole chain bene ts from the
promotion campaign = more cost-e ective to advertise for a chain of stores rather than an independent
store = greatly reduce cost burden of the franchisee
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 Disadvantages

Need to Pay Royalties to the Franchisor Even When Making a Loss

• The franchisor will require a royalty as a percentage of gross sales
• = increases the nancial burden of the franchisee and reduces its pro t

*Limited Autonomy
• as he/she need to follow the standards and guidelines stipulated in the franchise agreement
• unable to be innovative / cannot develop in their own way
• want to introduce a new product -> need to discuss with the franchisor = slows down the decision
making time
• less managerial freedom in operations + other areas eg.location, layout, recruitment + restrictions on
purchasing
• limit exibility and creativity of the franchisee -> result in loss of business opportunities
• In the franchise agreement, it is already stated that the franchisee will abide by all the regulations set by
the franchisor = should be operated in a prescribed manner
• eg. the avour and the ingredients of hamburgers sold in a McDonald's cannot be altered according to
the personal discretion of the franchisee\
• maintain the uniformity of the whole chain, the franchisor does not allow variations over the whole chain
• Even a minor change which may a ect the business format eg. design in the store, product range, prices
or business hours, has to be approved by the franchisor = slow down the response time and the not be
able to make timely decisions
[唔可以⽤ NO autonomy]

*Subject to the Success and Failure / Reputation of the Franchisor

• subject to the success and failure of the franchisor
• Any malpractice (弊端) or mistakes made by a particular franchisee will have an immediate adverse
e ect on the whole chain.eg food poisoning happens in one of the other franchisee will a ect the
con dence of the customer = sales of the whole chain will drop. [舉實際影響例⼦]

Franchisor

Advantages

Faster expansion at a lower setup/operating/time cost

• franchisees will provide setup capital
• the franchisor can expand the business rapidly by using other people's money -> Market share can be
enlarged through this rapid expansion
• widen franchisor’s image or brand name with franchisee’s capital
• are responsible to pay management + promotional fees -> enhance a faster expansion at a lower
operating cost
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 More stable income from royalties
• The franchisor can earn regular royalty fees from the franchisee
• required to pay a xed percentage of gross sales as monthly royalty payments = stable income

Easy access to the local market [只係 for 當年題⽬嘅答案, 唔⼀定都啱⽤]

• Franchisees are more familiar with the local business environment
• oversea business recruits local company as franchisee = easier to entry into a new market

Lower risk of expansion (⽤咗頭三個就唔好⽤依個 point)

• franchisor can expand the business by using other people's money
• When there is economic downturn and a number of franchisees face the risk of closure, the loss in
capital mainly comes from the franchisees instead of the franchisor = lowers the risk of expansion
• The franchisees will bear the business loss
• The franchisee is required to pay a xed percentage of gross sales as monthly royalty payments even
they su er loss -> the risk of loss due to expansion is transferred to the franchisees.
• Reduce risk due to franchisee is more familiar with the local environment = easier for oversea business
to entry into a new market = risk of failure will decrease

Disadvantages

Reputation of the whole franchise business will be a ected

• If a franchisee manages his business poorly
• di cult to control the quality of products and services provided by franchisee
• Once an accident or business malpractice takes place at an individual franchisee, the reputation of the
entire chain will be adversely a ected

Franchisee may set up his own business to become a competitor

• bear a risk of losing their competitive advantages if their own valuable knowledge and technology are
disclosed and imitated by franchisee -> may become competitors in the future

Di cult to wholly control the operation style of franchisee(s)

Consideration in whether to join a franchise as a franchisee

- franchisor's reputation
- restrictions and obligations
- initial joining fee and royalty
- support and assistance o ered, e.g. promotion and training
- franchisor's positioning and strategies match own expectation and desire
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 Public Enterprise
• concerned about public interests
• are wholly owned by the government to provide essential goods and services to the public.

