INTRODUCTION TO BUSINESS (MGT211)
Table of Content
Lesson No. | Title / Topic | Page No. |
1 | Introduction …………………………………….…………………………. | 1 |
2 | Organizational Boundaries and Environments ...…………………………...... | 15 |
3 | Business Organization & Sole Proprietorship …………………..…………... | 20 |
4 | Partnership ……………………..………………………………………….. | 36 |
5 | Joint Stock Company ……………………………..……………………….... | 50 |
6 | Joint Stock Company (Continued) …………………………………………. | 57 |
7 | What is Meeting? ..........................................................…………………………. | 61 |
8 | Cooperative Society ……………………………………………………. …. | 73 |
9 | Concept of Entrepreneurship ……………………………………………… | 79 |
10 | Franchising …………..…………………..………………………… ……… | 83 |
11 | Success and Failure of Business …………..………………………………… | 85 |
12 | Foreign Trade and Foreign Business ………………………………………. | 88 |
13 | Barriers to International Trade ……….………………. …………………… | 91 |
14 | Stakeholder …………………………………..…………………………….. | 93 |
15 | Setting goals and Formulating Strategy ……………………………………... | 96 |
16 | Human Resource Planning …………...………………. …………………… | 100 |
17 | Infrastructure for Test ……………………….……………………………... | 104 |
18 | Compensation and Benefits ………………………………………………… | 108 |
19 | Contemporary Motivational Theories ………………………………………. | 112 |
20 | Two Factor Theory …………………………………………………………. | 115 |
21 | Strategies for enhancing job satisfaction and morale …...……………………. | 117 |
22 | Marketing ………...………………………………………………………… | 122 |
23 | The Marketing Environment …..…………………………………………… | 124 |
24 | The Marketing Mix ………………………………………………………… | 127 |
25 | The Marketing Research …………………………………………………… | 129 |
26 | Consumer Behavior and Marketing Research ……………………………… | 134 |
27 | Product, Product types & step for product development …….…………….. | 137 |
28 | Product Life Cycle, Branding, Packaging and Labeling …………………..… | 140 |
29 | Pricing and Distribution Mix …………………………………….…………. | 144 |
30 | Wholesaling, retailing & physical distribution............………………………... | 148 |
31 | Promotion and advertisement..........………………………………………... | 153 |
32 | Personal Selling………...…………………………………………………... | 156 |
33 | Personal Selling (Continued).....……………………………………………. | 158 |
34 | Sales Promotion ………….……………………………………………….. | 161 |
35 | The Productivity ……………………….…… ……………………………. . | 164 |
36 | Tools for Production Planning…..…………………………………………. | 166 |
37 | Total Quality Management..…………………………………………………. | 170 |
38 | Total Quality Management (Continued)…………………………………….. | 174 |
39 | Benchmarking ……………...……………………………………………….. | 176 |
40 | Communication …………………………………………………………….. | 179 |
41 | Non-Verbal Communication Modes ……………………………………….. | 182 |
42 | Application of Information System in the Organizations ………….……….. | 186 |
43 | Accounting ………………..……………………………………………….. | 190 |
44 | Tools of the Accounting Trade …………………………………………….. | 193 |
45 | Financial Management ………………..…………………………………….. | 197 |
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Lecture 1
INTRODUCTION
CONCEPT OF BUSINESS
Literally, the word “business” means the state of being busy. Generally, the term business includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit. The goods and services produced or purchased for personal use are not included in “business”.
DEFINITION
1.
According to L. H. Haney
“Business may be defined as human activities directed toward providing or acquiring wealth through buying and selling of goods.”
2.
James Stephenson says that:
“Every human activity which is engaged in for the sake of earning profit may be called business.”
3.
In the words of B. W. Wheeler
“An institution organized and operated to provide goods and services to the society, under the incentive of private gain” is business.
Structural Diagram
Business
Buying and Selling
Buying and Selling
Wealth
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CHARACTERISTICS
Following are the essential characteristics of a good business:
Capital is the lifeblood of every business. It is the most essential and important element of business. In case of deficiency, loans can be taken from various financial institutions.
Utility is an economic term referring to that characteristic of a certain commodity, which can satisfy any human need. Business creates utility, which gives benefit to the entire society as well as the businessmen.
Every business deals with sale, purchase, production and exchange of goods and services for some consideration.
Business is a good source of employment for its owners as well as for other people, for example, employees, agents, transporters etc.
Business is an Islamic way of earning living. Income from business is known as profit, which is Rizq-e-Halal. The Holy Prophet Muhammad himself did prosperous business.
The motive of business is to earn profit. Otherwise it will not be termed as business.
Every business needs an organization for its successful working. A proper organization is helpful in the smooth running of business and achieving the objectives.
A businessman deals in production or purchase of goods. These goods are supplied to the people. So, it is necessary that more goods should be produced so that demand of people may be fulfilled.
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Business has a nature of regular dealings and series of transactions. So, in business, only those transactions included which have regularity and continuity.
Business involves a large volume of risk and uncertainty. The risk element in business keeps a person vigilant and he tries to ward off his risk by executing his policies properly.
Another characteristic of business is the sale or transfer of goods for value.
Business does not only satisfy the producer, but also the consumer when products are offered for sale at low prices in markets.
NATURE OF BUSINESS
The following points state the nature of business in brief:
Business is an economic activity as it is concerned with creation of wealth through the satisfaction of human wants.
Business is an economic activity and every economic activity is done by human beings. Thus, business is one of the most important human activities.
Business is run by owners and employees with the help of professionals and customers. Thus, business is a social process.
Business is a systematic arrangement of various elements, which leads to the attainment of particular objective, according to a well-established plan.
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COMPONENTS AND SCOPE OF BUSINESS
BUSINESS
The word “Business” includes all human activities concerned with earning money. In other words, business is an activity in which various persons regularly produce or exchange goods and services for mutual gain or profit.
COMPONENTS OF BUSINESS
Business bears the following components:
Business
Industry
Commerce
INDUSTRY
Industry is connected with the production and preparation of goods and services. It is a place where raw material is converted into finished or semi-finished goods, which have the ability to satisfy human needs or can be used in another industry as a base material. In other words, industry means that part of business activity, which is concerned with the extraction, production and fabrication of products.
KINDS OF INDSTRY
1.
2.
Primary Industry Secondary Industry
Industry
Primary Industry
Secondary Industry
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1. PRIMARY INDUSTRY
Primary industry is engaged in the production or extraction of raw materials, which are used in the secondary industry. Primary industry can be divided into two parts:
(a)
(b)
Extractive Industry Genetic Industry
Extractive industries are those industries, which extract, raise or produce raw material from below or above or above the surface of the earth. For example, fishery, extraction of oil, gas and coal etc.
Genetic industries are those, which are engaged in reproducing and multiplying certain species of animals and plants. For example, poultry farm, fishing farm, diary farm, plant nurseries etc.
2. SECONDARY INDUSTRY
These industries use raw materials and make useful goods. Raw material of these industries is obtained from primary industry. Secondary industry can be divided into three parts:
(a)
(b)
(c)
Constructive Industry Manufacturing Industry Services Industry
All kinds of constructions are included in this industry. For example, buildings, canals, roads, bridges etc.
In this industry, material is converted into some finished goods or semi-finished goods. For example, textile mills, sugar mills etc.
These industries include those industries, which are engaged in providing services of professionals such as lawyers, doctors, teacher etc.
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COMMERCE
Commerce is the second component of business. The term “commerce” includes all activities, functions and institutions, which are involved in transferring goods, produced in various industries, from their place of production to ultimate consumers.
In the words of Evelyn Thomas:
“Commercial occupations deal with the buying and selling of goods, the exchange of commodities and distribution of the finished goods.”
In simple words, “trade and aids to trade” is called commerce.
SCOPE OF COMMERCE
The scope of commerce can be explained as:
1.
2.
Trade
Aids to Trade
Commerce
Trade
Aids to trade
1. TRADE
Trade is the whole procedure of transferring or distributing the goods produced by different persons or industries to their ultimate consumers. In other words, the system or channel, which helps the exchange of goods, is called trade.
TYPES OF TRADE
There are two types of trade:
(a)
(b)
Home trade Foreign Trade
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Trade
Home Trade
Foreign Trade
(a) Home Trade
The purchase and sale of goods inside the country is called home trade. It is also known as ‘domestic’, ‘local’ or ‘internal trade’. Home trade has two types:
(i)
(ii)
Wholesale Trade Retail Trade
It involves selling of goods in large quantities to shopkeepers, in order to resale them to the consumers. A wholesaler is like a bridge between the producers and retailers.
Retailing means selling the goods in small quantities to the ultimate consumers. Retailer is a middleman, who purchase goods from manufacturers or wholesalers and provide these goods to the consumers near their houses.
(b) Foreign Trade
Trade or exchange of goods and services between two or more independent countries for their mutual advantages is called foreign trade. It is also called international trade. Foreign trade has two types:
(i)
(ii)
Import Trade Export Trade
When goods or services are purchased from other country it is called import trade.
When goods or services are sold to any other country it is called export trade.
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Trade mans biting and selling of goods, whereas, aids to trade mean all those things which are helpful in trade.
In daily business routine, commercial banks and other financial institutions help the seller and the buyer in receiving and the buyer in receiving and making payments.
The goods which are manufactured in mills and factories, reach the consumers by different means of transportation like air, roads, rails, seas etc.
The transfer of goods from one place to another is not free from risk of loss. There is a risk of loss due to accident, fire, theft etc. The insurance companies help out the traders with this problem through insurance policy.
The manufacturers today, produce goods in large quantity. Therefore, a need for warehouses arises in order to store the manufactured goods.
They are the persons who act as the agents of either buyer or seller. They perform these activities for commission.
A large amount is needed to set up an industry. Financial institutions provide long-term finance to the producers. The producers alone are unable to manufacture goods without financial help.
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The consumer may sometimes, not know about the availability of goods in the market. The producer must sell his goods in order to remain in business. Advertisement is an easy way to inform the large number of customers about the goods. This can be done through TV, newspapers, radio etc.
The producers, wholesalers, retailers, transporters, banks, warehouse-keepers, advertisers and consumers live at different place. This post office, telephone and other similar media is very useful for promotion of trade and industry.
FACTORS OF PRODUCTION:
Factors of production are the resources or inputs that are required for the production of goods or services. The components of factors of production are:
Labor is the most important factor of production. Labor are the people who work in an organization and provide physical and mental efforts in production process.
Capital is the amount or property which is invested by investor(s) in the business to produce goods and services.
Entrepreneurship is the management ability of the people to run the business. It involves:-
iv. Physical resources
Physical resources include land, natural resources, building, vehicles and machinery that are used in the production process.
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ECONOMIC SYSTEM
Economic system is defined a system for allocation of resources. Commonly, it has following two types as below:
In planned economy the government decides that how many resources are to be generated and how these resources will be allocated. In this system government determines the key economic functions. How the factor of production will be utilized and how much will be the economy’s output is decided by the government.
In free market economy demand and supply in the market determines the allocation for resources with little or no government intervention. In this economy market mechanism decides the key economic functions (what, for whom and how to produce). Free market economy increases the efficiency and productivity, firms and organizations with better quality products and low costs (produced efficiently) will survive in the market.
ENVIRONMENTAL FORCES
Forces that influence the performance of organizations can be divided into two categories as under:
External Factors:
External factors are the factors which are found outside the organization. These factors are not controllable by the organization. External factors bring the opportunity or threat for the organization. External factors include technological factors, economy of the country, political and legal factors, socio-cultural factors and demographic factors.
Internal Factors:
Internal factors are the factors within the organization that affect the performance of business. Strengths or weaknesses of the organization are the internal factors. Strengths may include experienced and trained workers, strong financial resources, strong brand name, good reputation and organizational culture and weaknesses of an organization may
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include lack of sufficient capital, weak brand name, poor reputation, inexperienced and untrained workers.
SWOT Analysis:
SWOT analysis is an analysis of an organization’s strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are the part of internal environment and opportunities and threats are the part of external environment. SWOT analysis helps an organization to focus on strengths, to reduce weaknesses, to exploit the opportunities and to neutralize threats.
Strengths:
Strengths are the capabilities of an organization that enable it to perform efficiently. Strengths may include skilled manpower, strong financial resources, strong brand name, good reputation and organizational culture, well established distribution network etc.
Weaknesses:
Weaknesses are the internal characteristics of an organization that prohibit it to perform well. Organization’s weakness may include lack of sufficient capital, weak brand name, poor reputation, unskilled manpower, inefficient management, poor distribution channels etc.
Opportunities:
Opportunities are the external environmental factors that may bring the prospects for growth and higher performance. For example: technological advancement, market developments, changes in lifestyle, changes in government regulation related to your business.
Threats:
Threats are the external environmental factors that may undermine the organization’s performance. For example, new regulation that may affect the business, changes in consumer tastes, if an organization does not adopt new developed and modern technology it will be become a threat for the organization.
QUALITIES OF A GOOD BUSINESSMAN
The modern business is very complex. Due to scientific and technological development, changes are taking place very fast in every business field. Following are the basic personal skills or qualities which a good businessman must possess:
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A businessman, if he wants to shine in business, must have the ability to plan and organize it.
He had to activate his workers. If he activates his workers then this is good for business.
Courage is a great asset of a businessman. A good businessman should be a courageous and bold person. May be his some angry decisions gave him loss in future, so he has to be courageous and be bold.
A good businessman should have to cooperate with his workers. With the help of cooperation with his workers he can run his business well.
Courtesy is to business what oil is to machinery. It costs nothing but wins a reputation. So businessman has to win the heart of everyone with his polite manners.
A good businessman should be a good and quick decision maker. Quick decision of a businessman is an important asset of businessman. And businessman has to know that his quick decision will give him benefit or not.
A good businessman should have to care about the discipline of the business. If he doesn’t care about the discipline then nobody (who concern to his business) obeys the discipline and business can’t go well.
A businessman has to check himself that how he is working. This thing can make the business good in progress.
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A good businessman must have the quality of foresight. He must keep in touch with the business world. He should move about and see what is going on for he has to estimate new wants and new inventions for creating fresh demands.
A businessman should be honest in dealing with others. Honesty of a businessman helps him in his business.
A businessman must be hard working. Without have working no business can be successful. If the owner is not hard working then other workers of the business can’t be hardworking.
The business world is moving at a very fast speed. A businessman should have the ability to take initiative by producing new things and new methods of marketing the products and services.
A good businessman should have knowledge of his business. It should be supplemented by the knowledge of trade, finance, marketing, income tax, etc.
Leaders are not made, they are born; but the businessman has to get some qualities of a leader. With the help of leadership a businessman can control his business and workers.
If a businessman is a good negotiator, then he can run his business well, because without good communication he can’t impress his consumer.
A businessman should have a graceful personality because it can impress his customers. If his personality is not good or not graceful then his business can’t go well.
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A businessman has decision-making power. He decides on all matters in the best interest of the business. A businessman must have technical knowledge, judgment power and intelligence to take sound and quick decisions.
A successful businessman should have to realize his responsibilities. If he doesn’t do his duty then his business can’t go well.
A good businessman has to review his mistakes, which he committed in the past, and try his best never to do it again in his life.
Sound financial management is an important factor for successful business. Without it no business can go well. So a business must possess good financial position.
A good businessman should have self-confidence. Without self-confidence he can’t make quick decisions and business suffers a lot.
A good businessman should be a tactful person. He has to handle persons or his customers very tactfully. It helps to earn profit in future.
A good businessman must have the knowledge about technical skills. He should have complete command of specialized knowledge in his field, which he has to perform.
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Lecture 2
ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS
All businesses, regardless of their size, location, or mission, operate within a larger external environment.
External environment:
Everything outside an organization’s boundaries that might affect it.
THE ECONOMIC ENVIRONMENT
Economic environment—Conditions of the economic system in which an organization operates.
Gross domestic product (GDP)—Total value of all goods and services produced within a given period by a national economy through domestic factors of production
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Gross national product (GNP)—Total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located
There are a number of factors which can inhibit the growth of an economic system including:
Condition in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate.
Factors which threaten stability include:
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Measuring Inflation: The CPI—Measure of the prices of typical products purchased by consumers living in urban areas
Recession—Period during which aggregate output, as measured by real GDP, declines
iii.
Stabilization policy—Government policy, embracing both fiscal and monetary policies, whose goal is to smooth out fluctuations in output and unemployment and to stabilize prices
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v. Projected Trends and Patterns—there are a number of projections for the near future. Sudden changes in environmental factors, such as war, can alter these projections.
DEMOGRAPHIC ENVIRONMENT
Demographic environment is the study of characteristics of population such as size of population, population growth rate and population distribution on the basis of gender, age, income level, level of education, geographic location, family structure, etc. these factors influence the size of demand, buying pattern, liking and attitude of customers. Demographic factors are important to managers as the changes in these demographic factors affect the businessmen’ planning.
Total population determines the size of market, huge population size and growth rate brings a large number of customers, more consumption and more opportunities for business, cheap and abundant labor supply will also be available. It affects the business positively. Another demographic factor that affects the business is education level. If education level of public is high then the supply of skilled labor will increase and supply of unskilled labor will decrease. In case of low education level supply of skilled labor will decrease. Education level also affects the buying pattern of customers; if they are highly educated then the business enterprise must be careful about the quality of its products and services. In the same way, gender and age composition, income level, geographical location etc are also important demographic factors.
POLITICAL AND LEGAL ENVIRONMENT
Legal and political factors include legal and governmental system organizations operate. Political and legal environment strongly affect the business decisions. Aspects which are considered in political and legal environment are the preferences and priorities of the government, political stability in the country, laws/rules and regulations, taxation policy and attitude of the government towards business.
Government decides that what sort of economic activities the country should have, in which areas the private sector should be encouraged, also defines the areas where foreign companies may enter. Laws and regulations influence the decision making and limit the businesses for the country’s wellbeing.
THE TECHNOLOGICAL ENVIRONMENT
Technology has a variety of meanings, but as applied to the environment of business, it generally includes all the ways by which firms create value for their constituents.
f. Product and Service Technologies—the technologies employed for creating products (both physical goods and services) for customers. Although many people associate technology with manufacturing, it is also a significant force in the service sector.
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SOCIO-CULTURAL ENVIRONMENT
Social and cultural factors affect the working of business enterprises significantly. Socio- cultural factors include the societal values, attitude, customs, religion; beliefs, habits and preferences etc. socio-cultural trends have considerable effect on the demand for products e.g., dominant religion of any society has influence over the buying behavior of that society.
