Unit 1
Difference between business and employee?
| Basis | Business | Employee |
| 1. Nature of activities. | It deals with providing goods and services for the satisfaction of customers. | It involves performing work assigning under the contract of services. |
| 2. Basic motive. | Earning profit by satisfying needs of society. | Earning of wages or salary by serving the employer. |
| 3. Capital. | Every business farm needs some capital. | There is no need of capital investment. |
| 4. Risk. | It is exposed to several risk. | There is practically no risk so long as the employer continues the operation. |
| 5. Transfer of ownership. | Transfer of ownership of interest is possible. | Not possible to transfer one job to another. |
Comparison between business, profession and employment.
| Basis | Business | Profession | Employment |
| 1. Mode of establishment. | Entrepreneurs or promoters, decisions, registration and other formalities as prescribed by law. | Membership of a professional body and Certificate of practice. | Appointment or service agreement. |
| 2. Nature of work. | The production on verses and sale of goods and services. | The personalized service of expert nature. | Performing work or job assigned by the employer. |
| 3. Motive. | Earning profit by satisfying needs of society. | Rendering services and earning fees. | Earning salaries or wages by serving the employer. |
| 4. The qualification. | No formal qualifications are required. | Professional qualification and trainings are essential. | Qualification and training As prescribed by the employer. |
| 5. Capital. | Investment varies with nature and size of business. | Limited capital necessary for investment. | No capital required. |
| 6. Risk. | Profits are uncertain and irregular. | Fee is more regular and certain. | Fixed and regular pay. |
| 7. Transfer of interest. | Transfer is possible with some formalities. | Not possible. | Not transferable. |
| 8. The code of conduct. | No specific code of conduct. Moral and ethical beliefs only. | Professional code of conduct must be followed. | Rules and regulations of the employer, individual or organization are to be followed. |
Nature and purpose of business.
Meaning of business.
The word business means a state of being busy. Every person is engaged in some kind of occupation. A former works in the field, a worker works in the factory, a clerk does his office work in the office at teacher teaches in class, salesman selling goods, and an entrepreneur is running his business. The primary aim of all the person is to earn livelihood while doing work. A business activity involves production, exchange of goods or services to earn profits or to unearn livings.
FC Hooper “Whole complex field of Commerce and Industry, the basic industries, processes and manufacturing, and the network of ancillary services, distribution, banking, insurance, transport and so on, which serve an interface the world of business as a whole. “
LH Hamey “Business may be requiring as human activities directed towards providing or inquiring will through buying and selling goods. “
Characteristics of business.
1. Economic activities.
Business includes only economic activities. Activities relating to production and distribution of goods and services with an economic motives are called economic activities.
2. Exchange of goods and services.
A business must involve exchange of goods and services. The goods to be exchange may either be produced or procured from other sources.
3. The profit motive.
The profit motive is an important element of business. Any activity under without profit is not business. Investment always tries to earn more and more profits out of his business activities.
4. Risk and uncertainty.
The business involves larger element of risk and uncertainty. In fact, they businessman tries to foresee any future uncertainty and plans his business activities accordingly.
Difference Economic & Non-Economic
- Purpose
Economic Activities: Primarily aimed at earning income and generating wealth.
Non-economic Activities: Performed for personal satisfaction, social, cultural, or religious reasons without a financial motive. - Outcome
Economic Activities: Result in the production, distribution, and consumption of goods and services that contribute to economic growth.
Non-economic Activities: Result in personal fulfillment, social bonding, or cultural enrichment without direct economic benefits. - Measurement
Economic Activities: Quantifiable in monetary terms and contribute to a country’s Gross Domestic Product (GDP).
Non-economic Activities: Not measured in monetary terms and do not directly impact GDP. - Nature
Economic Activities: Typically formal, structured, and organized (e.g., employment, business operations).
Non-economic Activities: Informal and personal (e.g., hobbies, family care, volunteering). - Motivation
Economic Activities: Driven by the objective of financial gain, profit, or economic necessity.
Non-economic Activities: Driven by personal enjoyment, social responsibility, affection, or cultural and religious values.
Objectives of Business
1.Profit Maximization
The primary objective of most businesses is to maximize profits. Profit is essential for the survival, growth, and expansion of a business.
2. Customer Satisfaction
Meeting and exceeding customer expectations to build a loyal customer base.
3. Market Share
Increasing the percentage of total sales in the market that the business controls.
4. Innovation
Developing new products, services, or processes to meet changing customer needs and stay ahead of competitors.
5. Social Responsibility
Contributing positively to society by engaging in ethical practices, supporting community initiatives, and minimizing environmental impact.
Importance of Business
1. Economic Growth
Businesses drive economic development by creating jobs, generating income, and fostering innovation. They contribute to GDP and improve the standard of living.
2. Employment Opportunities
Businesses provide employment, offering individuals the means to earn a livelihood. This helps in reducing unemployment and poverty levels.
3. Provision of Goods and Services
Businesses supply a wide range of goods and services, fulfilling the needs and wants of consumers. This improves quality of life and supports economic activity.