Classi cation of public enterprise

Government Department
- directly nanced and managed by the government
- provide di erent types of public services
- Eg. Water Supplies Department, Food and Environmental Hygiene Department and Hong kong Post
Public Corporation
• an organisation set up through legislation and fully owned by the government
• are separate legal entities
• funds of public corporations are provided by the government, their management and nance are
independent of the government
• government appoints a board of director to manage the corporation -> run on commercial basis
• Eg. Airport Authority HK (AA), Ocean Park Corporation, HK Science and Technology Parks Corporation

Characteristics
- run as a private enterprise (commercial basis)
- set up and bound by legislation
- self- nancing - the government is only responsible for the set-up cost
- Its losses are not borne by taxpayers
- usually provides public services, e.g. public utilities
- the government will not be involved in the daily operations / retains the power of governance
- public corporation surplus is used for settling debts or kept as reserves for further investment
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 Advantages
Provides products or services required by the general public
• provide quality essential goods and services at reasonable or even low prices to the public
• The basic needs of poor people can be satis ed
To protect employment
• gov consider the need to create and keep jobs rather than just considering nancial pro ts
Avoids wasting resources
• gov is able to ensure that there is no duplication and wasting of resources
• eg. in the provision of railway tracks or water supplies with better and comprehensive urban planning
• Resources will thus be allocated more e ectively
Easy to raise capital
• easy for the gov to raise capital for big construction projects
• may guarantee the repayment of the principal of the loans raised by the enterprise so that commercial
banks are willing to lend money to it (credit worthiness)
• the corporation can bargain for more favourable terms with the commercial banks.

Disadvantages
The lack of direct competition
• often makes it di cult to assess their e ciency
• greater possibility of waste, over-manning and poor quality services
Lower degree of exibility in decision making
• as the management of public enterprises is subjected to government regulations
• The complicated structure makes it di cult to adapt to the changes of public need, which leads to
delayed response to the demand of the public.
Increase the burden of taxpayers
• public enterprises su er loss -> be borne by the tax payers -> increase taxpayers’ burden.

Recent development in public enterprises

Outsourcing services
- outsourced more and more of its services to private enterprises
- eg. the management of gov-owned car parks and tunnels and street cleaning services
Setting up trading funds
- Some government departments are now operating on a self- nancing basis under trading funds
- gives the departments a higher degree of exibility in resource management
Simplifying the administrative structure
- gov has simpli ed the structure of some departments by integration and reorganisation
- e ciency is enhanced
Privatisation
- has privatised some public enterprises -> no longer wholly owned by the gov
- eg. the Mass Transit Railway Corporation was privatised in 2000 -> some of the shares were sold to the
public while the government remains the largest shareholder
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Advantages of privatisation
Increase the operational e ciency of public enterprises
• the enterprises will not receive any support from the gov = must operate on a commercial basis
• In order to make pro ts, they have to improve their products and services, respond to market changes
and satisfy customer demands
Provide additional income to the government
• bring additional revenue to the gov through selling the shares of the enterprises to the general public

Multinational corporation (MNCs) in Hong Kong

• A multinational corporation (MNC) is a corporation that operates in more than one country

Features
• MNCs make important contributions because they bring in capital, knowledge and technology
• provide employment to local workers and management training to local managers.
• run operations without much regard for national boundaries in line with a central strategy
and core of values set at the centre
• have to cope with very di erent env't, stages of economic development, legal, and taxation systems
• have to cope with a variety of time zones and geographic distances
• They have to manage a work force of many di erent nationalities and cultures.
• They often have to bear high political risks
• They MAYNOT have more than 100 employees

MNC’s Contribution to the Economy of Hong Kong

- Transfer new technology and skills
- Bring in more products
- Provide employment opportunities
- Bring in capital
- Stimulation competition in business activities

HK = suitable place for setting up regional headquarters of multinational corporations

• Physical factors : company wants to be at the door to China = its most important growth market
• Economic Factors : HK Gov maintains a simple tax structure with low tax rates
• Institutional factor : no any trade barriers on imported goods + no foreign exchange control (not control
capital in ow and out ow)
• Technological factors : has advanced communication infrastructure
• Social Factors : has highly educated work force
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 ***Ch4 Business Ethics and Social Responsibilities

Business Ethics = a set of moral principles, values and beliefs which govern the behaviours of a business
Social Responsibility = rep. of a rm to its community and the environment

*Employees : enhance awareness

Compile(編制) code of ethics

• conduct rules for conforming
• provides speci c and clear-cut criteria for daily action of all sta
Educating and training
• impress upon sta the company’s ethical standards
• including an ethics module / ethical issues in sta training programmes
Enforce with reward and penalty
• provide rewards for solid ethical behaviour/ punish violations
• regardless of the o enders’s high or low status