NATURAL ENVIRONMENT
Geographical and ecological factors such as changes in weather and climate, earthquake, floods, storms and natural resources are considered in natural environment. Natural factors are not in control of any business unit however while considering natural factors managers will develop their product, production planning, marketing planning etc. For example, weather conditions influence the buying pattern, demand for heaters; sweater and woolen cloths will be more in winter while in summer there will be more demand for air conditioners, fans and cold drinks etc.
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Lecture 3
BUSINESS ORGANIZATION & SOLE PROPRIETORSHIP
Business organization is an act of grouping activities into effective cooperation to obtain the objective of the business.
In the words of L. H. Haney
“It is more or less independent complex of land, labour and capital, organized and directed for productive purposes but entrepreneurial ability.”
SCOPE OF BUSINESS ORGANIZATION
The scope of business organization can be defined as under:
Scope of Business Organization
Combination
Partner- Ship
Co-operative Societies
Sole Proprietor- Ship
Joint Stock Company
According to D.W.T. Stafford
“It is the simplest form of business organization, which is owned and controlled by one man”
Sole proprietorship is the oldest form of business organization which is owned and controlled by one person. In this business, one man invests his capital himself. He is all in all in doing his business. He enjoys the whole of the profit. The features of sole proprietorship are:
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2. PARTNERSHIP
According to Partnership Act, 1932
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
Partnership means a lawful business owned by two or more persons. The profit of the business shared by the partners in agreed ratio. The liability of each partner is unlimited. Small and medium size business activities are performed under this organization. It has the following features:
According to S. E. Thomas
“A company is an incorporated association of persons formed usually for the pursuit of some commercial purposes”
A joint stock company is a voluntary association of persons created by law. It has a separate legal entity apart from its members. It can sue and be sued in its name. In the joint stock company, the work of organization begins before its incorporation by promoters and it continues after incorporation. The joint stock company has the following feature:
According to Herrik
“Cooperation is an action of persons voluntarily united for utilizing reciprocally their own forces, resources or both under mutual management for their common profit or loss.”
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Cooperative Societies are formed for the help of poor people. It is formed by economically weak persons of the society. In this form of organization, all members enjoy equal rights of ownership. The features of cooperative society are as under:-
According to J. L. Hanson
“Combination is the association, temporary or permanent, of two or more firms.”
Business combinations are formed when several business concern undertaking units are combined to carry on business together for achieving the economic benefits. The combination among the firms may be temporary or permanent. The salient features of business combination are:
IMPORTANCE OF BUSINESS ORGANIZATION
The following points elaborate the role of business organizations:
Another benefit of business organization is that it solves the problems of marketing and distribution like buying, selling, transporting, storage and grading, etc.
An organization makes possible to take decisions about production after getting the feedback from markets.
It also guides the businessman that how he should meet his financial needs which is very beneficial for making progress in business.
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4. Fixing of Responsibilities
It also fixes the responsibilities of each individual. It introduces the scheme of internal check. In this way chances of errors and frauds are reduced.
It helps in attaining the goals and objectives of minimum cost in the business.
It reduces the wastage of raw material and other expenditures. In this way the rate of profit is increased.
Business organization is very useful for the product growth. It increases the efficiency of labor.
Business organization makes it easy to take quick decisions.
Business organization makes it easy to recognize the problems in business and their solutions.
Business organization is useful in reducing the cost of production as it helps in the efficient use of factors of production.
It also guides the businessman about the best way of performing the secretarial functions.
It is also a benefit of the business organization that it provides the skilled salesmen for satisfying various needs of the customers.
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13. Transportation
It is another benefit is that it guides the businessman that what type of transport he should utilize to increase the sales volume of the product.
PRE-REQUISITES OF BUSINESS
Following are the main pre-requisites of a successful business:
The first and most important decision before starting a new business is its selection. If once a business is established, it becomes difficult to change it. One should make a detailed investigation in the selection of business.
A person should prepare the feasibility report about the business to be started. This report will provide the facts and figures whether business is profitable or not.
There are various types of business like manufacturing, trading and services. The businessman should decide that what type of business he would like to start.
The businessman also keeps in view the demand of the product which he wants to sell. If the demand is inelastic, the chances of success are bright. If the demand of a product is irregular, seasonal and uncertain, such business should not be started.
The Size of business means the scale of business. The size of business depends upon the demand of commodity in the market and organizational ability of entrepreneur. The determination of size of business is an important decision of a person.
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6. Availability of Capital
Availability of capital is an important factor in the business. Capital is required for the purchase of land, machines, wages and raw materials. A businessman must decide that how much capital he can arrange.
A businessman has to select the place where he wants to start his business. He should select that place where raw material, cheap labour and transportation facilities are available. He should also check the location of business competitors.
The businessman should also carefully consider the policies of government before starting a new business. Some areas are declared as ‘tax free zones’ and for some particular businesses the loan is provided without any interest.
Availability of Raw material is essential to produce the goods at low cost. Sometimes the raw material is to be imported which may create problem for him. So a businessman must keep this factor in mind.
Availability of new machines is also an important factor for a business. A businessman must see whether these machines are easily available inside the country or not. If these are to be imported then it may create the problems for him.
Skilled and efficient labor is essential to run the business in profit. But if efficient and skilled labor is not available where business is going to be started then it will not be profitable.
Quick and cheap means of transportation are essential for low cost of production and high profit rate. A businessman must keep in view this factor.
There must be availability of power resources like water, oil, coal and electricity. So businessman must keep in view this factor.
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14. Hiring Employees
A businessman must hire the efficient and competent employees in the business. The proper training must be given to employees.
15. Product Pricing
A businessman must decide the price of his product. In the beginning the price must be low. He must keep in view that whether he will cover cost of his product and other expenses with such price.
FUNCTIONS OF BUSINESS
Following are the main functions of a business:
Production of goods and services is the first main function of the business. The production must be regular. The goods and services must be produced in such a way which can satisfy human needs.
The sale is another important function of the business. Sales are of two types:
The sale must be regular and at reasonable price. It is very difficult job because there is hard competition in each market.
It is also an important function of the business to secure finance. Finance is required for establishment and expansion of business. There are two sources of raising funds:
(a)
(b)
Owner’s Capital Borrowed Funds
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“To do things efficiently and effectively” is known as management. The functions of management are:
The management also provides direction for all subordinates.
In this era of competition, for the survival of business, innovation is essential. The businessman must try to find new techniques of production because the business may not sell present output in future.
Another function of the business is to maintain its records properly. To record the business activities is called accounting. With proper accounts, the owner can know the actual performance of business and chances of fraud are reduced.
“Marketing involves the design of the products acceptable by the consumers and the conduct of those activities which facilitate the transfer of ownership between seller and buyer.”
Through marketing, goods are moved from producers to consumers. It is an important function of the business. This function includes buying, selling, transportation, product designing and storage, etc. The concept of marketing mix is very important in marketing. It includes four Ps:
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Quality of product must be improved to increase the sale. If quality of product is poor then business may suffer a loss.
Motivation is very essential for increasing the efficiency of employees. Motivation encourages the employees to give their best performance.
Research is also an important function of any business. Research is a search for new knowledge. By research, business becomes able to produce improved and new goods. The research is of two types:
It is very important function to make friendly relations with public, in this way sales volume is increased.
SOLE PROPRIETORSHIP
Sole Proprietorship and its Characteristics
Sole proprietorship is a simple and oldest form of business organization. Its formation does not require any complicated legal provision like registration etc. It is a small-scale work, as it is owned and controlled by one person, and operated for his profit. It is also known as “sole ownership”, “individual partnership” and “single proprietorship”.
DEFINITION
Following are some important definition of sole proprietorship:
1. According to D.W.T. Staffod
“It is the simplest form of business organization, which is owned and controlled by one man.”
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2.
According to G. Baker
“Sole proprietorship is a business operated by one person to earn profit.”
CHARACTERISTICS
Following are the main characteristics of sole proprietorship:
In sole proprietorship, the capital is normally provided by the owner himself. However, if additional capital is required, such capital can be increased by borrowing.
The sole proprietorship can be easily dissolved, as there are no legal formalities involved in it.
Such type of business can easily be transferred to another person without any restriction.
In sole proprietorship, single owner is the sole master of the business; therefore, he has full freedom to take action or decision.
Formation of sole proprietorship business is easy as compared to other business, because it dos not require any kind of legal formality like registration etc.
In sole proprietorship, the business has no separate legal entity apart from the sole traders.
There are no legal restrictions for sole traders to set up the business. But there may be legal restrictions for setting up a particular type of business.
The continuity of sole proprietorship is based on good health, or life or death of the sole owner.
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In sole proprietorship, the control of management of the business lies with the sole owner.
The ownership of business in sole proprietorship is owned by one person.
The single owner bears full risk of business, therefore, he gets total benefit of the business as well as total loss.
The size of business is usually small. The limited ability and capital do not allow the expansion of business.
The success and goodwill of the sole proprietorship is totally dependent upon the ability of the sole owner.
A sole proprietorship can easily maintain the secrecy of his business.
A sole proprietor has unlimited liability. In case of insolvency of business, even the personal assets are used by the owner to pay off the debts and other liabilities.
ADVANTAGES OF SOLE PROPRIETORSHIP
Following are the advantages of sole proprietorship:
In sole proprietorship a businessman has direct contact with the customer and keeps in mind the like and dislikes of the public while producing his products.
In sole proprietorship a businessman has direct relationship with workers. He can better understand their problems and then tries to solve them.
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Its formation is very easy because there are not legal restrictions required like registration etc.
Its dissolution is very simple because there are no legal restrictions required for its dissolution and it can be dissolved at any time.
A sole proprietorship can easily be transferred to other persons because of no legal restriction involved.
Sole proprietorship is the only form of business organization where the owner enjoys 100% profit.
In sole proprietorship the entire control of the business is in the hands of one person. He can do whatever he likes.
There is great flexibility in sole proprietorship. Business policies can easily be changed according to the market conditions and demand of people.
The sole master of the business performs his functions honesty and effitively to make the business successful.
It is an independent form of business organization and there is no interference of any other person.
As all the Business activities are accomplished under the supervision of sole owner, so he feels personal satisfaction that the business is running smoothly.
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A sole proprietor can borrow money more easily because of unlimited liability.
Sole proprietor can make quick decisions for the development and welfare of his business and in this way can save his time.
A sole proprietor5 takes keen intere4st in the affairs of business because he alone is responsible for profit and loss.
Sometimes, a sole proprietor borrows money to increase his capital, from his relatives, without interest.
As there are no legal restrictions for the formation of sole proprietorship so it helps in increasing savings as legal expenses are reduced.
The owner of the business himself performs most of the functions so it reduces the management expenses.
The tax rates are very low on sole proprietorship because it is imposed on the income of single person.
It is an important factor for the development of business. A sole trader can easily maintain the secrecy about the techniques of production and profit.
It is helpful in solving many social problems like unemployment etc.
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DISADVANTAGES OF SOLE PROPRIETORSHIP
The disadvantages of sole proprietorship can be narrated as under:
1. Continuity
The continuity of sole proprietorship depends upon the health and life of the owner. In case of death of the owner the business no longer continues.
2.
Chances of Fraud
In sole proprietorship, proper records are not maintained. This increases the chances of errors and frauds for dishonest workers.
In sole proprietorship, it is very difficult to expand the business because of the limited life of proprietor and limited capital.
As the sources of single person are limited so he cannot bear the expense of advertisement, which is also a major disadvantage.
Generally, one-man resources are limited, so due to financial problems he cannot expand his business.
In sole proprietorship there is lack of inspection and audit, which increases the chances of fraud and illegal operations.
Due to fear of suffering from loss, a sole proprietor does not use new methods of production. So, there is no invention or innovation.
The public shows less confidence in this type of business organization because there is no legal registration to control and wind up the business.
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One person cannot hire the ser4vices of qualified and skilled persons because he has limited resources. It is also a great disadvantage.
One person cannot perform all types of duties effectively. If he is a good accountant, he may not be a good administrator. Due to this, business suffers a loss.
In this type of business organization there is much strain on the health of the businessman because he alone handles all sorts of activities.
This type of business organization is not durable because its existence depends upon the life of sole proprietor.
In this type of business there is a need of permanent existence of a businessman. In case of absence from business for few days may become the cause of loss.
In sole proprietorship, owner himself is a boss. There is no question to his decisions or actions. So, there is a risk of careless drawings by him.
In case of sole proprietorship a single person bears all the losses, whereas in the case of partnership or Joint Stock Company all the partners or members bear the loss.
In sole proprietorship there is unlimited liability. It means, in case of loss personal property of the owner can be sold to satisfy the claimants. It is a great disadvantage.
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CONCLUSION
From the above-mentioned detail, we come to the point that despite the above disadvantages, sole proprietorship is an important form of business organization. This is due to the fact that its formation is very easy and due to unlimited liability the owner takes great care and interest in the business, because in case of loss, he is personally responsible. As he enjoys entire profit, this factor also encourages him to work with great efficiency which promotes his business.
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Lecture 4
PARTNERSHIP
Partnership and its Characteristics
Partnership is the second stage in the evolution of forms of business organization. It means the association of two or more persons to carry on as co-owners, i.e. a business for profit. The persons who constitute this organization are individually termed as partners and collectively known as firm; and the name under which their business is conducted is called “The Firm Name”.
In ordinary business the number of partners should not exceed 20, but in case of banking business it must nor exceed 10. This type of business organization is very popular in Pakistan.
DEFINITION
1. According to Section 4 of Partnership Act, 1932
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
2.
According to Mr. Kent
“A contract of two or more competent persons to place their money, efforts, labour and skills, some or all of them, in a lawful commerce or business and to divide the profits and bear the losses in certain proportion.”
Structural Diagram:
PARTNERSHIP
Association
Profit & Loss
Money, Labour And Other Skills
Lawful Business
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CHARACTERISTICS
The main characteristics of partnership may be narrated as under:
Agreement is necessary for partnership. Partnership agreement may be written or oral. It is better that the agreement is in written form to settle the disputes.
If partnership is not registered, it has no legal entity. So there is no restriction for the audit of accounts.
In partnership every partner acts as an agent of another partner.
Partnership is a business unit and a business is always for profit. It must not include club or charitable trusts, set up for welfare.
In partnership mutual cooperation and mutual confidence is an important factor. Partnership cannot take place with cooperation.
Partnership is a temporary form of business. It is dissolved if a partner leaves, dies or declared bankrupt.
If partnership is not registered, it has no legal entity. Moreover, partnership has no separate legal entity from its members and vice versa.
In partnership all the partners can take part or participate in the activities of business management. Sometimes, only a few persons are allowed to manage the business affairs.
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In partnership there should be at least two partners. But in ordinary business the partners must not exceed 20 and in case of banking business it should not exceed 10.
Only that business is considered as partnership, which is established to earn profit.
In Pakistan, all partnership businesses are running under Partnership Act, 1932.
In partnership, every partner pays the tax on his share of profit, personally or individually.
The distribution of profit and loss among the partners is done according to their agreement.
Many problems are created in case of unregistered firm. So, to avoid these problems partnership firm must be registered.
Partnership business can be carried on by all partners or any of them can do the business for all.
According to the agreement, every partner contributes his share of capital. Some partners provide only skills and ability to become a partner of business and earn profit.
In partnership no partner can transfer his shares or rights to another person, without the consent of all partners.
In partnership the liability of each partner is unlimited. In case of loss, the private property of the partners is also used up to pay the business debts.
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ADVANTAGES OF PARTNERSHIP
Following are the advantages of partnership:
This type of business of organization can be formed easily without any complex legal formalities. Two or more persons can start the business at any time. Its registration is also very easy.
Partnership Business can be dissolved at any time because of no legal restrictions. Its dissolution is easy as compared to Joint Stock Company.
Partnership can collect more capital in the business by the joint efforts of the partners as compared to sole proprietorship.
As there is sufficient capital so a firm is in a better position to hire the services of qualified and skilled workers.
As there is unlimited liability in case of partnership, so every partner performs his duty honestly.
In this type of business organization each partner is satisfied with the business because he can take part in the management of the business.
In partnership it is not compulsory to publish the accounts. So, the business secrecy remains within partners. This factor is very helpful for successful operation of the business.
Two or more partners with their resources can build a strong business. This factor is very helpful in solving social problems like unemployment.
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In this type of business organization, it is very easy to expand business volume by admitting new partners and can borrow money easily.
It is flexible business and partners can change their business policies with the mutual consultation at any time.
Every partner pays tax individually. So, a firm is in a better position as compared to Joint Stock Company.
Public shows more confidence in partnership as compared to sole proprietorship. If a firm is registered, people feel no risk in creating relations with such business.
The liabilities of partners are unlimited, so the banks and other financial institutions provide them credit easily.
In partnership all policy matters are decided with consent of each partner. This gives protection to minority partners.
Partnership is the best business for small investors. It promotes moral courage of partners.
There is distribution of work among the partners according to their ability and experience. This increases the efficiency of a firm.
Every partner possesses different ability, which helps in running the business effectively, when combined together.
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18. Absence of Fraud
In partnership each partner can look after the business activities. He can check the accounts. So, there is no risk of fraud.
DISADVANTAGES OF PARTNERSHIP
The disadvantages of partnership are enumerated one by one as under:
It is the main disadvantage of partnership. It means in case of loss, personal property of the partners can be sold to pay off the firm’s debts.
The life of this type of business organization is very limited. It may come to an end if any partner dies or new partner enters into business.
No doubt, in partnership, capital, is greater as compared to sole proprietorship, but it is small as compared to Joint Stock Company. So, a business cannot be expanded on a large scale.
As financial resources of partnership are limited as compared to Joint Stock Company, so it is not possible to engage the services of higher technical and qualified persons. This causes the failure of business, sooner or later.
In partnership, the number of partners is limited, so the resources are also limited. That why business can not expand on large scale.
There are no effective rules and regulations to control the partnership activities. So, it cannot handle large-scale production.
Partners do not take interest in the business activities due to limited share in profit and limited chances of growth of business.
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As there is no need by law to publish accounts in partnership, so people lose confidence and avoid dealing and entering into contract with such firm.
In partnership all decisions are made by mutual consultation. Sometimes, delay in decisions becomes the cause of loss.