4. Innovation and Technological Advancement
Through research and development, businesses drive technological progress, leading to new products, improved processes, and enhanced productivity.
5. Social and Community Development
Many businesses engage in corporate social responsibility (CSR) activities, such as supporting education, healthcare, and environmental sustainability. These initiatives contribute to overall community well-being and development.
Social Responsibility of Business
Social responsibility refers to the ethical framework that suggests businesses should act in the best interests of their environment and society as a whole. It encompasses a wide range of activities and principles aimed at promoting positive social and environmental change. Here are the key aspects and importance of social responsibility in business:
1. Environmental Sustainability
Minimize negative environmental impacts and promote sustainable practices.
Reducing carbon footprints, managing waste, conserving resources, and investing in renewable energy.
2. Ethical Business Practices
Conduct business in a manner that is fair, transparent, and ethical.
Ensuring fair labor practices, avoiding corruption, maintaining honesty in advertising, and ensuring product safety.
3. Community Engagement
Support and contribute to the well-being of local communities.
Engaging in philanthropy, volunteering, supporting local initiatives, and fostering community development projects.
4. Employee Welfare
Ensure the health, safety, and well-being of employees.
Providing fair wages, ensuring safe working conditions, offering professional development opportunities, and promoting work-life balance.
5. Consumer Protection
Protect the rights and interests of consumers.
Ensuring product quality and safety, transparent marketing practices, and safeguarding customer data privacy.
Unit 2
Private sector.
Business enterprises born by private individuals, single or jointly, are known as private organization and are said to be are in the private sector.
From the point of view of ownership, there are following forms.
Private sector.
Non corporate.
1. Sole proprietorship.
2. Joint Hindu family business.
3. Partnership.
Corporate.
1. Company.
2. Cooperatives.
3. Multinational companies.
Meaning and definition of sole proprietorship.
A sole proprietorship business is a form of private enterprise. It is owned, managed, financed and controlled by an individual.
The individual is termed as sole trader or sole proprietor.
He carries on the business activities by himself.
The sole traders bears the complete risk of the business.
Sole proprietorship is easy to start list and it is subject to moderate regulations.
According to James Stephenson.
“A sole trader is a person who carries on business exclusively by and for himself. “
Features or characteristics of sole proprietorship business.
1. single ownership
The owner of the business is a single person.
This makes the business a single Ownership form.
2. Capital contribution.
Capital is provided by the proprietor himself from his own resources.
If it is not sufficient, he may borrow from banks, friends and relatives.
3. Management and control.
The proprietor himself manages and controls everything of the business.
He needs To consult no one in taking decisions.
4. Unlimited liability.
In sole trading concern, the liability is unlimited.
The proprietor bears all the losses arising from the business.
His private property is also heard liable for the business obligation.
5. Free from legal formalities.
A sole proprietorship is in not expected to meet any legal requirements.
It is not governed by any special act.
However, he needs to obtain trade license from the local authority.
6. Limited area of operation.
Soul trading business is generally done within a limited area.
Because of the limited resources and limited managerial ability of the sole trader.
Advantages and merits of sole proprietorship.
1. Quick decisions.
In all the matters of the business, he can take quick decisions as he is the supreme judge to his business.
2. Specificity of formation.
It is easy to form and simple to run.
Anyone with minimum amount of capital ability may start such business.
It requires no registration except a registration in some cases.
3. Maintenance of secrecy.
The success of a sole trader is not known to others.
He can maintain secrecy in all matters.
4. Flexibility.
A soul trading is more flexible than other form of business.
He is able to introduce any changes quickly so as to meet the need of the situation.
5. Inexpensive management.
Since there is less management, this is less expensive than other formal business.
Demerits / disadvantages of sole proprietorship.
1. Limited capital.
Resources of an individual are generally limited and as such sole proprietorship cannot obtain the required amount of capital necessary for a large business.
2. Unlimited liability.
Since liability is unlimited, his private property is also held liable for the business obligation.
3. No large-scale economies.
Since that scalable operation is relatively small, the sole proprietor cannot avail the benefits of large scale production.
4. Absence of specialization.
The sole trader himself has to look after marketing, bookkeeping, recording.
The business is deprived of specialization.
5. Limited managerial ability.
An individual is not likely to be an expert in all the matters of business.
This restricts the growth and expansion of business.
Name any two factors which can lead to closer of business in sole proprietorship.
Give 2 examples of business for which sole proprietor would be suitable for business.
Joint Hindu family business.
The Joint Hindu family business is a separate form of business unit.
It is a peculiar form in India.
It is one of the oldest form of business organization and it was very popular in India where joint family system was present.
It refers to a form of business organization where in the business is owned and carried on by the members of the family.
It is not formed by an agreement or by contract, but it comes into existence by the operation of Hindu law.
The property of a joint Hindu family is inherited by his father, grandfather and great grandfather.
Thus the property is successively owned by some grandson and great grandson.
The eldest member in the family is only allowed to conduct menace, control and organize the business.
He assumes the full responsibility of the business risks.
He is called Karta.
