IGCSE BUSINESS STUDIES Topic : Employers association

Employers association

Employers association are groups of employers who join together to give benefits to their member. Businesses join together to form their own association, and members pay an annual subscription fee in return for the benefits they would receive.

Examples include

• National Farmers Union
• Society of British Aerospace Comapnies
• Federation of Samll Businesses
• National Federation of Builders

Advantages of joining an employers association

• They represent employers and negotiate with the trade unions on behalf of their members.
• Provide services to members for example statistical information, and advice or help with recruitment, training, health, safety and industrial relations problems
• Act as pressure groups on the goovernment to try to influence their policies.

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IGCSE BUSINESS STUDIES Topic : Worker participation

Worker participation

Worker participation refers to the influence that workers had on decision-making at management level. Representative workers of influence achieved this through their work on the various management-employee committees.

Advocate workers of influence used formal, individual meetings with management to influence their thinking. Informal workers of influence give input to management thinking in informal arenas such as articles in the newsletter and informal discussion where they exchange information with management.
Participation requires that management share information about the operation of the plant, the marketplace and the needs of customers and suppliers.
Worker participation, is defined as

a situation in which workers have obtained or been given the right to take part in managerial decision-making

It includes management seeking worker input to decision-making and workers offering input to managers for consideration in decision-making.

Benefits of workers participation

Worker participation, may be expected to have the following benefits

• Effect of dampening employee grievances
• Lower labour turnover
• Improved motivation levels
• Increased Productivity and efficiency
• Less conflict between management and employees and thus better employer-employee relations
• Contribution to decision making

Ways of Participation

One view is that workers or the trade unions should, as equal partners, sit with the management and make joint managerial decisions.The other view is that workers should only be given an opportunity, through their representatives, to influence managerial decisions at various levels.I
In practice, the participation of workers can take place by one or all the methods listed below:
1.Board level participation
2.Ownership participation
3.Complete control
4.Staff or work councils
5.Joint councils and committees
6.Collective Bargaining
7.Job enlargement and enrichment
8.Suggestion schemes
9.Quality circles
10.Empowered teams
11.TQM
12.Financial participation

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IGCSE BUSINESS STUDIES Topic : Industrial actions

Types of Industrial Actions

• Strike: when employees refuse to work
• Picketing: When employees stand outside the workplace and prevent the smooth functioning of the firm. E.g. they may stop the movement of Lorries in and out of factory.
• Work to Rule: It is when workers purposely follow all the rules in order to delay the progress of work.
• Go slow: It is when the employees work at a very slow pace.
• Non-cooperation: It involves workers refusing to follow a new procedure or rule.
• Overtime ban: It is when the employees refuse to work overtime or for additional hours of work apart from their normal working hours.

How a conflict could be resolved?

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IGCSE BUSINESS STUDIES Topic ; Types of training and its objective

What is training?

Training involves improving the skills, knowledge and attitudes of employees so as to become more efficient and productive.

Objectives of Training

• Improve the efficiency of workforce
• Make workers multi-skilled and flexible
• Introducing a new process or new machinery
• Reduce wastage of material and time
• Adapt to change

Types of Training

Induction Training

It involves introducing a new employee to its work environment. Usually, it includes

• introduction to colleagues,
• explaining the firm’s activities,
• procedures followed in the organisation,
• explaining the organisational structure,
• place of working etc.

On the Job training

A worker gets training by watching a more experienced worker doing the job. It is common for unskilled and semi-skilled jobs. Thus the worker gets trained while he is performing his regular duties.

Off the job training

This is when a worker goes away from the place of work to attend a special course. The training can be in the form of a seminar, workshop or a college course. Off the job training is usually conducted for managerial level employees.

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IGCSE BUSINESS STUDIES Topic : Recruitment and Selection Process

Recruitment and Selection Process

The recruitment process starts with a vacancy arising.

Job analysis and description

Once a vacancy arises the human resource manager will first identify and record the responsibilities and tasks which are related to the job. After analysing the responsibilities and tasks they are noted down which becomes the Job description for the job. It includes:

• A job title
• Department of the business in which the new employee would work
• Details of the tasks to be performed
• Responsibilities involved
• Place in the hierarchical structure
• Methods of assessing the performance

Job Specification

On the basis of Job description, a job specification is made. It is a document which outlines the requirements, qualifications and qualities, skills and knowledge required for the job. It is also known as person specification.

Job Advertisement

After completing the person specification (job specification) the vacancy is advertised. It can be advertised internally (on the company notice board or newsletter) or may be advertised externally in a newspaper or magazine. The advertisement will usually contain the elements of a person specification with additional information like the name and profile of the company, date and time of interview, address of the company and the contact person etc.

Applications received and shortlisted

Once a job is advertised, there might be hundreds of application received. All of the applications received might not be suitable for the job. Thus a short listing of the applications will be done. The applications most near to the job specification will be called for interview and those who do not qualify the criteria will be rejected.