In case of misunderstandings and disputes among the partners, business secrets can be revealed.
In partnership there are much chances of dispute among the partners because all the partners are not of equal mind.
Partnership business may not be expanded due to limited number of partners, limited capital and unlimited liability.
It is easy to invest money in partnership but very difficult to withdraw it.
There is a risk of loss due to less qualified and less experienced people.
In partnership no partner can transfer his share without the consent of all other partners.
CONCLUSION
From the above-mentioned findings, we come to this point that despite the above disadvantages, partnership is an important from of business organization. This is because its formation is very easy and due to unlimited liabilities, partners take great interest in business, because in case of loss they are personally responsible.
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PARTNERS
“The individuals who comprise a partnership are known as partners.”
KINDS OF PARTNERS
Partners can be classified into different kinds, depending upon their extent of liability, participation in management, share of profits and other facts.
A partner who takes active part in the affairs of business and its management is called active partner. He contributes his share in the capital and is liable to pay the obligations of the firm.
A partner who takes active part in the affairs of the business but is unknown to the public as a partner is called secret partner. He is liable to the creditors of the firm.
A partner who only contributes is the capital but does not take part in the management of the business is known as sleeping partner. He is liable to pay the obligations of the firm.
A partner who does not take part in the management of business but is known to the public as partner is called silent partner. He is liable to the creditors of the firm.
A partner who invests a large portion of capital in the business is called senior partner. He has a prominent position in the firm due to his experience, skill, energy, age and other facts.
A partner in a firm can make an agreement with a stranger to share the profits earned by him from the partnership business. A sub-partner is not liable for any debt and can not interfere in the business matters.
A person who has a small investment in the firm and has a limited experience of business is called junior partner.
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A major partner is a person who is over 18 years of age. A person is allowed to make contract when he has attained the age of majority.
A person who is minor cannot enter into a valid contract. However, he can become a partner with the consent of all other partners. A minor can share profits of a business but not the losses.
A partner who neither contributes in capital nor does he take part in the management of the business but allows he name to be used in the business is known as nominal partner. He is individually and jointly liable for the debts of the firm along with other partners.
A partner whose life has expired is known as deceased partner. The share of capital and profit of such partner is paid to his legal heirs in lump sum or in installment.
A partner whose liabilities are limited to his share in business is called limited partner. He cannot take active part in the management of the firm.
A partner whose liabilities are unlimited is known as unlimited partner. He and his personal property both are liable to clear the debts of the firm.
A person who is newly admitted in the firm with the consent of all the partners is called incoming partner. He is not liable for any act of the firm performed before he became the partner unless he agrees.
A partner who leaves the firm due to certain reasons is known as retired partner or outgoing partner. He is liable to pay all the obligations and debts of the firm incurred before his retirement.
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If a partner is entitled to receive certain share of profits and is not held liable for losses is known as partner in profits only. He is not allowed to take part in the management of the business.
A person, who was the par4tner of a firm but has now retired from active participation in business and has left his capital in the business as a loan, receiving interest on it, is known as quasi partner.
A person who holds himself out as a partner of a firm, before a third party or allows other to do so, though he is not a partner of that firm, is called partner by estoppel or holding out partner. He is not entitled to any right like other partners of the firm. He is not entitled to any right like other partners of the firm. He is personally liable to the third party for the credit given to the firm, on the faith of his representation.
KINDS OF PARTNERSHIP
There are three kinds of partnership which are described as under:
1.
2.
3.
Partnership at will Particular partnership Limited partnership
PARTNERSHIP AT WILL
If the partnership is formed for an undefined time, it is called partnership at will. Any partner can dissolve it at any time by giving the notice.
According to Partnership Act, 1932:
“If no provision is made in the agreement regarding the partnership, it is called partnership at will.”
Partnership at will may be created under the following circumstances:
1. Indefinite Period
If partnership has been formed for an indefinite period, it is called partnership at will.
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If partnership has been formed for a particular venture and after completion such venture it remains continue, it becomes a partnership at will.
If partnership has been formed for a definite time period, so after the expiry of this period, it becomes partnership at will.
PARTICULAR PARTNERSHIP
If the partnership is formed for a particular object of temporary nature, it is called particular partnership. On completion of a particular venture, it comes to an end. Under this no regular business is done. For example: Partnership for the construction of a building and partnership for producing a film.
LIMITED PARTBNERSHIP
Limited partnership is that in which liabilities of some partners are limited up to the amount of their capitals. In this partnership, there is at least one partner who has unlimited liability.
In Pakistan, this type of partnership is not formed. There is a separate partnership act for it.
MAIN FEATUTRES
Main features of partnership are:
There is at least one partner who has limited liability.
There is at least one partner who has unlimited liability.
There are at least two partners or maximum 20 in an ordinary business and not more than 10 in banking business.
New partners may be admitted in this partnership without the consent of limited partners but with the consent of unlimited partners.
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The registration of this partnership is compulsory by law.
Limited partner can transfer his shares to any other person with the consent of all other partners.
Limited partner has a right to inspect the books of accounts.
Limited partner has a right to give suggestions to others who manage the business.
A limited partner cannot take part in the management of the business.
A limited partner cannot withdraw his capital until he remains in partnership business.
It is enrolled under the Limited Partnership Act, 1907, instead of Partnership Act, 1932.
TERMINATION OF PARTNERSHIP
All forms of partnership under Islamic law may be terminated as:
In all the above forms of partnership each partner has a right to terminate the partnership by giving notice to other partners.
Partnership is also terminated on the death of a partner.
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PARTNERSHIP DEED
Partnership deed is a document that contains the terms and conditions of the business.
CONTENTS OF PARTNERSHIP DEED
The partner should read the partnership deed carefully, add as much clauses as possible and never take anything for granted.
RIGHTS OF THE PARTNERS
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DUTIES OF THE PARTNERS
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Lecture 5
JOINT STOCK COMPANY
JOINT STOCK COMPANY
Joint Stock Company is the third major form of business organization. It has entirely different organizational structure from sole proprietorship and partnership. There are two advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital. Secondly, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which came into force on January 1, 1985 in Pakistan.
DEFINITIONS
Following are some important definition of Joint Stock Company:
“A company may be defined as an association of persons for the purpose of making profit.”
“A corporation by nature is an artificial person, created or authorized by a legal statue for some specific purpose.”
“A company is an incorporated association of persons formed usually for the pursuit of some commercial purpose.”
Structural Diagram
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FEATURES OF JOINT STOCK COMPANY
Following are the main features of a Joint Stock Company.
A joint stock company is the creation of law or special ‘Act’ of the state. It is formed and governed by the Companies Ordinance or by a special Act of the legislature. Pakistani companies are incorporated under the Companies Ordinance, 1984.
The company can borrow capital in its own name to expand the business.
A Joint Stock Company has separate legal entity, apart from its members. It can sue in a court of law in its own name.
A Joint Stock Company, as a legal person, has the usual rights of any person to carry on the business in its own name, to own property, to borrow or lend money and to enter into contract.
A joint stock company has long life as compared to other forms of business organizations.
The liability of the shareholder is limited to the extent of the face value of the shar4es they hold.
Because of more members, a company has larger capital as compared to sole trade ship and partnership, which helps in doing business on large scale.
The shareholders elect the Board of Directors in the Annual General Meeting and all the management is selected by the Board of Directors.
In case of private limited company, minimum number of members is 1[two] and maximum is ‘50’; but in case of public limited company, minimum number is 2[seven] and there is no limit for maximum number.
1 Now in case of private limited company, minimum number of members is ‘one’. (amended by Companies (Amendment) Ordinance, 2002)
2 Now in case of public limited company, minimum number of members is ‘three’ (amended by Companies
(Amendment) Ordinance, 2002)
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A shareholder of a company can easily transfer his shares to other persons. There is no restriction on the purchase and sale of shares.
A joint stock company enjoys separate existence, so it can join the trade agreements with other firms in its own name.
A joint stock company can purchase and sale the property in its own name.
A joint stock company pays double taxes to the government.
The basic object of a joint stock company is to earn profit. Whole profit is not distributed among the shareholders. Some portion is transferred to General Reserve for emergencies.
A joint stock company has to comply with the rules of the government. It has to audit its accounts.
The capital of a joint stock company is divided into the shares of small value. So, every person can purchase these shares according to his income and saving.
Since a company is an artificial person created by law, therefore, it cannot sign documents for itself. The common seal, with the name of the company is used as a substitute for its signature.
ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY ADVATNAGES OF JOINT STOCK COMPANY
Following are the advantages of Joint Stock Company:
A joint stock company sells the shares, debentures and bond s on large scale. So, a joint stock company can collect a large amount of capital and can expand its business.
A joint stock company can get a huge amount of capital from banks and other institutions.
It is easy to separate oneself from a joint stock company by selling his shares.
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Because a joint stock company has a strong financial position, so it may hire the service of qualified and technical experts.
Joint stock companies are also playing very important role to provide employment to unemployed persons of the country.
There is flexibility in such business organizations.
The liability of the owner is limited. In case of loss, the shareholders are not required to pay anything more than the face value of the shares.
Availability of huge amounts of capital makes possible for a joint stock company to produce goods on very large scale, at a lower cost.
There is no problem of capital in a joint stock company because there is not limit for maximum number of members. So, a joint stock company collects capital from many people.
A joint stock company has a permanent life. If one or more than one shareholder die, or sell their shares, it makes no difference to the company. New shareholders take their place.
A joint stock company has a permanent and long life and huge capital. Such organizations can undertake the projects, which may give profit after many years.
In joint stock company, the risk of business is spread over a large number of people. Such organizations can undertake risky projects, which other types or organization do not take.
In joint stock company, the shares of public limited company can be easily transferred or disposed off. There is no restriction on the transfer of shares in a joint stock company.
The shares are in large number but their value is small. The shares of a company may have a value of Rs. 10, Rs. 100 etc. So, rich as well as poor can purchase the shares of a company. This leads to increase in savings and investment.
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Such organization is administered by the elected directors. These directors are generally experienced and qualified in business field. This increases the efficiency of the company.
A joint stock company can take beneficial advices from the government at the time of need which reduces the chances of its failure.
A joint stock company is created by law and is supervised by legal authority. So, a joint stock company can easily win the public confidence.
With the help of larger capital and technical skill, the cost of production is reduced, which increases the rate of profit.
DISADVANTAGES OF JOINT STOCK COMPANY
Some of the disadvantages of the joint stock company are given below:
It is more difficult to establish a joint stock company as compared to other business organizations.
Most shareholders become relaxed and leave all the functions to be carried out by the directors. This usually encourages the directors to promote their own interest at the cost of the company.
In such organization there is no close contact of the workers with the owners or the shareholders. This leads to formation of labor unions to fight against the company’s management.
There is lack of personal interest and responsibility in the business of a joint stock company. If any mistake occurs, everybody tries to shift or transfer his responsibilities to other persons and he remains safe.
A joint stock company cannot maintain its secrecy due to the reason that a company has to submit various reports to the registrar.
A joint stock company cannot perform its functions freely because it has to submit various reports to the registrar form time to time.
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Due to larger size and resources, a joint stock company is in a position to create monopoly. Sometimes a few customers make agreement and exploit the consumers.
Due to free transfer of shares and limited liability, speculation in the stock market takes place, which may affect the economy of the country.
The directors of the company do not show the picture of the company to the public and encourage corruption by changing the policies for their personal interest.
The formation of a joint stock company is a complicated process due to many legal formalities.
In joint stock Company, all the powers have in a few hands and due to this; an ordinary shareholder cannot participate in the affairs of a company.
A joint stock company has to pay double taxes to the government. Firstly, company pays tax on the whole profit of the company. Secondly, every shareholder pays tax on his individual income.
Ordinary shareholders do not have full information about the affairs of their company. So, they are exploited.
Since joint stock company produces on large-scale, so many problems arise in the economy.
In a joint stock company, the directors of company employ their inefficient and incapable relatives and friends and give key jobs to them. As a result, the company suffers a loss.
In joint stock company, the decision making process in time consuming because a meeting is necessary to solve the business problems and matters.
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DIFFERENCE BETWEEN PUBLIC LIMITED COMPANY AND PRIVATE LIMITED COMPANY
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Lecture 6
JOINT STOCK COMPANY
JOINT STOCK COMPANY
Joint Stock Company is the third major form of business organization. It has entirely different organizational structure from sole proprietorship and partnership. There are two advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital. Secondly, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which came into force on January 1, 1985 in Pakistan.
DEFINITIONS
Following are some important definition of Joint Stock Company:
“A company may be defined as an association of persons for the purpose of making profit.”
“A corporation by nature is an artificial person, created or authorized by a legal statue for some specific purpose.”
“A company is an incorporated association of persons formed usually for the pursuit of some commercial purpose.”
PROCEDURE OF FORMATION OF A JOINT STOCK COMPANY IN PAKISTAN
Joint Stock Company is the third major form of business organization. It has entirely different organizational structure from sole proprietorship and partnership. There are two advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital. Secondary, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which came into force on January 1, 1985 in Pakistan.
Following are the important stages or steps for the formation of a joint stock company:
Formation of joint Stock Company
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PROMOTION STAGE
The promoters do the basic work for the start of a commercial or an industrial business on corporate basis. Promotion is the discovery of ideas and organization of funds, property and skill, to run the business for the purpose of earning income. Following steps are involved in the stage of promotion.
Before starting the business, promoters have to think about the nature and production of company’s business.
After deciding the nature of business, promoters go in preliminary investigation and make out plans as regard to the availability of capital, means of transportation, labour, electricity, gas, water etc.
After making initial investigation, the promoter starts accumulating various factors in order to assemble them. They arrange license, copyrights, employment of necessary employees etc.
The promoters also decide the capital sources of the company and they work out the ways through which capital can be generated.
In addition to above discussed matters, the promoters also prepare following essential documents for the formation of company:
The promoters carrying out these various activities give the company its physical form in the shape of:
INCORPORATION STAGE
The second stage for establishment of a company is to get it incorporated.
Following documents are to be submitted by the promoters in the Registrar’s office.
A document indicating name, address, objects, authorized capital etc. of a company.
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A document containing laws and rules for internal control and management of a company
A list of the names, occupations, addresses, along with the declaration of directors.
A written consent showing their willingness to act at directors, to be sent to the Registrar
A declaration certificate showing that the directors have taken up qualifying shares and have paid up the money or pay it in near future to the registrar.
Promoters have to file a prospectus with the registrar.
A statutory declaration is to be sent to the Registrar that all legal formalities have been completed.
For the registration of company, the registration fee is also paid to the Registrar. For example
If the registrar finds all the documents right and thinks that all formalities have been fulfilled then he issues the certificate of incorporation to promoters.
CAPITAL SUBSCRIPTION STAGE
After getting certificate of incorporation, the next stage is to make arrangement for raising capital. For any kind of business, the company raises its capital through following sources:
CERTIFICATE OF COMMENCEMENT
For the commencement of business, every public company has to obtain the certificate of commencement, which requires the fulfillment of following conditions:
A company has to issue prospectus for selling shares and debentures to public.
The shares and debentures are allotted according to the pro visions of memorandum, when applications are received from the public.
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3. Minimum Subscription
It is also certified that the shares have been allotted up to an amount, not less than the minimum subscription. After verifying the foregoing documents, the registrar issues a certificate of commencement of business to public company.
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Lecture 7
WHAT IS A “MEETING”
“A gathering of two or more persons by previous notice or by mutual arrangement for the discussion and transaction of some business is called meeting.”
SHAREHOLDERS’ MEETINGS AND COMPANY’S MEETING
“When the members of a company gather at a certain time and place to discuss the business and managing affairs it is called meeting of the company.”
Kinds of Company’s Meeting
Shareholders’ Meetings
Directors’ Meeting
Statutory | Annual | Extra- |
Meeting | General | ordinary |
| Meeting | Meeting |
SHAREHOLDERS’ MEETINGS
The meetings, which are called to discus the affairs of the company with shareholders, are called shareholders’ meetings. These meetings have following three kinds:
STATUTORY MEETING
According to section 157, this meting is held only once in the life of a public company. It is the first meeting of the members of a public limited company. Its main objective is to provide the shareholders with first hand information about the exact position of company’s affairs.
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Section 77 of the Companies Ordinance, 1984, makes it compulsory for:
that statutory meeting must be held within a period of not less than 3 months and not more than 6 months from the date at which the company is entitled to commence business.
Its main object is:
At least 21 days before the meeting, a notice must be sent to each shareholder along with the statutory report, by the secretary.
Under section 157(2) of Companies Ordinance, the directors should send a notice of statutory meeting, to all the shareholders, at least 21 days before the meeting. Directors also send statutory report, duly certified by at least 3 directors – one of them should be the chief executive of the company.
The members of the company in meeting have the liberty to discuss any matter relating to company’s affairs.
STATUTORY REPORT
The report prepared by the secretary, certified by at least 3 directors – one of them being the chief executive of the company is called statutory report. The statutory report contains the following information:
1. Share Allotment
Total number of shares allotted and their consideration for allotment
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Summary of cash received in respect of shares allotted.
List of basic expenses of the company
Detail of commission for the sale of shares, if any.
The particulars of contract and their modifications, if any,
The names, addresses and occupations of the directors and other officers of the company
The particulars of underwriting contract, if any.
The arrears, if any, due on calls from director or managing agents
ANNUAL GENERAL MEETING
According to section 158 of Companies Ordinance, every company must hold an annual general meeting of its shareholders, once in a year. The meeting provides an opportunity to evaluate and measure the efficiency of the directors and other officers in carrying out the company’s affairs.
A notice of annual general meeting should be sent to the shareholders, at least 21 days before the date of the meeting.
In case of listed company, annual general meeting should be held in town where the registered office of the company is situated.
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The shareholders can criticize the policies of the directors and other officers and can offer suggestions for their improvement.
The first meting of this nature must be held within 18 months from the date of incorporation. The gap between two annual general meetings must not be more than 15 months.
The main objective of this meeting is to check that ordinary business is being done according to the rules laid down in articles of association of the company. The directors submit their report about the affairs of the company during the proceeding year. This report is known as director’s report. Other objectives are:
According to section 305(b), a company may be wound up by the court if it does not hold the two consecutive annual general meetings.
EXTRAORDINARY GENERAL MEETING
All the general meetings other than annual general meeting and statutory meeting shall be called extraordinary general meetings. There is no time limit for it. It may be held from time to time
1. Right to Call Meeting
(a)
The directors of the company may call extraordinary general meeting for doing some urgent business.