There are two system which govern membership in the joint Hindu family business.
1. Dayavhaga.
Prevails in West Bengal for both male and female.
2. Mitakshara
Prevails all over India except West Bengal.
The member of the joint Hindu business is called Coparcemers
Features of joint Hindu family business.
1. Control.
The management and control of joint Hindu family business is vested in the hands of the Karta only.
His decisions are binding on the other members.
2. Continuity.
Joint Hindu family business has more continuous life than that of partnership firm.
It is not dissolved by the death of any member.
After the death of the Karta, the next eldest member takes his position and thus the business continues.
3. Formation.
At least two members should be there to form a joint Hindu family business.
The inherit the property from ancestor.
It is formed by taking bird in that family.
4. Liability.
The liability of the Kurta is unlimited, whereas the liability of other Cooperson is limited to their share of interest in the business.
Advantages of Joint Hindu Family Business
1. Effective control.
The Charter has absolute decision making power.
No one can interfere with his right to decide.
So, the management is both centralized and effective.
2. Continue business existence.
3. Increase loyalty and cooperation.
The senses of better cooperation among members are known because they all belong to the same family.
Thus, there is a great sense of loyalty towards one another.
Limitations of Joint Hindu Family Business.
1. Limited managerial skills.
The Carta alone looks after the business. Hence with the expansion and the growth of business, the management and control becomes difficult.
His inability to decide or take decisions in different matters may result in two core profits or even losses.
2. Dominance of Karta.
The management of joint Hindu family business is in the hands of Karata only.
Sometimes the members may not agree with the decisions taken by the Carta.
This may create conflict among them and adversely affect the business operation.
3. Limited resources.
The capital and financial resources of the joint Hindu family business are limited as compared to the joint stock companies.
This limits the scope for ex onson of business.
Distinguish between joint Hindu family business and sole proprietorship business.
Partnership.
The partnership is an association of two or more persons who agree to carry on a lawful business with the objective of sharing profits.
The partner provide the capital and share responsibility for running the business on an agreed basis.
According to the Indian Partnership Act, 1932.
“Partnership is the relation between persons who have agreed to share profits of business carried on by all, or any one of them acting for all. “
Features of partnership.
1. Contractual relationship.
The partnership arises only from a contract between a certain numbers of versions called partners.
An oral contract is sufficient, but it is always better to draft a deed of partnership.
2. Two or more persons.
Partnership is an association of two or more persons who agree to carry on a lawful business with the object of sharing profits.
3. Sharing of profits.
The agreement to carry on business must be with the objective of making profit and sharing it among all partners.
4. Utmost good faith.
All the partners utmost good faith in each other.
Every partner should act honestly and in the best interest of the firm.
5. Individual as partner.
In partnership business, only individual that is a physical person, can become a partner, not an institution.
6. Dissolution
The Partnership may dissolve on the date or insolvency of any one of the partners.
However, the farm may continue if the remaining partners desire so.
Advantages and Merits or partnership
1. Large resources.
The partnership form of organization enjoy large resources than a sole proprietorship.
As a result, the scale of operation can be enlarged.
2. Sharing of risk.
Risks of business is shared by all the partners.
3. Maintenance of secrecy.
4. Division of Labor.
Partners in a firm may perform those duties for which they are best suited.
This will ensure efficiency and maximization of productivity.
5. Combination of skill and judgment.
In this organization there is combination of skill and judgment.
The partnership enjoy benefits of ability and experience and talents of the partners.
This is the special advantage of partnership over sole trading concern.
Demerits of partnership.
1. Delay in decision making.
A firm cannot take quick decisions because consolidation of all the partners is essential.
There is possibility of disagreement among the partners, which may cause delay in decision making.
2. Lack of public faith.
As the affairs of the farm are not legally controlled, the people have less faith in such organization.
Moreover, people are not aware of the business because it’s account need not to be published.
3. Restriction on transfer.
A partner cannot sell his share with others without the consent of the other partners.
4. Instability.
The partnership form of organization may come to an end at any time on the date or insolvency of the partners.
Kinds of partners.
1. Active partner.
A partner who is actively engaged in the conduct of a business is known as active partner.
He may be called as working partner.
He takes an active part in the management of the business and his liabilities are unlimited.
2. Sleeping or dormant partner
Sleeping partner is one, contributes capital, shares, profit and losses of the firm, but does not participate in the working of the business.
He is bound by the activities of other partners.
3. Nominal partner.
A nominal partner is one who neither invest capital nor does he share the profit or losses of the firm.
He lent his name to the farm to be used as a partner.
4. Partners in profit only.
He is a partner who shares the profit of the firm but is not liable for any losses.
5. Minor partner.
It minor cannot become a partner in partnership form because according to Indian Contract Act a minor cannot enter into a contract.
However, a minor may be admitted to the benefits of the partnership firm with the consent of all the partners.
6. Incoming partner.
A person who is admitted as a partner in an existing partnership is called an incoming partner. A new person. Can be taken as a partner with the consent of all the partners.
7. Outgoing partner.
A partner leaving the existing firm is known as outgoing or retiring partner. He is liable for debts and obligations incurred before his retirement from the park.
