HSC Business Studies

1
2

EDUCATIONAL RESOURCES
4U

A CONCISE

REVISION OF

HSC

BUSINESS

STUDIES

3
EDUCATIONAL RESOURCES 4 U

5 Sixth Avenue
Berrara NSW 2540

Email er4u@live.com.au

First published 2008

Copyright 2008 EDUCATIONAL RESOURCES 4 U

Copyright
The material in this book is copyright. However, the publisher grants permission for
copies of this material to be made by purchasers of the site license for use within and
by staff and students of the purchasing school only.

A Concise Revision of HSC Business Studies

Illustrator: Michael Lloyd
Writer: Stephen Lloyd
Editor: Jessica Lloyd

The publisher wishes to acknowledge Rush Software and their Crossword Wizard program.

4

A CONCISE REVISION OF HSC BUSINESS STUDIES

The purpose of this book is to present Business Studies students with a simple outline of
the HSC course. It is not intended to induce higher order thinking or subliminal
learning. Its just about telling you what you probably should know before you sit for
your HSC, or other major tasks.

By no means is this meant to be a comprehensive guide. It cuts the syllabus to the bone
and expresses my interpretations of many of the complex concepts and terms from this
document in a way that I hope is a bit easier for most students to understand.

So, how to make it interesting?

Starting on page one of a textbook and working your way through it is a great cure for
insomnia. How many times have you read a page of text only to have it go in one eye
and out the other? You know that youve read it, but hey, you were really thinking about
that party on the weekend, or what a looker that new exchange student is.

I think the best way to keep up your interest as long as possible is to give you stuff in
small doses. Not too many big words (although good vocab is essential to do your best
in all subjects) and some simple tasks after each bit of review. Remember, most students
view an 8 page extended response as an impossible task in about 50 minutes in their
HSC. But, if you break it down into half page paragraphs that you write in about five
minutes, youre up to 5 pages! I know thats not 8 like I mentioned, but its probably
more than youve been presenting on a regular basis in tasks. As an HSC marker in the
past I can vouch for the fact that its disheartening to open up an examination booklet
and find that the kid has managed a page and a half of stuff that could have been written
by anyone who has never studied Business Studies in their life.

So, the idea behind this book is to give you the skeleton of this course in a concise form
to help you prepare for the tests ahead. As you work through the tasks youll see that
Ive basically followed the Students learn about components of the syllabus in
chronological order. Of course, you need case studies to add to your knowledge.
Besides whatever case studies you do in class, Id recommend reading the business
section of a newspaper or watching business shows on TV that are often on early
Sunday. Yeah, I know, zzzz time. You can always record them for later reference! Try
to stay up with whats happening in the real world, especially near exam time.
Referencing a current story always impresses HSC markers.
5

6
HSC TOPIC 1: BUSINESS MANAGEMENT AND CHANGE

Sheet 1 The Nature of Management

So what is this thing called management?

Management is getting things done. Each day you manage to get yourself to school,
complete classwork then do homework before making yourself ready for the next day.
Management in business is about getting things done for the firm: setting then meeting
targets, quotas, goals and/or objectives. Business management is about dealing with the
various internal and external stakeholders that affect a firm in a way that optimizes the
wishes of owners.

Effective management is critical to the long-run success for a business. Plenty of firms
can survive with poor management. Many will fail. Without effective management, no
firm will reach its potential and maximize profits.

The syllabus refers directly to three roles of management:
Interpersonal roles dealing with people inside and outside the business.
Informational roles collecting, reviewing and dissemination of information.
Decisional roles making choices between alternatives after evaluating options.

The syllabus also refers to a swag of skills. You probably wont remember them all, but
remember there are only three roles and lots of skills. How to remember that? Well, one
way is to remember that skills is a longer word than roles. Or, think of the three Rs.
(Its important to develop little tricks like this to help remember all the stuff you need in
all your subjects.) Anyhow, the skills are pretty straightforward:
People skills dealing effectively with people.
Strategic thinking being able to see where the firm will be in 3-5 years.
Vision Knowing where youd like the firm to be in its maturity phase.
Flexibility and adaptability to change staying out of any ruts that develop.
Self-managing recognize that now and then you need to look at yourself in an
objective way to see if youre still heading in the right direction.
Teamwork being able to rely on others to do their share with confidence.
Complex problem solving and decision-making using things like decision
trees, break-even analysis and forecasts to choose the best alternative.
Ethical and high personal standards doing the right thing because it is the
right thing, not just because the law says you have to.
7

Managers have responsibilities to stakeholders. Stakeholders are just people or bodies
that have an interest in the firm. Internal stakeholders are those that the firm has some
direct influence over: owners/shareholders, management, and employees. External
stakeholders are beyond the firms control: competitors, customers, suppliers, creditors,
government, society as whole, and even future generations.

Because of the great variety of stakeholders, conflicts of interests will naturally arise.
Customers want products at the best quality for the cheapest prices. This would conflict
with the interest of shareholders who want the best dividend return for their investment.
Employees want to earn a fair share of the companys earnings for their work, but pay
rises put pressure on prices and/or profits. The cheapest production method may, for
example, include dumping waste in an environmentally unfriendly way, thereby
jeopardizing future generations. Management becomes responsible for reconciling these
conflicts. Increasingly, management is being expected to take an ethical approach to
such resolutions. Profit maximization in the short term has become less important than
good corporate citizenship. That is, do the right thing and you can stay in business for
longer!

Okay, thats it for sheet 1 The Nature of Management.

Learn anything? I guess well find out soon enough. Flip over for your first lot of review
exercises. Good luck and remember you can do them more than once if it doesnt go too
well the first time. Thats kind of what study is about.

8
Sheet 1 The Nature of Management Review Tasks

1. What does management mean in business?

2 marks

2. What are the two most likely outcomes for businesses that dont have effective
management?

2 marks

3. Match these terms to their corresponding definitions:

Terms: management, roles, skills, decisional role, informational role, interpersonal role,
ethics, stakeholders, internal, external.

a. That part of the business that management has control over.
b. There are three of these that managers must play.
c. Making a choice between alternative courses of action.
d. Those who take responsibility for a firms outcomes.
e. Stakeholders outside the control of a business.
f. A large range of abilities managers need.
g. Addressing a press conference to explain why a business has decided to make a
takeover bid for a competitor.
h. People and bodies that have an interest in a firm.
i. Sitting down with union officials to negotiate a new Workplace Agreement for
the employees of a firm.
j. Doing the right thing because it is the right thing to do.

How did you go? /14

Look over for the answers, and then give yourself a mark out of 14. Anything under 10
and Id suggest you come back to this again some time in the future. Remember, no
point going over stuff you know. You need to re-revise the stuff you dont know!
9
Sheet 1 The Nature of Management Review Tasks - Answers

1. What does management mean in business?

Management in business is about getting things done for the firm. It is about meeting
targets, goals and objectives of the firm. (Make sure you have at least 2 sentences or
points if the value of the question is two marks. This makes it easier for the marker to
give you 2/2. Obviously the same applies if the question is of greater value. There is no
point writing too much in short answers. Youll need the time for extended responses.)

2 marks

2. What are the two most likely outcomes for businesses that dont have effective
management?

Firms with poor management are most likely to fail in the long run. Even if they survive,
they will not reach their potential in terms of profits or market share.