(b)
This meeting can also be called by the directors, on the request of shareholders, having not less than one tenth of the voting power.
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(c)
In case the directors fail to call the extraordinary general meeting within 21 days, the shareholders themselves may call the meeting. In such, case, meeting must be held within 3 months.
To call the extraordinary meeting, 21 days notice is served.
The shareholders have to submit their demand to the secretary of the company. With the consultation of directors, he will arrange to call the meeting. The company bares the expenses of the meeting.
DIRECTOR’S MEETINGS
The members of the company elect their representatives to run the business and management of the company. These representatives are called the directors of the company and they are different in numbers in different companies. All the business affairs are settled with mutual consultation of all directors. So, the meeting called for directors to discuss the policies or to take the decisions is called directors’ meeting.
This meeting must be held at least once in three months and at least four times in a year.
Notice of every meeting must be sent to each director, otherwise the proceedings of the meeting may be declared void.
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WINDING UP OF COMPANY
A company is created by law and when the legal existence of company abolishes or comes to an end it is called winding up of a company or liquidation of company.
MODES OF WINDING UP
A company can be wound up in the following three ways:
Winding up of Joint Stock Company
Compulsory | Voluntary | Under the |
Winding up | Winding up | Supervision |
by Court | | of Court |
By Members
By Creditors
COMPULSORY WINDING UP BY COURT
According to Section 305 of Companies Ordinance, a company may be wound up by court under the following circumstances:
If a special resolution has been passed by the company for winding up
If the company fails to submit statutory report to the Registrar for failure to hold statutory meeting within specified time
If a company fails to start its business within one year from the date of incorporation or postpones its business for one year
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If the number of members fall below seven in case of public company and below two in case of private company.
If the court is not satisfied with the working, management and business affairs of the company
If a company is unable to pay its debts
If a company declares itself unlisted due to any reason
VOLUNTARY WIDNIGN UP
A joint stock company may be wound up voluntarily in following two ways:
1. By Members
According to section 362 of Companies Ordinance, 1984, the members can wind up a company voluntarily under following circumstances:
A company may be wound up voluntarily by the members, after the expiry of period, by passing resolution in the general meeting.
If majority of directors makes a statutory declaration to registrar that the company will be able to pay its debts in full within one year.
After submitting the statutory declaration to the registrar, the company, in general meeting passes an ordinary or special resolution to wind up the company.
In general meeting, the company appoints liquidators to wind up the company’s affairs. Within ten days after the appointment must be sent to registrar.
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After winding up the affairs of company, the liquidators call the general meeting of the shareholders. In this meeting, the liquidators must submit the final accounts of company’s affairs to the members.
Within one week of general meeting, liquidators must file a copy of full accounts to the registrar. At the end of 3 months from the date of registration of return, the company shall be dissolved and its name will be struck off by the Registrar of Joint Stock Company.
2. By Creditors
The Members can wind up a company voluntarily under following circumstances:
In case of creditors voluntary winding up, it is not necessary for the company to make a statutory declaration regarding its solvency.
A general meeting of the company’s shareholders is called to pass an extra ordinary resolution for the dissolution of the company because it cannot continue its business due to heavy liabilities.
On the same or next day, a meeting of creditors must be called by the company. A notice of meeting must be sent to each creditor.
In the creditors’ meeting, the directors must submit a statement of affairs of the company, together with a list of creditors of the company and estimated amount of their claims.
The information regarding the notice of passed resolution must be sent to the registrar within ten days after the date of creditors’ meeting.
The creditors and shareholders nominate the persons to act as liquidators in their respective meetings and the opinion of the creditors is preferred.
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The creditors and shareholders, in their respective meetings can appoint eh inspection committee consisting of five persons in each case.
The inspection committee fixes the remuneration, rights and duties of the liquidators.
In the final meeting, the liquidators place before them the full accounts of the company’s affairs and a copy of these accounts is also sent to registrar within 7 days.
The registrar registers the documents, sent by the company, after 3 months from the date of registration, the company will be dissolved.
VOLUNTARY WINDING UP UNDER THE SUPERVISION OF COURT
According to section 396 of Companies Ordinance, a voluntary winding up of a company can also be carried under the strict registration of the court.
At first, company has to pass special resolution for the voluntary winding up of the company.
Following are the common grounds on which the court issues the supervision order:
The court has the power to appoint an additional liquidator, or to remove any liquidator.
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4. Dissolution
After the supervision order is made, the liquidator may exercise his powers in winding up of a company. On completion of winding up, the court will make an order that the company is dissolved.
SHARE CAPITAL
In simple words, the term “capital” means the particular amount of money with which a business is started.
In company, share capital means the amount contributed by the shareholders.
DEFINITION
1. According to Alan Issacs
“Share capital is that part of the capital of a company that arises from the issue of shares”
2.
L. B. Curzon says
"Share capital is the total amount which a company’s shareholders have contributed or are liable to contribute as payment for their shares.”
KINDS OF SHARE CAPITAL
According to Companies Ordinance, 1984, the following are the kinds of share capital:
This is maximum amount of capital with which a company is registered or authorized to issue. It is divided into shares of small value.
For example, the authorized capital of the company Rs. 10, 00,000 divided into 1, 00,000 shares of Rs. 10 each
It is a part of authorized capital which is offered to the general public for sale.
For example, a company has an authorized capital of Rs. 10, 00,000 dividend into 1, 00,000 shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So it means issued capital is Rs. 2, 00,000.
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It is a part of authorized capital which is not offered to the general public for sale.
For example, a company has an authorized capital of Rs. 10, 00,000 divided into 1, 00,000 shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So it means un-issued capital is Rs. 8, 00,000 consisting of 80,000 shares of Rs. 10 each.
That part of issued capital for which applications are sent by the public and which are accepted is called subscribed capital.
For example, out of 20,000 shares offered by the company, the general public takes up only 10,000 shares. So subscribed capital, is Rs. 1, 00,000.
A company may require payment of the par value either in installments or in lump sum. So amount of shares demanded by company is known as “called up capital”.
For example, out of 10,000 shares taken by public, company requires a payment of 6 per share. So “called up” capital of the company is Rs. 60,000 (10,000 share @ Rs. 6).
A company may require payment of the par value either in installments or in lump sum. So amount of shares not demanded by company is known as “un-called up capital”.
For example, out of 10,000 shares taken by public, the company requires a payment of 6 per share. So “un-called up” capital of the company is Rs. 40,000 (10,000 shares @ Rs. 4).
It is that part of called up capital which is actually received by the company. If some shareholders could not pay all the money of called up capital, such money is called as “calls in arrears” or “calls unpaid”.
The capital which is reserved for unexpected events or for future needs is called reserve capital. Company decides not to call up some part of uncalled up capital until winding up. It is normally kept for the payment of debts at the time of winding up.
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9. Redeemable Capital
A company can obtain redeemable capital by issue of:
(a)
(b)
(c)
Participation Term Certificates Musharika Certificate
Term Finance Certificate
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Lecture 8
COOPERATIVE SOCIETY
Cooperative Society its advantages and disadvantages
COOPERATIVE SOCIETY
A cooperative society is formed by the people of limited means for self help through mutual help. It is set up to protect economically the poor sections of the society. It is set up for cooperation, not for competition. The motto of a society is self help, without dependence on other business units.
DEFINITION
1. According to Herrik
“Cooperation is an action of persons voluntarily united for utilizing reciprocally their own forces, resources or both under mutual management for their common profit or loss.”
2.
According to Mr. Plunket
“The cooperation is self help made effective by organization.”
Diagram
Cooperative Society
Welfare
Number of persons
Business
Pool Resources
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ADVANTAGES OF COOPERATIVE SOCIETY
Following are the important advantages or merits of cooperative society:
Farmers can get fertilizers and seeds at low prices from such cooperative societies. Farmers can also self their production at high rate or prices through cooperative societies.
The formation of cooperative society is very easy. the formalities for registration are simple and formation expenses are also normal. The registration of a society is not compulsory but it is desirable to have its registration.
All members of cooperative society enjoy equal right of vote and ownership. Each shareholder has only one vote in the management of cooperative societies.
The profit of middlemen is also distributed among the workers. These societies remove the unequal distribution of wealth.
Cooperative society is a domestic form of organization. Every member is allowed to participate in the management of the business. Each member has the right to cast vote. The decision of majority is honored.
Cooperative society eliminates the profit of middlemen. These societies purchases goods directly from the producers for members and provide them on wholesale rate to society members.
These societies also provide financial assistance to its members. In case of house building cooperatives housing society provides loan for the purchase of inputs.
A cooperative society is a mean of developing friendly relations among the members. A society provides a platform for the introduction of members with each other.
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Such societies provide the goods and services to the members of the society at low prices. Due to this, the purchasing power of the people increases and their standard of living improves.
The cooperative societies also increase the employment opportunities for people. Thousands of people are engaged in different types of cooperative societies.
The liability of each member in cooperative society is limited to the share capital, which he invested. His remain safe.
It is worthwhile to mention here that cooperative society is very useful for creating the spirit of friendship and brotherhood among the members. Cooperative society is the basic need of human being in modern era.
A start of the society is the end of monopoly. The monopoly eliminates the competition and controls the market and prices. The society tries to restore competition and to eliminate control over market and prices.
the membership of a cooperative society is open for all people living in the same area. It is a voluntary association of persons of any caste, color and creed.
In cooperative societies its members take an advantage of mutual interest and cooperate with each other achieve the common interest.
A society is a training centre for the members to feel their responsibility. A cooperative society is an ideal place for building up the moral character and development of personal qualities of the members.
Such societies purchase the goods according to the demand of members. The question of surplus does not arise.
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The cooperative societies, as compared to other business organization like sole- proprietorship or partnership, exists for a longer period. It has a fairly stable life.
In cooperative societies, most of offices bearers work voluntarily. So, there are no heavy expenditures on management. It also reduces the cost of production.
Government provides certain concessions to cooperative societies, i.e. exemption from stamp duty, super tax, income tax and registration fee etc.
DISADVANTAGES OF COOPERATIVE SOCIETY
Following are the disadvantages of cooperative societies:
Generally the members of cooperative societies are related to poor group and they cannot provide the capital on large scale. External financial resources are also limited. So, cooperative society faces the shortage of capital, which is a handicap to their development.
The government has sufficient control over the movement of these societies. These societies cannot prosper because the staff appointed for supervision is mostly untrained.
The organizations of cooperative societies are defective and these cannot operate efficiently to fulfill their objectives.
In our country, the villagers are generally illiterate and ignorant. So, they are not familiar with the basic concept of the cooperative societies.
The members of societies have less experience of business. Due to lack of capital, they cannot hire the services of experts.
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Every member of the cooperative society considers himself as the owner of the business. Due to lack of discipline, business suffers a loss.
It is our common observation that the management of society remains in the hands of selfish and dishonest persons or members who obtain undue advantage form their powers. So, business suffers a loss.
It is not a profit earning institution. Due to absence of profit incentive, the progress of cooperative society is very poor.
There is no secrecy in the business of cooperative societies.
The members of cooperative society do not know the principles and rules of society. So, they create great problem for society.
In the absence of proper education and training, it is useless to think about unity. The lack of unity leads towards the destruction of the business.
The cooperative societies cannot use the latest technology in production. As a result of this, demand and profit remains low.
A cooperative society is not bound to publish annual financial statements for the information of general public. Due to this public shows less confidence in them.
14. Delay in Decision
The main cause of failure of cooperative societies is delayed in decisions.
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15. Government Control
The cooperative department of the provincial government supervises the work of all cooperative societies. The business of a society is not free like other forms of business, so it cannot earn maximum profit.
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Lecture 9
CONCEPT OF ENTREPRENEURSHIP
Entrepreneurship is that ability in which an individual tries to find the opportunity, take risk and avail these opportunities.
Who are Entrepreneurs?
People have more entrepreneurial abilities who:
Characteristics of Entrepreneurs
This personal interest can be of two common types:
There can be two types of customer relation ship building as under:
This type of marketing is based on only one transaction, just to get the financials & provide products in return to customers. (Its some how a traditional approach of customer relationship management)
This type of marketing based on long term service provision for the customer, to get order once from your customer, fulfill that order in best possible manners, provide after sales services in order to retain that
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customer for longer period of time (it is based on modern customer relationship management techniques)
Entrepreneurs strongly follow the second type of relationship building with this customer to get long run benefit in order to enhance their business. Simple E.g. can of of Doctors in a specific community, Mechanics, Hair dresser etc.
Some persons have strong & dominant personality traits & they want to establish their own business instead of working under supervision of any one else so this leads them towards entrepreneurship establishment. They have strong decision making power & risk taking ability which helps them a lot to be an entrepreneur.
Some people want them to be involved in every decision making of their business prospects so this aspect leads them be an entrepreneur.
Some persons are daring enough in their professional attitude; they feel they can easily deal with uncertainties while designing best strategies for crunch situations so they move for entrepreneurship.
BUSINESS PLAN FOR ENTREPRENEURS
Business plan is a written document which contains the objectives of the business and the ways to achieve these objectives.
A good business plan must be developed in order to exploit the opportunity defined. A good business plan is important in developing the opportunity and in determining the resources required, obtaining those resources and successfully managing the venture.
The term business plan is made of two words “business” and “plan”. By understanding each we will try to arrive at some usable definition of business plan
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Situations for Entrepreneurial business
Most of the entrepreneurs always like to start their business right from scratch & develop their own strategies to run the business so our discussion will move around those entrepreneurs who start their businesses from scratch.
COMPONENTS OF BUSINESS PLAN
Since every business organization either small medium or large always have business plan so same is true for entrepreneurial business as well. Basic theme of business plans is always “ways to go & how to go”. All areas of SWOT analysis are also covered in the business plan.
The basic purpose of any business plan is to answer following questions:
Avoid the names not encouraged by the law. e.g. National Heroes, religious personalities etc.
Marketing Component of the business
This part of business plan covers following aspects:
One important consideration here is competitors’ analysis, while clarifying following in the business plan.
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Lecture 10
FRANCHISING
It is defined as:
“An agreement between two parties in which one party passes on the rights to the other party”
Or
“A contractual license granted by one person (the franchisor) to another (the franchisee).”
Rights of franchisee includes
Parties to Franchise agreement
There are two parties involved in a franchise agreement
Party or person, who grants the right to sell/offer its products & services under its own trade name,
Franchisee is being granted from franchiser to provide representational rights to sell or manufacture goods or to provide service or to undertake any process identified with franchiser against an agreed fee or consideration including royalty, whether or not a trade mark, service mark, trade name or logo or any such symbol , as the case may be is involved.
Advantages of Franchising
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Disadvantages of Franchising
NEW TRENDS IN THE BUSINESS
E-commerce, (electronic commerce), is online commerce verses real-world commerce. E- commerce includes retail shopping, banking, stocks and bonds trading, auctions, real estate transactions, airline booking, movie rentals, nearly anything you can imagine in the real world. Even personal services such as hair and nail salons can benefit from e-commerce by providing a website for the sale of related health and beauty products, normally available to local customers exclusively.
So many women have come in so many areas of business.
Business will be better displayed, well mannered staff, more knowledge of the needs of customers and more market oriented.
GLOBAL OPPORTUNITIES
People have the awareness of global market. Internet has played major role in accessing global markets.
In Pakistan, people got huge success globally but could not make a brand name in global market.
Factors for lower failure rate
Skills development.
Institutions to develop man power.
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Lecture 11
SUCCESS AND FAILURE OF BUSINESS
Causes of Failure in Business
Normally, following are the common causes of failure of any business:
Reasons for Success in Business (controllable factors)
Reasons for Success in Business (uncontrollable factors)
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Joint Venture
Two or more people or organizations join hands and decide to do a combine business. In a joint venture, there is equal sharing or capital resources by each firm. Instead of expanding the business at broader level or to start a new business with very high cost, joint venture shares the financial burden in order to gain new opportunities at diversified level.
Advantages of Joint Venture
Strategic Alliance
In strategies alliances, two or more than two organizations collaborate for mutual profits.
In strategic alliances, Pool of resources occurs such as products of both firms, distribution channels used by every firm, manufacturing capabilities of firms, future projects funding, capital equipment sharing, knowledge, expertise and intellectual property sharing among both firm are the basic out comes of strategic alliances.
One good e.g. of strategic alliances is commonly seen in Air Lines industry around the world
Merger and Acquisition
Merger is a new trend in market in which two or more organizations combine together and form a new organization.
Acquisition
Slightly differ from Merger; here one business acquires the other business instead of combining. Ownership moves more towards the acquiring partner.
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Common Advantages of Merger & Acquisition
ACTIVITY
After studying the all the concepts mentioned above, you as a student of Introduction to business studies is required to acquire knowledge about practical organizations who are performing their activities under any business form mentioned above and if they are successful, what are the core strengths of their success & if they are failure, (at any part) where were the weaknesses?
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Lecture 12
FOREIGN TRADE & FOREIGN BUSINESS
Imports
International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).
It is also defined as:
Goods produced somewhere else and sold domestically. Such as Chemicals Technology (Machinery, Software & Hardware, Expertise)
Import - commodities (goods or services) bought from a foreign country
Factors to be considered while importing
Exports
In economics, an export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers.
It is also defined as:
Goods produced domestically and sold in some other country.
Export - sell or transfer abroad; "In Pakistan we export less than we import and have a negative trade balance"
Advantages of Exports
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GATT (General Agreement on Tariff & Trade)
A multilateral treaty intended to help reduce trade barriers between signatory countries and to promote trade through tariff concessions.
WTO – World Trade Organization and its scope
The WTO is an international organization and a forum of multilateral negotiations of its Members on global trade liberalization rules, their administration and application. Mainly, the WTO system is understood as the set of external trade rules or "traffic rules" in external trade, which all Members must follow. The WTO was established in 1995, as the result of the Uruguay round negotiations. With the establishment of the organization, a set of WTO agreements was also concluded – with regard to goods, services, intellectual property, dispute settlement, multilateral agreements. Until the establishment of the WTO multilateral trade relations were governed by General Agreement on Tariffs and Trade (GATT), concluded on 1947 and which opened the trade liberalization and reduction of tariff barriers. The main goal of the WTO is a free and facilitated trade, governed by equal rules, while similarly taking into account also the potential of developing countries. In the WTO are represented almost all countries of the world – currently the WTO has 147 Members
Per Capita Income
Per capita income means how much each individual receives, in monetary terms. It is the measure of the amount of money that each person earns in the country, of the yearly income generated in the country.