Impacts unethical practise on business

1. Adverse business reputation :damage the image

2. Loss of customers : lose con dence
3. Con ict with employees : may get help from trade unions
4. Di culty in raising capital
5. Legal punishment : breaches the law

Benefit
• Increase reputation + maintain a group of loyal customer
> secure long-term pro t
• Healthy social and env’t conditions help to ensure pro t-making companies to remain
set up a reasonable pricing system that is acceptable to customers
use more costly but environmentally friendly equipment to reduce pollution
charge a lower price to vulnerable groups
involve in charity work
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 Stakeholders of a Business
Employee
- Salary and fringe bene ts
- Working environment
- Training and promotion opportunities
- Job security

Provide Safe and Pleasant Working Environment

• should have good ventilation and enough lighting
• allowing clerical sta to work from home when there are adverse weather conditions
Provide Fair and Reasonable Remuneration
• basic salary should be above the industry average
• longer maternity / paternity leave than the law required
Provide Training and Development
• training in the latest development of markets, managerial and technical skills
• reach their full potential through continuous training and development

Customer
- Price and quality of goods and services
- After-sales service and refund policy

Ensure the Safety and Quality of its Product or Services

• Product manufacturer
• verify the level of toxic substances in raw materials, parts and packaging
• ensure the level compliance with the international standards
• Restaurants / Food manufacturer
• provide low-fat/salt/sugar of high- bre food which would be healthier to their customers
Fair Pricing
• be priced fairly
• in the case of sudden increase in demand, the business shouldn’t increase the price sharply to maximise
its pro t
Provide Reliable and E ective After-sales Service
• quickly understand the details of customer complaints and provide feedback
• take necessary remedial action such as repair of refund
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 Owner/Shareholders
- Pro tability and nancial stability of the business
- Long-term development of the business

Disclose important Information and Business decisions to them

• on a timely basis through AGM or other general meetings
• should be held at place and a time convenient to the largest possible number of shareholders to attend
- Online AGM can be held for international shareholders
- Company listed in Main Board has to disclose nancial report half yearly > quarterly = more frequent
- get timely info for decision making
Appoint Independent non-executive directors to monitor management quality of senior
management
• more than 3 independent non-executive directors
• bring objective and independent judgement > ensure a proper balance between the public and
corporate interests
Ensure E ective and E cient use of business Resources

Society / Community / Residents living around

- Environmental protection
- Contribution to vulnerable groups
- Involve in charity work

Reduce environmental Pollution (that disturb the residents nearby)

• environmentally friendly equipment / fuels / engines above the legal requirement
• environmentally friendly packaging / recycling materials > reduce wastes
• don’t use loudspeaker to sell product > avoid noise disturbing surrounding
• turn o neon light (advertising banner) after nine o’clock at night
• dispose litter / waste properly
• power company which develops new tech to help reduce emissions
• trading company which encourages employees to participate in voluntary work
Contribute to Vulnerable Groups and Involve in Charity Work (Large enterprises)
• implementing tree planting programmes
• providing free meals for poor families
• sponsoring educational programmes

Manager / Director
- Business growth
- Bonus entitlement
- Power of manager
• pay reasonable fees and management bonus
• de ne and balance the authority among directors
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Suppliers
- Terms of contract (delivery schedule / pricing)
- Ability of the business to pay
- Future prospect
• pay amount due on time
• agree on mutually bene cial and fair contract terms and arrangements
• perform the contract signed

Creditors / Lenders / Bankers

- repayment ability of the business
- possible risks of lending the loan
• pay interest and principal on time

Government
- compliance with laws and regulations of the business
- tax payments from the business
• pay taxes on time
• report revenues and expenses honestly
• obey the law

Trade Unions
- Wage level of employees
- Working environment
- Working hours
• communicate with them regularly
• consult trade unions about new employment policies
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 Ch.5 Management Function

Importance of management
E ectiveness : measure of task output or goal accomplishment
E ciency $$ : measure of the resources cost associate with goal accomplishment

Level of Management

Top management eg. GM/CEO

• long-term objectives and goals
• make all important decisions
Middle management
• design plans to attain objectives
• communicate
First/Front-line management
• supervise operation
• monitoring the daily operation

Functions of Management
Planning
= setting objectives and formulating strategies to meet the objectives