Interview

The shortlisted candidates will be called for an interview to verify their qualifications, personal qualities and aptitude for the job. It may involve a face to face discussion between the interviewer and interviewee. The firm may also conduct skill test, aptitude tests or personality test if it deems fit so.

Selecting the suitable candidate

The candidate who scores the maximum in the interview will be selected for the job and given an appointment letter.

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IGCSE BUSINESS STUDIES Topic : Manpower Planning

Manpower Planning

It involves the planning for the future and finding out how many employees will be needed in the future by the business and what types of skills should they possess.
It depends on the following factors

• The number of people leaving the job
• The projected growth in sales of the business
• Technological changes
• Productivity level of the workers

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IGCSE BUSINESS STUDIES Topic : Functions of Human Resource Department

Functions of Human Resource Department

A typical Human Resource Department is carries out the following functions:

Manpower Planning

It involves the planning for the future and finding out how many employees will be needed in the future by the business and what types of skills should they possess.

It depends on the following factors

• The number of people leaving the job
• The projected growth in sales of the business
• Technological changes
• Productivity level of the workers

Job analysis and Job description

HR Department is also involved in designing the Job analysis and Job description for the prospective vacancies.

A job analysis is the process used to collect information about the duties, responsibilities, necessary skills, outcomes, and work environment of a particular job.

Job descriptions are written statements that describe the:

• duties,
• responsibilities,
• most important contributions and outcomes needed from a position,
• required qualifications of candidates, and
• reporting relationship and co-workers of a particular job.

Determining wages and salaries

HR Department is also involved in conducting market surveys and determining the wages and salaries for different position in an organization. These decision may be taken in consultation with top management and the Finance department.

Recruitment and Selection

One of the most important jobs HR department is to recruit the best people for the organization. This is of crucial importance as the success of any organization depend on the quality of its workforce. Details regarding the recruitment and selection procedure can be found here.

Performance Apprasial

Once the employees are recruited , the HR Department has to review their performance on a regular basis through proper performance appraisals.

Performance appraisal is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does.

On the basis of performance appraisal the HR Department will set up an action plan for each employee. If the employees needs any training then he provided that.

Training and Development

HR department is constantly keeping a watch over the employees of the organisation. In order to improve the efficiency level of the employees they have go undergo regular trainings and development programmes. All trainings and development needs are carried out by this department. Training might include on the job or off the job training. Find more information on training here.

Employee welfare and motivation

Happy employees mean a healthy organization. HR Department conducts various employee welfare activities which might include employees get together, annual staff parties etc. HR department also reviews organizational policies and its impact on the motivation of the employees.

Addressing employees grievances

HR department is the link between the workers and the management. Employees grievances related work environment are usually entertained and resolved by the HR Department.

Labour management relations

For the smooth operation of any organization, it is crucial to have good labour management relations. HR department has to ensure that these relations are cordial. In case of any labour-management conflict the HR Department will play a vital role in bringing both management parties to the negotiation table and resolving the issue.

Implementing organizational policies

HR Department has to coordinate with line manager and see that the organizational policies are being implemented in a proper manner. Disciplinary action can be initiated against employees who are not following organizational rules and regulations. All these actions are conceived and implemented by the HR department.

Dismissal and redundancy

HR Department has to take firm actions against employees who are not following the organizational code of conduct, rules and regulations. This can result in the dismissal of the employee.

Sometimes, an organization may no more require the services of an employee. The employee may be made redundant. HR Department has to see that organizational and government regulations are being followed in this process.

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IGCSE BUSINESS STUDIES Topic : What is a Recession?

What is a Recession?

Recession is defined as a period of reduced economic activity, a business cycle contraction.

The U.S.-based National Bureau of Economic Research (NBER) defines economic recession as:

"a significant decline in [the] economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.”

In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. 

A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits.

A severe or prolonged recession is referred to as an economic depression.

During a recession

• There will be reduced customer confidence and a reduce consumer spending.
• Businesses will reduce production levels as they find it difficult to sell their goods and services.
• In order to sustain growth, businesses will cut cost and will lay off employees.
• Economy will see an increased rate of retrenchment and more money is spent by the government on unemployment benefit.
• Government will get less revenue from income tax and VAT.
• Stock exchanges will see reduced activity.

How can government tackle the situation

In order to boost economic growth, governments may resort to several strategies. These strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow.

Fiscal policy moves involve increase government spending to boost aggregate demand in the economy. Government may also reduce taxes. Tax cuts will promote business capital investment. Lower-bracket tax reductions are more effective and serve a double purpose including relieving the suffering caused by a recession.

Monetary policy involves increased money supply and reducing the price of money i.e. interest rates. Reduced interest rates will promote capital investment and spark economic growth.

Supply side policies involve giving subsidies and increasing the level of education of the work force.