Per Capita = Total income of the country Total population
Tools for measuring economies of the world
World can be divided in to three major categories on the basis of per capita income.
Those countries where people are earning US $9000 or more
Those countries where people are earning between US $765 and $9000
Those countries where people are earning below US $765
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Pakistan has a little below than US $765 income line and is moving towards middle income class countries. Pakistan is exporting Sports items Agricultural products (rice), Textile products (Bed Sheets, T-Shirts, Towels etc.)
Import and Export Balance
Gap between imports and exports is called surplus and deficit and it varies from country to country.
Balance of Payment
Balance of payment = Total receipts - Total payments
If receipts are greater, balance of payment is favorable.
If payments are greater, balance of payment is unfavorable.
Level of involvement in international business
Imports or Exports
We can be importer and exporter.
We try to see opportunity in international market to consume surplus products. This is called exports.
International Firms
International firms have operations world wide. These firms are also called multinationals. Multinationals design products separately for each country
Global Organizations
Those organizations which consider the whole country as single market are called global organizations.
These organizations have standardized products all over the world.
International Organizational Structure
A person or an organization that works for an exporter or importer
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Lecture 13
BARRIERS TO INTERNATIONAL TRADE
Trade barriers are a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including the following terms that include many restrictions in international trade within multiple countries that import and export any items of trade
Different countries have different life styles.
Every religion has its own set of rules for its followers. Religion asks for spending on certain things and stops from spending on certain things.
There are different laws in different parts of the world. These include laws related to:
Health Safety
Customer Relationship Pricing
Packing
Environment
Per Capita Income is different in different countries. Different people have different economic systems.
People preference for a particular product
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Tax levied on goods entering into a country.
It is also used as a measure to reduce imports in a country.
Limit imposed by one country on importing commodities from another country.
Concessions provided by a country to its producers in order to protect economy.
Business Ethics
Ethics are basic beliefs, a company decides to pursue and implement during a course of action.
Ethical Behavior
Ethical Behavior in Managerial Practices includes:
Corporate Social Responsibilities
To think about benefiting the society and avoid harmful activities for the society is called Corporate Social Responsibilities.
These include:
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Lecture 14
STAKE HOLDERS
Definition
People who are interested in the affairs of the business in one way or the other are called stakeholders.
Stake holders include:
RIGHTS OF CUSTOMERS
Consumerism
Right to get information about:
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Responsibilities of the Organization towards Environment
Ethics for Advertising
Whistle Blowers
Whistle Blowers are the people who see irregularities and bring them in the knowledge of the management. Although these people bring in to account positive actions required to be taken in to account by the management but even then most of the times, organizations never liked these persons.
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Management
Getting things done through others.
Manager
A person who practices the functions to achieve management’s objectives
Functions of Managers
Thinking for the future
Decision about activities performed by the workers 1.Grouping the activities
2.Delegation of authorities
Filling out the vacant positions
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Lecture 15
SETTING GOALS AND FORMULATING STRATEGY
Setting goals is the starting point of effective management. Every business needs goals, and the program for guiding decisions to achieve those goals is called a strategy. Goals are objectives that a business hopes and plans to achieve.
TYPES OF STRATEGY
III.
Functional strategy—Strategy by which managers in specific areas decide how best to achieve corporate goals through productivity
SETTING BUSINESS GOALS
Goals are performance targets–the means by which organizations and their managers measure success or failure at every level.
Purposes of Goal Setting
Kinds of Goals
Goals differ from company to company depending on the firm’s purpose and mission. A firm’s basic mission is usually easy to identify. Businesses often have to rethink their missions as the competitive environment changes.
Three kinds of goals for every firm are:
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Mission Statement
Organization’s statement of how it will achieve its purpose in the environment in which it conducts its business.
THE MANAGEMENT PROCESSES
The management process is the process of planning, organizing, directing, and controlling an organization’s resources to achieve its goals. The four functions of management are not discrete. They overlap and influence one another. To transform a vision into a successful business, managers must perform the functions of planning, organizing, leading, and controlling.
TYPES OF MANAGERS
Not all managers have the same degree of responsibility for planning, organizing, directing, and controlling.
Levels of Management
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iii.
They set strategic goals, make long-range plans, establish major policies, and represent the company to the outside world.
ii. Middle Managers—managers responsible for implementing the strategies, policies, and decisions made by top managers. In more innovative management structures, they may function as team leaders, acting as consultants who must understand every department’s function and are granted more decision-making authority, previously reserved for high-ranking executives.
First-line Managers—managers responsible for supervising the work of employees
Areas of Management
vii.
viii.
Financial Managers—managers responsible for the firm’s accounting functions and financial resources.
ix. Other Managers—some firms also employ other specialized managers, such as public relations managers, research & development managers, etc.
BASIC MANAGEMENT SKILLS
Whatever the type or size of the organization, managers employ basic kinds of skills. As they rise through the hierarchy, they may need to strengthen one or more of these skills.
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THE FOUNDATIONS OF HUMAN RESOURCE MANAGEMENT
The ability to attract and retain talented and motivated employees often marks the difference between success and failure in today’s competitive business environment.
Human Resource Management—set of organizational activities directed at attracting, developing, and maintaining an effective workforce.
The Strategic Importance of HRM
iii.
The chief human resource executive of most large businesses is a vice president directly accountable to the CEO, and many firms develop strategic HR plans that are integrated with other strategic planning activities.
Scope of HRM
Job Analysis
Job analysis is the process to collect all information related with one specific job. It has two further portions:
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Lecture 16
HUMAN RESOURCE PLANNING
JOB ANALYSIS
Systematic analysis of jobs in an organization:
Forecasting HR Demand and Supply
Forecasting the supply of labor is two tasks:
Replacement Chart
Listing of each managerial position, who occupies it, how long that person will likely stay in the job, and who is qualified as a replacement. Replacement charts are used at higher levels of the organization to plan developmental experiences for people identified as potential successors to critical managerial jobs.
Skills Inventories (or Employee Information System)
Computerized system containing information on each employee’s education, skills, work experiences, and career aspirations
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Matching HR Supply and Demand
After comparing future demand and internal supply, managers can make plans to manage predicted shortfalls or overstaffing. If the organization needs to hire, the external labor- supply forecast helps managers plan how to recruit.
Recruiting Human Resources
Process of attracting qualified persons to apply for open jobs.
Internal Recruiting
Practice of considering present employees as candidates for job openings.
External Recruiting
Practice of attracting people outside an organization to apply for jobs. By early 1998, unemployment had dropped to a 23-year low of 4.6 percent, making recruiting a more difficult task.
Advantages of external Recruiting
Equal Employment Opportunity
The basic goal of all equal employment opportunity regulation is to protect people from unfair or inappropriate discrimination in the workplace. Legally mandated nondiscrimination in employment on the basis of race, creed, sex, or national origin
SOURCES TO FIND PEOPLE
Organizations used various sources in order to find suitable people for their organization following sources are mostly used in this regard
Informal search
On the basis of references organizations finds peoples suitable for the post or for the nature of the work.
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Job posting
By putting notices for job on various places in the organization such as Cafeteria, Fair Price shop, Sports field, Reception desk, Notice Board, Union office etc
Educational institutions
To consult with educational institutions for suitable candidates for the job is also helpful for the organization to find suitable persons. Usually organizations consult with educational institutions when fresh graduates are required.
Professional Associations
This source is used when an organization wants to appoint people on senior posts.
Recruitment Agencies
Recruitment agencies have expertise in selecting people. These agencies are used when
Advertisement
Sources are find by giving advertisement in media, this sources is used when large number of jobs are available. Most common media is the print media worldwide.
SELECTING HUMAN RESOURCES
Application Blank
Application form provided by the organization for fill in as per requirement order of the firm. It’s a form of CV but prepared as per organizational point of view.
Tests
Organizations conduct various tests to judge the overall capabilities of the professionals including:
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c. knowledge tests
Interviews
Interviews are sometimes a poor predictor of job success although they remain a popular means of screening candidates. Validity can be improved by training employees to be aware of potential biases created in the interview situation and by using structured interviews, in which questions are written in advance and all interviews follow the same list of questions for each candidate.
Other Techniques
Polygraph tests are declining in popularity, although some organizations require physical exams. More organizations are using drug tests, particularly in which drug-related performance problems could create serious safety hazards for customers or employees.
Validation
Validation is the process of checking appropriateness of any method or tool up to what extent it can satisfy the actual requirement or it fits in practical realities other than statements.
There are three forms or validity in general:
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Lecture 17
INFRASTRUCTURE FOR TEST
INFRASTRUCTURE FOR TEST
Space: The place where the test in to be conducted should have enough space with a proper sitting arrangement.
Proper Temperature: Proper adjustment of temperature is required along with proper light so that candidate may be able to draw a clear picture of their mind to answer the interviewer’s questions.
Enough quantity of stationary: Stationary includes papers, pencils, calculators, graphs, diagrams and answer sheets, the stationary should be in enough quantity for the ease of the candidates.
Evaluation of Test: At the end candidate’s answers are compared with the benchmark answers in order to evaluate the test.
After evaluating the tests, interviews are conducted of those candidates who have qualified the test.
Interview: Any verbal interaction is called interview.
JOB INTERVIEW
A method of selection in which we interact with the candidate verbally Types of Job Interview
Telephonic interview
Telephonic interview means to make a call to the candidate on the telephone to know the answers of the candidates; normally telephonic interview is not conducted for final selection. It helps to know about candidate’s preliminary information like qualification, communication skill or competency, and a little exposure of the candidate before calling him for a face-to-face interview.
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Preliminary Interview
Organizations which don’t conduct telephonic interview adopt the method of preliminary interview. For preliminary interview organizations call the candidate for a short and basic interview for a little judgment about the appearance, manners and personality of the candidate.
Selection Interview
These are the final interviews and longer in duration to know about the candidate in detail. There may be one or two more interviews before these final interviews. Final interview are conducted in the most professional manner so that there may not be any wrong selection.
TECHNIQUES FOR FINAL INTERVIEWS
In pattern interview pre-decided questions are asked in a pre-defined sequence.
In non pattern interview questions are asked according to the situation.
Shortcoming of Pattern Interview
Interviewer can not ask any question other than pre-defined questions.
Shortcoming of Non Pattern Interview
In non pattern interview there is more possibility of non-professional and irrelevant questions.
Mix Interview: It is an interview in which some questions are pre-defined and some are situational.
WAYS TO CONDUCT INTERVIEW
1. One person interview
Arrangements for conducting Interview
Proper place: The place where the interview is to be conducted should be peaceful and quiet so that interviewer and interviewee may listen each other easily.
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Preparation for questions: To ask the required or relevant questions from the candidate, the questions should be properly planned and prepared.
Read out the resumes of candidates. It is necessary to read the resumes of the candidates before conducting the interview in order to know the education and experience of the candidates.
At the end the whole and required information about the candidate is noted down on the paper in order to recall the memory while taking the final decision about the selection.
HUMAN RESOURCE DEVELOPMENT
After the selection the next step is to develop the employees. Human Resource Development is done through training.
Before the employees start the work they are provided training to learn and know the nature of the work. Training may be of six months or of a year
METHODS FOR TRAINING
On job Training: It refers to learn while working in the organization.
Off job Training: A commonly used way in off the job training is lecture method
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Performance Appraisal: Performance appraisal is the evaluation of the performance that people are working according to the expectations or not.
Reasons for performance appraisals:
Compensation
Compensation can be:
Incentives include the plans for encouragement of employees in the organization.
Types of Incentives
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Lecture 18
COMPENSATION AND BENEFITS
Set of rewards that organizations provide to individuals in return for their willingness to perform various jobs and tasks within the organization. Compensation includes base salary, incentives, bonuses, benefits, and other rewards.
Wages and Salaries
Wages—compensation in the form of money paid for time worked.
Salary—compensation in the form of money paid for discharging the responsibilities of a job.
Incentive Programs
rewards
Special compensation program designed to motivate high performance.
1. Individual Incentives—incentive-based pay plan that performance.
individual
2. Bonus—Individual performance incentive in the form of a special payment made over and above the employee’s salary
Merit Salary Systems—Individual incentive linking compensation to performance in non- sales jobs
Pay-for-performance (or variable pay)—Individual incentive that rewards a manager for especially productive output
Company-wide Incentives
Profit-sharing plan—Incentive plan for distributing bonuses to employees when company profits rise above a certain level
Gain-sharing plan—Incentive plan that rewards groups for productivity improvements
Pay-for-knowledge plan—Incentive plan to encourage employees to learn new skills or become proficient at different jobs
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Benefit Programs—compensation other than wages and salaries. Some may be required by law, such as, workers’ compensation insurance (insurance for compensating workers injured on the job)
Retirement Plans—prearranged company pensions provided to retired employees.
Containing the Costs of Benefits
Cafeteria Benefit Plan—benefit plan that sets limits on benefits per employee, each of whom may choose from a variety of alternative benefits. It allows employees to choose those benefits they really want.
Equal Employment Opportunity
The basic goal of all equal employment opportunity regulation is to protect people from unfair or inappropriate discrimination in the workplace. Legally mandated nondiscrimination in employment on the basis of race, creed, sex, or national origin
COLLECTIVE AFFAIRS OF EMPLOYEES
Labor Union—Group of individuals working together to achieve shared job-related goals, such as higher pay, shorter working hours, more job security, greater benefits, or better working conditions
Labor Relations—Process of dealing with employees who are represented by a union
Collective Bargaining—Process by which labor and management negotiate conditions of employment for union-represented workers.
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Collective Bargaining agent (CBA) is a person who has been elected by all the workers in the organization through legal procedures.
Collective bargaining is an ongoing process involving both the drafting and the administering of the terms of the labor contract. It begins as soon as the union is recognized as the exclusive negotiator for its members.
Reaching Agreement on Contract Terms—Law requires that union leaders and management representatives must sit down at the bargaining table and negotiate in good faith. Sessions focus on identifying the bargaining zone.
CONTRACT ISSUES
1: Cost-of-living adjustment (COLA)–labor contract clause tying future raises to changes in consumer purchasing power.
2: Wage reopener clause–clause allowing wage rates to be renegotiated during the life of the labor contract.
MOTIVATION IN THE WORKPLACE
Motivation is a force that forces people towards a task. Employee motivation is even more critical to a firm’s success than job satisfaction and morale.
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Classical Theory
Theory holding that workers are motivated solely by money.
Objections on Fredrick Taylor’s Theory of Scientific Management
Behavior Theory
The Hawthorne Studies—a set of experiments aimed at examining the relationship between changes in the physical environment and worker output.
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Lecture 19
CONTEMPORARY MOTIVATIONAL THEORIES
Following the Hawthorne studies, managers and researchers focused more attention on the importance of good human relations in motivating employee performance. Most motivation theorists are concerned with the ways in which management thinks about and treats employees.
Human Resources Model: Theories X and Y—Douglas McGregor’s theory of motivation suggesting that managers have radically different beliefs about how best to use the human resources employed by a firm.
Theory X—theory of motivation holding that people are naturally irresponsible and uncooperative.
Theory Y—theory of motivation holding that people are naturally responsible, growth oriented, self-motivated, and interested in being productive.
McGregor Theory- X & Y
X-Type managers might:
Use punishment and threat to make people work. And will control activities of the work very closely.
Y-Type managers will identify the barriers which are causing problems for workers and try to eliminate those barriers.
In some situations, managers have to adopt X-type behavior and in some situations, they have to adopt Y-type behavior. Culturally, in societies, managers are moving towards Y-type behavior from X-type behavior.
Maslow's Hierarchy of Needs Model—Psychologist Abraham Maslow’s theory of motivation proposing that people have several different needs that they attempt to satisfy in their work.
These needs are hierarchical in importance; lower-level needs must be met before a person will try to satisfy higher-level needs. Once a set of needs has been satisfied, it ceases to motivate behavior.
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Maslow’s Hierarchy of Needs
Biological Needs
Biological needs are related to human body’s survival. e.g. food, drink, air, sleep etc.
Safety Needs
Safety from: Cold, Heat, Sand, Storm, Earthquake, Animals, Enemies
Use of Hierarchy in Motivation
Biological needs can be fulfilled by:
Safety Needs
Organization can provide safety devices to employees. For instance:
Social Needs
Organizations encourage informal organizational activities. These include:
Combined lunch or dinner Sports
Fun fair
Musical Programs
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Self Esteem
It means worth of human beings. These include:
Designation of Individuals Status in the organization
Recognition of employees in the organization
Self esteem has direct relationship with productivity. Various techniques can be used to make self esteem of employees high.
These can be:
Finding titles for employees Recognition
Awards
Cash rewards
Increment in the salary Promotion
Raising status of employees
Self Actualization
Self actualization is the fullest utilization of one’s potential. These include:
High Challenges
High position in the organization
Criticism on Maslow’s hierarchy theory
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Lecture 20
TWO-FACTOR THEORY OR HYGIENE THEORY
Frederick Herzberg’s theory of motivation holding that job satisfaction depends on two types of factors, hygiene and motivation.
Hygiene factors fall with the biological needs, safety needs and partially with social needs of Maslow’s hierarchy theory. Motivators are almost similar to social needs, Self esteem needs and self actualization needs of Maslow’s hierarchy theory. Both factors should be present in the organization at the same time to get productivity from workers.
This theory suggests that managers should follow a two-step approach to enhancing motivation—first, ensure that hygiene factors (working conditions, policies) are acceptable, and then offer motivation factors such as recognition and added responsibility. Biological needs are related to human body’s survival. E.g. food, drink, air, sleeps etc.
Expectancy Theory—theory of motivation holding that people are motivated to work toward rewards that they want and that they believe they have a reasonable chance of obtaining.
In this theory, a reward that is out of reach is likely to be undesirable even if it is intrinsically positive.
People in the organization are motivated with:
Equity Theory—theory of motivation holding that people evaluate their treatment by employers relative to the treatment of others.
People derive a ratio of contribution to return from analyzing what they contribute to their jobs (inputs) and what they receive in return (outputs); they then compare their own ratios with those of other employees. The ratios do not have to be the same, only fair.
Equivalence in inputs and outcomes
Inputs of employees in an organization are:
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Outcomes of employees in an organization are:
Individual will also compare his input/outcome with other individual’s input/outcome.
