Business Notes

Business Exam

1: Introduction:

• International Business
• High performance
• Fast moving consumer goods: products that are sold quickly and at relatively low cost.

• They have short shelf life and a low profit margin, but the volume of sales makes up for it.
• Consumer goods are products that are purchased for consumption by the average consumer. The measurement of consumer goods sales is important in the assessment of gross domestic product.
• GDP Definition: Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.

• Comprised of 3 Divisions: Divisional Structure:

• (In between an organic and a mechanistic model). An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer
• Customers are served by self-contained divisions that handle a specific type of product or service.

• In this case study there are 3 divisions, all of which are worldwide.
• All 3 have key functions:

• Tobacco machinery Division: Functions include: Supplier of machines, spares and related services. (Worldwide). Division specializes in design, development and manufacture of tobacco processing etc.

• As it is worldwide, it has a Global market (customer) structure thus customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best.
• It is a regional based organisation, operating in the UK, USA, Brazil Singapore and Russia.
• Centralised Logistics: Keep decision making at the top of the hierarchy. Use centralised decision making to ensure consistency of customer experience and quality at every location, together with a desire to exploit economies of scale. (Keeping all of the important decision-making powers within head office or the center of the organisation.) (Logistics: the orderly movement and storage of goods throughout the supply chain e.g. from raw materials to finished goods.)
• Centralised structures lead to taller organisations, i.e. more hierarchical.

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• Packaging Machinery division: Worldwide and World leader. Wealth of experience.

• Hybrid Structures:

• The structure of a large organization that has many divisions and simultaneously uses many different organizational structures

• Managers can select the best structure for a particular division - one division may use a functional structure; another division may have a geographic structure.
• The ability to break a large organization into smaller units makes it easier to manage.

2: Economic Environment:

• Economic Growth:

• P.E.S.T

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• Economic factors

• Economic Growth Rates

• UK economic growth eased to 0.5% in the third quarter of 2015, from 0.7% previously. (Slowdown- A slowdown occurs when the rate of growth decelerates - but national output is still rising.)

• Disposable Income levels and distribution

• Recovery and boom periods generally create more disposable income which consumers spend on more goods and services.
• The opposite tends be true for low costs products and services, with more demand in slowdowns and recessions.

• Inflation

• As inflation rises, purchasing power declines. Inflation decreases the amounts of goods and services you can purchase. i.e. An increase in inflation, leads to a rise in the general level of prices in the economy.

• Interest Rates:

• Interest rates rising: High rates increase borrowing costs but may be linked to a stronger economy and high sales demand

• Balance of payments:

• Although inflation rates are rising, customer spending should get some support with the introduction of the “national living wage for low-paid workers”

• Exchange Rates: €/£: Appreciation – increase in value of exchange rate – exchange rate becomes stronger.

• A high, or strong, £ makes exports more difficult and imports of competitor products cheaper but typically linked to a stronger economy and high sales demand
• An appreciation is likely to reduce inflation because:

• Import prices are cheaper
• Fall in aggregate Demand
• Firms have more incentives to cut costs.

• Exchange Rates: $/£: Appreciation then depreciation (i.e. fall in value of exchange rate – exchange rate becomes weaker)
• A low, or weak, £ makes exports easier but imports of materials more expensive and can be linked to a recession with low sales
• Exchange rates are linked to the Exports and Imports. In the table, imports are shown to increase, which is linked to a stronger pound.

• Current Accounts:

• Negative percentages thus a borrowing country. i.e it means that the country has more capital invested abroad than foreign investors have invested into the country.

• GDP:

• Economic growth can be measured by changes to the Gross Domestic Product of a country.
• Negative growth is a contraction in a country’s economy as evidence by a decrease in its GDP during any given quarter.

• Unemployment Rate;

• Unemployment rate has decreased: Low unemployment makes it more difficult & expensive to recruit and puts upward pressure on wages
• High unemployment makes it easier to recruit, reduces pressure on wages but may reduce sales levels

• Economic expansion:

• An economic expansion is an increase in the level of economic activity, and of the goods and services available. It is a period of economic growth as measured by a rise in real GDP (Real GDP measures the values of goods and services)

A decrease in real GDP (a recession) will cause a decrease in average interest rates in an economy. (“In China, official real GDP growth is likely to slow to 6.9% this year and 6.3% in 2016”).

• Monetary Policy:

• Influences circular flow of income by changes in the supply of money & interest rates.
• Involves changes in base interest rates, the money supply and the exchange rate
• Action by a central bank aimed at boosting the money supply and stimulating economic activity.

• Fiscal Policy:

• Concentrates on stimulating the economy through changes in government income and expenditure
• Involves changes in Government expenditure, taxation and borrowing

• Quantitative easing: An extreme form of monetary policy to ease credit markets.

• Used when interest rates are either at, or close to zero.
• It is used when lowering interest rates has not effect.

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3: The Food, Drink and Tobacco processing machinery industry:

Packaging- One of the five P’s:

1. Product
2. Price
3. Packaging
4. Promotion
5. Place

1. Product

• “Provides high performance, specialist machinery and services for the production and packaging of consumer products, particularly the Fast Moving Consumer Goods (FMCG) market including tobacco, food and other high volume products.”
• They offer multi-national distribution to a range of end-user markets (Its major customers are quite a diverse group, mainly ‘third party’ packaging companies such as Linpac, Tetra Pak or Amcor, all of whom handle the packaging of products for retail companies such as high street supermarket chains).  

1. Packaging:

• “The packaging industry generally is recognizing that there are rising consumer concerns about the quantity of packaging used in the retail industry” Research has been conducted into using biodegradable and recyclable packaging.  

1. Price:
2. Promotion
3. Place:

• Channels to market: sells to mainly “third party packaging companies”
• 5 principle competitors: hold approximately 60% of the combined tobacco and packaging markets: A Complex monopoly (but overall an oligopoly of 5 firms).

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4: Limons PLC Annual Report:

4.1) Chief executive officers statement:

• Risk: Mitigation: actions taken to reduce or avoid risks before they occur.
• There have been continued uncertainties
• Made a number of redundancies and evaluating further actions.
• Mitigation is about looking for what risks exist, weighing up their likely impact and deciding what you are going to do about them, if anything

Risk Mitigation:

Avoid: Remove the cause of the risk: in this case the risk is continued reduced volumes, continued uncertainties and a slow rate of growth and so to take advantage of future stronger upturns, a number of redundancies were announced.