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Business EnvironmentBusiness Environment
Mid-term Exam Review
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MidMid--Term Exam FormatTerm Exam Format 15 multiple choice (30%)
1
0 True/False (1
0%) 8 short answer (40%)
10 definitions (20%)
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Pool of DefinitionsPool of Definitions Inputs
Outputs
PESTLE Factors Open System
Bureaucracy
Systems approach tomanagement
Downsizing
Checks and balances
Lobbies
Political Accountability
Recession
GDP
Inflation
Balance of Payments
Minimum wage
Derived demand
Judicial Precedent
Consideration
Joint Venture
Franchising
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Ch.1ConceptsCh.1Concepts Transformation system
The firm in its environment (General vs.
Contextual Environment)
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Transformation Systems (P.4)Transformation Systems (P.4) Transformation system the concept that
business activity transforms inputs into
outputs
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Firm EnvironmentFirm Environment Immediate or operational environment
suppliers, competitors, labor markets,
financial institutions, customers
General or contextual environment
economic, political, socio-cultural,technological and legal factors (PESTLEfactors)
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Open system & EnvironmentalOpen system & Environmental
UniquenessUniqueness Business organizations interact with the
environment
Changes in the environment cause changesin the inputs, in the transformation system,and the outputs
To a degree, each organization has a uniqueenvironment that will affect it in a uniqueway
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Ch. 2 ConceptsCh. 2 Concepts Organizational structures
Management Theories (Theories X & Y,
Scientific management, etc.)
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Types ofOrganizationalTypes ofOrganizational
StructuresStructures Functional
Divisional
Product-based
Matrix
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Management TheoriesManagement Theories Theory X workers are inherently lazy
Theory Y workers are committed to the firms
objectives and often actively seek responsibility Theory Z organizational efficiency and
effectiveness will increase if workers are givenlong-term employment, a share in decision-
making, opportunities for training, developmentand promotion, etc.
Scientific management theory (Weber) Bureaucracy organizations (P.19)
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Ch.3ConceptsCh.3Concepts Institutions of the European Union
The features of government in democratic
states (electoral system, party system,
representative assembly, pressure groups)
Three branches or functions of government
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European Union Institutions (P.European Union Institutions (P.
71)71) European Parliament
Council of Ministers
European Council
European Commission
European Court of Justice
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Features of Government inFeatures of Government in
Democratic States (P.46)Democratic States (P.46) Electoral system
Party system
Representative Assembly
System for articulating sectional interests
(Pressure groups)
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Three branches ofThree branches of
government (P. 53)government (P. 53) Legislative function
Executive function
Judicial function
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Ch.4ConceptsCh.4Concepts Free market economy
Circular flow of income and changes in
economic activity Government objectives in managing the
economy
Government policies to influence theeconomy
Direct foreign investment
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Free market economy (P.84)Free market economy (P.84) Resources owned by individuals
Firms make decisions free from government
interference
No master plan to direct production or
consumption
Decisions on resource allocation are the result of adecentralized system of markets and prices
Consumer dictates the pattern of supply
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Circular Flow of Income (P. 91)Circular Flow of Income (P. 91) P. 93 description of real flows and income
flows
Changes in economic activity (P. 94)
Leakages Savings, Taxation, Imports
Injections Government spending,
investment spending, exports
Multiplier effect
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Government Objectives in theGovernment Objectives in the
EconomyEconomy Controlling Inflation (see wages/prices
inflationary spiral) (P. 98)
Economic growth
Reducing unemployment
Favorable balance of payments
Controlled public borrowing
Stable exchange rate
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Government Policies in theGovernment Policies in the
Economy (P.104)Economy (P.104) Fiscal Policy
Monetary Policy
Direct controls (Tariffs)
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Direct Foreign InvestmentDirect Foreign Investment See Toyota UK case (P.116)
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Ch.5 ConceptsCh.5 Concepts The effects of an ageing population
The effect of minimum wage
Technology and investment
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The effects of an ageingThe effects of an ageing
populationpopulation See case (P.150)