Global recessions

According to International Monetary Fund (IMF) global recessions are periods when global growth is less than 3%. The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the last three decades, global per capita output growth was zero or negative. By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.

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IGCSE BUSINESS STUDIES Topic : Business Cycle or Trade cycle

Business Cycle

The business cycle or economic cycle refers to the fluctuations of economic activity about its long term growth trend. The cycle involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession). These fluctuations are often measured using the real gross domestic product.
There are four main stages in a trade cycle or business cycle.

Growth	GDP is rising Unemployment is falling Business are experiencing rising profits ‘Feel good’ factor among the people as their incomes are rising.
Boom	Results from too much spending. Economy experiences rapid inflation Factors of production become expensive
Recession	Results from too little spending. GDP is falling Demand in the economy will fall leading to closure of firms and unemployment
Slump	High level of unemployment. Business will rapidly close down creating serious consequences for the economy.

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IGCSE BUSINESS STUDIES Topic : Social Cost and Social Benefits

Social Cost and benefits

Every business activity which takes place has some benefits and costs attached to it. The benefits go both to the owners of the firm as well as to external stakeholders. In the same way the owners and the external stakeholders have to pay a cost for the activities of the business.

Talking about…

Private cost

It is the cost of setting up the business. The owner(s) pay for the hire of machinery, buying of materials, payments of wages. This is termed as Private Cost.

Private benefit

The monetary benefits i.e. the revenue earned by the firm is a benefit for the owner and is termed as Private benefit.

External Cost

The problems that the external stakeholders have to bear due to the firm’s activity are known as external cost. Example: cleaning a river which has been polluted by a firm’s waste products. Private firms usually ignore external cost.

External benefits

Some firms can cause external benefits. These are the benefits to the external stakeholders due to the activity of firm. For example, a firm may train workers, which might get them better wages in other firms. These external benefits are free.

Social cost is the total cost paid for by the society due to the activities of a firm. It is the sum of all the external cost and private cost.

Social benefit is the total benefit arising due to the production of goods and services by a firm. This is equal to the total of private benefits and external benefits.

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IGCSE BUSINESS STUDIES Topic : Cost Benefit Analysis

Cost Benefit analysis

Cost Benefit Analysis is typically used by governments to evaluate the desirability of a given intervention in markets. The costs and benefits of the impacts of an intervention are evaluated in terms of the social benefits or social cost. The guiding principle is to list all of the parties affected by an intervention, and place a monetary value of the effect it has on their welfare.

The process involves monetary value of initial and ongoing expenses vs. expected return. Constructing plausible measures of the costs and benefits of specific actions is often very difficult.

For example, governments can use the technique to decide whether to introduce business regulation, build a new road or offer a new drug on the state healthcare. In this case, a value must be put on human life or the environment, often causing great controversy.

The cost-benefit principle says, for example, that we should install a guardrail on a dangerous stretch of mountain road if the dollar cost of doing so is less than the implicit dollar value of the injuries, deaths, and property damage thus prevented.

Cost-benefit analysis is also used to assess the value for money of very large private and public sector projects. This is because such projects tend to include costs and benefits that are less amenable to being expressed in financial or monetary terms (e.g. environmental damage), as well as those that can be expressed in monetary terms.

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IGCSE BUSINESS STUDIES Topic : Government macroeconomic objectives and policies

Economic Objectives of the Government

Most of the governments round the world have four main objectives. These are

• Keep inflation under control
• Maintain a low level of unemployment
• Achieve a high level of growth rate
• Maintain a healthy balance of payments.

Government Economic Policies

Government influences the economy through its economic policies. These are

Fiscal Policy

It is related with taxes and government spending. This policy is there to control inflation and demand in the economy. Usually government collects money in the form of taxes and spends money through its development expenditure such as building roads, bridge, defence, transports etc. Government constantly monitors the aggregate demand in the economy. Inflation rate gives the correct measure of the aggregate demand in the economy.

When the aggregate demand in the economy is high, prices rise, this shows that the economy is spending too much. In this case, the government will lower is expenditure budget and cut back on investment spending, such as on road construction and hospital equipment. On the other hand the government might also increase the taxes, which would take spending power out of the economy by leaving consumers and businesses with less income to spend.

In the opposite scenario, when the economy is heading for a recession and unemployment is rising, the government might increase its expenditure plans. There might be a reduction in taxes so as to leave consumers and businesses with higher disposable incomes.

Monetary Policy

Monetary Policy is related with a change in interest rates by the government or the Central bank. When the forecast for inflation is that it will rise above the targets set by government, then the Central Bank will raise its base rate and all other banks and lending institutions will follow. It is usually done when the economy is at the boom stage of the business cycle.

A higher interest rate will result in

Business will not be able to expand as they have to pay more interest to the bank for their loans and they have less profit left.
Businesses that are planning to take loan for expanding may postpone their decisions and wait for a cut in interest rates.
Consumers demand will also fall as they will not be getting cheap loans to pay for the buying new houses and luxury items.