2 marks

3. Match these terms to their corresponding definitions:

Terms: management, roles, skills, decisional role, informational role, interpersonal role,
ethics, stakeholders, internal, external.

a. That part of the business that management has control over. internal
b. There are three of these that managers must play. roles
c. Making a choice between alternative courses of action. decisional role
d. Those who take responsibility for a firms outcomes. management
e. Stakeholders outside the control of a business. external
f. A large range of abilities managers need. skills
g. Addressing a press conference to explain why a business has decided to make a
takeover bid for a competitor. informational role
h. People and bodies that have an interest in a firm. stakeholders
i. Sitting down with union officials to negotiate a new Workplace Agreement for
the employees of a firm. interpersonal role
j. Doing the right thing because it is the right thing to do. ethics
10

Sheet 2 Management Theories

The syllabus effectively introduces five different management theories. They reflect
the evolution of business management as a field of study that has developed as the
world moved from the Industrial Revolution to today.

Classical-Scientific Theory was the first attempt to rationalize the
management process. Based largely on Taylorism, it sought a best way to do
things by breaking down the production process into simple steps and then
choosing the best workers to complete each task. Thus management involved
planning how to best do a task, organizing the resources in the most efficient
manner and then controlling production by closely supervising workers so
that targets were met. You need to remember, when this theory was first
introduced the idea of an assembly line style of production was new and
revolutionary. Large-scale factories were only just starting to appear and the
notion of division of labour was new.
Probably the best example of this was in Henry Fords new car factory. While
rivals had teams assemble cars from the ground up a bit at a time, Henry had
the extraordinary idea of putting the chassis on a slowly moving production
line and have workers divided into stations where they did the one task over
and over again. So one worker would put in the gearbox, another the engine,
another the steering etc, etc. By repeating their task over and over they would
increase their productivity. You need only look on todays roads to see that
Henrys idea worked. In these factories there was a pyramid-like hierarchy
of organisation. At the top was Henry, who passed on what to do to various
managers, who passed on what to do to section heads, who passed on what to
do to worker supervisors, who told workers what to do and watched that they
did this properly. Henry, like most other bosses in these times, employed an
autocratic leadership style. This meant he was the King of Ford and you did
as you were told, probably best illustrated by his famous statement, They can
have the cars in any colour, so long as it is black.
Whilst this theory is now very old, it is still a useful basis for workplaces that
have many young staff who work in mass-production type businesses. Im
sure you Mcknow what I Mcmean. Its main drawback is that its focused on
production of goods. In todays business world most workers are employed in
the service sector, where simple division of labour doesnt work effectively.
11
Behavioural Theory grew as managers looked at ways of trying to boost
productivity by recognizing that workers had needs beyond their pay each
week. In the medical world the notions of psychology and psychiatry were
just beginning to recognize that peoples actions were often reactions to how
they thought and felt. Behavioural theory was built around findings by
behaviouralists like Mayo, Maslow and Hertzberg.
This theory sees management as leading workers by inspiring them to do
better, this best achieved by motivating them with both monetary and non-
monetary benefits and ensuring that communications are kept open and
move in both directions. This theory was vastly different to the autocratic,
hierarchical approach advocated by the Classical theory. Behavioural theory
slashed the middle out of the pyramid, creating a flatter organisational
structure to improve the speed of communications. It encouraged workers to
participate more by emphasising teamwork. It might seem quaint, but the
idea of a suggestion box that allowed workers to put forward ideas on
improvements was once a revolutionary idea! Just imagine Henry Ford
listening to a wheel fitter who thought they knew how to do the job better
than Henry!
Managers who use this theory employ a more participative leadership style.
They encourage workers to put forward their ideas before making decisions.
This gives workers some ownership of decisions, thus increasing their desire
to see them succeed. Indeed, some managers even follow democratic
processes allowing workers to vote on alternative courses of action.
The major advantage of this theory is that it creates more satisfied workers. A
business best form of sustainable competitive advantage is a happy
workforce. Behavioural theory tries to maximize worker satisfaction. Its
major drawback is that it is time consuming. You need to get to know your
workers and what they want. The chances of them all wanting the same thing
is zero, so you need to pay individual attention to the desires of each. In
smaller firms this is possible, but when businesses grow it becomes more
difficult.

Political Theory examines the sources of power and influence within an
organisation. It recognizes that different groups have different agendas, and
sees management as negotiating and bargaining between these groups to
achieve goals. For instance, workers are often represented by unions, whereas
the firm may belong to a trade association. The trade association might well
be pushing for offshore expansion to take advantage of reduced costs. The
unions will obviously disagree, as workers jobs will be threatened.
Management has to negotiate with both groups to strive for the best outcome.
12
In Political theory the organisational structure is often viewed in terms of
coalitions. This relates to negotiating with various groups in a manner such
that an agreement can be made which leads to forward movement. As with
politics in general, the stakeholder will tend to focus on what they can get
out of the deal. A union might agree to the move offshore if the firm is able to
guarantee that workers on another site will not meet the same fate.
The Political theory has the advantage of recognizing that power within
organisations is real and must be acknowledged and dealt with. Its major
hurdle is that power brokers can, and often do, make decisions that enhance
their power, rather than benefit the firm.

Systems Theory is not really a discreet theory at all, but rather an approach
that recognizes that a business is made up of many different parts, each
having an impact on the other. A Quality Management System is one that
recognizes the interdependence of business functions such as production,
finance, employment relations and marketing. This Systems approach will
document processes and procedures and ensure that continuous improvements
to the system are sought. Thus management is more about adapting the
organisational structure to the circumstances. With the onset of
globalization, even small firms have joined the world market. This has meant
that they have had to adapt their businesses to the requirements of exporting.
The major advantages of a Systems approach are that the extensive
documentation allows new employees to know how to perform. It also means
that when a decision is made in one area, its impact is known by all others.
Theres nothing worse when Marketing have a media blitz promoting a sale
and no-one has told Production that theyre going to need extra stock.

Contingency Theory. Okay, given all of the above, why would we need
another theory? Well.. the best laid plans and all that. All managers
recognize (or should) that despite their best intentions, things are going to go
wrong. So this theory or approach is about being ready when the proverbial
hits the fan. Again its about adapting activities to circumstances, but in a
more reactive way. You hope your sporting identity whos about to launch
your new product wont break his leg on the weekend, but if it happens you
need a contingency plan, or backup.
With Contingency theory youre recognizing that things will go wrong and
you try your best to be prepared. So you might have a semi-famous person on
staff who can step up if required in the above example. The drawback for this
theory is you never know exactly whats going to hit the fan, or how hard.
13
Sheet 2 Management Theories Review Tasks

1. Why should a present-day manager have a working knowledge of the various
management theories?

3 marks

2. Describe two common organisational structures found in businesses.

2 marks

3. Analyse the following statements and then indicate whether they are true or false.

a. Political Management Theory is something that managers should always
consider, no matter which theory or approach that they decide to use.
b. One of the main advantages of a hierarchical organisational structure is the rapid
communications between workers on the floor and management.
c. Participative leadership style involves management and workers meeting to
discuss and vote on goals for the firm.
d. Most modern managers would use a Systems approach because it allows them to
draw on the best aspects of all other theories.
e. Flattening organisational structures has the advantage of improving
communications but it does cut career paths.
f. Rupert Murdoch is an illustration of how even today some CEOs believe that
autocratic leadership is the best model.
g. Behaviouralists believe that workers need close supervision and clear directions
on how to best complete their tasks.
h. Contingency theory means that managers will always be prepared for any
eventuality that may arise to disrupt production.
i. The Classical-Scientific Theory was good in the old days, but it has no
application for modern firms.
j. By taking a stakeholder view managers are more likely to make decisions for the
overall benefit of a firm.
14
Sheet 2 Management Theories Review Tasks - Answers

1. Why should a present day manager have a working knowledge of the various
management theories?

No matter the approach taken modern managers should know about
Classical/Scientific, Behavioural and Political theories so that they can draw on the
best aspects of each when they develop a Systems approach to their firms. All
have their own advantages, which will help achieve goals for firms.
(In your answer you should refer to the names of the theories. This shows the
examiner your syllabus knowledge and should bring more marks than general
comments) 3 marks