Speci c
• set objectives without any ambiguity > every member can fully understand clearly
Measurable
• set in quantitative terms
Attainable
• be realistic, reasonable and achievable
Relevant
• in line with the organisation‘s vision and need
Time-bound
• should be a target date or deadline for ful lling the goals

Importance
Provide direction to employees
- helps manager set clear goals > clear direction on wt the goals are + how to achieve
Provide standard for monitoring work progress
- for evaluating performances in the progress of controlling
Grasp opportunities and deal with challenges
- predict and foresee changes and challenges + consider the impacts of the changes
- carry out appropriate actions to cope with ever-changing external environments
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 Utilise resources better
- set priorities and focus energy on the most important problems
- prevent wastage of resources and streamline the production process

Strategic / Tactical / Operational

Planning process
1. Develop forecasts and planning premises (anticipated environment)
2. De ne speci c objectives of the organisation
3. Develop alternative courses of action
4. Decide on a course of action after assessing various alternatives

Organising
= breaking down the work into smaller pieces and designing an organisation structure to facilitate the
completion of the work
= managers will assign duties and delegate authority to subordinates

Job relationship: Superiors > Subordinates > Colleagues

Chain of command
= represent the paths an order should
take from the highest to the lowest
levels of management
Span of control
= the number of subordinates reporting
directly to that manager

- Nature of work
- Environment in which the
organisation operates
- Managers’ abilities and
subordinates’s experience and
training
- Technology
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= directly responsible for monitoring essential activities of the org. eg. sales, production and nance
Line authority : have the authority to give orders to their subordinates
Sta manager
= experts in particular administrative elds
Sta authority : give advice and provide information and support to line managers
- no authority

Departmentalisation
Function : grouped by major functions
Products : all the jobs associated with a product line
Location : performed in a particular geographical territory
Advantages
• easier to cater customers’ needs
• quicker to respond to the local market
• more accurate assessment of each products’ performance
Disadvantages
• duplication of resources
• high administrative expenses

Leading
= guiding, directing and motivating people to work towards achieving organisational goals

Autocratic Leadership
= don’t involve others in decision making

Advantages
- maintain closer control
- avoid duplication of e ort
- policies and work orders are more consistent and uniform

Disadvantages
Employees
- employees’ job satisfaction and commitment would be lowered
- greater resistance from the employees
Managers
- heavier workload
- quality of the decision depends on managers’ capabilities
- higher chance of committing mistakes
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• workers are inexperienced and passive
• not willing to take up job opportunities
• crisis and a quick decision is required
• info only available to manager
• decision is likely to be resisted by the workers
• subordinates only responsible for repetitive and simple jobs
• company always need to make quick decisions

Participative / Democratic leadership

= willing to accept ideas and suggestions from subordinates and involve them

Advantage
- widen managers’ exposure > better decision
- strengthen sta support for business policies
- improve mutual understanding between management and sta

Disadvantage
- slow down the decision making
- con ict may occur

Free-rein / Laissez-faire leadership

= full autonomy in decision making

Advantage
- enhance creativity
- contribute much to the sta morale
- gives workers a sense of challenge, commitment and satisfaction in their jobs

Disadvantage
- lead to chaos when workers fail to cooperate well with others
- inexperienced and passive workers may feel frustrated and helpless as they don’t receive any
instructions

Appropriate
• workers can work independently and are highly motivated
• tasks require freedom of expression (eg. painting and design)
• tasks require a high level of creativity such as scienti c research

Factor a ecting leadership style

• nature of work
• time pressure
• ability and attitude of subordinates
• superiors’ management philosophy
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Controlling
= monitoring activities in the organisation to ensure that they are carried out as planned and can meet the
standards, corrective action is needed when the performance cannot meet the standards

Steps of controlling

1. Set the performance standards

2. Measure the actual performance
3. Compare the actual performance with the standards
4. Take corrective action
 Ch 6. E ective Management

Divisional of Work
= the breaking down of the total work into a number of smaller tasks that can be easily performed
by di erent individuals