Partnership, agreement, or deed.
The partnership agreement or deed is drawn up and signed by the partners. It contains all the provisions according to which mutual rights, duties and liabilities of the partners are determined.
Contents of a partnership agreement.
1. The name of the firm.
2. The name and address of the partners.
3. Nature of the business.
4. The term or duration of partnership.
5. The amount of capital to be contributed by each partner.
6. The drawings that can be made by each partner.
7. Rights and duties of partners.
8. Remuneration of partners.
9. The ratio in which the profits or losses are to be shared among the partners.
10. The interest to be allowed on capital and charge on terms.
Rules to be followed in the absence of partnership deed.
1. The partners are entitled to share profit and losses equally.
2. Partners are not entitled to be interest on their capital.
3. No interest will be charged on partners drawings.
4. Interest at 6% per annum will be allowed to partners on any loan given to the farm by them.
5. No version can be admitted into the firm without the consent of all the existing partner.
Goodwill in partnership.
I farm with efficient and straightforward businessman who really wants to serve its customers bills of a reputation for himself. This is called goodwill. A form which has established a good will earns more than average profit. Goodwill is the capacity of a firm to earn extra profit.
What are the different kinds of partner? Siri discuss them in detail.
Name the act which governs the partnership business.
Why is the liability of partner is unlimited?
Name the form of business organization in which members are agents and principal of each other.
Dissolution of partnership firm.
According to section 39 of the Partnership Act 1932.
the dissolution of partnership between all the partners of The dissolution of partnership between all the partners of a firm is called dissolution of the firm.
When one partner dies, retires or become insolvent, but the remaining partners continue to carry on the business of the firm, the partnership between the partners and but the firm is not dissolved.
Dissolution of a firm involves the company breakdown of partnership relation.
Dissolution of partnership form implies.
1. End of partnership business.
2. Termination of contractual relationship between all the partners.
Explain five points difference between dissolution of firm and dissolution of partnership.
Joint stock companies.
A company has been defined as a voluntary association of persons recognized by law, having distinctive name and common seal form to carry on business for profit, with capital divided into shares and perpetual succession.
According to Professor Lol Henny. A company is an artificial person created by law, having a separate entity with a perpetual succession and a common seal.
Characteristics of a company.
1. An artificial person.
A company is creation of law and is sometimes called an artificial Person. It doesn’t take birth like natural person, but comes into existence into law.
It can enter into contract with other and buy and sell property in all In its name.
2. Separate legal entity.
A company has a separate entity from its members.
It assents are separated and distinct from those of its members.
3. Perpetual succession.
The life of a company is not related to the life of members. Log creates the company and dissolves It according to its own procedure.The debt, insolvency of members does not affect the existence of a company.
4. Transferability of shares.
He shareholder can transfer his shares to any person without the consent of other members. A member can sell his share to anybody else while observing some of the rules of the company.
Difference between company and partnership?
| Basis | Company | Partnership |
| Formation. | Company is formed only by following legal formalities provided under the creation of law. | Partnership is formed by an agreement between persons who are willing to form partnership. |
| Management. | In company, the management is done by the board of directors or elected by the shareholders. | In partnership, every partner has a right to take part in the management of firm. |
| Dissolution. | Company has a legal entity and it’s not subject to dissolved by debt or retirement of shareholder. | Partnership has no legal entity and is subject to dissolved by debt or retirement of the partners. |
| Transfer of ownership. | The shareholders can transfer their share to any person according to their will. | No partner can transfer his ownership to any other person without the consent of other partner. |
| Registration. | Registration is must for the establishment of the company. | No compulsory for the formation of a partnership. |
| Liability. | The liability of members or shareholders are limited. | The liability of partners are unlimited. |
1. Critically analyze the differences and similarities of sole proprietorship business and partnership business, citing examples from Indian economy in today’s world.
2. Why is profit and growth so important to a business organization?
3. Why is partnership did is essential in a partnership business.
The cooperative societies.
The cooperative form of organization is a democratic setup run by its members for serving the interest of public.
It is an organization where in persons voluntarily associate together as human beings on a basis of equality for the promotion of economic interest.
According to H Calvert. Cooperation is a form of organization wherein persons voluntarily associate together as human beings on a basis of equality for the promotion of economic interest of themselves.
Features of cooperative organization.
1. Democratic setup.
This form of organization is basically a democratic organization.
All decisions are taken on democratic principles.
No decisions can be forced on any member.
2. No place for middleman.
The cooperative form of organization eliminates middle men.
It is a system in which everything is done by the society, leaving no scope for middleman to work.
3. Service Motive.
The cooperative form of organization is a democratic setup run by its member to meet the social and economic needs of people.
4. Concept of equality.
Cooperative form of organization is that where all the members are treated as equal.
5. Voluntary association.
It is a voluntary association where there can be no use of force in it.
It is open to all the people to join or to not.
The members who joined the organization can be withdrawn at any time, as and when they like.
Advantages of cooperatives
1. Continuity.
Business does not stop in case of death of any worker.