2. Describe two common organisational structures found in businesses.
The Classical theory supports a hierarchical structure, with steps of management
appearing as in a pyramid. The more modern Behavioural theory believes that a
flat organisational structure allows for more rapid communication as the middle of
the pyramid is cut away.
2 marks

3. Analyse the following statements and then indicate whether they are true or false.

a. Political Management Theory is something that managers should always
consider, no matter which theory or approach that they decide to use. true
b. One of the main advantages of a hierarchical organisational structure is the rapid
communications between workers on the floor and management. false
c. Participative leadership style involves management and workers meeting to
discuss and vote on goals for the firm. false
d. Most modern managers would use a Systems approach because it allows them to
draw on the best aspects of all other theories. true
e. Flattening organisational structures has the advantage of improving
communications but it does cut career paths. true
f. Rupert Murdoch is an illustration of how even today some CEOs believe that
autocratic leadership is the best model. true
g. Behaviouralists believe that workers need close supervision and clear directions
on how to best complete their tasks. false
h. Contingency theory means that managers will always be prepared for any
eventuality that may arise to disrupt production. false
i. The Classical-Scientific Theory was good in the old days, but it has no
application for modern firms. false
j. By taking a stakeholder view managers are more likely to make decisions for the
overall benefit of a firm. false
15

Sheet 3 Managing Change

Why change? Things are going okay at the firm, so why should we change?
Its a bit like yesterdays lunch. It was okay then, might be okay for today and even
tomorrow, but it just wont do for next week. Change is inevitable.
The syllabus outlines various nature and sources of change, along with some
structural responses to change. These include:

External Influences that explain the changing nature of markets:
a. Economic influences, such as upswings and downswings associated with
the cycle as economies move from booms to busts (recessions) and vice
versa.
b. Financial influences, such as increasing or decreasing interest rates that
will tend to encourage or discourage spending.
c. Geographic influences, which often impact Australia significantly as we
are prone to drought, flood and fires.
d. Social influences, which are reflected by the diversity of products on the
Australian market now that we have embraced a multicultural approach.
e. Legal influences are changes that have been forced on business by
legislation, usually for the protection of consumers.
f. Political influences arise as government implements policies that they feel
are for the good of the population, such as discouraging smoking.
g. Technological developments mean that firms must strive to use the latest
means to maintain their productivity over competitors.

Internal Influences, which are those within the control of the firm and are
often effects of accelerating technology, such as:
a. e-commerce the extensive use of EFTPOS and web-based sales.
b. New systems and procedures many firms ensure that they meet ASA or
ISO standards in their operations.
c. New business cultures firms are encouraged to scan the business
environment to seek out new, better ways to run their operations.

Structural responses to change are ways that you reorganise your firm to deal with
change. Many firms outsource (get outside contractors/consultants) to do specialized
work like accounting and marketing. Flattening structures will cut the layers of
management, but add to the span of control for managers that remain. Sometimes firms
will form strategic alliances, where they join forces for a special project. Developing
networks, perhaps by joining guilds, franchises or trading associations can also help
businesses deal with change.
16
Why not change? Despite the overwhelming reasons outlined above, some firms dont
or wont change. Reasons for resistance to change fall into four categories according
to the syllabus. These are:

a. Financial Costs changes can be expensive: paying for the purchase or lease
of new equipment; redundancy payouts to workers who have been
downsized (another way to say that their jobs are no longer there);
retraining costs associated with new equipment or procedures; and any costs
associated with the reorganizing of plant and equipment. For some firms
(particularly those near the end of the business life cycle), these costs may
outweigh the benefits gained from change. For others, they just provide an
excuse to avoid change.
b. Inertia of managers and/or owners. People become comfortable doing
things in certain ways. Change, particularly as you get older, is not something
many look forward to. Managers and owners may get in a rut and so they
may view change as an unnecessary interruption to their routines.
c. Cultural Incompatibility mergers and takeovers between businesses
bring together diverse ideologies and goals. Sometimes these just dont match
up and so prove to be incompatible. This is particularly true in our globalised
world. What works in Japan may not be transferable to a more casual culture
like Australias.
d. Staffing employees are familiar with making changes, but most dont like
the losses of career paths and promotional opportunities that are associated
with flattening of organisational structures, a common change. New
technologies will often mean machines do tasks previously done by people.
Robots completing welding tasks mean that workers have become deskilled,
simply providing maintenance rather than doing the welding themselves.
Often older workers resist having to learn new skills. Im sure that many of
you are familiar with cries from your parents about computers.

17
Once the decision is made to make a change, the next step is managing the change
effectively. The syllabus identifies four components in this process:

1. Identifying the need for change. Change in itself is not desirable.
Management needs to scan the business environment constantly and
recognize when, how and what changes need to be made. This should be done
in consultation with employees wherever possible.
2. Setting achievable goals. Radical change is always more difficult to
implement than minor change. The Japanese notion called Kaizen, or
continuous improvements, is based on the idea that change should be made up
of many small steps and that workers should be consulted about ways to
improve their productivity. Whatever approach is taken, it is important for
management to set goals that can be achieved. Such goals will usually have
quantitative (number) and temporal (time) aspects, for example, to increase
output by 10% in 6 months.
3. Creating a culture of change. As previously identified there are many
reasons for resistance to change. Management can help overcome such
resistance by encouraging a teamwork approach. This can be achieved by
keeping employees in the loop when making changes. This can be done
simply by way of brief updates at meetings where workers opinions are
sought, or on a large scale such as weekend conferences where brainstorming
sessions are held and major new business plans are developed. To assist
management in these actions a change agent might well be outsourced. These
are consultants who have experience in bringing changes to businesses. They
are able to reduce resistance by using a range of techniques that they have
developed with other firms.
4. Change Models. Kurt Lewin was a famous psychologist who may be referred
to as the father of change agents. He outlined two models:
Force-field Analysis Managers need to examine the forces driving a
change and compare them to restraining forces. Once these have been
identified, the manager needs to either boost the driving forces and/or
reduce the restraining forces to implement change.
Unfreeze - change refreeze Model. This three step model involves
the following actions at each stage:
a. Unfreeze Prepare the firm for change by outlining reasons and
benefits to employees and any other stakeholders resisting change.
b. Change - Implement the changes by providing new technologies,
resources and training for staff.
c. Refreeze Reinforce the new direction for the firm by positively
rewarding staff and other stakeholders.
18
Sheet 3 Managing Change- Review Tasks

Use the following terms to complete the cloze passage below. Each word is used only
once, but there are more terms than spaces.

Terms: inertia, structural, effectively, Financial, alliances, incompatibility, change, flat,
e-commerce, politicians, career, agent, role, economic, redundancy, cultures, franchises,
dynamic, interest, expect, outsourcing, goals, weather, External, multicultural, systems,
legal, analysis, refreeze, technological, need, stakeholder, accelerating, implemented.