How can Equity Theory be implemented?
Managers have to explain reasons for the difference of outcomes of employees in order to keep them motivated. People compare their rewards with the market as well.
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Lecture 21
STRATEGIES FOR ENHANCING JOB SATISFACTION AND MORALE
These strategies are ways to apply manager’s knowledge of what provides job satisfaction and motivates workers.
Reinforcement/Behavior Modification Theory—theory that behavior can be encouraged or discouraged by means of rewards or punishments.
Most managers prefer giving rewards and placing positive value on performance to doling out punishment.
Human Relations—Interactions between employers and employees and their attitudes toward one another
Human Relations can be:
Purpose of human relations is to give a feeling of a family.
Management by Objectives—set of procedures involving both managers and subordinates in setting goals and evaluating progress.
Experts agree that motivation is the biggest advantage of MBO if it is used properly.
Participative Management and Empowerment—method of increasing job satisfaction by giving employees a voice in the management of their jobs and the company.
As an example, workers who no longer report product defects to supervisor but have the freedom to correct problems themselves, or even return defective products to the workers who are responsible for them, have been empowered to take greater responsibility for their own performance.
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Teamwork is not for every situation. Levi Strauss dismantled production teams in which faster workers became resentful of slower workers who reduced the group’s total output, when teach member’s pay was determined by the team’s level of productivity.
Team Management—employees are given decision-making responsibility for certain narrow or broad activities.
JOB ENRICHMENT AND JOB REDESIGN
Job Enrichment Programs—method of increasing job satisfaction by adding one or more motivating factors to job activities.
Job rotation plans, for example, expand growth opportunities and the chance to learn new skills.
Job Redesign Programs—method of increasing job satisfaction by designing a more satisfactory fit between workers and their jobs.
Job redesign is usually implemented in one of three ways: through combining task, forming natural work groups, or establishing client relationships.
PSYCHOLOGICAL CONTRACTS IN ORGANIZATIONS
Set of expectations held by an employee concerning what he or she will contribute to an organization (referred to as contributions) and what the organization will in return provide the employee (referred to as inducements).
All organizations face the basic challenge of managing psychological contracts. The massive wave of downsizing and cutbacks that swept the U.S. economy in the 1980s and early 1990s has complicated that challenge. Because job permanence is less likely now, alternative inducements such as lavish benefits packages may be needed instead.
Managerial Styles and Leadership:
There are many valid styles of leadership. Most managers do not conform to anyone style, but under different circumstances, any given style or combination of styles may prove appropriate.
Leadership: A process of motivating others to work to meet specific objectives.
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MOTIVATION AND LEADERSHIP IN THE TWENTY-FIRST CENTURY
Changing Patterns of Motivation:
Today’s employees want rewards that are often quite different from those valued by earlier generations.
Changing Patterns of Leadership:
The autocratic style is less acceptable and many managers are functions more as coaches than bosses.
Women, African Americans, and Hispanics are entering the managerial ranks in
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increasing numbers, and they are more and more likely to be younger than some of the people they are leading.
3. Leaders must adopt more of a “network” mentality rather than a “hierarchical” one.
New forms of organizational design may call for one person to be the leader on one project and a team member on another.
Modified Work Schedules
Work-Share Programs—method of increasing job satisfaction by allowing two or more people to share a single full-time job
Job sharing usually benefits both employees and employers, although job-sharing employees generally receive fewer benefits than full-time counterparts.
Flextime Programs and Alternative Workplace Strategies—method of increasing job satisfaction by allowing workers to adjust work schedules on a daily or weekly basis.
Flextime can include starting later and leaving later in the day, starting and leaving earlier, or choosing which 4, 5, or 6 days to work during the week while still completing 40 hours.
Telecommuting and Virtual Offices
Telecommuting—form of flextime that allows people to perform some or all of a job away from standard office settings.
Among salaried employees, the telecommuter workforce grew by 21/5 percent in 1994, to
The key to telecommuting is technology—networked computers, fax machines, cellular phones, and overnight delivery services make it possible to work from home or while traveling.
Virtual office—redesigned conventional office space to accommodate jobs and schedules that are far less dependent on assigned spaces and personal apparatus.
Informal work carrels or nooks and open areas can be made available to every employee.
Advantages and Disadvantages of Modified Schedules and Alternative Workplaces
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4. Telecommuting and virtual offices may not be for everyone. Those who can work best in these new environments tend to be disciplined self-starters who require little direct supervision during the day and are not uncomfortable working away from their managers and colleagues.
One other disadvantage is that it can be difficult for telecommuters to convince management that if they are not being supervised, they are still working, a perception based on the often erroneous assumption that “if you can see them, they are working.”
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Lecture 22
WHAT IS MARKETING?
Although you may be just beginning your classroom study of marketing, organizations like Microsoft and Coca-Cola have been trying to sell you things for many years. You have probably become accustomed to many marketing techniques—contests, advertisements, fascinating displays placed in strategic locations, price markdowns and giveaways. What you are about to learn is that marketing requires a lot of planning and implementation to develop a new product, set its price, get it to consumers, and convince them to buy it.
Marketing
As defined by the American Marketing Association:
“It is planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”
However, in laymen’s terms:
“Marketing is quite simply finding a need and filling it.”
Marketing plays an important role in society by helping people satisfy their needs and wants and by helping organizations decide what to produce.
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The influence of marketing permeates everyday life, applying to goods, services, and ideas. Marketing applies to tangible and intangible goods and include:
i. Relationship Marketing emphasizes lasting relationships with customers and suppliers. Purchase incentives and customer loyalty programs are just some of the ways in which firms try to promote these relationships.
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Lecture 23
THE MARKETING ENVIRONMENT
Difference between Marketing and Selling
Marketing | Selling | ||||
Marketing production | starts | before | decision | of | Selling starts after decision of production |
Marketing is a total system and selling is one of its part | Selling is the transfer of owner ship | ||||
Marketing is a long term process | Selling is a short term process | ||||
CLASSIFICATION OF PRODUCTS
There are two types of products
1: Consumer products
2: Industrial products
Relationship Marketing
Developing a long term relationship with the customers, by making phone calls to the customers, sending gifts to customers etc
Transactional Marketing
Transaction with the customer, it is a business strategy that focuses on single, "point of sale" transactions. The emphasis is on maximizing the efficiency and volume of individual sales rather than developing a relationship with the buyer.
FACTORS INFLUENCING THE MARKETING SYSTEM
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THE MARKETING ENVIRONMENT
The powerful forces of the external marketing environment heavily influence Marketing programs by posing opportunities and threats
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MARKETING MANAGER
A person who plans and executes all marketing activities
Role of Marketing Manager
MARKETING PLAN
A plan for marketing programs
Components of marketing plan are:
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Lecture 24
THE MARKETING MIX
A firm’s marketing mix (often called the four Ps) consists of product, place (or distribution),
price, and promotion.
TARGET MARKETING AND MARKET SEGMENTATION
A market contains all the customers or businesses that might be interested in a product and can pay for it.
Identifying Market Segments: Companies subdivide the market into market segments, homogeneous groups of customers within a market that are significantly different from one another. The goal of the market segmentation process is to group customers with similar characteristics, behavior and needs. These target markets can then be offered products that are priced, distributed, and promoted differently. Four factors marketers frequently use to identify market segments are:
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Geographic segmentation divides markets into certain areas such as regions, cities, counties, or neighborhoods to customize and sell products that meet the needs of specific markets.
iii.
Behavioral segmentation divides markets according to customers’ knowledge of, attitude toward, use of, or response to products or their characteristics.
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Lecture 25
MARKETING RESEARCH
Market research is the process of systematic gathering, recording and analyzing of data about customers, competitors and the market. Market research can help create a business plan, launch a new product or service, fine tune existing products and services, expand into new markets etc. It can be used to determine which portion of the population will purchase the product/service, based on variables like age, gender, location and income level. It can be found out what market characteristics your target market has.
The purpose of market research is to help companies make better business decisions about the development and marketing of new products. Market research represents the voice of the consumers in the company
A list of questions that can be answered through market research:
A simple example of what market research can do for a business is the following.
At the Company Chevrolet they brought several disciplines together in a cross-functional team to develop a concept for a completely new Chevrolet. This team enabled the marketers to come up with an alternative concept, one that balanced 4 attributes: comfort and convenience, quality, styling, and performance. This was considered radical because comfort and convenience were not traditional Chevrolet values. However, market research demonstrated that consumers supported the alternative concept. As a result the new Chevrolet was a huge success in the market. [Burns 2001]
With market research you can get some kind of confirmation that there is a market for your idea, and that a successful launch and growth are possible.
Market research for business planning
Market research is discovering what people want, need, or believe. It can also involve discovering how they act. Once that research is complete it can be used to determine how to market your specific product. Whenever possible, try to reduce risks at the earliest possible stage. For example you could carry out market research early on and not wait until you are almost ready to enter the market. If early market research reveals that your business idea has real potential, you can use this information in planning the build-up of your business. [Ilar 1998]
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For starting up a business there are a few things should be found out through market research order to know if your business is feasible. These are things like:
Market information
Market information is making known the prices of the different commodities in the market, the supply and the demand. Information about the markets can be obtained in several different varieties and formats. The most basic form of market information is the best quotation and last sale data, including the number of shares, with respect to a particular security at a given time. [Market research 2006]
Examples of market information questions are:
_ Who are the customers?
_ Where are they located and how can they be contacted?
_ What quantity and quality do they want?
_ What is the best time to sell?
_ What is the long-term or historical price data over a number of years?
_ What is the expected production in the country?
_ Is there more demand for one product or another? Etc.
Market Segmentation
Market segmentation is the division of the market or population into subgroups with similar motivations. Widely used bases for segmenting include geographic differences, personality differences, demographic differences, use of product differences, and psychographic differences.
Market Trends
The upward or downward movements of a market, during a period of time, the market size is more difficult to estimate if you are starting with something completely new. In this case, you will have to derive the figures from the number of potential customers or customer segments. [Ilar 1998]
But besides information about the target market you also need information about your competitor, your customers, products etc. A few techniques are:
Customer Analysis
_ Competitor analysis
_ Risk analysis
_ Product research
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MARKET RESEARCH PROCESS
This chapter introduces the steps involved in the market research process. It also provides you with a brief preview of each of the steps necessary to conduct a market research effort. The market research process has 4 basic steps. These steps include:
Defining the research problem Establishing the research design Collecting and analyzing data Formulate findings
Meta-process model for Market research
Before these four steps are discussed it is important to make a few comments about these steps. First although the list does strongly imply an orderly step-by-step process, it is rare that a research project follows these steps in the exact order that they are presented in the figure.
Market research is more of an interactive process whereby a researcher, by discovering something in a given step, may move backward in the process and begin again at another step [Market research 2006] Finding some new information while collecting data, may cause the researcher to establish different research objectives
In the following the different market research steps are described.
Defining the research problem
The step defining the research problem exists of 2 main steps: (1) formulating the problem and
(2) Establishing research objectives.
Defining the problem is the single most important step in the market research process. A clear statement of the problem is a key to a good research. A firm may spend hundreds or thousands of dollars doing market research, but if it has not correctly identified the problem, those dollars are wasted. In our case it is obvious that the problem here is setting up a business. But even if this is clear, you still need to know what exactly you need to know to make the new business a success and what specific related to the product is difficult to find out. Problems that may be encountered are: it is unknown what potential markets there are, what customer groups are interested in your products, who the competitors are? After formulating your problem, you need to formulate your research questions. What questions need to be answered and which possible sub-questions do you have.
With the problem or opportunity defined, the next step is to set objectives for your market research operations. Research objectives, related to and determined by the problem
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formulation, are set so that when achieved they provide the necessary information to solve the problem. A good way of setting research objectives is to ask,
“What information is needed in order to solve the problem?" Your objective might be to explore the nature of a problem so you may further define it, or perhaps it is to determine how many people will buy your product packaged in a certain way and offered at a certain price. Your objective might even be to test possible cause and effect relationships. For example, if you lower your price, how much will it increase your sales volume? And what impact will it have on your profit?
Clear objectives can lead to clear results. An example of this is a situation at Camaro/Firebird. Auto manufacturers are sometimes criticized for creating expensive vehicles with unwanted features and technologies that do not meet the needs of the target market. To avoid this trap engineering team of this company turned to market research to evaluate how changes in performance and fuel economy would affect sales volume and customer satisfaction. It turned out that customers were willing to pay more for greater performance if the car also offered simultaneous increases in fuel economy. [Burns 2001]
The problem description, the research question, sub questions and the research objectives are part of an overall document problem description.
After describing and formulating the problem and the objectives, the next step is to prepare a detailed and realistic time frame to complete all steps of the market research process. If your business operates in cycles, establish target dates that will allow the best accessibility to your market. For example, a holiday greeting card business may want to conduct research before or around the holiday season buying period, when their customers are most likely to be thinking about their purchases. [Market research 2006]
Selecting and establishing research design
The step selecting and establishing research design consists of 3 main steps:
(1) Select the research design, (2) identify information types and sources and (3) determine and design research instrument.
.
Collecting and analyzing data
Data collection is usually done by trained interviewers who are employed by field data collection companies to collect primary data. A choice has to be made between collecting the data yourself or hiring an external office who are specialized in interviews. Data analysis is needed to give the raw data any meaning. The first step in analyzing the data is cleaning the data. This is the process of checking the raw data to verify that the data has been correctly entered into the files from the data collection form. After that the data have to be coded. This is the process of assigning all response categories a numerical value.
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For example males = 1, females = 2. After that the data can be tabulated, which refers to the actual counting of the number of observations that fall in to each possible response category.
Formulate findings
After analyzing the data you can make your findings based on this data. Once the findings about the target market, competition and environment are finished, present it in an organized manner to the decision makers of the business. In this case report the findings in the market analysis section of your business plan. In summary, the resulting data was created to help guide your business decisions, so it needs to be readily accessible to the decision makers.
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Lecture 26
CONSUMER BEHAVIOR & MARKETING RESEARCH
Marketing Research is the process of gathering data about marketing issues and transforming that raw data into meaningful information that can improve decisions and reduce risks. Market research can help with nearly every phase of marketing from setting goals for market share to developing new products to monitoring the program’s effectiveness. It is also important to monitor the competition, track industry trends, and measure customer satisfaction. Marketing
Research can occur at any point in the product's existence.
The Research Process
Research Methods
Observation: Market Research technique that involves simply watching and recording consumer behavior. Probably the oldest form of market research, it has been brought up to date with such tools as electronic supermarket scanners that allow managers to see what is selling without having to check shelves or inventory.
Survey-Market Research: technique using a questionnaire that is either mailed to individuals or used as the basis of interviews. Surveys can be expensive and may vary widely in accuracy; it is also difficult to find representative groups of respondents.
Focus Group-Market Research: technique in which a small group of people is gathered, presented with an issue, and asked to discuss it in depth. At its best it allows exploration of complex issues and can produce creative solutions. Its small size (6 to 15 people is best) means it may not represent the larger market well. Focus groups are often used as a first step, leading to some other form of research.
Experimentation: market research technique that attempts to compare the responses of the same or similar people under different circumstances. This method is very expensive but
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can supply answers to questions that surveys cannot address, by allowing customers to sample new products, for instance.
UNDERSTANDING CONSUMER BEHAVIOR
Marketers study consumer buying behavior to learn what makes individuals buy one product instead of another. Consumer markets consist of individuals or households that purchase goods and services for personal use. Issues to be considered are the differences between organizational and consumer markets, the buyer’s decision process, and the factors that affect that decision process.
Influences on Consumer Behavior
Consumer behavior is essentially the study of why consumers purchase and consume products. Four key factors influence consumer behavior:
The Consumer Buying Process
One way to look at the psychology of buying is to understand the decision-making process people go through when making a purchase. Deciding what to buy is a problem-solving process. Sometimes consumers become
III.
Evaluation of alternatives: This step is essentially a matching process: How do the attributes of the products you are considering match with your needs and wants? Here, too, the evaluation process can range from brief to protract.
IV. Purchase decision: Purchase decisions are typically based on a combination of rational and emotional motives. Rational motives are based on logical evaluation of product attributes (e.g. cost, quality, usefulness). Emotional motives are based on non-objective factors (e.g. "All my friends have 4-inch high heel shoes!").
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V. Post-purchase evaluation: This includes everything that happens after the sale. Satisfied customers are likely to repurchase products they have used and enjoyed, while unhappy customers are not only unlikely to repurchase, but also are prone to broadcast their negative experience to other potential consumers.
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Lecture 27
PRODUCT, TYPES OF PRODUCTS & STEPS FOR PRODUCT DEVELOPMENT
Product
Product is anything that can be offered for sale by an organization and in return it can earn profit for the firm. Every product has some associated benefits based on the features of that specified product. Every product has a set of identified features.
Forms of Products
General forms of products can be:
All the products that can be touch physically or smelled or felt with fingertips are called tangible ones.
All the products that can not be touched physically are called intangible ones.
E.g., if you observe a bill board of any juice product, product presented in the bill board is untouchable as you can’t feel is with your finger or smell it but original product will be tangible as you can taste it, feel it or smell it.
CLASSIFICATION OF PRODUCTS
Products are classified as under:
Consumer Products
Products that are used by consumers as are available in finished & consumable forms.
Industrial Products
Products that are used to prepare other products are called as industrial products.
CATEGORIES OF CONSUMER GOODS
Consumer goods can be further divided as under:
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CATEGORIES OF INDUSTRIAL GOODS
Industrial goods have following categories
PRODUCT MIX
Product mix is defined as the combination of all those products offered by an organization for sale. It’s width wise expansion of the products of any companies.
Production of cars, trucks motor cycle etc & other vehicles produced by same company is the examples of product mix.
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PRODUCT LINE
STEPS FOR PRODUCT DEVELOPMENT
Following are the important steps any product development process:
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Lecture 28
PRODUCT LIFE CYCLE, BRANDING, PACKAGING & LABELING
Product is the core concern of any firm. All the efforts from raw material to finished form are related with product. Business firm spend their every resources to develop, present & maintain product through out their business operation. Normally products have following four stages:
Introduction stage
A stage when a new product is introduced in the market after continuous R & D, & all developmental processes. At this stage, there are only one or few manufacturers in the market. Since less producers are there, so almost no competitions. Since sales are less so profits are also less.
At this stage product appears as “Question Mark” which shows product may be successful in the market & may not be.