Advantage
Higher Productivity and E ciency
• practice makes perfect = perform a fews tasks repeatedly
• learn faster and make fewer mistakes
Facilitate Automation / Mass Production
• specialised machinery and equipment can be used
Time-saving
• concentrates on only one task rather than every task in an operation
• workers don’t have to switch between di erent tasks = adjustment
• simpli ed the training progress
Facilitate Supervision
• monitoring by manager is easier when comparing with monitoring the whole production process
Easier to Recruit Workers
• easier and more economic to hire workers with a limited number of skills
• easier to choose a right person for their replacement (absent / retire / leave)

Disadvantage
Monotonous Work
• do the same task repeatedly everyday
• get bored and low job satisfaction due to the lack of motivation
Interdependent Work Stages
• employees in any stages make mistakes or fail to complete the task on time
• whole production process will be interrupted
Low Mobility of Sta
• employee are specialised in doing a speci c task
• industry declines / skill becomes obsolete > unemployment
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 Unity of Command
= each person in an organisation takes orders from and reports to one person only

Advantage
Avoid Con icting Instructions
• only receives instruction from one superior
• avoid work assignment to one subordinates by di erent managers
• avoid con icting instruction causing confusions
Facilitate Supervision of Subordinates
• superior cannot shift the responsibility of supervising the subordinates to others
• de nes clear authority, responsibility and accountability to avoid con icts between managers

Unity of Direction
= employees working on the same project have the same goal
= achieve e ectively and e ciently
= a plan is designed and developed by one manager only

Advantage
Create Coherence among Employees to Achieve the Same Objectives
• set up a common objective
• unite to work together towards the same target
Avoid Management Confusions / Con icts
• better allocation of resources
• time and resources can be saved
Help to Build up Team Spirit
• improve sta morale > reduce sta turnover

***Authority, Responsibility and Delegation

Authority = the right to direct and make decisions
Responsibility = the obligation to perform assigned duties
Delegation = the assignment of work and the transfer of formal authority and responsibility

Principles
- de ne job responsibility of subordinates + delegate appropriate authority to them
- consider subordinates’ ability
- provide related resources and training to subordinates
- monitor subordinates’ work regularly
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Advantage
Reduce Manager’s Workload
• manager can’t nish all the tasks by himself
• delegating technical matters to subordinates
• concentrate on developing long-term plans and strategies for the business
Improve Subordinates’ Ability
• delegation provides training opportunities to develop their skills and talents
• have chances to realise their potential
Enhance Subordinates’ Job Satisfaction
• given an opportunity to try something new and make decisions by themselves
• will be motivated if they enjoy higher autonomy at work
• increase job satisfaction
Better Quality of Decision Making
• more familiar with the actual operational environment
• better performance

Factors a ecting
- urgency of task
- importance of task
- lack of con dence in subordinates‘s ability

***Management By Objectives
= is a motivational technique by which the superiors and the subordinates set the rms’
objectives together
Theme : making the overall objectives of the enterprises, the objectives of di erent departments and
individual employees
- managers at all levels meet with their subordinates one level down to jointly set performance objectives
for individual

Steps
1. jointly set the objectives
2. mutually agree on the objectives
3. subordinates have autonomy in deciding the ways to accomplish the objectives
4. superiors periodically review subordinates‘s performance against the objectives
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Advantage
Subordinates Have a Clear Understanding of the Firm’s Goals
• discussion > better understanding
• subordinates participate in the process > will be committed to achieve such goals
• raises work motivation and sta morale
Facilitate Control on Subordinates’ Progress
• managers need to review the action plan + give feedback regularly
• progress of work under better control
• ensures all the tasks are nished on schedule
Improves Communication
• they work together to the goals
• managers need to review the action plan + give feedback regularly
• increases chances of communication between superiors and subordinates
• better relationship > sense of belongings be motivated
Disadvantage
Time-consuming
• takes time to hold meetings and discussions until they reach a consensus
Increased Workloads of Superiors and Subordinates
• extra work may also be required to keep records of meetings
Concentrate on Short-term Goals
• subordinates may focus on achieving short-term goals as such goals are easier to accomplish
• long-term goals may be neglected
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 Ch.7 Small and Medium Enterprises (SME)

SMEs
• manufacturing : employs fewer than 100 people
• non-manufacturing : fewer than 50 people
• usually managed by their owners
• often provide products and services that complement large companies
• may not operate locally

Characteristics
• limited capital
• managed by owners
• mainly local operation
• focus on narrow markets