If inflation is low and is forecasted to remain below governments targets, then the Central Bank may decide to reduce interest rates.

Supply side policies

It includes all those policies which aim at improving the efficient supply of goods and services. These might include:

• Privatisation
• Imparting training and improving the education level of the workforce resulting in higher skills.
• Increase competition in all industries by removing entry barriers, thus leading to more efficiency.

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IGCSE BUSINESS STUDIES Topic : Governments control over business activity

Why government controls business activities?

• Businesses are usually profit motivated. Many times in order to gain more profit the business might neglect issues like environmental protection and production of harmful and dangerous products.
• Large business might take the advantage of their size and exploit consumers, employees and even use unfair tactics to overcome competition from small businesses.
• Business might use media to portray a wrong image of their product or may even mislead customers to buy products.

How government controls business activity?

Governments control the business activities is many ways both direct and indirect. We have already covered government’s economic policies. However, government can control business activities in a more direct way. These are as follows:

Controlling what to produce

In order to safeguard the interest of the community government may ban or limit the production of certain goods and services. For example, selling of guns, explosive and dangerous drugs are illegal in many countries. Moreover, Goods which harm the environment are also totally banned or strictly controlled in many countries, e.g. aerosol cans that use CFCs which has been banned because of their damaging effect on the ozone layer.

Employees Protection legislations

Government may pass laws to protect the interest of employees such as

Laws against unfair discrimination at work and when applying for jobs. There is no unfair discrimination on the basis of Race, religion, sex, age, or colour.

Legislations for health and Safety at work: 

 

• To protect workers from dangerous machinery.
• Workers should be provided with proper safety equipments and clothing.
• A reasonable workforce temperature is maintained for workers.
• Proper hygienic conditions and washing facilities are provided.
• Workers get adequate breaks between shifts.

Protect employees against unfair dismissal 

Business can not dismiss the workers because they have joined a trade union or for being pregnant. There should be proper warning before dismissing a worker otherwise it will be treated as unfair dismissal.

Ensure fair wages for the employees

In many countries, government makes it mandatory to have a written contract of employment. It contains the details of the wage rate; working hours, deductions (if any) and other necessary details regarding working conditions. Minimum wages paid to different types of workers are also determined by the government.

Consumer Protection legislations

Most of the countries have consumer protection laws aimed at making sure that businesses act fairly towards their consumers: A few examples are

Weight and Measures Act: goods sold should not be underweight. Standard weighting equipments should be used to measure goods.

Trade Description Act: deliberately giving misleading impression about the product is illegal.

Consumer Credit Act: According to this act consumers should be given a copy of the credit agreement and should be aware of the interest rates, length of loan while taking a loan.

Sale of Goods Act: It is illegal to sell products with serious flaws or problems and goods sold should conform to the description provided.

Environment protection

In the recent years government across the globe have passes legislations to control business activities from harming the environment. This includes setting limits to the pollution, making it mandatory for businesses to treat their wastes etc.

Location decisions

Government often influences location of business through

• Planning controls involve restricting the business activities that can be undertaken in certain areas.
• Provide regional assistance to businesses which involves encouraging them to locate in underdeveloped regions of the country.

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IGCSE BUSINESS STUDIES Topic : How government helps businesses

How does government help businesses?

• Providing cheap loans and giving grants.
• Providing advice and information centres for businesses.
• Providing college courses and training programmes for entrepreneurs.
• Offering subsidies or tax reduction to businesses.
• Maintain a stable exchange rate of the currency.

Just a moment…

Why does government help businesses?

• To help small businesses to survive and encourage competition in the economy.
• To encourage firms to export and earn foreign exchange for the country.
• To encourage businesses to set up in underdeveloped regions of the country and create wealth and employment opportunities in these areas.

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IGCSE BUSINESS STUDIES Topic : Economic Environment factors

Economic factors affecting  business

These are some of the economic environment factors which affect business

At what stage of the business cycle is the economy

If the economy is going through a recession it is obvious that businesses generally will not be doing well due to low aggregate demand in the economy. On the other hand, a boom period will lead to higher business profits and revenue for most of the businesses in the economy.

Inflation rate

High rate of inflation leads to lower purchasing power for consumers resulting in lower demand for goods and services. Moreover, a higher inflation rate will make business uncompetitive in the international market leading to lower sales for the business.

Prevailing interest rates

Higher Interest rates will lead to a fall in the aggregate demand in the economy thus leading to difficulty for business to find customers willing to buy its product. Lower interest rates will lead to a increase in demand in the economy.

Unemployment level

High level of unemployment in the country can also adversely affect a business. People will not have enough money to purchase a firm’s product.

Labor costs

 

High labor cost will result higher production costs. This will make a firm’s product more expensive as compared to other firms affecting its sales and profit margin.