2. Feeling of independence
They are not bind to decisions of others so that they can take decisions independently.
3. State assistance.
Since cooperative is an instrument of economic policy of the government, the state Offers many types of financial grants, including cheap loan of interest.
Disadvantages.
1. Lack of secrecy.
2. Limitation of capital.
A cooperative organization is formed by economically less capable individuals. Therefore, it’s resources remaining limited in the organization.
3. Lack of efficient management.
The management of cooperative rest with the managing community, which generally lacks technical and experienced people. Therefore, it is unable to secure the services of efficient managers on account of its limited capacity.
What is the minimum number of members required to form the Cooperative Society?
10 adult persons.
Private sector enterprise.
The private sector consists of business owned by individual or group of individuals. The various form of private organization are sole proprietorship, partnership, joint Hindu family cooperative and Company.
Public sector enterprise.
The public sector consists of various organizations owned and managed by central or state or by both government.
The government participate in the economic activity of the country through this enterprise.
Forms of public enterprise.
1. Departmental undertakings.
These are business. These business setup are stablished by the Ministry Department of Operate through government employees. These undertakings are governed by the central or state government.
Example. Railways and the Post and Telegraph Department.
Features.
1. It has no separate legal entity.
2. The government rules relating to audit and accounting are applicable to it.
3. Its Employees are te government employees and are recruited and appointed as part of government rules.
2. Statutory corporation.
It is established under a special act passed in parliament or state legislative assembly.
Its objectives, powers and functions are clearly defined in the Special Act.
They have government power to operate their functions in the state.
Example. Unite Unit Trust of India Life Insurance Corporation.
Features.
It is established under Special Act which defines its objectives, powers and functions.
It has its own staff regulated and appointed as far as the provisions of the Act.
It is a legal entity that has the authority to enter into contracts and to acquire property in its own name.
3. Government company.
A government company is established under the Companies Act 2030 and is registered and governed by the provisions of Act.
A government company is a company in which not less than 51% of the paid up share capital is held by the central government or state government.
Example. State Trading Corporation of India. Hindustan Cables Limited.
Features.
1. It has a separate legal entity.
2. The company obtains its funds from the government. It can also raise funds from the capital market.
3. The management of this company is regulated by the provisions of the Company Act.
Difference between private company and public company?
Meaning of multinational company.
A multinational corporation is a company that has business operation in at least one country other the home country. And the company generated revenue outside its home country.
Merits of multinational company.
1. MNC’s helps increase the investment level and the income and employment in the host country.
2. Diamantis enabled the host countries to increase their export and decrease their import requirement.
3. MNC’s helps increase competition and break domestic monopolies.
4. MD’s provides an efficient means of integrating the national economies for their growth and development.
5. MNC’s also help to generate employment opportunities in the host countries.
Demerits.
1. MNC’s may destroy competition and acquire monopoly power among the small scale business.
2. Technological development by MNC’s from developed countries does not fit in the need of developing countries. This is because such technology is mostly capital intensive.
3. MNC’s work towards their own self-interest rather than working for the development of host country. They are more interested in making profits at any cost.
4. MNC’s prefer to invest in areas of low risks and high profitability. Issues like social welfare, national priority do not find any place on the agenda of MNC.
5. The working of MNC is a burden on the resources of developing countries, which leads to outflow of foreign exchange. Examples of MNC’s operating in India.
UNIT 3
Meaning of Business Combinations
Business combinations refer to the consolidation of two or more business entities into a single entity. This can occur through mergers, acquisitions, consolidations, or takeovers. The primary goal is to achieve greater efficiency, expand market reach, or enhance competitive advantage.
Causes of Business Combinations
Economic Scale:
Efficiency Gains: Combining businesses can result in economies of scale, reducing per-unit costs due to increased production levels and streamlined operations.
Market Expansion:
Geographical Reach: Business combinations allow companies to expand their market presence geographically, accessing new customer bases and reducing market saturation risks in their current locations.
Synergy:
Operational Synergies: Businesses may combine to leverage complementary strengths, resulting in enhanced capabilities, improved technology, and optimized resource use.
Cost Synergies: Reducing redundancies and overlapping functions can lead to significant cost savings.
Competitive Advantage:
Market Power: By combining forces, businesses can increase their market share, reduce competition, and exert greater influence over market conditions and prices.
Diversification:
Product Diversification: Companies may combine to diversify their product or service offerings, reducing dependence on a single line of business and spreading risk.
Business Portfolio: Diversification into new industries or sectors can stabilize revenue streams and provide growth opportunities.
Tax Benefits:
Tax Efficiency: Some combinations are driven by potential tax advantages, such as utilizing tax losses from one company to offset profits in another.
Financial Synergies:
Access to Capital: Larger combined entities may have better access to capital markets, lower cost of capital, and improved credit ratings.
Financial Stability: Enhanced financial strength and stability can result from pooling resources and balancing cash flows.
Objectives of Business Combinations
Growth and Expansion:
Market Penetration: To quickly penetrate new markets and increase customer base.