Managing _ _ _ _ _ _ has become an integral skill for modern day managers. The
business environment is a very _ _ _ _ _ _ _ one and if a firm is to survive in the long run
its management must recognize the need to _ _ _ _ _ _, plan for and implement change.
Change can come from a variety of sources. _ _ _ _ _ _ _ _ influences are numerous and
include _ _ _ _ _ _ _ _ factors such as upswings and recessions. In recent years a major
financial influence has been _ _ _ _ _ _ _ _ rates. Australias unreliable _ _ _ _ _ _ _ is a
geographic influence and our _ _ _ _ _ _ _ _ _ _ _ _ _ society has led to a variety of social
influences. Our complex _ _ _ _ _ system and increasing desire for control through
legislation by _ _ _ _ _ _ _ _ _ _ _ are other major influences. Finally, _ _ _ _ _ _ _ _ _ _ _ _ _
developments are ever-changing, influencing the way businesses operate.
Internal influences reflect the effects of _ _ _ _ _ _ _ _ _ _ _ _ technology. New _ _ _ _ _ _ _
and procedures must be implemented to deal with aspects like _-_ _ _ _ _ _ _ _ and
internet selling. New business _ _ _ _ _ _ _ _ such as hyper-businesses have become
common.
In dealing with change, businesses have employed a variety of _ _ _ _ _ _ _ _ _ _
responses. Staff has been downsized, with increasing use of _ _ _ _ _ _ _ _ _ _ _.
Management hierarchies have had the middle slashed to create _ _ _ _ structures and past
rivals have joined to form strategic _ _ _ _ _ _ _ _ _. Networks such as _ _ _ _ _ _ _ _ _ _
have blossomed.
Change is resisted for a variety of reasons. _ _ _ _ _ _ _ _ _ costs include purchase price of
new equipment, making _ _ _ _ _ _ _ _ _ _ payouts, retraining costs and expenses arising
from changes to plant layout. Many older managers and owners suffer from _ _ _ _ _ _ _,
being stuck in a routine that has worked for many years. Some mergers and/or takeovers
suffer from cultural _ _ _ _ _ _ _ _ _ _ _ _ _ _ _, especially when involving transnationals.
Finally, staff may resist change if it means deskilling, retraining or loss of _ _ _ _ _ _
paths.
Managing change _ _ _ _ _ _ _ _ _ _ _ basically involves three steps. Firstly, managers
need to identify the _ _ _ _ for change. Then they have to set achievable _ _ _ _ _. Finally
they need to create a culture for change so that change can be _ _ _ _ _ _ _ _ _ _ _. In doing
so they may well outsource a change _ _ _ _ _ who helps with the whole process. These
experts may well use one of Lewins change models; the Force-field _ _ _ _ _ _ _ _ model
and/or the unfreeze-change-_ _ _ _ _ _ _ _ model.
19

Sheet 3 Managing Change- Review Tasks Answers

Use the following terms to complete the cloze passage below. Each word is used only
once, but there are more terms than spaces.

Terms: inertia, structural, effectively, Financial, alliances, incompatibility, change, flat,
e-commerce, politicians, career, agent, role, economic, redundancy, cultures, franchises,
dynamic, interest, expect, outsourcing, goals, weather, External, multicultural, systems,
legal, analysis, refreeze, technological, need, stakeholder, accelerating, implemented.

Managing change has become an integral skill for modern day managers. The business
environment is a very dynamic one and if a firm is to survive in the long run its
management must recognize the need to expect, plan for and implement change.
Change can come from a variety of sources. External influences are numerous and
include economic factors such as upswings and recessions. In recent years a major
financial influence has been interest rates. Australias unreliable weather is a geographic
influence and our multicultural society has led to a variety of social influences. Our
complex legal system and increasing desire for control through legislation by politicians
are other major influences. Finally, technological developments are ever-changing,
influencing the way businesses operate.
Internal influences reflect the effects of accelerating technology. New systems and
procedures must be implemented to deal with aspects like e-commerce and internet
selling. New business cultures such as hyper-businesses have become common.
In dealing with change, businesses have employed a variety of structural responses. Staff
has been downsized, with increasing use of outsourcing. Management hierarchies have
had the middle slashed to create flat structures and past rivals have joined to form
strategic alliances. Networks such as franchises have blossomed.
Change is resisted for a variety of reasons. Financial costs include purchase price of new
equipment, making redundancy payouts, retraining costs and expenses arising from
changes to plant layout. Many older managers and owners suffer from inertia, being
stuck in a routine that has worked for many years. Some mergers and/or takeovers suffer
from cultural incompatibility, especially when involving transnationals. Finally, staff may
resist change if it means deskilling, retraining or loss of career paths.
Managing change effectively basically involves three steps. Firstly, managers need to
identify the need for change. Then they have to set achievable goals. Finally they need to
create a culture for change so that change can be implemented. In doing so they may well
outsource a change agent who helps with the whole process. These experts may well use
one of Lewins change models; the Force-field analysis model and/or the unfreeze-
change-refreeze model.
20

Sheet 4 Change and Social Responsibility

Businesses are increasingly being expected to examine the social implications of
their activities. Managers seek to develop good corporate citizenship by building
their firms reputation in the minds of consumers.
The syllabus outlines five aspects associated with change and social responsibility:

1. Ecological sustainability Management should seek production methods that
minimize their impact on the environment and preserve resources for future
generations. The move away from plastic shopping bags is a simple example
of this. Use of renewable resources such as plantation timber and solar energy
for electricity are ways of maintaining our current lifestyles without
compromising future generations.
2. Quality of working life One of the major thrusts in implementing change
has been downsizing employee numbers. This is particularly evident when
flattening the organisational structure. Middle management is usually cut,
resulting in a greater span of control for those managers that remain. This
leads to increased workloads and many view this as a reduction in the quality
of their working life. Employees at the workface are also adversely affected
when numbers are cut, making customers wait longer for service. They also
fear for their long-term job prospects when they see fellow workers made
redundant.
On a positive note, management is much more inclined to develop family
friendly employment strategies to boost the quality of working life. Job
sharing, maternity/paternity provisions and childcare facilities are all methods
by which managers are able to show employees that they care about them.
3. Technology Computerisation of databases means that vast amounts of
information about individuals are more readily available to those with access.
Firms need to act responsibly and establish procedures that ensure the privacy
of individuals is not compromised.
4. Globalisation In our globalised world managers need to accept some
responsibility in maintaining and developing cultural diversity. By providing
a range of products that reflect local cultural differences, rather than mass-
producing homogeneous goods, businesses can help to promote the kind of
variety that makes our world more interesting.
5. E-commerce As more and more trade occurs via the internet and through
other e-commerce technologies, businesses must ensure their customers
details are protected. Safety precautions such as encryption of credit card
numbers demonstrate social responsibility by businesses in this area.
21
Sheet 4 Change and Social Responsibility Review tasks

About time for a bit of a writing task. Remember how I said that for those of you
who struggle to get enough length into your responses, it is a good technique to
think of a long response as being several short bits joined together. The question
below should ideally be answered in about seven short paragraphs: an
introduction (that may only be a sentence or two), a paragraph for each of the five
aspects discussed on the previous page (you can use numbered points), and a
conclusion. Have a go!

Outline how and why management can demonstrate social responsibility when
implementing change in their business activities.

10 marks
22
Sheet 4 Change and Social Responsibility Review tasks - Answers

Outline how and why management can demonstrate social responsibility when
implementing change in their business activities.

A few things to remember when writing short or long responses in Business
Studies:
Try to keep your sentences brief
Use terminology from the syllabus
Underline relevant terminology or points (but dont overdo it)
Use dot points if appropriate (especially if youre running out of time or if
you are writing a business report)
Use plenty of paragraphs. If youre not sure when to start a new
paragraph, as a general rule of thumb start one after about three
sentences.
Avoid using personal examples like In my aunt Ednas shop.
Use case studies covered in class or from your own research.