Levels of disposable income and income distribution

High level of disposable income is good for business producing luxury goods. A large disparity in income distribution will promote businesses dealing in luxury goods as well as inferior goods.

Taxes

High level of taxes will lead to low disposable income and contraction of demand in the economy. Business will find it difficult to attract consumers.

Tariffs

Tariffs are taxes and imposed on imported goods. If the tariffs are low the domestic market may be flooded with cheap imported goods and the local businesses will have tough time selling their products.

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IGCSE BUSINESS STUDIES Topic : Legal environment factors affecting business

How government controls business activity?

Governments control the business activities is many ways both direct and indirect. We have already covered government’s economic policies. However, government can control business activities in a more direct way. These are as follows:

Controlling what to produce

In order to safeguard the interest of the community government may ban or limit the production of certain goods and services. For example, selling of guns, explosive and dangerous drugs are illegal in many countries. Moreover, Goods which harm the environment are also totally banned or strictly controlled in many countries, e.g. aerosol cans that use CFCs which has been banned because of their damaging effect on the ozone layer.

Employees Protection legislations

Government may pass laws to protect the interest of employees such as

Laws against unfair discrimination at work and when applying for jobs. There is no unfair discrimination on the basis of Race, religion, sex, age, or colour.

Legislations for health and Safety at work:

• To protect workers from dangerous machinery.
• Workers should be provided with proper safety equipments and clothing.
• A reasonable workforce temperature is maintained for workers.
• Proper hygienic conditions and washing facilities are provided.
• Workers get adequate breaks between shifts.

Protect employees against unfair dismissal

Business can not dismiss the workers because they have joined a trade union or for being pregnant. There should be proper warning before dismissing a worker otherwise it will be treated as unfair dismissal.

Ensure fair wages for the employees

In many countries, government makes it mandatory to have a written contract of employment. It contains the details of the wage rate; working hours, deductions (if any) and other necessary details regarding working conditions. Minimum wages paid to different types of workers are also determined by the government.

Consumer Protection legislations

Most of the countries have consumer protection laws aimed at making sure that businesses act fairly towards their consumers: A few examples are

Weight and Measures Act: goods sold should not be underweight. Standard weighting equipments should be used to measure goods.

Trade Description Act: deliberately giving misleading impression about the product is illegal.

Consumer Credit Act: According to this act consumers should be given a copy of the credit agreement and should be aware of the interest rates, length of loan while taking a loan.

Sale of Goods Act: It is illegal to sell products with serious flaws or problems and goods sold should conform to the description provided.

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IGCSE BUSINESS STUDIES Topic : How fluctuation in exchange rate affects business

 

Who gains and Who loses

How fluctuation in exchange rate affects business.

Let’s take the example of Britain and US. If the value of US$ fluctuates in comparison to UK Pound, then, how will it affect different businesses in United States?

Affect of Appreciation of currency

US Dollar becomes expensive as compared to British Pound.
In order words, there is an Appreciation in the value of US$
Earlier 1 Pound could get $1.5, Now 1 Pound can only get $1.3 (because US$ has appreciated)

It will directly affect US Importer and Exporters. Lets see how…

US Importers will GAIN...

because now US$ dollar can buy more from Britain. Earlier $1.5 could get only 1 Pound worth of goods from UK but now US importer have to pay only $1.3 to get 1 Pound worth of goods from UK.

• Imported goods from UK will become cheaper for US consumers.
• Goods using imported components from UK will become cheaper.
• US tourists travelling to UK will be able to enjoy more as they get more UK Pounds when they exchange dollars.

Customers will be happy but it might adversely affect the domestic industry as it will face competition from cheaper imports from UK. Domestic businesses will find it difficult to sell their products, will reduce output and cut jobs.

US Exporters will LOSE...

because now they will find it difficult to compete with other countries with comparatively cheaper exchange rate. UK businesses will now think twice to buy from US because earlier they could buy US$1.5 worth of good for £1, but now, they can only buy US$1.3 worth of goods due to appreciation in the value of US$.
Because of fewer exports, US business will reduce output, which will lead to unemployment.
So the moral of the story is ‘Though it is nice to hear that the value of our currency has appreciated but, in fact, it is not so nice for the economy’

Affect of Depreciation of currency

US Dollar falls in value as compared to UK Pound.
In order words there is Depreciation in the value of US$.
Earlier 1 Pound could get $1.5,
Now 1 Pound can get $1.8 (because US$ has depreciated)

US Importers will LOSE...

Imports will become expensive. Products which use imported components will become expensive. US tourists to UK will have to shell out more money for their vacation. Consumers will feel the pinch and might be unhappy. BUT domestic producers will gain as they will have a cost advantage over imported goods. Output will rise and so will employment.

US Exporters will GAIN...

because UK businesses will prefer to buy from US. US exporters will become more competitive in the International market due to cost advantage. As exports rise, more goods will be produced and thus more jobs will be created.