Product Line Expansion: To broaden the product line and increase offerings to customers.
Operational Efficiency:
Cost Reduction: Achieve lower costs through economies of scale, streamlined operations, and reduced redundancies.
Resource Optimization: Better utilization of resources, including human capital, technology, and production facilities.
Increased Market Share:
Competitive Edge: Gain a larger market share and enhance the competitive position within the industry.
Market Dominance: Achieve a more dominant position to influence market trends and pricing.
Risk Management:
Diversification: Spread business risks by diversifying into new markets, products, or sectors.
Stability: Enhance financial and operational stability by balancing cash flows and reducing dependence on a single business line.
Innovation and Technology:
R&D Synergies: Combine research and development efforts to foster innovation and technological advancements.
Knowledge Transfer: Share best practices, expertise, and technological capabilities between entities.
Financial Benefits:
Enhanced Profitability: Improve profitability through synergies, increased revenues, and cost efficiencies.
Shareholder Value: Increase shareholder value through enhanced performance, growth prospects, and strategic positioning.
Strategic Realignment:
Focus on Core Competencies: Realign business focus on core competencies and strategic strengths.
Restructuring: Restructure the combined entity for better strategic fit and operational efficiency.
Mergers
Definition: A merger is the combination of two or more companies to form a new entity or to continue under one of the existing entities’ names.
Types of Mergers:
1.Horizontal Merger:
Description: Occurs between companies operating in the same industry and often as direct competitors.
Example: Two car manufacturers merging.
Objective: Increase market share, reduce competition, and achieve economies of scale.
2. Vertical Merger:
Description: Involves companies operating at different stages of the production process within the same industry.
Example: A car manufacturer merging with a tire company.
Objective: Improve supply chain efficiency, reduce production costs, and secure supply sources.
3. Conglomerate Merger:
Description: Combines companies from unrelated industries.
Example: A food processing company merging with a technology firm.
Objective: Diversify business interests, reduce risk, and leverage financial synergies.
4. Concentric Merger:
Description: Involves companies with related but not identical business activities, often sharing similar technologies or customer bases.
Example: A smartphone manufacturer merging with a tablet producer.
Objective: Leverage complementary strengths and expand product offerings.
Takeovers
Definition: A takeover is the acquisition of one company (the target) by another company (the acquirer). It can be friendly or hostile.
Types of Takeovers:
Friendly Takeover:
Description: Occurs when the target company agrees to the acquisition.
Example: A mutual agreement between two companies where the target’s management and board support the acquisition.
Objective: Strategic alignment, mutual benefits, and smooth integration.
Hostile Takeover:
Description: Occurs when the target company’s management resists the acquisition attempt.
Example: The acquirer directly approaches the target’s shareholders or attempts to replace the management to gain control.
Objective: Gain control of a target company despite opposition, often for strategic gains or undervalued assets.
Acquisitions
Definition: An acquisition is the process where one company purchases most or all of another company’s shares to gain control.
Types of Acquisitions:
1.Asset Acquisition:
Description: The acquirer purchases specific assets of the target company.
Example: Buying a division or product line from another company.
Objective: Acquire valuable assets without assuming the liabilities of the target company.
2. Stock Acquisition:
Description: The acquirer buys the target company’s shares, gaining control over its operations.
Example: Purchasing 51% or more of a company’s outstanding shares.
Objective: Full control over the target company, including its assets and liabilities.
3. Management Acquisition (Management Buyout):
Description: The company’s management team purchases the company, often with the help of external financiers.
Example: A management team buying out the existing shareholders.
Objective: Management aims to run the company independently, often for strategic or personal reasons.
Key Differences
Mergers typically involve a mutual decision by two companies to combine and create a new or continue as one entity, often aiming for synergy and strategic benefits.
Takeovers can be either friendly or hostile, with the acquirer aiming to gain control of the target company, sometimes against the latter’s wishes.
Acquisitions generally refer to the broader process of one company buying another, which can include purchasing assets or shares to gain control, often with strategic, financial, or operational goals.
Unit 4
Meaning of internal trade.
It refers to the buying and selling of goods and services within a country’s geographical economy.
In this buying and selling the trade occur in the home country with payments made or received in the home country and there are only a few formalities for traders to complete the trading procedures.
Internal rate can be classified into two broad categories.
1. Wholesale Trade.
Wholesaling refers to the action of individual or businesses that sell to the retailers and other merchants, as well as industrial and commercial users in bulk quantity.
The wholesaler enable the producers of the goods to not only reach a large number of buyers spread across a large geographic area through retailers.
Services of wholesaler.
The wholesaler provide a range of services to both the manufacturers of goods and retailers.
I. Services to manufacture of goods.
A. Facilitating large scale production.
The wholesaler parses variety of goods from the manufacturer in bulk quantity and help the manufacturer to expand the sale.
B. Expert advice
As the wholesaler are in direct contact with the retailers, they are in a position to advise the manufacturer about various aspects including customer taste and preference, market condition, competitive activities etcetera.
C. Help in marketing function.
The wholesaler release the manufacturer from many of the marketing activities and enable them to concentrate on production activity.