A sample answer to the above question might go something like:

Management demonstrates social responsibility so that they and their firm are seen as
good corporate citizens. This should improve their long-term survival rate. They
achieve this through means such as:

1. Ecological sustainability. This involves using resources that can be sustained by future
generations eg., plantation timber or solar energy.
2. Quality of working life. By providing employees with family friendly programs such as
maternity/paternity leave and child care facilities firms are able to create a happier
and more productive workforce.
3. Technology. Precautions must be made to ensure that customer information held on
databases is protected. Only those with a real need for access should be able to see
such information.
4. Globalisation. When operating in different cultures businesses need to be aware of
cultural diversity and promote this wherever possible.
5. E-Commerce. Firms need to develop security mechanisms like encryption devices to
ensure that customers purchasing over the internet or using EFTPOS will not have
their financial details divulged to hackers.

If a business is able to achieve all of the above they will gain the trust of their
customers. This should help long-term success as well as improving profits.
23
MULTIPLE CHOICE REVIEW Topic One

1. Business management can best be described as activities that

(A) meet the goals and objectives of the firm.
(B) involve organising staff and allocating resources.
(C) create strategic and tactical plans for the future.
(D) all of the above.

2. Possessing vision, being able to complete complex problem-solving and having
adaptability to change are all

(A) roles of management.
(B) skills of management.
(C) functions of management.
(D) functions of stakeholders.

3. An example of an internal stakeholder would be

(A) employees.
(B) creditors.
(C) government.
(D) society as a whole.

4. Chad regularly meets with the subordinates under his span of control to discuss
their training requirements. The management role Chad is fulfilling is an

(A) interpersonal role.
(B) informational role.
(C) decisional role.
(D) ethical role.

5. The CEO of Triffids Ltd has had extensive management training and draws on
various aspects of most theories. He believes in adapting management and
organisational approach to circumstances and so is following

(A) classical-scientific management theory.
(B) behavioural management theory.
(C) political management theory.
(D) systems/contingency management theory.
24

6. Farmers Friend Ltd has experienced a severe downturn in sales in recent years as
customers have struggled with the drought. This is an example of

(A) an internal influence of geographic nature.
(B) an external influence of geographic nature.
(C) an internal influence of economic nature.
(D) an external influence of financial nature.

7. Meryl has called a meeting of major shareholders to outline a takeover bid for a
rival firm. This is an example of management fulfilling:

(A) an interpersonal role.
(B) an informational role.
(C) a decisional role.
(D) an ethical role.

8. A common structural response to change in modern business is to

(A) reduce span of control and increase hierarchies.
(B) reduce span of control and flatten hierarchies.
(C) increase span of control and increase hierarchies.
(D) increase span of control and flatten hierarchies.

9. Kurt Lewin proposed a change model that involved either increasing the forces
driving change and/or reducing the forces resisting change. This is called

(A) force-field analysis.
(B) Lewins unfreeze/change/refreeze model.
(C) classical-scientific management theory.
(D) structural response to change through the use of a change agent.

10. Nic believes in taking the stakeholder view. He sees management as negotiating
and bargaining and always keeps a close check on those with power and influence
within the firm. Nic is using

(D) systems management theory.
25
11. Just Go toilet supplies introduced EFTPOS for its customers in an attempt to
boost sales. The source of this change is

(A) an internal influence linked to e-commerce.
(B) an external influence linked to e-commerce.
(C) a government requirement under the Trade Practices Act.
(D) an example of structural change within the organisation.

12. The notion that managers resist change because they are comfortable with current
systems and procedures is best known as

(A) outsourcing.
(B) ecological sustainability.
(C) autocratic leadership.
(D) inertia.

13. Fayood has been brought in to assist employees and management implement
much needed change at Stuck-in-a-Rut Industries. Fayood is best described as a

(A) change agent.
(B) change networker.
(C) change model.
(D) change management theory.

14. McFoods Mega Food Barns have decided to abandon their traditional menu and
include local delicacies in an attempt to crack the Japanese market. This change is
demonstrating social responsibility via

(A) ecological sustainability.
(B) managing cultural diversity.
(C) e-commerce.
(D) technology.

15. Gemma likes to get to know her employees. As their boss she takes an active
interest in their views on decision making in the firm. Gemma believes in

(D) systems management theory.
26

16. The general manager of ASEX Pty Ltd has used a series of consultant reports to
help choose between alternatives for a new product. This is an example of:

(A) an interpersonal role.
(B) an informational role.
(C) a decisional role.
(D) an ethical role.

17. Jessica is assisting in negotiations between employees of the firm and a
government agency that is attempting to implement unwanted new safety
regulations. This is an example of a manager trying to reconcile conflicting
interests between

(A) two internal stakeholders.
(B) two external stakeholders.
(C) an internal and an external stakeholder.
(D) an internal and an external shareholder.

18. Staff is likely to resist change because of

(A) the cost of new equipment.
(B) the need for participative leadership.
(C) the increased division of labour.
(D) the loss of career prospects.

19. One financial cost that may lead to resistance to change is

(A) loss of promotional opportunities.
(B) cultural incompatibility of mergers.
(C) redundancy payouts.
(D) de-skilling of the workforce.

20. Fast Foods Ltd employs young staff who perform repetitive tasks. The
management theory most likely to be used in this situation is

(A) classical-scientific theory.
(B) behavioural theory.
(C) political theory.
(D) force-field theory.
27
MULTIPLE CHOICE REVIEW Topic One Answers

1. d
2. b
3. a
4. a
5. d
6. b
7. b
8. d
9. a
10. c
11. a
12. d
13. a
14. b
15. b
16. c
17. c
18. d
19. c
20. a
28

29

30

31
32
33
HSC TOPIC 2: FINANCIAL PLANNING AND MANAGEMENT

Sheet 1 The Role of Financial Management

Strategic plans are those made in the medium to long term (3-5 years). The role of
financial management in such plans is to ensure that necessary funds are available
when needed at the cheapest possible price.

The syllabus identifies five objectives of financial management:
1. Liquidity ensuring the short-term ability of a firm to meet debts by keeping
a close eye on current assets and current liabilities.
2. Profitability most firms strive to boost profits by maximizing the difference
between revenues gained and costs associated with running a business to
provide owners with the best return possible for their investment.
3. Efficiency - relates to minimizing expenses and ensuring that debtors (those
who buy from you on credit) pay up in a suitable timeframe.
4. Growth most firms set targets in relation to growth in sales, turnover and/or
profits.
5. Return on Capital shareholders/owners seek optimal returns for the money
they have invested in a business (capital). Low or negative returns will place
the firm in long-term jeopardy (not to mention jobs of managers!).

The syllabus also identifies nine aspects of the planning cycle:
1. Addressing present financial position managers need to conduct a fiscal
situation analysis to examine the current condition of the firms finances.
2. Determining financial elements of the business plan managers need to
examine the needs for funds that arise from the future plans of the firm.
3. Developing budgets estimates must be made for areas such as labour hours,
raw materials and marketing.
4. Cash Flows examine cash inflows and outflows in an attempt to anticipate
shortfalls and oversupplies so that they can be evened out.
5. Financial Reports such as Revenue Statements and Balance Sheets are
legal requirements and provide a basis for future planning.
6. Interpretation of such records usually involves comparisons between
previous years and industry averages.
7. Maintaining records systems has become a much more simple process with
computer-based systems such as MYOB (Mind Your Own Business).
8. Planning Financial Controls records and systems need to be reviewed both
internally and externally through means such as audits.
9. Minimising financial risks and losses has become much more complex
since globalisation has opened up problems such as foreign exchange dealing.
34
Sheet 1 The Role of Financial Management Review Tasks

Okay, sometimes revision is hard because there is too much to remember. This is
probably one of those occasions, so Ill make it easier for you.