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IGCSE BUSINESS STUDIES Topic : Exchange rate | Appreciation and depreciation of currency

Exchange Rate

Exchange rate is the rate at which one country’s currency can be exchanged for another country’s currency.

How is exchange rate determined?

A fixed exchange rate system refers to the case where the exchange rate is set and maintained at same level by the government irrespective of the market forces.
Floating exchange rate system means that the exchange rate is allowed to fluctuate according to the market forces without the intervention of the Central bank or the government.

Appreciation and Depreciation

The exchange rate for any currency usually fluctuates. When the value of the currency goes up as compared to other currency it is known as appreciation. When the value of currency falls as compared to other currency it is known as depreciation.

Usually the exchange rates are determined by the demand and supply of that currency in the international market.

Demand for any country’s currency on the foreign exchange market is determined by demand for that country’s exports of goods and services and by changes in foreign investment in that country. This is because when foreigners buy another country’s exports of goods or services they must pay for these in the currency of the exporting country.

In the same way Supply of any country’s currency on the foreign exchange market is determined by that country’s imports of goods and services and by its investment in other countries.

Thus when the demand for a currency rises its price goes up and it becomes costlier.

What causes the fluctuation in currency value?

Changes in the imports and exports of the country: An increase in exports of a country will lead to an increase in demand for the currency and thus the value rises.

Changes in Interest rate: Higher interest rate will attract more foreign investors to invest in the country and thus the demand for currency will rise, resulting in appreciation in value of the currency.

Changes in Inflation rate: Higher inflation rate will make the country uncompetitive in the international market. The exports will fall resulting in decreased demand for the currency and hence lower value.

Revaluation and Devaluation

It refers to official changes in the price of a currency in a fixed exchange rate system.

Devaluation is when the price of the currency is officially decreased in a fixed exchange rate system.

Revaluation is the official increase in the price of the currency within a fixed exchange rate system.

 

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IGCSE BUSINESS STUDIES Topic : Globalisation - its benefits and drawbacks

What is globalisation

Globalisation means the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.

According to dictionaries
Globalisation (n) is the "process enabling financial and investment markets to operate internationally, largely as a result of deregulation and improved communications" (Collins) or - from the US - to "make worldwide in scope or application" (Webster). The financial markets, however, are where the story begins.















 

Promotion of free trade:

• Elimination of tariffs; creation of free trade zones with small or no tariffs
• Reduced transportation costs, especially resulting from development of containerization for ocean shipping.
• Reduction or elimination of capital controls
• Reduction, elimination, or harmonization of subsidies for local businesses
• Creation of subsidies for global corporations
• Harmonization of intellectual property laws across the majority of states, with more restrictions.
• Supranational recognition of intellectual property restrictions (e.g. patents granted by China would be recognized in the United States)

Benefits of Globalisation

• By buying products from other nations customers are offered a much wider choice of goods and services.
• Creates competition for local firms and thus keeps costs down.
• Globalisation promotes specialisation. Countries can begin to specialise in those products they are best at making.
• Economic Interdependence among different nations can build improved political and social links.

Drawbacks of Globalisation

• Cheap imports from developing nations could lead to unemployment in developed countries where the cost of production is high.
• Choosing to specialise in certain products may lead to unemployment in other sectors which are not prioritised.
• Increased competition for infant industry.
• ‘Dumping’ of goods by certain countries at below cost price may harm industries in order countries.

Explore these sites about Globalization:

 

• Globalization Data and Statistics
• United Nations Conference on Trade and Development
• World Development Indictors Online

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IGCSE BUSINESS STUDIES Topic : External environment factors | PESTEL analysis

External environment factors

PESTEL analysis stands for "Political, Economic, Social, and Technological, Environmental and Legal analysis". It is a part of the external analysis when conducting a strategic analysis or doing market research and gives a certain overview of the different macroenvironmental factors that the company has to take into consideration.

Political factors, or how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that  company operates. For example, an ageing population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.
Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer--it is both creating new markets and diminishing or destroying existing ones.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

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IGCSE BUSINESS STUDIES Topic : Multinational businesses

What are Multinational Businesses?

Businesses which have their operations, factories and assembly plants in more than one country are known as Multinational Business. They are also known as Transnational businesses.

Advantages of being a Multinational

• Multinational can set up their business operations in countries where the labour and raw material is cheaper, which can give them cost advantage in the international market.
• Multinational have access to many markets which spreads the risk of failure. If any product may not be successful in a particular market, it might be successful in another.
• MNCs produce in large quantities thus achieving greater economies of scales.
• A multinational business is less vulnerable to trade barriers. MNCs set up their local operations in countries where there is potential market for them and get away with import duties and restrictions.
• MNCs can locate their operations near the potential market which results in lower transportation cost.

Advantages of Multinational to the host country

• Multinationals create employment.
• They bring new technology and techniques of production.
• MNCs usually provide training to their worker which results in better skills for the country’s workforce.
• Multinational businesses usually produce in large quantities and export to other countries which can result in valuable foreign exchange for the host country.
• They pay huge taxes to the government which can be used for the development of the host country.

