Business and Business Environment Assignment Sample

BUSINESS AND BUSINESS ENVIRONMENT
• ORGANISATIONS AND
STAKEHOLDER ANALYSIS
1
WEEK 2
EMMANUEL B OFORI
BTEC EDEXCEL HND

Recap:
• Last week we did look:
• 1. the nature and purpose
• 2. different types of business organisations
• 3. For profit and Not for Profit
Organisations
•
EMMANUEL B OFORI 2

Difference between a global, transnational,
international and multinational company
• We tend to read the following terms and
think they refer to any company doing
business in another country.
• Multinational
• International
• Transnational
• Global
EMMANUEL B OFORI 3

• International companies are importers and
exporters, they have no investment outside
of their home country.
EMMANUEL B OFORI 4

Multinational companies
• Multinational companies have investment
in other countries, but do not have
coordinated product offerings in each
country.
• More focused on adapting their products
and service to each individual local market.
EMMANUEL B OFORI 5

Multinational organisations
• A multinational corporation or worldwide
enterprise is an organization that owns or
controls production of goods or services in one
or more countries other than their home
country.
• It can also be referred as an international
corporation, a "transnational corporation", or
a stateless corporation
EMMANUEL B OFORI 6

Multinational organisations
• A multinational corporation is usually a large corporation
which produces or sells goods or services in various
countries.
1. Importing and exporting goods and services
2. Making significant investments in a foreign country
3. Buying and selling licenses in foreign markets
4. Engaging in contract manufacturing—permitting a local
manufacturer in a foreign country to produce their
products
5. Opening manufacturing facilities or assembly operations
in foreign countries
EMMANUEL B OFORI 7

A Global Company
• A global corporation is a business that operates
in two or more countries. It also goes by the
name "multinational company."
• Expanding your business globally can offer
several advantages over running a strictly
domestic company, but operating in multiple
countries also poses logistical and cultural
challenges.
EMMANUEL B OFORI 8

Global Companies
• Global companies have invested and are present in
many countries. They market their products through
the use of the same coordinated image/brand in all
markets.
• Generally one corporate office that is responsible for
global strategy. Emphasis on volume, cost
management and efficiency.
• Global companies often offer the same product in
different countries, but translate or modify a
product's logo and packaging to meet local tastes.
EMMANUEL B OFORI 9

Transnational Companies
• A commercial enterprise that operates substantial
facilities, does business in more than one country
and does not consider any particular country its
national home.
• One of the significant advantages of a
transnational company is that they are able to
maintain a greater degree of responsiveness to the
local markets where they maintain facilities.
http://www.businessdictionary.com/definition/transnati
onal-company.html
EMMANUEL B OFORI 10

Transnational Companies
• Transnational companies are much more
complex organizations.
• They have invested in foreign operations,
have a central corporate facility but give
decision-making, R&D and marketing
powers to each individual foreign market.
EMMANUEL B OFORI 11

Transnational Companies
• Transnational companies also sell their products in
multiple countries across the globe. This strategy
differs, however, in the way the product is marketed in
each country.
• A transnational product keeps its same characteristics,
regardless of the country in which it is sold.
• The product does not change according to local
customs or preferences, so that the product sold in Asia
or Mexico is exactly the same as the version sold in the
United States or Europe.
EMMANUEL B OFORI 12

A Transnational Example
• A very well-known cola soft drink is one example of a
transnational product. This company's beverage
recipe is kept secret and has not changed in many
years.
• The product is sold in over 200 countries worldwide,
and this beverage company retains exactly the same
beverage formulation in each country.
• The bottle’s label may reflect the local language, but
the logo and contents remain the same.
EMMANUEL B OFORI 13

Difference between franchising, joint
ventures and licensing
• Franchising is the practice of the right to
use a firm's business model and brand for a
prescribed period of time.
1. Subway (sandwiches and salads)
• .2. McDonald's|
EMMANUEL B OFORI 14

Fees and contract arrangement
• Three important payments are made to a
franchisor:
• (a) a royalty for the trademark,
• (b) reimbursement for the training and
advisory services given to the franchisee, and
• (c) a percentage of the individual business
unit's sales.
EMMANUEL B OFORI 15

Joint Venture
• A joint venture (JV) is a business entity
created by two or more parties, generally
characterized by shared ownership, shared
returns and risks, and shared governance.
• Most joint ventures are incorporated,
although some, as in the oil and gas industry,
are "unincorporated" joint ventures that
mimic a corporate entity.
EMMANUEL B OFORI 16