1. How many of the five objectives of financial management can you remember?
See if you can finish these off:

a. L _ _ _ _ _ _ _ _
b. P _ _ _ _ _ _ _ _ _ _ _ _
c. E _ _ _ _ _ _ _ _ _
d. G _ _ _ _ _
e. R _ _ _ _ _ on C _ _ _ _ _ _

2. If you thought that was hard, what about the nine aspects of the planning
cycle? Best of luck:

a. Addressing the present f _ _ _ _ _ _ _ _ p_ _ _ _ _ _ _
b. Determining financial elements of the b _ _ _ _ _ _ _ p _ _ _
c. Developing b _ _ _ _ _ _
d. C _ _ _ F _ _ _ _
e. Financial R _ _ _ _ _ _
f. I _ _ _ _ _ _ _ _ _ _ _ _ _
g. Maintaining record s _ _ _ _ _ _
h. Planning financial c _ _ _ _ _ _ _
i. M _ _ _ _ _ _ _ _ _ financial r _ _ _ _ and l _ _ _ _ _

3. Well, if you got through those okay this should be a breeze. Answer true or
false:

a. Financial management involves only strategic planning.
b. A firms long-term financial viability is called liquidity.
c. The difference between a firms revenue and costs is its profit.
d. One measure of a firms efficiency is how quickly it recovers debts.
e. A common measure for a firms growth is its increase in owners.
f. Return on capital is often calculated as a percentage.
g. A balance sheet is frequently used for cash flow analysis.
h. Computer programs have made account keeping a harder task.
i. An audit is an examination of a firms financial records.
j. Trading overseas increases financial risks for firms.
35
Sheet 1 The Role of Financial Management Review Tasks - Answers

1. How many of the five objectives of financial management can you remember?
See if you can finish these off:

a. Liquidity
b. Profitability
c. Efficiency
d. Growth
e. Return on Capital

2. If you thought that was hard, what about the nine aspects of the planning cycle?
Best of luck:

a. Addressing the present financial position
b. Determining financial elements of the business plan
c. Developing budgets
d. Cash Flows
e. Financial Records
f. Interpretation
g. Maintaining record systems
h. Planning financial controls
i. Minimising financial risks and losses

3. Well, if you got through those okay this should be a breeze. Answer true or
false:

a. Financial management involves only strategic planning. F
b. A firms long-term financial viability is called liquidity. F
c. The difference between a firms revenue and costs is its profit. T
d. One measure of a firms efficiency is how quickly it recovers debts. T
e. A common measure for a firms growth is its increase in owners. F
f. Return on capital is often calculated as a percentage. T
g. A balance sheet is frequently used for cash flow analysis. F
h. Computer programs have made account keeping a harder task. F
i. An audit is an examination of a firms financial records. T
j. Trading overseas increases financial risks for firms. T
36

Sheet 2 Financial markets relevant to business financial needs

Businesses need access to funds and the syllabus refers to seven major participants
in the financial markets that provide this money. They are:

1. Banks the traditional source of funds. Within most banks there is a division
called the trading bank, especially established to help business.
2. Finance Companies provide funds for riskier ventures, but charge much higher
interest rates than banks.
3. Insurance Companies invest policy payments in businesses to make a return to
boost their overall funds.
4. Merchant Banks as the name implies, banks established especially to assist
firms. They link investors with businesses in need of funds, often via debentures.
5. Superannuation/Mutual Funds a major source of funds since the government
introduced compulsory superannuation for all employees. They invest in much the
same way as insurance companies, with a view to gain returns for their members.
6. Companies as businesses grow, one way they can diversify is to invest in other
firms. This provides them with variety whilst allowing them to stay focused on their
own prime function.
7. Reserve Bank of Australia the Commonwealth governments bank. Not a bank
as such, but is important as it leads trends in interest rates through its sale of bonds
and establishes a base rate that most lenders follow, up or down.

As firms grow, some choose to gain funds by becoming public companies. This
involves them issuing a prospectus via the Australian Stock Exchange (ASX). The
firm advertises for investors to take up shares in their business. This is the primary
market component of the ASX, a once-only event when a company becomes a public
entity. (The more well known secondary market of the ASX is the one you see on the
news all the time when people are buying and selling shares in companies like BHP.)

The cost of borrowing money is interest. In recent years rates of interest have been
creeping up and this has made borrowing a more and more expensive option for firms.
In Australia the major influence on interest rates is the Reserve Bank. They are
particularly keen to keep inflation down. To do this they will increase interest rates to
dampen both consumer and business spending. (At least thats the theory.) Overseas
influences have become more important since globalisation and the deregulation of the
financial sector. Money market operators can shift millions by simply pressing a button
on their computer. So if interest rates are more attractive in, say, the USA, money will
flow out of Australia. Less money here will tend to force rates up as borrowers compete
for the remaining funds. This can thwart the desires of the Reserve Bank.
37
Sheet 2 Financial markets relevant to business financial needs- Review Tasks

1. Why should managers know about the relevant financial markets available to
businesses?

2 marks
2. Explain how the Australian Stock Exchange acts as a primary market and how this
assists firms seeking funds for expansion.

2 marks
3. A bit of fun for a change? Why not, you need to relax and who knows, you might
learn a bit of terminology at the same time. See if you can find 20 terms below.

S U P E R A N N U A T I O N
S A B S E I N A P M O C P C
E S D I V E R S I F Y A S N
C R D E C I L B U P R E D O
O O E C N A N I F T T F E I
N T B O N D S B I A N M B T
D S G H I J A C R O E J E A
A E O N M N I T I R L K N L
R V P Q K P S T C R S T T U
Y N Y S A E A H X W V U U G
A I Z N R L A P R I M E R E
B E T E F N L A U T U M E R
C S T N T R E S E R V E S E
D N I F E C N A R U S N I D
I E G N A H C X E K C O T S

38
Sheet 2 Financial markets relevant to business financial needs- Review Tasks
Answers

1. Why should managers know about the relevant financial markets available to
businesses?

Managers need to have funds ready for a business when they are required. By knowing
major participants in the financial markets, they are better able to access the type and
amount of funds that are needed at the best possible price.

2 marks

2. Explain how the Australian Stock Exchange acts as a primary market and how this
assists firms seeking funds for expansion.

The primary market of the ASX is where businesses list themselves as public companies.
This process allows firms to sell shares to the public at a par value, often $1. The funds
raised in this way are then available to the public company to use for its expansion.

2 marks

3. A bit of fun for a change? Why not, you need to relax and who knows, you might
learn a bit of terminology at the same time. See if you can find 20 terms below.

The terms were:

Participants
Banks
Finance
Insurance
Merchant
Superannuation
Mutual
Companies
Reserve
Stock exchange
Interest rates
Debentures
Diversify
Investors
Bonds
Inflation
Deregulation
Secondary
Public
Prime
39


Sheet 3 Management of Funds

Funds for business use have two basis sources, internal and external, and for these
two areas there are a variety of sub-types listed in the syllabus. They are:

Internal as the name implies funds that come from inside the firm. They
are also referred to as equity sources. Two types are:

o Owners Equity Also referred to as Capital, this consists of money
that the owners/shareholders put into the business from their own savings
or funds.
o Retained Profits Sometimes rather than use outside money, businesses
will plough back the profits as the business grows.

External money that comes into the firm from outside the owners or
profits. These are generally called debt sources. Types include:

o Short term borrowing Includes an Overdraft (the ability to write
cheques for more than you have in your account, within agreed limits by
the lender) and Bank Bills (bank guaranteed IOUs between you and
others).
o Long term borrowing Includes mortgages (loans where an asset,
usually land and buildings, is used as collateral) and debentures
(effectively, loans from the general public, usually organised via a
merchant bank or finance company).