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IGCSE BUSINESS STUDIES Topic : Centralisation and Decentralisation

Centralisation and Decentralisation

Centralisation implies the concentration of authority at the top level of the organisation while decentralisation means dispersal of authority throughout the organisation
According to Allen

Centralisation is systematic and consistent reservation of authority at central points within an organisation. Decentralisation applies to the systematic delegation of authority in an organisation context.

Advantages of Decentralisation

• Decentralisation reduces the workload of top executives.
• It improves job satisfaction and morale of lower level managers by satisfying their needs for independence, participation and status.
• Decision making is quicker.
• It facilitates growth and diversification. As each product division is given sufficient autonomy for innovation and creativity.
• It gives opportunity to subordinates to exercise their own judgment. They develop managerial skills which will be useful to the organisation in the longer run.
• Decentralisation requires wider span of control and fewer levels of organisation. It speeds up communication.
• Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel.
• As each department or division enjoys substantial autonomy it might lead to co-ordination problems.
• There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.

Disadvantages of Decentralisation

• Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel.
• As each department or division enjoys substantial autonomy it might lead to co-ordination problems.
• There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.

Advantages of Centralisation

• Effective utilisation of talents of the top management.
• It reduces co-ordination problems as a unifying force integrates all operations.
• It allows the development of a strong co-ordinates top management team.
• There is uniformity of policies and plans across the organisation.
• Centralisation organisations are best suited where resources and information has to move swiftly, especially in emergencies.
• Duplication of functions and facilities is minimised which in turn reduces costs.
• Due to the fact that all decisions are made at the top it might result in delays in decision-making and communication.
• Centralised power and authority might be abused.
• Doesn’t give an opportunity to lower level managers/supervisors to develop their managerial skills.
• Centralised organisation faces the problem of lower motivation levels among workforce.
• The success of organisation depends on the competence of top executives which might be quite risky.

Disadvantages of Centralisation

• Due to the fact that all decisions are made at the top it might result in delays in decision-making and communication.
• Centralised power and authority might be abused.
• Doesn’t give an opportunity to lower level managers/supervisors to develop their managerial skills.
• Centralised organisation faces the problem of lower motivation levels among workforce.
• The success of organisation depends on the competence of top executives which might be quite risky.

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IGCSE BUSINESS STUDIES Topic : Functions of a manager

Functions of the manager

There are basically four management concepts that allow any organization to handle the tactical, planned and set decisions. The four basic functions of the management are just to have a controlled plan over the preventive measure.

These Functions can be summarized below:

Planning

Planning is the first tool of the four functions in the management process. The difference between a successful and unsuccessful manager lies within the planning procedure. Planning is the logical thinking through goals and making the decision as to what needs to be accomplished in order to reach the organizations’ objectives. Managers use this process to plan for the future, like a blueprint to foresee problems, decide on the actions to evade difficult issues and to beat the competition.

Organising

The second function of the management is getting prepared, getting organized. Management must organize all its resources well before in hand to put into practice the course of action to decide that has been planned in the base function. Through this process, management will now determine the inside directorial configuration; establish and maintain relationships, and also assign required resources.

Directing

It involves the implementation of plans by mobilising individuals and group efforst through motivation, communication, leadership and supervision. Directing may be defined as the process of activating the efforts of employees towards the achievement of organisational objectives.

Controlling

It is the process of regulating the ongoing activities of the organisation to ensure that they are in conformity with the established plans and produce the desired results. Through the controlling function, management can keep the organisation o its chosen track. It involves:

• Establishing standards of performance
• Measuring current performance
• Comparing actual results with the established standards
• Detecting deviations from the standards
• Taking corrective actions for significant deviations.

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IGCSE BUSINESS STUDIES Topic : Franchise - Features, advantages and disadvantages

What is franchising?

The term "franchising" can describe some very different business arrangements. It is important to understand exactly what you're being offered.

Business format franchise

This is the most common form of franchising. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name and benefits from the franchisor's help and support.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue.

The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

Well-known businesses that offer franchises of this kind include Prontaprint, Dyno-Rod, McDonald's and Coffee Republic.
Other types of arrangement

Different types of sales relationships are also sometimes referred to as franchises. For example:

• Distributorship and dealership - you sell the product but don't usually trade under the franchise name. You have more freedom over how you run the business.
• Agency - you sell goods or services on behalf of the supplier.
• Licensee - you have a license giving you the right to make and sell the licensor's product. There are usually no extra restrictions on how you run your business.

Multi-level marketing

Some businesses offer franchises that are really multi-level marketing. Self-employed distributors sell goods on a manufacturer's behalf. You get commission on any sales you make, and also on sales made by other distributors you recruit.

Advantages and disadvantages of franchising

Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks.