Licensing
• Licensing is the process of leasing a legally
protected (trademarked or copyrighted)
entity – a name, likeness, logo, trademark,
graphic design, slogan, signature, character,
etc.
• The entity, known as the property or
intellectual property, is then used in
conjunction with a product.
EMMANUEL B OFORI 17

Licensing
• It is a written contract under which the owner of a copyright,
know how, patent, service mark, trademark, or other
intellectual property, allows a licensee to use, make, or sell
copies of the original.
• Such agreements usually limit the scope or field of the
licensee, and specify whether the license is exclusive or non-
exclusive, and whether the licensee will pay royalties or some
other consideration in exchange.
• While licensing agreements are mainly used in
commercialization of a technology, they are also used by
franchisers to promote sales of goods and services.
EMMANUEL B OFORI 18

Who are these stakeholders?
• Principle of corporate right: obligation of corporation
not to violate the rights of others
• Principle of corporate effect: organisations being
responsible for the effect of their actions on others
’’Individuals or groups which either: is harmed by,
or benefits from, the corporation; or whose rights
can be violated, or have to be respected, by the
corporation.’’
- Crane and Matten (2010 p.62)
EMMANUEL B OFORI 19

Corporate Stakeholder
• A stakeholder group is one with a vested interest
in the company.
• It is anyone or group who can affect or can be
affected by the objectives of the organisation.
• There are three categories of stakeholders
• Internal: Employees, Management
• Connected: Shareholders, Customers, Suppliers,
Lenders, Distributors,
• External: Community, Pressure Group, Government
Trade Union, Analysts, General Public, Competitors
EMMANUEL B OFORI 20

What are stakeholders?
– A stakeholder is anyone
with an interest in a
business, that is affected by
the activity of the business.
– They include:
– Owners
– Managers
– Workers
– Suppliers
– Lenders
– The community
– Analyst
– P Groups EMMANUEL B OFORI 21
Internal stakeholders are
groups within a business
eg owners, management
and workers.
External stakeholders
are groups outside a
business
eg the community,
pressure

Types of Stakeholders
• Primary Stakeholders are internal stakeholders
(owners, employees, customers, suppliers, …)
that are influential and directly involved in the
activities of an organisation. Primary
stakeholders are key stakeholders that can
significantly influence, or are important to the
success of the organisation
• Secondary Stakeholders are external
stakeholders (local community, public, NGOs)
that indirectly have impacts. They are less
important stakeholders 22

Objectives of different Stakeholders
EMMANUEL B OFORI 23
• Stakeholder • Objective of Stakeholder
• Owners
• Employees
• Customers
• Suppliers
• Creditors/banks
• Government
• Community
• NGO
• Profit, growth
• Jobs, salary
• Quality product or service
• Fair and long-term contract
• Interest, deposit
• Tax, job creation
• Good neighbourhood, jobs
• Donations, fair trade

Fulfilling Objectives of
Stakeholders
• First, organisations should try to fulfil
objectives of Primary Stakeholders that are
more important than others.
• Organizations should do their best to
completely meet objectives of Primary
Stakeholders as much as possible.
• After satisfying primary stakeholders, an
organisation should try to meet objectives of
Secondary Stakeholders with least costs
EMMANUEL B OFORI 24

• Influence of stakeholders on business objectives
• Owners have a big say in how the aims of the business
are decided, but other groups also have an influence
over decision making.
• For example, the directors who manage the day-to-day
affairs of a company may decide to make higher sales
a top priority rather than profits.
EMMANUEL B OFORI 25

Role and Influence of Stakeholders
• Stakeholders may be classified as either
direct or indirect.
• Direct stakeholders are those groups
with an ongoing role in the day-to-day
activities of the business.
• They include employees, customers,
suppliers, distributors, creditors and
even competitors.
EMMANUEL B OFORI 26

Indirect stakeholders
❑ Indirect stakeholders do not have this
day-to-day involvement, but are
nonetheless affected by an organisation's
activities and have an interest in it.
❑ They include the local community,
government, the media, employer
associations, various pressure groups
and so on.
EMMANUEL B OFORI 27

Agency theory
• Agency theory is often used to describe the
relationships between the various interested
parties in a firm and can help to explain the
various duties and conflicts that occur:
• Agency relationships occur when one party, the
principal, employs another party, the agent, to
perform a task on their behalf
• Objectives of principals and agents may not
coincide
• Problem of goal congruence
EMMANUEL B OFORI 28

Corporate Accountability
1. According Friedman, corporations
shouldn’t engage in social policies and
programmes
2. Corporations are now involved in social
activities and functions that were solely
for the government, some political roles
3. Need for accountability grows with
growing tendency towards privatisation of
political functions and processes
EMMANUEL B OFORI 29