II. Services to retailers.
A. Availability of goods.
The wholesaler world, the inventory of goods as well as relief, the retailers in situation when the retails of are out of scope. The wholesaler provide good distribution of goods to the retailers in case of need of the retailers.
B. Ground of credit.
The wholesaler usually provide credit facilities to their frequent retailers so that the retailer can run their form with a little quantity of working cash.
C. Marketing support.
Holsinger are responsible for a variety of marketing duties as well as providing support to the retailers in increasing the demand for various new products.
2. Retail trade.
A retailer is someone who offers goods and services to the public directly.
The retailer buy fast quantity of items from wholesaler and sales team in small quantity to end user. The retail is the final process in the distribution process where goods are delevered from manufacture or wholesaler to ultimate customers.
Retailers act as a link between distributors of goods and services, between producer and consumer.
I. Service to manufacturer and wholesaler.
A. Help in distribution of goods.
The retailer help in the distribution of manufactured product by making goods available to the final consumer who may be scattered over a large geographic area.
B. Personal selling.
Personal selling by retailers relieved the producer from selling the product and considerably assist them in the process of producing the goods.
C. Collecting market information.
Retailers serve as an important source of collecting market information about the taste, preferences, attitudes of customers, which is useful in taking important marketing decisions.
II. Services to customers.
A.New product information.
The retailers display a new product in the market which is not known to the customers. They help in knowing the product attributes by advertising and posters related to that product in that retail store.
B. Regular availability of products.
There is a continuous and regular supply of various products produced by different manufacturers, which allows buyers to purchase things as and when they are needed.
C. Provide credit facility.
The credit facilities are provided by the retail store to their regular customers in order to retain those customers leading to high future sale prospect from the same customers.
D. White selection.
The retailers maintain a wide variety of products of different manufacturer, thus enabling the customer to make their choice out of a wide selection of goods.
Types of retailers.
1. Itinerant retailers.
They are the retailers that continue to move from street to street or from location to location in search of buyers.
They do not have fixed business establishment. And they offer it with limited resources and deals in products of daily use.
Types of itinerant retailers.
I. Peddlers and hawkers.
They are little producer or pity traders who travel from place to place on a bicycle, cycle rickshaw or on their heads selling their product at the customer doorstep.
They mostly deal in non standard and low value items.
II. Market traders.
The small retailers who opened their shops at different places on fixed days or days.
They primarily serve people from lower socioeconomic backgrounds and specialize in low cost consumer goods.
III. Retailers on the street.
Retailers who sell consumer items of everyday utilities such as newspaper and magazines are usually found in places where a large population gather, such as railway stations, bus stops, etc.
IV. Cheap jacks.
It is the type of retailer who operate temporary independent store in a business district. They continue to move their shop from one location to the next depending on the area potential.
They sell consumer goods as well as services such as watch, shoe, etcetera.
2. Fix shop retailers.
Retailers who have a fixed location to sell their product to the customer are known as fixed shop retailers.
The fix of Retailers do not relocate from one location to another to service their consumers.
They deal with a variety of products including consumer durables and non durables.
In the eye of consumer, they are most trustworthy. More resources are required to offer a fixed of ordinary wide scale.
Functions of international business.
1. Improving standard of living.
In the absence of international trade, it would not have been possible for the world community to use the goods and services produced in other countries. The people living in developing and underdeveloped countries can use the product of developed countries and increase the standard of living.
2. Employment generation.
The international business not only help in developing the country’s potential to growth, but also help in giving jobs to the various unemployed people in the area by the subsidiary branch of the business established.
Difference between internal trade and external trade
| Basis | Internal Trade | External Trade |
| Meaning | Internal trade refers to buying and selling of goods within the geographical limits of country. | External trade refers to buying and selling of goods beyond the geographical limits of a country. |
| Country involved | In internal trade, only one country is involved for the trading of goods. | In external trade, more than one country is involved. |
| Currency Used. | In internal trade, payments are made and received in home currency only. | In external trade, payments are made and received in foreign currency. |
| Legal rules and regulation. | In internal trade, the national law, rules and regulations are applicable. | International rules and regulation are applicable in external trade. |
| Procedure involved. | There are no long procedure or formalities before starting. | Long procedure and many formalities have to be completed before starting. |
| Risk involved. | Less degree of risk is involved due to its operation within the geographical country. | High degree of risk is involved in external Trade. |
Importance of Internal Trade
Internal trade, also known as domestic trade, refers to the exchange of goods and services within a country’s borders. It plays a crucial role in the economic development and stability of a nation.
1.Economic Growth
Facilitates Economic Activity: Internal trade stimulates economic activity by promoting the distribution of goods and services throughout the country. This leads to increased production, employment, and income generation.
Contribution to GDP: Domestic trade contributes significantly to a nation’s Gross Domestic Product (GDP), reflecting the economic health and growth of the country.
2. Market Expansion
Access to Markets: Internal trade enables producers to access broader markets beyond their immediate locality. This allows businesses to scale up operations and achieve economies of scale.