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Minimum Wage (P.129)Minimum Wage (P.129) A wage floor set by law (See mini-case
P.131)
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Technology and InvestmentTechnology and Investment Capital (fixed capital and working capital)
Fixed capital buildings, plant and
machinery
Working capital raw materials and
components used in the production process
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Ch.6ConceptsCh.6Concepts Elements of a valid contract (offer,
acceptance, consideration, intention to
create a legal relationship)
Sources of law (custom, judicial precedent,
legislation)
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Elements of a valid contractElements of a valid contract
(P.166)(P.166) Offer
Acceptance
Consideration
Intention to create a legal relationship
Capacity
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Sources of Law (P.160)Sources of Law (P.160) Custom
Judicial precedent
Legislation
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Ch.7 ConceptsCh.7 Concepts Types and nature of business organizations
Franchising, licensing and joint ventures
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Types of Legal StructuresTypes of Legal Structures
(P.186)(P.186) Sole Trader
Partnership
Limited Company
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Franchising, Licensing, JointFranchising, Licensing, Joint
VenturesVentures Franchise one party (franchisor) sells the right to
another party (franchisee) to market its product or
service License Licensor authorizes licensee to use
intellectual property (copyright, trademark, patent,
know-how, etc.)
Joint venture jointly owned and independent
business involving more than one organization
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Ch.8ConceptsCh.8Concepts Methods of growth (P. 222)
Finance for growth (P. 225)
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Methods of GrowthMethods of Growth Internal Growth
External Growth
1) takeover
2) merger
a) horizontal mergerb) Vertical mergers (vertical integration)
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Finance for GrowthFinance for Growth Internal sources reinvestment of profits (some
money will leave the company in the form of
dividends to shareholders) External sources
1) Banks
2) Capital markets (primary and secondary
markets) (preference shares, ordinary shares,debentures)
3) Money markets
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TopicsTopicsInternal/
External
Political
Environment
Economic
Environment
People. Tech/
Legal Env.
Legal
Structures
Size Structure
$100 $100 $100 $100 $100 $100
$200 $200 $200 $200 $200 $200
$300 $300 $300 $300 $300 $300
$400 $400 $400 $400 $400 $400
$500 $500 $500 $500 $500 $500
$600 $600 $600 $600 $600 $600
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Internal/ExternalInternal/External
$100$100 The concept that firms use inputs and
change them into outputs
Transformation system
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Internal/ExternalInternal/External
$200$200 Suppliers, competitors, labor markets,
financial institutions and customers are
called a firms __________
Immediate or operational environment
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Internal/ExternalInternal/External
$300$300 Analysis of the firms current and future
environment using political, economic,
socio-cultural, technological, legal andethical influences
PESTLE analysis
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Internal/ExternalInternal/External
$400$400 An arrangement for combining functional
specialization with a structure built around
products, projects or programmes
Matrix structure
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Internal/ExternalInternal/External
$500$500________________ is the theory that
workers are inherently lazy, and
_____________ is the theory that workersare committed to firm objectives
Theory X, Theory Y
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Internal/ExternalInternal/External
$600$600 A concept of organizational structures
should are hierarchical, with definite
authority, rules and procedures, specifiedroles, appointment based on merit, and job
specialization
Bureaucracy
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Political EnvironmentPolitical Environment
$100$100 The bureaucratic arm of the European
Union, charged with running the day-to-day
operations of the EU and implementing EUpolicies
European Commission
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Political EnvironmentPolitical Environment
$200$200 A system of voting where approval of a
major EU decision must be by a majority of
members of the Council of Ministers, andby a majority of votes
Qualified Majority Voting
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Political EnvironmentPolitical Environment
$300$300 The legislative branch of the EU, with the
power to reject the budget, supervise the
European Commission, and approve somelegislation before approved by the Councilof Ministers
European Parliament
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Political EnvironmentPolitical Environment
$400$400 The idea that three arms of government are
controlled by different people, and that
decisions require the agreement of all three
Separation of power
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Political EnvironmentPolitical Environment