Other listed sources that may be short or long term are:

Leasing involves renting rather than buying expensive assets, usually with
an option to buy the product at the end of the lease.
Factoring involves selling off your credit customers to another. Retailers
such as Harvey Norman do this by providing in-house credit issued by a
linked credit provider.
Venture Capital is money put in to high risk/high return type businesses
by established companies.
Grants governments at all levels provide financial assistance to businesses
that meet their stringent criteria.
40
Whichever of the above is accessed, it is important for the finance manager to try to
match the terms of the funds to the source that is chosen. It would be foolish for a
firm to initiate a mortgage or bring in extra owners for a short-term requirement such as
a monthly cash shortfall due to equipment breakdown. An overdraft would be more
appropriate for this. Such financial considerations are a major part of the job of a
finance manager.

Another major consideration for managers is the balance between debt and equity
financing. This is often referred as gearing and/or leverage. A highly geared firm is one
that has high levels of debt finance compared to equity. (This can be seen by comparing
liabilities with owners equity in the balance sheet.)
How high is too high?
This is best determined by looking at industry averages. If most firms have a gearing of
say 2:1 and your firm is running at 4:1, its probably too high.

The major cost of debt financing is the interest that you have to pay on the loans. This
will reduce a firms net profit, but might not be quite as bad as it first appears because
they pay less tax. The major cost of equity finance is that the more owners that there
are, the wider the profits have to be spread. Taking on more owners cant easily be
reversed, and it opens the door for loss of control by the original owners.

The major benefit of debt financing is that once you have cleared the debt, you get to
keep all the extra profits that the expansion has (hopefully) led to. As previously stated,
there are also tax benefits associated with borrowing as interest charge reduces taxable
net profits. The major benefit of equity finance is that it is free. You get a cash injection
that allows expansion without having to pay interest. If its a small business it may also
mean that an opportunity to share the workload has opened up.

Both alternatives have risks associated with them. Debt finance has led to many
businesses being forced to wind up when a downturn has reduced profits to a level
where interest repayments cant be met. Too often businesses borrow in good times at
low rates, only to find it impossible to repay if rates rise and/or a recession hits. Equity
finance, particularly through public share float, opens the door for takeover. How often
have you heard of Aussie icons being bought out by foreign companies, such as the
takeover of Arnotts? Also, by increasing the number of owners, dividends become
diluted, making the return on investment less attractive.
41
Sheet 3 Management of Funds Review Tasks

1. What steps should a manager take to ensure that they match the terms and sources
of finance to business purpose and structure?

3 marks

2. What is meant by gearing? Why do managers mix the form of financing that they
use for business expansion?

6 marks

3. Match the following terms to their corresponding definitions.

Terms: owners equity, retained profits, overdraft, bank bills, mortgage,
debentures, leasing, factoring, venture capital, grants.

a. Investments in high risk/high return firms.
b. A short term bank loan based on a cheque account.
c. Capital put into a firm by shareholders.
d. Funds provided to assist firms through the government.
e. A long-term loan backed by collateral such as land.
f. Money held back from dividends to fund expansion.
g. Long-term loans to businesses by investors.
h. Sale of debtors to a third party.
i. Short term IOUs with bank backing.
j. Renting of assets rather than purchasing.
42
Sheet 3 Management of Funds Review Tasks - Answers

1. What steps should a manager take to ensure that they match the terms and sources
of finance to business purpose and structure?

Managers first need to determine the firms requirements for finance in the future. Then
they should use short-term borrowings such as overdrafts or bank bills, or internal funds
like retained profits for small items. For larger projects long-term external sources like a
mortgage or debentures, or even extra internal owners equity should be considered.
3 marks

2. What is meant by gearing? Why do managers mix the form of financing that they
use for business expansion?

Gearing or leverage is usually expressed as the ratio between a firms level of debt
compared to its Owners Equity.
Managers can access either debt or equity sources of finance when the need for funds
arises. They tend to use short-term debt financing like an overdraft for everyday
needs like paying suppliers if there are insufficient retained profits to cover this.
For more significant projects they will compare the costs of debt sources on loans
like mortgages or debentures, with internal sources such as seeking increased funds
by increasing Owners Equity. The best alternative for the long term will be chosen.
6 marks


Terms: owners equity, retained profits, overdraft, bank bills, mortgage,
debentures, leasing, factoring, venture capital, grants.

a. Investments in high risk/high return firms. venture capital
b. A short-term bank loan based on a cheque account. overdraft
c. Capital put into a firm by shareholders. owners equity
d. Funds provided to assist firms through the government. grants
e. A long-term loan backed by collateral such as land. mortgage
f. Money held back from dividends to fund expansion. retained profits
g. Long-term loans to businesses by investors. debentures
h. Sale of debtors to a third party. factoring
i. Short term IOUs with bank backing. bank bills
j. Renting of assets rather than purchasing. leasing
43

Sheet 4 Using financial information

The accounting framework is built around the process of double entry bookkeeping.
This means that for every financial transaction in a business two amounts are written
down so that the relationship remains balanced. This has led to the famous
accounting equation known by all bookkeepers and accountants:

ASSETS = LIABILITIES + OWNERS EQUITY

Assets are things that a business owns, liabilities what it owes to outsiders, whilst
Owners Equity represents what is left owing to the owners/shareholders. This
information is put together in a Balance Sheet.
Other important terms you need to understand when using financial information
includes expenses (recurring costs for a firm), income or revenue (money made,
usually through sales), and profits (the difference between income and expenses).
These terms are found mainly in another important account called the Revenue
Statement (also known as the Profit and Loss account or the Income Statement) that
has its own equation:

Sales Cost of Goods Sold = Gross Profit Expenses = Net Profit

Such accounts have a general format. Have a look at the one below:

Revenue Statement of M I Wealthy for the 12 months ending 30/6/06
Sales 1 000 000
- Cost of Goods Sold 400 000
Opening Stock 60 000
+ Purchases 410 000
- Closing Stock 70 000
= Gross Profit 600 000
- Expenses 350 000
Wages 130 000
Motor Vehicle expenses 20 000
Rent 50 000
Interest on loan 50 000
Insurance 30 000
Marketing 70 000
= Net Profit 250 000

44
The Revenue Statement is done first because the Net Profit that is worked out at the
end of the account is used in the Balance Sheet. Typically Balance Sheets look like:

Balance Sheet of M I Wealthy as at 30/6/06
Current Assets 150 000 Current Liabilities 100 000
Closing stock 70 000 Overdraft 30 000
Debtors 50 000 Creditors 60 000
Cash at bank 30 000 Wages owing 10 000

Non-Current Assets
850 000
NonCurrent Liabilities
500 000
Machinery 450 000 Bank Loan 500000
Office Equipment 220 000
Motor Vehicles 180 000 Owners Equity 900 000
Capital 750000
Intangible Assets 500 000 + Net Profit 250000
Goodwill 300 000 - Drawings 100000
Patent 200 000
1500000 1500000

So what does it all mean?
Well, for a start you may well see accounts like these in section 2 of your exams. The
more familiar you are with them, the better youll be prepared to answer questions on
them such as those involving financial ratio analysis. The syllabus lists:

Liquidity, which examines the short-term position of the business through
the Current ratio = Current Assets : Current Liabilities. From the Balance
Sheet above this is = 150 000 : 100 000 or 1.5: 1, a good position.
Solvency, examines the long-term financial position of the firm through the
Debt to Equity ratio = Liabilities : Owners Equity. This is called gearing or
leverage and from the above = 600000 : 900000 or 2:3, another strong point.
Profitability can be measured using three ratios, (usually expressed as
percentages). From the Revenue Statement we can calculate the:

o Gross Profit ratio = Gross Profit / Sales = 600000/1000000 = 60%
o Net Profit ratio = Net Profit / Sales = 250000/1000000 = 25%
And from the Balance Sheet we can find the Return on Owners Equity
o Return on Owners Equity = Net Profit/Capital = 250000/750000 = 33%
45
Efficiency is measured using two ratios, one from each account.

o Expense ratio = Expenses/Sales = 350000/1000000 = 35%
o Accounts receivable turnover ratio = Sales/Accounts receivable (debtors)
= 1 000 000/50000 = 20. Now divide this onto 365 (days in the year). So
365/20 = 18.25 (days to collect debts).
o As raw figures these ratios and percentages have some meaning but they are
best used in a comparative way. That is, look at this firms figures from this
year with other figures over time, or through industry averages from similar
firms or against some common standard.