Growth Stage
At this stage, customers’ awareness develops & people start knowing more & more about new product in the market so sale of the product will increase due to:
At this stage, product is called as “Star” as it generates good profits for the firm
Maturity Stage
Since at this stage, people become more and more aware with the new product in the market so here comes the time when not only product become stable but people also start recognizing company with the reference of that particular product. Here product gets “share of Mind” among the targeted markets. At this stage product have:
At this stage, product called as “Cash Cow” as now profit margins may be less than growth stage but product gain relatively more market share
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Decline Stage
This the last stage of any product. Product loss market share as well as profits for the firm. At this stage, product will disappear from the market.
Following important steps become very necessary for the firm to be taken in order to bring product back in market:
At this stage product called as “Dog” as production & development costs are more & more but no profits at all.
USE OF PRODUCT LIFE CYCLE IN DECISION MAKING PROCESS
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BRANDS
Brand is a symbol, a sign, a type of writing, a color, a design or a combination of all these things to identify a product.
BRANDING PROCESS
Branding is a process in which any identification is suggested for the product.
BRAND EQUITY
Brand Equity is the loyalty of the customers attached to the product.
BRAND AWARENESS
Brand awareness is the extent to which a customer knows or recalls the brand of the product.
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TYPES OF BRAND NAMES
National Brands
If a same brand is sold throughout the country then its called as National Brand.
License Brands
Seller buys the right to sell that brand in the market.
Private Brands
Manufacturers use the brand of some retailer while manufacturing the product.
PACKAGING AND LABELING
Part of package containing name, contents and name of manufacturer of the product is called a label.
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Lecture 29
PRICING & DISTRIBUTION MIX
Pricing
Price is the value which a seller receives in exchange of a good or a service.
It is a process of determining what a company will receive in exchange for its products.
Objectives of Pricing
Cost Based Pricing
In cost based pricing cost of product is considered and amount of profit is added to it.
Breakeven Analysis
Breakeven analysis tells us that at what point the organization will be at no profit no loss point.
In order to calculate breakeven point, we need to consider:
Fixed cost will remain fixed regardless of number of units produced.
Variable cost varies with the number of units produced.
Total Cost = Fixed cost + Variable cost
Concept of breakeven analysis is used in cost based pricing.
Pricing of a new Product
There are various forms of pricing to determine the price of the product
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Price Skimming
It is a strategy through which a product is introduced in the market with higher price than the market expectations.
Advantages of price skimming
Penetrating Pricing
Penetrating price is the initial lower price than the market expectations.
Advantages of Penetrating Pricing
Fixed Price Vs. Dynamic Price
Fixed price held constant for a specified period of time. In fixed pricing method, we do not consider:
Factors to be considered while setting International Pricing
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THE DISTRIBUTION MIX
Getting products from producer to consumer is the next element of the marketing mix, known as distribution, or place. An organized network of firms used to move goods and services from producers to customers is called a distribution channel, or marketing channel. A company’s decisions about which channels should be used, the distribution mix, plays a major role in the firm’s success.
For most of your purchases, you rely on market intermediaries, also known as middlemen, who channel goods and services from producer to end-users.
A firm's choice between using an independent intermediary and employing its own distribution network and sales force depends on three factors:
The number and type of market intermediaries involved in the channel of distribution depend on the kind of product and the marketing practices of a particular industry. There are important differences among the channels of distribution for consumer products and business products.
Distribution of Consumer Products
Channels for consumer goods are usually the most complex, although they can be categorized. Typical channels include:
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Non-direct distribution becomes higher priced for end users because each distribution link charges a markup or commission.
iii.
Channel 5: Distribution by Agents to Consumers and Businesses, ex. some travel agencies. Channel 5 differs from the other channels in two ways: (1) it includes an agent as the sole intermediary (2) it distributes to both consumers and business customers
Distribution of Business Products
Industrial Distribution-network of channel members involved in the flow of manufactured goods to industrial customers.
iii.
Channel 8: Wholesale Distribution to Business Retailers, ex. Staples, Office Depot, Office Max
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Lecture 30
WHOLESALING, RETAILING & PHYSICAL DISTRIBUTION
Agents and Broker
Independent intermediary who usually represents many manufacturers and sells to wholesalers or retailers. Provides a wide range of services including shelf and display merchandising and advertising layout. Agents and brokers never actually own the merchandise they sell.
WHOLESALING
Wholesalers sell primarily to retailers, other wholesalers, and industrial or institutional users. Wholesalers provide a variety of services to customers who are buying products for resale or business use. The types of wholesale intermediaries are:
—independent wholesaler who takes legal possession of goods produced by a variety of manufacturers and then resells them to other businesses. Merchant wholesalers also provide storage and deliver; the merchant wholesaling industry employs 6 million people in the United States.
iii.
Drop Shipper—limited-function merchant wholesaler who receives customer orders, negotiates with producers, takes title to goods, and arranges for shipment to customers.
iv. Rack jobbers—limited-function merchant wholesaler who sets up displays in retail outlets, stock inventory, and mark prices on merchandise displayed in a certain area of a store.
DISTRIBUTION STRATEGIES
A distribution strategy is a company’s overall plan for moving products to buyers and it plays a major role in the company’s success. One part of that strategy, choosing the appropriate market coverage, depends primarily on the type of product, as convenience goods require different strategies from organizational supplies.
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iii.
Selective distribution uses a limited number of outlets and might work better for shipping goods that a buyer is likely to want to compare for features and prices. Examples are fashions and appliances.
DISTRIBUTION CONFLICTS
RETAILING
Retailers sell to individuals who buy products for ultimate consumption and are a visible element in the distribution chain. Retailers represent the end of the distribution channel, making the sale of goods or services to final consumers. Today’s retail stores include department stores, discount stores, warehouse clubs, hypermarkets, factory outlets, category killers, supermarkets, convenience stores, and catalog stores. Retailers save consumers time and money.
Types of Retailer Outlets
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prices within each line stocked such as children’s clothing, books, or sporting goods.
PHYSICAL DISTRIBUTION
Physical distribution encompasses all activities required to move finished products from a producer to the consumer. It is a complex strategic activity with many trade-offs that affect the organization and profits.
Technology used in physical distribution systems today includes satellite navigation and communication, robots, machine vision; voice input computers, on-board computer logbooks, and planning software that uses artificial intelligence.
The overriding objective of all physical distribution systems should be to achieve a competitive level of customer service standards at the lowest total cost. Producers must be able to analyze whether it is worth it to deliver a product in three days instead of five, if doing so reduces the cost of an item. The goal is to optimize the total cost of achieving the
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desired level of service by analyzing each step in the process and its relation to the other steps.
Transportation Operations
PROMOTION
The ultimate goal of a promotion is to increase sales. Other goals include communicating information, positioning a product, adding value, and controlling sales volume. In deciding on the appropriate promotional mix, marketers must consider the good or service being offered, characteristics of the target audience and the buyer’s decision process, and the promotional mix budget.
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Promotional Objectives
Promotions experts recognize that not all objectives are sales objectives. Some communications objectives use an indirect approach to make an audience aware of a new product or change a company’s negative image. In addition to increasing sales, promotion can have four other objectives.
Communicating Information
Information can advise customers about a product's existence or about its features.
Creating Awareness
Through provided information, customers become aware with the product available in the market.
Comparison
After awareness, customers, make comparisons among the available products in the market.
Buying decision
Last step is the buying decision after which customers finally acquire the products while paying due costs.
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Lecture 31
PROMOTION & ADVERTISEMENT
demand, which then exerts pressure on wholesalers and retailers to carry a product.
Many firms use combinations of these two very different strategies.
Marketers use four types of promotional tools: advertising, personal selling, sales promotions, and publicity and public relations. Market-related factors influence the promotion mix.
The best combination of promotional tools will depend on many factors, such as:
ADVERTISING PROMOTION
Promotional tool consisting of paid, non-personal communication used by an identified sponsor to inform an audience about a product. The average U.S. resident is exposed to roughly 250 ads every day through a variety of media—including floor ads. All forms of advertising have three objectives: to create product awareness, to create and maintain the image of a product, and to stimulate consumer demand. It not only determines what we buy, but it shapes our view of the world.
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Advertising
ADVERTISING STRATEGIES
The advertising strategies used for a product most often depend on which stage of the product life cycle the product is in. During a product's growth and maturity stages, marketers may choose one of three common approaches:
ADVERTISING MEDIA
Variety of communication devices for carrying a seller's message to potential customers:
i.
Television sometimes leads viewers to confuse commercials because of their brevity and their great number.
Newspapers—the most widely used medium, accounting for about 20 percent of all advertising expenditures.
Direct Mail—about 18 percent of all ad spending. Direct mail has the largest advance costs of any technique but the highest cost-effectiveness.
Radio-8 percent of all advertising outlays. Radio ads are quite inexpensive but easy for consumers to ignore.
Magazines—roughly 5 percent of all advertising. Huge variety of magazines makes for a high level of ready market segmentation.
Outdoor Advertising—about 1 percent of all advertising. Billboards, signs, ads on buses, taxis, stadiums, etc. are inexpensive and have high repeat exposure. It's growing
ii.
iii.
iv.
v.
vi.
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faster than newspapers, magazines, and television and offers animation and changing images.
The Internet—Still in its infancy but offers high potential, particularly for targeted advertising.
vii.
The Media Mix
Combination of advertising media chosen to advertise a company's products, Determinants of the Media Mix include:
ADVERTISING AGENCY
Independent company that provides some or all of a client firm's advertising needs.
Preparing the Campaign with an Advertising Agency
Advertising Campaign — arrangement of ads in selected media to reach targeted audiences. It:
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Lecture 32
PERSONAL SELLING
Preparing the Campaign with an Advertising Agency
It includes:
Media selection is very important for every advertising message. E.g.
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Advertising Researchers
It is always done in response to all advertising campaigns in order to know the overall impact of the advising activities. Advertising researches bring answer for all the above mentioned aspects & through these companies can know where the change is required either in your message, your budget, your media selection or etc.
PERSONAL SELLING
“A promotional tool in which a salesperson communicates one-on-one with potential customers”
Personal Selling Situations:
iii.
Pharmaceutical products: Sales persons communicate with doctors & products are presented to the doctors & in return doctors recommend these products to the patients as most of the specialized medicines are not allowed to be advertised directly.
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Lecture 33
PERSONAL SELLING
He has to define the sales objectives to
Sales Manger defines the rout plan of sales persons in this stage
PERSONAL SELLING TASKS
Consulting the customers & get their orders booked for specified time period.
Personal selling task in which salespeople receive orders and see to their handling and delivery
Personal selling task, in which salespeople try to persuade buyers to buyers to purchase products by providing information about their benefits, salesperson delivers creative messages, adopts creative ways of pursuing the customers and invents creative ideas by his experience of going to the market.
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d. Missionary Selling
To sell products by helping the buyer. Salesman provides voluntary service to the buyer and tries to put the order.
PERSONAL SELLING PROCESS
Prospecting and Qualifying
Prospecting is the process of identifying potential customers; qualifying identifies those who have the authority to buy and the ability to pay.
It includes
Techniques for prospecting
To ask a satisfied customer, about more customers to sell the product
Knocking every body’s door
Features of the prospective buyer
APPROACHING THE CUSTOMERS
Getting appointment from the customer
Advantages of the appointment
Disadvantages of the appointment
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Without getting appointment from the customer
Advantages of not getting the appointment
∙
Disadvantages of not getting the appointment
Barriers
Sales person might face some barriers in approaching the customer
These barriers can be:
Techniques to handle barrier
.
Presenting and Demonstrating
A full explanation of the product, its features, and its uses, linking its benefits to the prospect's needs. Salesperson might have all the necessary things before starting the presentation like brochures, calculators, pen and charts etc.
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Lecture 34
SALES PROMOTION
How to start Sales Presentation
Presentation Stage
After approaching the buyer sales person reviews the situation. It includes:
All these things help the sales person to start and process the conversation and he can develop the image of the taste and likings of the buyer by the environment and surroundings.
How to start the conversation
a. Interest Stage:
Sales person will try to create interest of the customer in the product. Interest of the customer can be:
In this stage sales person will try to create desire in the customer to buy the product. Customer will start raising the objections or the questions. If the buyer starts to take the interest in asking the questions about the product, it means salesperson has convinced him in buying. Sales person will handle the questions raised by the buyer.
In this stage the order is booked and agreement is signed by the seller and buyer.
In this stage order is fulfilled and goods are being distributed according to the agreement.
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All the stages of Attention, Interest, Desire and Act (AIDA) have been covered in this way.
Skeptic Customers
It refers to the doubtful behavior of the customer because of deception from any seller in the past. Salesperson should try to understand the problems of the customers sympathetically.
Innovations in Sales
Tele Marketing-Tele Marketing helps to receive quicker response and avoid long distances. Extensive used method all over the world now, including Pakistan as well.
SALES PROMOTION
Short-term promotional activity designed to stimulate consumer buying or cooperation from distributors and sales agents.
Techniques for Sales promotion
Customers, distributors, and sales reps may all be persuaded to increase sales by means of contests.
Trade show exhibits to distributing free samples and publishing promotional booklets.
Point of purchase (POP) or Point of sales (POS) displays is devices used to show a product in a way that stimulates immediate sales. It may be an end- of-aisle display in a supermarket or the computerized kitchen design systems for cabinets in building-supply stores.
PUBLICITY
It is an unpaid form of promotion through mass media like TV and news paper.
Publicity is free but you have little or no control of the content and delivery. Be aware, there may be both good and bad publicity.
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PUBLIC RELATIONS
Company-influenced publicity directed at building goodwill between an organization and potential customers. Smart companies know they need to maintain positive relations with their communities, investors, industry analysts, government agencies, and the news media.
Companies seek favorable publicity to create interest in their products. Companies with a good public image are more attractive to investors. Press relations refer to the process of communicating with reporters and editors from newspapers, magazines, and radio and television networks and stations.
News releases are brief statements or video programs released to the press announcing new products, management changes, sales performance, and other potential news items; also called a press release. News conferences are gatherings of media representatives at which companies announce new information; also called a press briefing.
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Lecture 35
THE PRODUCTIVITY
PRODUCTION
Conversion of raw material into finished goods. adding value to raw material, processing it and making it a new useful product. It includes input, processes and output.
UTILITY
Ability of a product to satisfy a need
Forms of Utility
Operation planning
Operations Managers decides about the production capacity of the organization. And appropriate location for the organization.
Capacity Planning
Optimum level of production needed by the organization
FACTORS FOR LOCATION OF INDUSTRY
i.
ii.
Availability of skilled workers Availability of infrastructure
Climatic Condition
iii. iv.
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FACILITIES TO BE ORGANIZED FOR PRODUCTION PROCESS
i.
Productive facilities
It includes units and plants which contain assembly lines and machines in order to convert the raw material into finished products.
ii.
Non productive facilities
Process that is not directly involved in the production process but are related to the production, for example storing the raw material
iii.
Support facilities
It includes departments like management, purchasing, finance, human resource and others which support to run the factory.
LAYOUT PLAN
Internal arrangement in the organization
i.
ii. iii. iv.
Placement of machinery Movement of people Water storage
Entry end exit point
Layout Designing Options
Reasons for designing a layout
i.
ii. iii. iv.
To increase efficiency To reduce cost
To avoid accidents Avoid delays
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Lecture 36
TOOLS FOR PRODUCTION PLANNING
GANTT CHART
Gantt charts are visual aids that are useful in loading and scheduling. The name is derived form Henry Gantt, who developed them in the late 1800s. The chart shows the use of resources, such as work centers and labor.
When used in loading, Gantt charts show the loading and idle times of several departments, machines or facilities. They display the relative workloads in the system so that the manager knows what adjustments are appropriate. For example when one work center becomes overloaded employees from a low-load center can be transferred temporarily to increase the workforce.
In short this chart is for following purposes This chart is for scheduling purposes.
Bar charts are drawn in this schedule. Each bar describes an activity. This chart will help to know, which activity should start at what time. Comparison of planning with actual output.
PERT NETWORK
PERT stands for Program Evaluation Review Technique, this was a methodology that was developed by U.S. Navy in 1950 to manage the Polaris submarine missile program.
It is commonly used in construction. Pert network is a flow chart which shows the sequence of activities that are required to complete a project along with time or cost associated with each.
Major difference in Gantt Chart & Pert is, in Gantt chart we have bars, here we don’t have bars here we have diagrams.
Components of PERT Chart
Pert chart provide the details of
Events
Show end points where we have to reach
Activities
Include all the resources used to complete any project
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Slack time
Represent the delay in each activity
Critical path
Pert chart is used to determine critical path of each activity & to determine maximum time consumed for each project.
CHALLENGES FOR MATERIAL MANAGEMENT
i. Flow of material
Flow of material is an important factor for success and competitiveness. It involves production planning, purchasing, Just-In-Time and inventory management.
ii.
Standardization
A standard is a document that establishes uniform engineering or technical specifications, criteria, methods, processes, or practices. Thus Standardization is the process of developing and agreeing upon technical standards.
Areas for Material Management
i.
Transportation
How & through which medium materials will be received in the form
Storage
In which manners & sequence materials will be stored
Record Keeping
How the record will be maintained for all the materials available in the stored form.
Inventory control
It further covers two parts
ii.
iii.
iv.
1.
2.
3.
Quantity Control Cost Control
In hand stock details
Costing of Material
i.
LIFO – Last in First out
In this method the most recently purchased units are sold first and that the older units remain in inventory.
ii.
FIFO – First in First out
In this method the oldest purchase costs are transferred to the cost of goods sold, while the most recent costs remain in inventory.
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iii.
Average cost
Average cost is equal to total cost divided by the number of goods produced
PURCHASING PROCESS
Purchasing is the process through which materials are selected from the market and bring in the firm to perform all production operations.
Steps in purchasing process
i.
ii. iii. iv.
v.
vi. vii.
Select the right suppliers Evaluate the suppliers
Evaluate the capacity of each supplier Short list the appropriate supplier Negotiation of the prices
Start the supply transactions Maintain the long term relationship
JUST-IN-TIME (JIT)
It means to get the materials exactly at the time of demand. This mechanism can be well maintained only when our supplier have our full inventory details.
JIT concepts always work on the view; we much have reliable suppliers in sufficient No. in order to serve us timely & in best manners. When we have minimum No. of orders in our hand, required materials should be provided us immediately.
