Unit 1 Business Organisation & Environment Types of organisation

Learning Objectives Distinguish between organisations in the private sector and public sector, applying these distinctions to your own country Explain reasons for starting a business, how to identify a market opportunity and the problems faced by business start ups Distinguish between different types of profit based organisations Evaluate the most appropriate form of legal organisation for different businesses Compare and contrast the objectives of non profit and non governmental organisations and analyse the impact of their actions HL – Explain the nature of public-private partnerships, analysing the costs and benefits of co-operation between the public and private sectors

Types of Organisation Public Sector Organizations that answer to or are controlled by local government Private Sector Businesses owned or controlled by groups or individuals

The sectors may link, Government’s usually regulate quality standards Government’s usually prevent private monopolies Government’s usually ensure health and education services are available to everyone Privatisation – selling public sector organisation’s to the private sector

But is privatisation good for a country? story-of-a-bad-idea-privatisation-of-br-could- soon-bring-higher-fares-and-higher-state- subsidies-and-reduced-services-so-whose- idea-was-it-who-still-supports-it-and-how-on- earth-did-it-get-this-far html

I´m having a TOK moment To what extent is the state ensuring the well being of the people over profit? Freedom of choice On tables discuss, to what extent are the Government of Mexico ensuring the wellbeing of the people over profit? Compare with a different country

Types of Economies Mixed – economic resources are owned by private and public sectors Free-market – economic resources are mostly owned by the private sector with little state / government interference Command – state owns, controls, and plans the economic resources

Many public businesses, energy, telecommunications, public transportation, have been sold to private companies PRIVATISATION What are the benefits and issues arising from Pemex being privatised?

Starting a business The role of the entrepreneur – Somebody who takes financial risk to start/manage a: – New venture – New product – New customer service idea

Entrepreneur characteristics Innovative – ideas & actions Committed/self-motivated Multi-skilled – produce, service, promote, sell, accounting Leadership skills Belief in oneself Risk taker

Reasons for starting a business Many reasons, but they can be remembered by G.E.T. C.A.S.H. Growth: appreciating assets (capital growth) often outpace an owner’s earnings – Donald Trump – real estate assets Earnings: self-employed earnings can far exceed employees’ Transference and Inheritance: passing on business to next generation Challenge: some people love the struggle to succeed – Warren Buffet – works beyond retirement age Autonomy: the self-employed set their own rules Security: there is more job security for the self-employed Hobbies: turn a personal interest/talent into a business – J.K. Rowling – Harry Potter on a napkin into $

Identifying market opportunities Market Opportunities: identification of new or unsatisfied consumer needs Gap in the market – identify where a small segment of the market is unfilled – Niche markets Innovative ideas – new businesses can make it big with new ideas – E.g. Ebay’s online auctioning, iPod Market research is paramount! – Don’t assume things will “fall into place”

Frequent problems for start-ups 40% of new businesses fail within one year! Lack of finance capital – difficult to obtain money for fixed assets Cash flow problems – no money for the “day-to-day” affairs Unestablished customer base – failure to attract customers People management problems – poor staffing or poor organizational skills Legalities – businesses often fail to comply to local laws (and pay big fines) High costs of production – it takes long time to recover start-up costs Poor location – prime locations usually cost more External influences – difficult for small firms to recover from external shocks 1 st few months are the most dangerous!

Profit-based Organisations Profit-based Public-sector business Sole Proprietorship Partnership Limited Companies Private (Ltd)Public (plc) Cooperative

Sole-Traders also known as Sole-Proprietor Sole-trader : individual who owns their own business Business is unincorporated – Firm and owner are treated as the same entity Lawsuits, etc. can affect owner’s personal assets – Unlimited liability Advantages: – Few legal formalities – Owner receives all profits – Privacy – they do not have to disclose their records Disadvantages : – Unlimited liability – no limit to amount of debt owner is responsible to pay – Limited finances – it may be difficult to obtain money – Workload – sole-traders often do all management If owner is absent, business may be jeopardized – High costs of production – sole-traders do not enjoy large economies of scale

Partnerships Partnership: profit-seeking business owned by two or more individuals – Max number of partners is 20 (for many countries) At least one partner must have unlimited liability (but usually partners share) – Sleeping Partners: not active in firm, but share profits Contract should be drawn that addresses contributions, roles, liabilities, and profit-shares of each partner Advantages: – More financial strength – Division of labor/specialization – Privacy Disadvantages: – Unlimited liability – w/o contracts arguments could arise about whose assets should be used to pay debts – Conflict about decisions and break of trust – If one partner dies/leaves, the partnership could dissolve

Private Limited Company: companies that can’t raise share capital from the general public Shareholders can’t sell shares without permission from Board of Directors – Usually family-run companies – Advantages - Retain much control – Disadvantages - Difficult to raise as much capital Public Limited Company: companies that advertise and sell shares to the general public through a stock exchange Advantages – Permanent capital from selling shares; Managers own shares and have vested interest; Specialists can be hired to run company Disadvantages - Suffer from dilution of control; Vulnerable to take-over bids; Disclosure of finances; Shareholders demand dividends

“Going public” moves a private corporation to a public corporation Businesses can also “go private” to retain control Can change business form as need arises (usually due to growth or monetary differences)

Public-sector enterprises Owned by the state / government – Profit is not usually the main goal

Non-profit Organisations Non-profit: organisation that is run as a business, but without the objective of making profit Non-governmental Organization (NGO): non-profit organisation that isn’t owned by government Charities: non-profit organisations that collects donations to support a cause that is beneficial for society – Advantages : Tax breaks for charity and for donors – Disadvantages : Lack of profit motive could cause complacency Special Interest Groups: non-profit organisations that focuses attention on a specific issue – E.g. anti-gun, anti-smoking, etc. – They aim to raise public awareness and even lobby politicians

Non-profit & non-governmental (NGO) Not in business for profit (charity, public interest group) Want to help others (humanitarian)

Pressure Groups - Advocates Greenpeace Fair trade Foundation World Wildlife Federation Try to change: Government policies Business policies Consumer purchasing habits By using: Media coverage Influence consumer behavior (boycott) Governmental lobby

Social Enterprise Society-aiding business using profit for social good (ie. Salvation Army) – Directly produce goods/service – Social aims and are ethical in their pursuit – Need to make profit to survive Aims: – Economic—profit/surplus to reinvest into business – Social—jobs for local (disadvantaged) community – Environmental—protect environment & manage business in environmental way

Public-Private Partnership Sometimes governments partner with private firms to create a ‘joint-venture’ This gives benefits of both private and public sectors – I.e. efficiency and funding Examples include: – Hong Kong Disneyland, New York’s Central Park, etc.

Relationships Between Organisations in the Private and Public Sectors Public goods: products that are enjoyed by the general public, but are unlikely to be provided without government intervention – E.g. national defense, street lighting, etc. Public goods must be non-excludable – This means that people cannot be excluded from the benefits of consumption Both public and private firms interact to provide public goods – E.g. Government can contract private firms to construct highways or build fighter jets