Increased Demand: It helps in creating demand for various products across different regions, encouraging producers to diversify and innovate.
3. Efficient Resource Utilization
Optimal Allocation: Internal trade ensures the optimal allocation of resources by distributing goods from surplus regions to deficit regions. This helps in balancing supply and demand across the country.
Reduced Waste: By facilitating the movement of goods, internal trade reduces wastage of resources and ensures that products reach consumers efficiently.
4. Improvement in Living Standards
Availability of Goods: Internal trade increases the availability and variety of goods and services for consumers, enhancing their quality of life.
Competitive Prices: It fosters competition among producers and sellers, leading to better quality products at competitive prices for consumers.
5. Employment Generation
Job Creation: Internal trade generates employment opportunities in various sectors such as retail, logistics, warehousing, and transportation.
Entrepreneurial Opportunities: It encourages entrepreneurship and the establishment of new businesses, further contributing to job creation and economic diversification.
6. Regional Development
Balanced Growth: By facilitating the flow of goods and services, internal trade promotes balanced regional development. It helps underdeveloped regions to grow by connecting them with more developed areas.
Infrastructure Development: The need for efficient internal trade networks drives infrastructure development, including roads, railways, and communication systems, which benefits the overall economy.
7. Revenue Generation
Tax Revenue: Internal trade activities generate significant tax revenues for the government through sales tax, value-added tax (VAT), and other local taxes. This revenue is crucial for public spending and development projects.
Economic Stability: A robust internal trade network contributes to economic stability by ensuring steady revenue streams and supporting economic resilience against external shocks.
8. Supply Chain Efficiency
Improved Logistics: Internal trade enhances the efficiency of supply chains by promoting better logistics and distribution networks within the country.
Inventory Management: Efficient trade practices enable businesses to manage their inventories effectively, reducing costs and improving profitability.
Meaning of External Trade
External trade, also known as international trade, involves the exchange of goods and services between countries. It includes exports (selling goods and services to other countries) and imports (buying goods and services from other countries). This type of trade allows nations to expand their markets for goods and services that otherwise may not have been available domestically.
Nature of External Trade
Cross-Border Transactions:
Geographical Scope: External trade occurs between different countries, involving cross-border transactions that are subject to international regulations and customs.
Diverse Markets: It encompasses a wide range of markets with different economic, cultural, and regulatory environments.
Exchange of Currency:
Foreign Exchange: Transactions in external trade often involve the exchange of currencies, which introduces elements such as exchange rate fluctuations and foreign exchange risk.
Regulatory Framework:
Trade Policies: External trade is governed by various international trade agreements, tariffs, import quotas, and trade barriers established by national governments and international organizations.
Compliance: Businesses must comply with both domestic regulations and the regulations of the foreign markets they engage with.
Logistics and Distribution:
Global Supply Chains: External trade involves complex logistics and distribution networks that span multiple countries and continents.
Transport Modes: It relies on various modes of transportation, including sea, air, and land transport, to move goods across borders.
Cultural and Language Differences:
Cultural Sensitivity: Engaging in external trade requires understanding and adapting to different cultural practices, business etiquettes, and consumer preferences.
Communication: Language barriers can pose challenges, necessitating the use of translators or multilingual staff.
Importance of External Trade
Economic Growth:
Market Expansion: External trade allows countries to access larger and more diverse markets, leading to increased sales and revenue.
GDP Contribution: It significantly contributes to the Gross Domestic Product (GDP) by enabling countries to specialize in the production of goods and services they can produce most efficiently.
Resource Allocation:
Efficient Utilization: By importing goods that are not produced domestically and exporting those that are in abundance, countries can utilize their resources more efficiently.
Comparative Advantage: It allows countries to benefit from their comparative advantages, leading to more efficient global production.
Access to Resources and Technology:
Resource Acquisition: External trade enables countries to access raw materials, components, and technology that may not be available domestically.
Innovation and Technology Transfer: It facilitates the transfer of technology and innovation, contributing to industrial growth and development.
Consumer Benefits:
Variety of Goods: Consumers benefit from a wider variety of goods and services, often at lower prices due to international competition.
Quality Improvement: Exposure to international markets encourages domestic producers to improve the quality of their products.
Employment Opportunities:
Job Creation: External trade generates employment opportunities in various sectors, including manufacturing, logistics, and services.
Skill Development: Engaging in international markets often requires specialized skills, leading to workforce development and education.
International Relations:
Economic Ties: External trade fosters economic interdependence among countries, which can enhance political and diplomatic relations.
Global Cooperation: Participation in global trade organizations and agreements promotes international cooperation and stability.
Revenue Generation:
Export Earnings: Countries earn foreign exchange through exports, which can be used to pay for imports and settle international debts.
Tax Revenue: Governments earn revenue from tariffs, duties, and taxes on imported and exported goods.
Innovation and Competitiveness:
Global Competition: Exposure to international competition drives domestic firms to innovate, improve efficiency, and enhance competitiveness.
Research and Development: Companies engaged in external trade often invest in research and development to meet international standards and consumer preferences.
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