This process can work very well, when deep confidence is there between production unit & suppliers. As a result, production unit can provide the access to suppliers to view the inventory of their raw materials & supplier can supply the required materials when inventory is just at minimum level.
Benefits of JIT
i.
ii. iii.
It avoids production delays
Mange cash flows in best manners It avoid uncertainties
Application of JIT
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JUST-IN-CASE
It is conventional concept works in contrasts to JIT. While working through this concept, firms may not get good suppliers as & when required, may not get quality raw materials as & when required, so firms keep stocks of their raw materials which have a big disadvantage as huge finances of the firm can be blocked in the form of stocks as well as handling of stocks may be another issue.
So in today’s organizations, JIT concept is developing day by day & almost every firm is trying to get some good suppliers in order to work on JIT concept.
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Lecture 37
TOTAL QUALITY MANAGEMENT
The advice of U.S. business consultant W. Edwards Deming on quality was heeded more widely in Japan than at home until recently. Now U.S. companies are increasingly customer driven, quality initiatives exist at all levels of the corporation, and more measurements are used to document progress objective and identify areas for improvement. Rather than occasional, quality efforts are now continuous.
MANAGING QUALITY
Total Quality Management (TQM) (or Quality Assurance)
The sum of all activities involved in getting high-quality products into the marketplace. Customer focus is the starting point and includes methods of determining what customers want, then causing all the company’s activities and people to be directed toward fulfilling those needs and creating customer satisfaction.
Productivity
Productivity is the measure of the effective use of the organization’s resources.
PLANNING FOR QUALITY
To achieve high quality, managers must plan for production processes (including equipment, methods, worker skills, and materials).
Organizing for Quality
Although everyone in a company contributes to product quality, responsibility for specific aspects of total quality management is often assigned to specific departments and jobs.
Quality
Directing for quality means that managers must motivate employees throughout the company to achieve quality goals.
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Inspection
Inspection is an important strategy, in its simplest form, is any method or device or tactics used to minimize defects in products or services being offered to the customers.
QUALITY CONTROL VS QUALITY ASSURANCE
Quality Control
Quality control is concerned with quality of conformance of a process. The prime purpose of quality control is to assure that processes are performing in an acceptable manner.
Quality Assurance
All actions taken to ensure that standards and procedures are adhered to and that delivered products or services meet performance requirements.
Quality assurance defines the standards to be followed in order to meet the customer requirements whereas quality control ensures that these defined standards are followed at every step.
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PROMINENT FEATURES OF DR. DEMMING’S 14 POINTS
Globally organizations are adopting the concept of quality assurance and avoid the process of inspection and quality control, in this way organization focus on quality input, quality process and quality output. The best companies emphasize designing quality into the process, thereby greatly reducing the need for inspection or control efforts. As you might expect, different business organizations are in different stages of this evolutionary process. The least progressive rely heavily on inspection. Many occupy middle ground that involves some inspection and a large deal of process control. The most progressive have achieved an inherent level of quality that is sufficiently high that they avoid wholesale inspection activities and process control activities.
Prior to the increased level of Japanese competition in the U.S. marketplace in 1970s and 1980s customers often got less than they paid for with U.S-made products; quality was not uppermost in the minds of U.S. business organizations. Perhaps Japanese captured a significant share of the U.S. market.
Deming was the senior guru. A statistics professor at New York University in the 1940s, he went to Japan after World War II to assist the Japanese in improving quality and productivity. Deming compiled a famous list of 14 points he believed were the prescription needed to achieve quality in an organization.
Some of them are discussed here:
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HUMAN RESOURCE MANAGEMENT FOR TOTAL QUALITY MANAGEMENT
i.
Selection stage: Organization manager must make sure that quality people are selected in the organization. Quality people are those who focus on quality rather than quantity
ii.
iii.
HR manager should see whether that particular person has attitude required in the organization or not. Attitudes include:
Being flexible
vii.
Performance Appraisal:
o Collective performance appraisal
viii.
Statistical Process Control:
Using statistical techniques in:
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Lecture 38
TOTAL QUALITY MANAGEMENT
Cost of quality: Cost paid in the market for not having quality products.
Types of cost
External Failure Costs: Cost incurred for managing the problems faced in selling the products in the market.
External failure costs include
Internal Failure Costs: Internal failure costs are paid within the organization.
Internal failure costs include
Product is graded below standard due to some fault
Appraisal costs
Appraisal costs include costs of:
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Prevention Cost
It includes:
ISO 2000: 9000 Certification programs
It is a standardized system which provides a set of systems to the organization. ISO is a certification which shows that organization is following some system and that system might lead to some quality product.
ISO 14000
It is a system that certifies the organization for protecting the environment is called ISO 14000
Value Chain Management
All activities performed are working in a chain to produce a valued product.
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Lecture 39
BENCHMARKING
Process by which a company implements the best practices from its own past performance and those of other companies to improve its own products
Internal benchmarking: Uses the firm’s own performance to evaluate progress and set goals;
External benchmarking: begins with a critical review of competitors or even companies in other businesses to determine which have “best practices.”
We will comparison the best practices of other organizations with our organization. Compare the products, processes, instruments and culture of one organization to other one.
Zero Defect Level: A stage where there is no defect in the product, process and organization.
CONSIDERATIONS IN BENCHMARKING
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2. KEY VARIABLES IN A PROCESS
Product:
Selling and Marketing:
3.
IDENTIFICATION OF THE BEST PLAN
For bench marking organization should identify the best plan or practices from different organizations. For example In mobile phones, one companies phone have better battery timing, Second has good design, third one has good display screen, fourth one has light weighted and good result of camera.
Another example of food restaurant, which one is best restaurant in following things Services
Parking
Variety of dishes Interior
Cutlery
Organizations should choose the best one from any one and implement for your organization.
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4. MEASUREMENT OF OWN PERFORMANCE
Organization should measure the own performance and keep in mind one important thing that not find the only one organization for bench marking. Choose the different variables from different organization.
For example Air line company should measure:- Handling of luggage
Comfort wise with other air lines Safety record
Time lines: less time from one place to other
5.
ACTION TO BRIDGE THE GAP
Identify the gap where we are lacking, where our performance is low and how we can improve our performance.
Organization should go for benchmarking when there is more competition in the market.
Benchmarking can be done for two entirely different products or organizations. For example Bicycle manufacturing organization compare with paper manufacturing company. What is the method of complaint handling and how one organization best satisfy his/her customers. What is the payment method?
Organization should benchmark its processes or products with the best organization in that class. Never benchmarking to those organizations that are not good in any process
Benchmarking can be used for personality development. For example who is the best in attitude? Who is the best in study? Who is the most obedient with elders? We can make key variables and make the list and identify the lacking in our personality.
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Lecture 40
COMMUNICATION
Transmission of information from one place, person or organization to another place, person or organization
“Communication is the blood of the organization”.
Communication is a process whereby information is enclosed in a package and is channeled and imparted by a sender to a receiver via some medium. The receiver then decodes the message and gives the sender a feedback.
Flow of Communication within the organization
Hierarchy of Management
External vs. Internal Communication
Process of Communication
Two parties for communication are:
Sender Receiver
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Encoding Vs. Decoding
VERBAL VS NON VERBAL COMMUNICATION
Written or oral communication, the basis of communication is the interaction between people. Verbal communication is one way for people to communicate face-to-face.
Some of the key components of verbal communication are sound, words and language.
Sources for non verbal communication can be:
Appearance: Appearance of people and surrounding. E.g. if we receive any letter, appearance of letter can show from where it come. For example if letter come from any organization, we will judge from its letter head. We can judge many things from appearance of individuals as well including age, profession, education, nationality, face of the individual, mood of individual etc.
Colors: Colors also indicate the non verbal communication. For example red light at signal means to stop the vehicles. Colors of dresses also indicate many things about.
Sounds: Sound is also non verbal communication. For example voice of machine in organization show that machine is running and work is in progress. Drop of key ring from our pocket create voice and intimate us that keys have been fallen from our pocket.
Smell: Smell is also a source of non verbal communication. In industry if there is fire any where than we can judge by smell that some thing is burning and can take the appropriate action. We can also judge the acids and chemicals by smelling.
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Touch: - Touch is also source of non verbal communication. We can judge different object by touching them. Blind people judge different things by touching.
Silence: - Silence is also source of non verbal communication. For example Organization hires the employee and gives specific date for joining but employee does not join till given date. This silence creates two meaning in the mind of that organization that either he/she is not interested in this job or not received our letter.
Body language: - Body language is also non verbal communication. For example gesture, posture etc. Biting the nail, sitting at the edge of chair shows discomfort
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Lecture 41
NON-VERBAL COMMUNICATION
“Nonverbal communication involves those non-verbal stimuli in any communication that are generated by both the source [speaker] and his or her environment and that have potential message value for the source or receiver [listener]”
Basically sending and receiving messages occurs in a variety of ways without the use of verbal codes (words). It is both intentional and unintentional. Most speakers / listeners are not conscious of this.
Sources of Non-verbal communication can be
Body Language: Body language is used during face to face communication. Simple body language convey some times very deep messages, common examples of body language is seen by players. They show almost every sort of gestures just through their body language.
COMMUNICATION CHANNELS
Channel is a Carrier which carries the message from sender to receiver. Selection of channel always depends upon the situation, what channel will be appropriate for what situation is always decided by sender or discretion of both sender & receiver.
Channel can be:
Flow of Communication
Sender sends the message through channel and receiver receives this message. There is communication between two parties.
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Noise also occurs during communication. All those factors which affect the communication process are called noise. Noise can be at any stage & can affect the whole communication process.
LETTER VS MEMORANDUM
Types of Letters
Inquiry letter: In this type, organization collects the information. For example, purchasing of furniture, about raw material, transportation cost from goods transporter.
Reply to the inquiry letter: In this type, organization gives the information. For example, give the information to customer about product cost, Method of delivery etc.
Order letter: In this type, organization places the order for purchasing something.
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Complaint latter: In this type, organization complaint about the already purchased products or acquired services. For example quality problem of product etc
Adjustment letter: In this type, organization sends the letter for adjustment of accounts. For example organization has purchased the furniture from ABC Company and payment has done. But quality of some furniture is not good than organization sends the letter to ABC Company for adjustment of dues/payment.
INFORMATION SYSTEM (IS)
Gather the information & arrangement of information into a form that can be used for decision making purposes
Information Management
Arrangement of information into a form which is useful for management
Duties of Information Manager
Users of Information: There are following users of information in an organization.
Data vs. Information
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Why Information System is important in the Organization?
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Lecture 42
APPLICATION OF INFORMATION SYSTEM IN THE ORGANIZATION
New Options for Organizational Design: The Networked Enterprise
iii.
Increased Collaboration: Networked systems make it cheaper and easier to work together.
1. Networking and the Virtual Company: Networked systems can also improve collaboration between organizations through the so-called virtual company
Enterprise Resource Planning (ERP)
A system that helps the organization in planning its resources using computerized system. Resources can be:
Types of Information Systems
Organizations depend on quality information to make good decisions and help them accomplish their goals. To design and develop good information systems, companies hire a
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top-level manager known as a CIO. A Chief Information Officer (CIO) is a strategic-level manager who oversees the company’s information systems.
Types & levels of Information Systems in any organization can be:
Information system for Departments
Separate information system is designed for every department while keeping in view demands & requirements of each department.
Knowledge Workers
An increasingly important group of employees who use information and knowledge as the raw materials of their work, and who rely on technology to design new products or business systems (e.g. engineers, scientists, computer programmers, etc.).
Considerations of Users for Information System
Managers at Different Levels: First-line managers need information on the day-to-day details of their departments or projects. Middle managers need summaries and analyses for setting intermediate and long-range goals for their departments or projects. And top managers need information on broader economic and business trends, and overall company performance.
Functional Areas and Business Processes: Each business area (e.g. marketing, finance) has its own information requirements, and each business process (e.g. strategic planning, product development) also has specific information needs.
Management Information System (MIS)
A system which helps management in decision making
MIS provides information regarding decision making of management.
Decision Support System (DSS)
A system which supports the decision of the management is called Decision support system. Pool of information is gathered after various internal & external researchers and this system provides a proper form to make this information functional for decision making.
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Executive Support System (ESS) OR Executive Decision System (EDS)
A system which provides information to executives for decision making is called Executive Support System. Since executives have to take decision at broader levels so this special system is designed for them to provide very valid, accurate & timely information for top level decisions.
Computer Network
Computers linked together for the purpose of information sharing are called computer network.
COMPONENTS OF INFORMATION SYSTEM
a. Hardware:
Physical components of a computer system
iii.
Programs
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b. Software:
Programs that instruct a computer in what to do
iii.
Graphical User Interface: Software that provides a visual display to help users select applications.
c. Control:
Ensures that the system is operating according to specific procedures and within specific guidelines
ACCOUNTING
General Journal
A book in which all economic information of general nature is recorded.
Ledger
It is a book in which all economic information is recorded category wise or heading wise.
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Lecture 43
ACCOUNTING
Accounting Period: Time span in which accounts are terminated.
Summarizing: Summary of all revenues and expenses
Income Statement: A statement which shows the position of revenues and expenses or profit and loss
Profit: Excess of revenues over expenditures.
Loss: Excess of expenditures over revenues.
Bookkeeping: Recording of accounting transactions. It is just one phase of accounting.
Accounting Vs Book Keeping
ACCOUNTING INFORMATION SYSTEM (AIS)
Organized means by which financial information is identified, measured, recorded, and retained for use in accounting statements and management reports
Types of Accounting
AUDITING
Auditing is an examination of the records and reports of an enterprise by accounting specialists other than those responsible for their preparation. Public auditing by independent accountants is common in large firms. The auditor performs tests to determine whether the firm's statements were prepared in accordance with acceptable accounting principles and that they fairly present its financial position and operating results.
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Accounting versus Auditing
TYPES OF AUDITORS
There are two types of auditors:
Internal auditors are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the Board of Directors or to Top Management. They provide functional operation to the concern. Internal Auditors are employees of the company so that they can easily find out the frauds and any mis-happening.
External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from the out side of the company.
USERS OF ACCOUNTING INFORMATION
Set goals, develop plans, set budgets, and evaluate future prospects
Get paid, plan for and receive benefits
Estimate returns to stockholders, determine company’s growth prospects, and determine creditworthiness before investing or lending
They would be interested in company’s financial conditions as they would like to know when their loans will be paid
Plan for tax inflows, determine tax liabilities, and ensure proper payment
Fulfill their duties to citizens
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Generally Accepted Accounting Principles (GAAP)
These are accepted rules and procedures governing the content and form of financial reports around the world. Need for these systems were raised when shuffling of financial staff was happening in the teams & new people were joining the existing teams so it was becoming difficult to make new people aware with every aspect of previous working so these systems were evolved.
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Lecture 44
TOOLS OF THE ACCOUNTING TRADE
For thousands of years, businesses and governments have kept records of their transactions. Accountants are guided by three fundamental principles: the accounting equation, double-entry accounting, and the matching principle.
The Accounting Equation
Accountants use the following equation to balance the data in journals and ledgers:
Assets = Liabilities + Owners’ Equity
ASSETS AND LIABILITIES
Asset—any economic resource expected to benefit a firm or an individual who owns it.
Assists are always equal to liabilities of the firm.
Liability—debt owned by a firm to an outside organization or individual. These are all payables, claims or obligation of the firm. These can be payable to bank, to suppliers or to other institutions.
Liabilities are of two types:
Owners' Equity—amount of money that owners would receive if they sold all of a firm’s assets and paid all of its liabilities. It consists of two sources of capital: the amount the owners originally invested, and profits earned by and reinvested in the company.
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Double-Entry Accounting
To keep the accounting equation in balance, companies use a system developed by Fra Luca Pacioli, an Italian monk, in 1494. Double-entry accounting is a way of recording financial transactions that requires two entries for every transaction, so that the accounting equation is always kept in balance.
FINANCIAL STATEMENTS
Any of several types of reports summarizing a company’s financial status to aid in managerial decision making
Also known as a statement of financial position is a kind of “snapshot “of where a company is, financially speaking, at one moment in time.
The balance sheet includes all the elements in the accounting equation, showing the balance between assets on one side and liabilities and owners’ equity on the other. Every company prepares a balance sheet at least once a year, most often at the end of the calendar year, January 1 to December 31. The fiscal year, any 12 consecutive months, is used by many business and government bodies.
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A trial balance is a list and total of all the debit and credit accounts for an entity for a given period – usually a month. The format of the trial balance is a two-column schedule with all the debit balances listed in one column and all the credit balances listed in the other. The trial balance is prepared after all the transactions for the period have been journalized and posted to the General Ledger.
Key to preparing a trial balance is making sure that all the account balances are listed under the correct column. The appropriate columns are as follows:
Assets = Debit balance Liabilities = Credit balance Expenses = Debit Balance Equity = Credit balance Revenue = Credit balance
Trial Balance Errors
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FINANCIAL MANAGEMENT
3) INCOME STATEMENT
It is a financial statement listing a firm’s annual revenues and expenses so that a bottom line shows annual profit or loss. If the balance sheet is a “snapshot,” the income statement is a movie.”
Revenue Vs Profit
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Trading Concern
An organization which buys goods for reselling is called trading concern. The difference between buying price & selling price is called revenue.
FINANCE IN AN ORGANIZATION
Thinking and considering for long term investments of the firm, Generating revenues to pay back these investments and to perform day to day activities of an organization is called finance.
The Role of the financial people in organization management
Corporate finance typically entails four responsibilities: determining a firm's long-term investments, obtaining funds to pay for those investments, conducting the firm's everyday financial activities, and helping to manage the risks the firm takes.
Responsibilities of the Financial Manager include planning and controlling the acquisition and dispersal of a firm's financial resources.
iii.
Financial Planning: A financial plan shows the funds a firm will need for a period of time, as well as the sources and uses of those funds. A strategy for reaching some future financial position.
iv. Dealing with Banks: Deal with almost every bank for debiting & crediting the funds, Manage foreign trade & short term loans.
Ratio Analysis
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THE BUDGET: AN INTERNAL FINANCIAL STATEMENT
Budget is a detailed statement of estimated receipts and expenditures for a period of time in the future. The budget is probably the most crucial internal financial report. Most companies use their budgets for internal planning, controlling, and decision-making. Although the accounting staff coordinates the budget process, many different employees contribute to creating and updating the budget.