Advantages

• Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
• You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the "franchisor".
• The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
• You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same region.
• Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
• Risk is reduced and is shared by the franchisor.
• If you have an existing customer base you will not have to invest time looking to set one up.
• Relationships with suppliers have already been established.

Disadvantages

• Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing royalties and you may have to agree to buy products from the franchisor.
• The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local marke.
• The franchisor might go out of business, or change the way they do things.
• Other franchisees could give the brand a bad reputation.
• You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
• Reduced risk means you might not generate large profits.

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IGCSE BUSINESS STUDIES Topic : Cooperatives - Features, advantages and disadvantages

What is a Co-operative?

A cooperative is defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it.

There are different types of co-operatives:

Housing cooperative

A housing cooperative is a legal mechanism for ownership of housing where residents either own shares reflecting their equity in the co-operative's real estate, or have membership and occupancy rights in a not-for-profit co-operative and they underwrite their housing through paying subscriptions or rent.
Building cooperative

Members of a building cooperative (in Britain known as a self-build housing co-operative) pool resources to build housing, normally using a high proportion of their own labour. When the building is finished, each member is the sole owner of a homestead, and the cooperative may be dissolved.
Retailers' cooperative

A retailers' cooperative (known as a secondary or marketing co-operative in some countries) is an organization which employs economies of scale on behalf of its members to get discounts from manufacturers and to pool marketing. It is common for locally-owned grocery stores, hardware stores and pharmacies. In this case the members of the cooperative are businesses rather than individuals.
Utility cooperative

A utility cooperative is a public utility that is owned by its customers. It is a type of consumers' cooperative. In the US, many such cooperatives were formed to provide rural electrical and telephone service.

Worker cooperative

A worker cooperative or producer cooperative is a cooperative that is owned and democratically controlled by its "worker-owners". There are no outside owners in a "pure" workers' cooperative, only the workers own shares of the business, though hybrid forms in which consumers, community members or capitalist investors also own some shares are not uncommon. Membership is not compulsory for employees, but generally only employees can become members. However, in India there is a form of workers' cooperative which insists on compulsory membership for all employees and compulsory employment for all members. That is the form of the Indian Coffee Houses. This system was advocated by the Indian communist leader A. K. Gopalan.

Consumers' cooperative

A consumers' cooperative is a business owned by its customers. Employees can also generally become members. Members vote on major decisions, and elect the board of directors from amongst their own number. A well known example in the United States is the REI (Recreational Equipment Incorporated) co-op, and in Canada: Mountain Equipment Co-op.
The world's largest consumers' cooperative is the Co-operative Group in the United Kingdom, which offers a variety of retail and financial services. The UK also has a number of autonomous consumers' cooperative societies, such as the East of England Co-operative Society and Midcounties Co-operative.
Migros is the largest supermarket chain in Switzerland and keeps the cooperative society as its form of organization.
Coop is another Swiss cooperative which operates the second largest supermarket chain in Switzerland after Migros.

Agricultural cooperative

Agricultural cooperatives are widespread in rural areas.
In the United States, there are both marketing and supply cooperatives. Agricultural marketing cooperatives, some of which are government-sponsored, promote and may actually distribute specific commodities. There are also agricultural supply cooperatives, which provide inputs into the agricultural process.
In Europe, there are strong agricultural / agribusiness cooperatives, and agricultural cooperative banks. Most emerging countries are developing agricultural cooperatives.

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IGCSE BUSINESS STUDIES Topic : Types of Public Sector Organisations

What is Public Sector?

The public sector is a part of the state that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal.

Examples of public sector activity range from delivering social security, administering urban planning and organizing national defenses.

The organization of the public sector (public ownership) can take several forms, including:

• Direct administration funded through taxation; the delivering organization generally has no specific requirement to meet commercial success criteria, and production decisions are determined by government.
• Publicly owned corporations (in some contexts, especially manufacturing, "state-owned enterprises"); which differ from direct administration in that they have greater commercial freedoms and are expected to operate according to commercial criteria, and production decisions are not generally taken by government (although goals may be set for them by government).

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IGCSE BUSINESS STUDIES Topic : Public Limited companies

Public Limited company

Limited companies which can sell share on the stock exchange are Public Limited companies. These companies usually write PLC after their names. Minimum value of shares to be issued (in UK) is £50,000.

Advantages

•  There is limited liability for the shareholders.
• The business has separate legal entity. There is continuity even if any of the shareholders die.
• These businesses can raise large capital sum as there is no limit to the number of shareholders.
• The shares of the business are freely transferable providing more liquidity to its shareholders .

Disadvantages

• There are lot of legal formalities required for forming a public limited company. It is costly and time consuming.
• In order to protect the interest of the ordinary investor there are strict controls and regulations to comply. These companies have to publish their accounts.
• The original owners may lose control. 
• Public Limited companies are huge in size and may face management problems such as slow decision making and industrial relations problems.

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