Flashcards · IB Diploma Programme Business · Topic 1

Unit 1: Introduction to business management flashcards

31 cards on Topic 1, subtopics 1.1 to 1.6. Pick a subtopic or study them all.

Study mode needs JavaScript. Every card is listed below, so you can still cover the answers and test yourself.

All 31 cards

For a quick read-through or printing. Cover the right-hand side to test yourself.

1.1 What is a business?

Business, goods and services: A business is an organization that uses resources to produce goods or services that meet customers' needs and wants. Goods are tangible products; services are intangible activities done for customers.
The four sectors of business activity: Primary: takes from nature (fishing, farming). Secondary: makes or builds (car assembly, baking). Tertiary: serves (insurance, hairdressing). Quaternary: knowledge and information (software research, data analysis).
Value added: The selling price of output minus the cost of the inputs bought in. Example: inputs USD 9.40, price USD 15 → value added USD 5.60.
Entrepreneur vs social entrepreneur: Entrepreneur: a person who spots an opportunity, organizes resources and bears the risk. Social entrepreneur: an entrepreneur whose main purpose is social or environmental.
Challenges of starting a business: Raising finance with no trading history, negative cash flow early on, strong competitors, long hours and personal risk, regulation and tax, and finding staff and customers.

1.2 Types of business entities

Private sector vs public sector: Private sector: owned by individuals or private groups, usually aiming for profit. Public sector: owned by government, providing a service to the public. A publicly held company is still in the private sector.
Sole trader and partnership: liability and finance: Both generally have unlimited liability. Sole trader: one owner; savings, loans, retained profit. Partnership: two or more owners; partners' capital and loans; control is shared.
Privately held vs publicly held company: Both have limited liability. A privately held company's shares are not offered to the public. A publicly held company's shares are traded openly, giving more access to capital but more disclosure.
Dilution: a founder holds 300 of 500 shares and 500 new shares are issued to investors: The founder's stake falls from 60% to 300 ÷ 1,000 × 100 = 30%. Control falls even though the number of shares held is the same.
Social enterprises named in the guide: For-profit: private sector company, public sector company, cooperative (member-owned, usually one member one vote). Non-profit: NGO (independent of government, funded by donations and grants; surplus kept for the mission).

1.3 Business objectives

Vision statement vs mission statement: Vision: the future the organization wants (where do we want to be?); aspirational. Mission: what the business does now, for whom and how; practical. Neither is an objective.
Common business objectives in the guide: Growth, profit, protecting shareholder value, and ethical objectives.
Strategic vs tactical objectives: Strategic: long term, whole organization, set by senior management, reviewed rarely. Tactical: short to medium term, a department or project, set by middle managers, adjusted often; they must support the strategic objective.
Corporate social responsibility (CSR): for and against: The belief that a business has responsibilities to society and the environment as well as owners. For: reputation, loyalty, easier recruitment, lower scandal risk. Against: higher costs, lower short-term profit, can be marketing with little real change.
Return on holding a share: bought at 20.00, now 19.00, dividend 1.00: (closing price − opening price + dividend) ÷ opening price × 100 = (19.00 − 20.00 + 1.00) ÷ 20.00 × 100 = 0%.
Why might a business change its objectives?: A new competitor or technology; a slowing economy; a change of ownership (such as becoming publicly held); stakeholder demands for higher ethical standards; the business maturing from growth towards profit and dividends.

1.4 Stakeholders

Stakeholder vs shareholder: A stakeholder is any person or group that a business's activities affect, or that can affect them. A shareholder owns shares in a company: one type of stakeholder, not a synonym.
Internal vs external stakeholders: Internal: employees, managers, owners/shareholders (usual treatment). External: customers, suppliers, lenders, government, local community, competitors, pressure groups.
Typical stakeholder conflicts: Shareholders vs employees (dividends vs pay); shareholders vs customers (profit vs low prices); managers vs owners (growth and status vs dividends); business vs community (jobs vs noise or pollution).
Interest vs influence: Interest is what a group wants from the business; influence is what it can do to affect it. A group may care a lot and still be unable to change the outcome.
Why does change bring stakeholder conflict?: A change shifts costs and benefits, so some groups gain and others lose, often with little notice. Losers resist; poor communication adds fear. Responses: consultation, compromise or phasing, explained priorities, sharing gains.

1.5 Growth and evolution

Economies and diseconomies of scale: Economies: average cost (total cost ÷ output) falls as output rises. Diseconomies: average cost rises with output. Example: 90,000 for 15,000 tiles (6.00 each) vs 135,000 for 30,000 (4.50 each), a 25% fall.
Internal vs external economies of scale: Internal: from the firm's own size (bulk buying, large machinery, cheaper loans, specialist managers). External: from the industry or area (skilled labour pool, supplier clusters, shared infrastructure).
Internal (organic) vs external (inorganic) growth: Internal: own resources and sales effort; gradual, lower risk, culture preserved. External: involves another business; can be sudden, higher risk because of price and fit, two cultures to join.
Reasons for businesses to stay small: Keep control and personal service, serve a niche, stay flexible, avoid debt and stress, limited finance or resources, owner goals other than profit.
Merger, acquisition and takeover: Merger: two firms agree to combine into one. Acquisition: one firm buys a controlling share of another. Takeover: gaining control by buying shares, friendly or hostile.
Joint venture vs strategic alliance vs franchising: Joint venture: a new entity owned jointly by the partners. Strategic alliance: cooperation with no new entity. Franchising: the franchisor licenses brand and methods; the franchisee pays a fee and royalty (6% of 250,000 sales = 15,000).

1.6 Multinational companies (MNCs)

Multinational company (MNC) and host country: An MNC has operations in more than one country. The host country is where it sets up.
Possible benefits of an MNC to a host country: Jobs, wages and training; capital and technology; tax revenue and export earnings; supplier contracts for local firms; more consumer choice; skills transfer.
Possible costs of an MNC to a host country: Low pay or insecure jobs; profits repatriated abroad; tax avoidance and political influence; local firms lose to bigger rivals; cultural change and pollution.
An MNC makes 18m profit, pays 30% tax and repatriates 60% of the rest. How much stays?: Tax 5.4m; 12.6m left; 7.56m repatriated and 5.04m reinvested. Tax plus reinvestment = 10.44m stays in the host country.