Advantage
Flexible in Decision-making / Responsive to Market Change
- owners can make decision quickly > able to make changes promptly
- exible operation enables them to meet rapid change in the market
Closer Contact with the Customers
- provide an environment on which management is close to its customers
- make they possible to better serve the speci c needs of the customers
- to respond to their suggestions + complaints
- to provide a personal friendly atmosphere
Low Overhead
- many large companies are burdened with high overheads > often these costs are passed to customers
- opens attractive opportunities for SMEs to avoid these excessive overheads
Personal Contact with Employees
- industrial relation in a small business is usually better
- many employee value the personal relationship with the manager brought about by face-to-face
communication

Disadvantage
Poor Competitive Position
- generally have limited info. about the environmental conditions eg. suppliers / government regulations /
changing market trends / new technologies
- small operation scale restricts it from enjoying economies of scale
- making the small business even weaker in competing with others
Lack of Management Skills
- most owners must rely on their own managerial judgement
- cannot a ord to hire management specialists
Lack of Capital
- limited resources and capital to nance their operations + expand their business
- di cult to get loans from banks because of their small size
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 Di culty in Keeping Good People
- often high turnover of employees
- because of low wages, lack of future prospects, lack of social bene ts, insecurity of small business

Contributions to local economy

1. Providing Job Opportunities
2. Provide Specialised Products and Services
• customised / tailor-made products
• ll the market gap
3. Introducing Innovative Products and Services
• more willing to introduce innovative products / services
• more exible + willing to risk trying new technologies
• stimulate technological advancements
4. Provide Support and Services to Large Companies Enterprises
• many SMEs are subcontractors > perform speci c tasks
• provide assistance / resources

Entrepreneur
= earn pro ts by taking business risks

Characteristic
1. Take initiatives
2. Seek new opportunities
3. Desire for independence
4. Receptive to innovative ideas
5. Persist in order to actualise goals

Importance in Business Development

Introduction of Innovative Products and Services
- in order to enter an existing market / new market > input something innovative > attract customers
- raises standard of living of the people
Promote Competition
- brings more and higher quality products and services
- creates better ways of using resources + promote competition in the market
- operate more e ciently and make continuous improvements
- consumers bene t < enjoy a diversity of products + services and lower prices and better quality

Importance in Economic Growth

- Provision of Employment Opportunities
- Contribution to Economic Growth
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 Ch.8 Key Business Function

**Human Resources Management

Major Tasks

Manpower Planning
- deciding the types and quantity of human resources required to accomplish business goals
- based on the current and future needs
- ensures have su cient manpower to maintain daily operations and facilitate development
1. forecast manpower demand based on the plan and scale of expansion
2. estimate manpower supply
3. compare the demand and supply : identify shortage
4. develop action plans and follow up : recruitment +selection + training

Sta ng and Placement

- recruitment : attracting a pool of potential candidates for the open positions
- selection : choosing suitable candidates to ll the open positions
- placement : assign jobs and duties to new sta

Training and Development

- able to gain more knowledge and techniques about their jobs
- productivity and sense of belongings will be increased

Performance Appraisal
- to monitor employees’ performance continuously and improve their performance
- usually writes a performance appraisal report to comment on their performance over a certain period
- provides employees with recommendations for improvement
- serves as a basis for a salary increase or promotion for employees

Compensation and Bene ts Management

- o ers as a reward for their e orts made and as an incentive for them to reach better performance
- compensation : salary / commission
- bene ts : paid leaves / medical bene ts

Managing Motivation and Employee Relations

- includes monitoring employees’ health, morale, absenteeism and turnover
- paying attention to work hazard + industry safety + applying motivational techniques
- low sta turnover lowers the cost of sta ng and raises productivity
- maintain good relationship by holding activities
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 Importance
• attract su cient manpower with good quali cation or relevant experience
• provide training
• conducts performance appraisals to evaluate employees’ job performance
• develops a fair and competitive compensation system to motivate
• provides bene ts and services which can strengthen their commitment to the company
• handles grievances(投訴) from employees + promote good relationships
• ensures the company has observed all labour regulation

**Financial Management

Major Functions

Working Capital Management

- management of short-term assets + the associated short-term liabilities
- ensures has su cient resources to pay the short-term debts and up-coming operational expenses
- using capital for investment that yield a return
- managing cash ow + determine optimal inventory level + setting credit policy with manageable level of
credit risks
Cope with an Economic Recession
lower inventory level
tighten credit policy
speed up collection of account receivables
defer payments for accounts payables