$500$500 A system of government where the power to
make decisions is divided between two
levels of government (ie., national andregional/local)
Federal system
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Political EnvironmentPolitical Environment
$600$600 A group that influences political
environment not be seeking political office,
but by attempting to influence thegovernment to favor its needs and wants
Pressure groups
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MacroeconomyMacroeconomy
$100$100 A type of economy characterized by
resources owned by individuals, no master
plan of production and consumption, andresource allocation based on decentralizedmarkets an prices
Free market
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MacroeconomyMacroeconomy$200$200
Savings, Taxation and imports are called
________________ in the circular flow of
income
Leakages
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MacroeconomyMacroeconomy
$300$300 An upward and persistent movement in the
general level of prices over time, and a fall
in the value of money
Inflation
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MacroeconomyMacroeconomy
$400$400 A concept that when prices rise, employees
will seek higher wages, and that firms, after
giving higher wages, will pass the cost on toconsumers in the form of price increases
Wages/Prices inflationary spiral
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MacroeconomyMacroeconomy
$500$500 The net balance of credits and debits arising
from international trade over a given period
of time
Balance of payments
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MacroeconomyMacroeconomy
$600$600 An increase in ______________ will cause
a countrys exports to be more expensive
for foreign purchasers
Exchange rate
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People, Tech/Legal Env.People, Tech/Legal Env.
$100$100 A floor for wages prescribed by law
Minimum wage
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People, Tech/LegalPeople, Tech/LegalEnvironmentEnvironment
$200$200 Buildings, plant and machinery are referred
to as a companys ___________
Fixed capital
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People, Tech/LegalPeople, Tech/LegalEnvironmentEnvironment
$300$300 Another name for law that comes from
legislation is_________
Statute
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People, Tech/LegalPeople, Tech/LegalEnvironmentEnvironment
$400$400 The concept that previous decisions of a
higher court must be followed by a lowercourt
Judicial precedent
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People, Tech/LegalPeople, Tech/LegalEnvironmentEnvironment
$500$500 A declaration by the offeror that it intends
to be legally bound by stated terms
Offer
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People, Tech/LegalPeople, Tech/LegalEnvironmentEnvironment
$600$600 A right, interest, profit or benefit accruing
to one party or some forbearance, detriment,loss or responsibility given, suffered, or
undertaken by the other
Consideration
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Legal StructureLegal Structure
$100$100 A legal structure characterized by unlimited
liability and one owner
Sole Trader
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Legal StructureLegal Structure
$200$200 A legal structure characterized by a
separation of ownership and management,
greater access to capital, and the issuance ofstock
Limited company
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Legal StructureLegal Structure
$300$300 A recurring payment based on a percentage
of profits or sales
royalty
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Legal StructureLegal Structure
$400$400 A business arrangement usually used by
manufacturing firms in which one party
gives the other party a right to use itsintellectual property
License
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Legal StructureLegal Structure
$500$500 A jointly owned and independently
incorporated business venture involving
more than one organization
Joint Venture
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Legal StructureLegal Structure
$600$600 A business arrangement where one party
sells another party the right to market its
product or service
Franchising
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Size StructureSize Structure
$100$100 The voluntary coming together of two
companies with the agreement of
management of the two companies
Merger
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Size StructureSize Structure
$200$200 A combination of firms at different stages
of the same production process
Vertical merger/vertical integration
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Size StructureSize Structure
$300$300 A share of stock that carries a fixed
dividend and no voting rights
Preference share
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Size StructureSize Structure
$400$400 A market involving the buying and selling
of new shares of stock
Primary market
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Size StructureSize Structure
$500$500 The main motivation for a merger involving
firms that produce different goods is
_____________
Diversification
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Size StructureSize Structure
$600$600 Bonds given by a company in exchange for
a loan to the company
Debentures