Conflicting stakeholder objectives
• Different stakeholders have different objectives. The
interests of different stakeholder groups can conflict.
• For example:
– Owners generally seek high profits and so may be reluctant
to see the business pay high wages to staff.
– A business decision to move production overseas may
reduce staff costs. It will therefore benefit owners but work
against the interests of existing staff who will lose their
jobs. Customers also suffer if they receive a poorer service.
EMMANUEL B OFORI 30
Video Quiz

Conflict of Interest
➢ .Stakeholder investment argument for
maximising profits seems to ignore the
place of other interested parties in the
conduct and performance of organisations
➢ It is now increasingly recognised that
other parties besides shareholders can
have an interest or even what might be
considered as an investment in a business.
EMMANUEL B OFORI 31

Conflict of Interest
➢These other interested parties besides
shareholders are what we have often
referred to as stakeholders.
➢Various interest groups have
different interest for various reasons
but all have the same objective
EMMANUEL B OFORI 32

Potential conflicts of objectives
• With so many different groups having
a vested interest in a company it is
inevitable that at times those interests
will conflict.
• Conflict between and within groups of
stakeholders and the need for
management to balance the various
interests is a key issue.
EMMANUEL B OFORI 33

➢By far the most important conflict of those
mentioned above is that between the
interests of shareholders who own the
company and the directors/managers who
run it.
➢• excessive remuneration levels
➢• empire building
➢• creative accounting
➢• off-balance sheet financing
➢• inappropriate reaction to takeover bids
➢• unethical activities
EMMANUEL B OFORI 34

EMMANUEL B OFORI 35

Stakeholder mapping and
various theories
❑Normative stakeholder theory: justifies why
corporations should cater for stakeholders
interests
❑Descriptive stakeholder theory: attempts to
ascertain if corporations actually caters for
stakeholders’ interests
❑Instrumental stakeholder theory: attempts
to answer whether organisation’s benefit
from catering for stakeholders’ interests
EMMANUEL B OFORI 36

Stakeholder Mapping: Mendelow
The degree of interest(high or low) of each stakeholder
group in affecting the proposed plans of the
organisation
• The degree of power(high or low) of each
stakeholder group to do so.
• This gives a matrix of four possible categories of
stakeholder, as follows.
• Category 1: "Low power/low interest" stakeholders
• Category 2: "Low power/high interest" stakeholders
• Category 3: "High power/low interest" stakeholders
• Category 4: "High power/High interest" stakeholders
EMMANUEL B OFORI 37

Stakeholder Mapping:
Mendelow
EMMANUEL B OFORI 38
Minimal
Effort (A)
Keep
Satisfied (C)
Keep
Informed (B)
Key
Players (D)
Power
Level of Interest
Low
High
Low High

Stakeholder Mapping: Mendelow
➢ Category 1: "Low power/low interest" stakeholders
➢ Stakeholders in this category are likely to have little
influence on the proposed strategy.
➢ They are unlikely to want to either block or support
the proposed expansion and in addition do not have
the power to do so.
➢ This category of stakeholders is of little concern in
the context of the proposed strategy and warrants
minimal attention or effort on the part of the
organisation
EMMANUEL B OFORI 39

Category 2: "Low power/high
interest" stakeholders
➢Stakeholders in this category have for
various reasons a high degree of interest in
the organisation's plans, but like category 1
➢stakeholders have little power to affect the
proposed strategy.
➢These stakeholders should be kept informed
with a view to ensuring that they act as
supporters
40

Category 3: "High power/low
interest" stakeholders
▪ Although this category have low interest in the
organisation's plans they do have the power to
influence them. For example, they may have
the power to block or at least slow down a
proposed development.
▪ These stakeholders need to be kept satisfied. In
particular they should be actively discouraged
from developing a high interest in the proposed
strategy, unless their support can be
guaranteed EMMANUEL B OFORI 41

Category 4: "High power/low
interest" stakeholders
• Needless to say, these are a key category of
stakeholder. Their interest and power makes
them most likely to want and be able to
influence the proposed strategy either as
blockers or facilitators. This means that they
should been encouraged to act as supporters.
• This category of stakeholder is worth
investing time, money and effort in to secure
their backing.
EMMANUEL B OFORI 42

Test Your Understanding
• Corporate Governance is a major responsibility
in the modern business world. In this respect,
each business has to be able to interact with a
variety of different interest groups.
• Required:
• Identify five stakeholder groups and discuss the
significance of each for the modern large
business organisation. Such as the energy
companies
EMMANUEL B OFORI 43