Capital Budgeting (investment appraisal)

- planning and managing a rms long-term investments
- eg. opening branches + acquiring machinery
- involves large amount of cash out ows over long period of time > evaluate carefully whether to take part
- helps making investment decisions

Obtaining Funds
decide how to raise capital for business growth
1. internal / external funds
2. debt nancing / equity nancing
3. short-term / long-term debt
> determine the capital structure of a company
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 Financing Equity Debt

from the owners by borrowing

eg. issue new shares eg. borrow from banks or issue debentures

Advantages lower risk interest expense are tax-deductible

no repayment schedule / interest expense avoid dilution e ect

greater exibility and control enjoy leveraging e ect

Disadvantage dilution of control higher nancial burden and risk

pro t sharing with new investors xed obligation to repay principal + interest

dividend is not tax-deductible

Financial Planning and Controlling

- making sure that su cient nancial resources are available to support the achievement of goals
- the budget is a tool to project the business’s sales income and expenses for a given period of time
- shows the nancial needs of the business in the future

Distribution of Pro ts to Owners (Dividend Policy)

- reward to investors > give advice to the board of directors on how much dividends will be distributed
- dividend policy + proportion of retained earnings have to be decided

Importance
• Working capital management: su cient resources
• funds + satisfy both short-term debts and up-coming operational expenses
• Capital budgeting : assess long term investment projects and their returns
• Determine sources of nancing : obtain funds + determine the capital structure of a company
• Financial planning and controlling : develops budgets + monitors the company’s cash ow
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 Operational Management

Major Functions

Developing an e cient operational system

- ensures that the goods production or services provision runs e ciently and smoothly
- Planning for capacity :
- refers to the limit on a company’s ability to meet customer demand
- over / under = wastage of resources
- Choosing a facility location : minimise products cost + increase operational e ciency
- Designing a facility layout : determine physical arrangement of resources
- a ect the e ciency of material handling, utilisation of equipment, productivity of employees
- avoid bottlenecks during production
- Scheduling work : determine how long each production task takes to complete and schedule the work
- monitor production process > complete on time
- Arranging work ow

Inventory control
- aims at maintaining an adequate level of inventory at minimum inventory costs
- too high : too much fund tied up
- hold too long : obsolescence and spoilage hurts pro ts
- too little : raw materials + parts > disrupts production // nished products > hurts sales + client goodwill

Quality control
- setting the standards for quality + ensuring that the products and services are up to standards
- Samples will be selected for testing
- actual rate of defective items > acceptable rate = whole batch may be written o
regularly inspect tools and equipment
acquire quality parts from suppliers
encourage customers feedback
Steps
1.Set acceptable rate
2. Measure the actual rate by sampling
3. Compare
4.Find reasons and take follow up measures

Manufacturing Ind.
• set by physical, technological, tangible characteristics
• product attributes: size dimension, strength, length, hardness, compliance with safety standards
• time related standards : reliability, speed, durability, delivery time
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Service Ind.
• involve more psychological and intangible attributes
• psychological attributes : taste, politeness, environment, status, customer satisfaction
• time oriented standards : service reliability, market response time
• ethical standards : honesty, environmental friendliness, social responsibility

Importance
• develops an operational system
• design an e ective production process
• meet production and delivery schedules
• maintain an optimal inventory level which minimise costs
• ensure that goods and services meet quality standards

Marketing Management
Major Functions

Identify/create market opportunities

- market analysis : understand the market environment and customers’ tastes
- conducts marketing reserch to gather information
- situation analysis (SWOT) :
- analyses strengths and weaknesses + nd attractive opportunities + avoid env’tal threats
Marketing research :
evaluating the sales potential of new products
reviewing the e ectiveness of advertisements
predicting the impact of price adjustment
obtaining feedback from customers

Select target market

- market segmentation : dividing a market into smaller customer groups with distinct needs,
- characteristics, consumption pattern > o ering greatest market potential
- geographical : di erent regions / countries
- demigraphic : age group, sex, income, family life cycle
- psychographic : social class, lifestyle
- behavioural : objectives of tourists, loyalty
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Determine market position
- arrange for a product to occupy a clear, distinctive, and desirable image relative to competing
- products in the minds of target customers
- position their product in the marketplace > control their perceptions of their products
- reinforce or develop an image concerns a product in customer mind
product features / bene ts / associating usage or application / user category

**Formulating and evaluate marketing strategies**

- product : to be o ered to customers
- eg. phasing out weak / unpopular product
- price : amount that buyers have to pay
- eg. cutting prices to stimulate sales
- place : to make the product or service available to buyers
- eg. phasing out unpro table distribution channel members
- promotion : persuade buyers to buy the product or service
- eg. minimising promotional expenses and focusing on retaining loyal customers

Implementing and monitor marketing strategies

- turns marketing strategies and plans into marketing actions > accomplish objectives
- measuring and evaluating the result + take corrective action

Manage customer relationship

- by customer services, after-sales services, a loyalty scheme
- collect feedback from customer by establishing long-term relationship with them
- adjust strategies

Importance
• understand customers’ needs better and develop ways to cater for such needs
• develop marketing strategies to adapt to market changes
• keep alert of market changes and respond to the changes promptly
• build up a good relationship with customers and maintain a group of loyal customers

Information Management
Major Functions

Collecting data
- facilitate decision-making > collect various data both inside and outside the company
- data = raw facts which are just numbers, names, quantities
- eg. economic growth, daily sales gures, number of returned products
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 Transforming data into information
- when data are processed and analysed > become information = useful to managers
- eg. daily sales gures = sales trends > detect changes in customer tastes
- eg. number of returned products = potential production problems

Distribution of information
- transmit to relevant parties to aid decision-making
- set permission to allow all the employees or certain classes of employees to gain access

Retrieval of information
- store the information in a common place such as intranet
- access and retrieve at di erent places or time when needed

Store and protect useful information

- store bulk information and protect them by backup eg. le storage system
- Management Information System : all-inclusive computer-based system

Importance
• more e ective + e cient
• build an information system and collect information from various sources for decision making
• provide managers or other decision-makers with reliable information in a timely manner
• facilitate the distribution and sharing of information within a business

Human resources
- to store personnel data / handle payroll
- take attendance / facilitate sta placement

Financial
- provide /store /process timely info. on the estimate of cash ows
- provide adequate and timely info. > conduct analysis on the company’s accounts receivable and credit
position

Marketing
- provide info. to analyse sales trends on book categories, outlet locations etc.
- help pricing decisions with customer, competition and cost info.
- on promotion e ort, using discount and directing mailing etc. > customer database
- improve customer services and provide added-on services > market info.

Operation
- easier to check the availability of di erent items across various branches of the chain
- avoid stock shortage and piled inventory
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 Risk Management
Major Functions

Identify
- possible risks the business exposes to / potential losses that a business may face
- eg. re, burglary, ooding
- lack of raw materials for the production of goods
- natural disasters
- economic downturn / unstable political environment
- accidents involving employees
- changes in fashion / technology
- entry of new competitors

Formulate risk management strategies + monitor the results

- manage / minimise losses
- review regularly > measures are function well + di erent risks > under control
- required modi cation if the conditions change
Risk transfer
• buy insurance policy to transfer risks to the insurance rms
• Insurable risks :
• re / theft / ship’s sinking / plane crashing
• being sued for damage caused by a faulty product
• Non-insurable risks : external environment
• loss is too trivial
• administrative cost incurred by the insurance company is higher than the premium
• speculative risks / unpredictable risks
• subject to control / manipulation of the company
• losses di cult to quantify
Types of insurance
- Public liability insurance （公眾責任保險）
- Comprehensive insurance (財產保險)
- Fidelity insurance (保證和忠誠保險)
Risk reduction
• implement some programmes to reduce some risks to an acceptable level (cost-e ective)
• eg. completely reproof building > extremely expensive > automatic sprinkler systems + smoke
detector + re prevention education
• train employees > adopt safe work procedures > reduce risk of accident
• install anti-theft equipment
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Risk avoidance

• take actions to avoid some unpleasant outcomes

• eg. not to engage in business in new market at all
• rent instead of buying a factory
Risk assumption

• take into account the risk to be incurred as part of the costs

• eg. set up a reserve to meet the nancial burden of losses

Importance
• identify risks that may occur in daily operations
• minimise the losses when risks occur
• develop risk-handling measures to control risks at acceptable level
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