Whats all that you say?
Dont worry. If you get a question in the exam it will have figures there for you to make
comparisons. Remember, information given in questions is usually there for a purpose.
Make sure you use it effectively. About the only other thing to compare it to is current
interest rates. If a business has a Return on Owners Equity of say 5% and you know
that you can get 7% just by investing in the bank down the road, risk free and with no
effort, the firm isnt going too well.

There are a few limitations of financial reports noted in the syllabus:

Historical Costs Accountants usually write down how much an item cost
when it was purchased. If it depreciates they will write down its value,
because that is good for tax purposes. However, if it appreciates they are
unlikely to write it up unless the firm is actually wanting to look good for, say,
a prospective purchaser or public float.
Value of Intangibles You may have noticed in the Balance Sheet a sub-
heading called Intangible Assets. These are assets whose value is based on how
much people are prepared to pay for them, rather than some tangible figure like
cost of production plus markup. The most common intangible asset is
Goodwill. This is basically the reputation value of a business. If it is a popular
firm with customers, goodwill will be high. However, estimating its value is a
tricky task. When purchasing a business you need to be wary if this figure is
too high. How high is too high? Again, there is no definitive answer, but if
goodwill, as a percentage of total assets, makes up more than the return on
Owners Equity, be careful. The other intangible listed is a patent. This is a
right to a process, design or trademark. You can just imagine how much the
secret formula for Coke is worth. Did you know that there are only two people
at any one time who have it? The CEO and his deputy, and they are never
allowed on the same plane at once. (Isnt business trivia exciting?).
46
Sheet 4 Using financial information Review Task

Dale has contacted you, as her financial consultant, to write her a report in regards to
a business that she is considering buying. She could only get the following
information for you to use to help you prepare the report:

Capital = $500 000
Sales = $250 000
Current Liabilities = $40 000
Gross Profit = $150 000
Debtors = $25 000
Long Term Assets = $500 000
Long Term Liabilities = $260 000
Net Profit = $50 000
Current Assets = $20 000
Goodwill = $200 000

In your report ensure that you provide Dale with a complete ratio analysis and an
opinion, based on the data, as to whether the price of $1 million is a fair one.

10 marks
47
Sheet 4 Using financial information Review Task- Answers

Dale has contacted you, as her financial consultant, to write her a report in regards to
a business that she is considering buying. She could only get the following
information for you to use to help you prepare the report:

Capital = $500 000
Sales = $250 000
Current Liabilities = $40 000
Gross Profit = $150 000
Debtors = $25 000
Long Term Assets = $500 000
Long Term Liabilities = $260 000
Net Profit = $50 000
Current Assets = $20 000
Goodwill = $200 000

In your report ensure that you provide Dale with a complete ratio analysis and an
opinion, based on the data, as to whether the price of $1 million is a fair one.

Dear Dale,
Thanks for the opportunity to work with you again. Based on the data you have
given me I have been able to develop the following information that you may find useful:
The business profitability can be seen by the following ratios:
o Gross Profit ratio = 150000/250000 = 60% (industry average = 40%)
o Net Profit ratio = 50000/250000 = 20% (industry average = 25%)
o Return on Owners Equity = 50000/500000 = 10% (industry average = 12%)
These figures seem to indicate that the firm is currently spending too much on expenses.
If you can cut these, the good Gross Profit levels should improve the Net Profit situation.
Following on from this the efficiency ratios are:
o Expense ratio = 100000/250000 = 40% (industry average 20%)
(You should have found the $100000 by subtracting net profit from gross profit)
o Accounts receivable turnover ratio = 250000/25000 = 10; 365/10 = 36.5 days
(industry average 28 days)
As previously stated, expenses are too high. The accounts receivable turnover ratio also
shows that the firm is too slow in collecting debts.
The liquidity of the firm is another minor concern as the industry average is 1:1.5
Current Ratio = Current Assets : Current Liabilities = 20000/40000 = 1:2
The gearing of the firm shows its solvency or long term viability. This firms
Debt : Equity ratio = 300000 : 500000 = 1 : 1.66 (industry average 1 : 1.3)
So this firm is a low geared one, which is a positive point in your considerations. With total
assets of $720 000 the asking price would seem too high, especially as the intangible asset
of Goodwill has already been included at $200 000. Return on investment would also be low
(50000/1000000=5%) but the opportunity does exist to boost net profit by cutting expenses.
I think that the business has prospects, but is overpriced. Try an offer around $700 000.
Please dont hesitate to contact me if you require further assistance.
Regards, your name.
48

Sheet 5 Effective working capital (liquidity) management

The Working Capital ratio, also known as the Current ratio, is expressed as:

Current Assets : Current Liabilities

This ratio reflects a firms liquidity, or short-term ability to meet debts. This
situation can change from day to day, but a business must ensure that it doesnt
maintain an imbalance in this ratio on a continuous basis. Many firms have been
forced to close down because creditors have gained court orders enforcing payments
that could not be made.

Management is responsible for control of both current assets and current liabilities.
They can control the current asset, cash, by ensuring that there is not too much or too
little in the bank. When surpluses arise, they can move their cash into investment
accounts, even in the short term, or use it to clear other debts. When shortfalls in
cash arise, overdraft arrangements can be negotiated with banks to tide the firm
over. Leasing is another strategy that reduces cash requirements. By renting rather
than purchasing equipment, firms can use cash for other purposes. In some more
extreme circumstances, firms can use the strategy of sale and lease back. If cash
needs are high a firm might sell its property and then lease it back to cash up.
Receivables, owed by debtors, are moneys owing mainly from credit sales. If the
level of debtors is too high, firms need to look to their credit policy. A good strategy
is to reduce the repayment period, say from 28 days to 14. Another method is
factoring. This involves selling off your debtors to a third party, the factor, who
buys the debts from the firm at a discounted price.
Inventories, or stock, need to be available on customer demand. Many firms use the
just-in-time method of stock to control this asset. By establishing reliable suppliers
stocks can be minimized, but still satisfy customer demand.

Control of current liabilities includes minimizing overdrafts. Any excess cash
should be used to clear this debt as soon as possible. Overdraft and creditors (those
you owe money to, usually for stock purchases) can also be minimized by effective
stock control. Just-in-time, or even just-your-customer stock control keeps these
payables down. Loans in the short-term may need to be changed into medium to
long-term ones if they are causing liquidity problems. Im sure you have all heard
about consolidating your loans and rolling loans in with your mortgage. Care must
be taken to match the term of the loan with the need for the cash. No point paying a
loan over 10-15 years if you can clear it in 3-5.
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Sheet 5 Effective working capital (liquidity) management Review Tasks

1. Match the following terms to their corresponding definition below.

Terms: working capital ratio, liquidity, receivables, inventories, assets, liabilities,
payables, loans, overdrafts, current ratio.

a. Stock held by a business.
b. Recurrent loans based on a cheque account.
c. Comparing current assets to current liabilities.
d. Money owing to a firm, usually by debtors.
e. Another name for the working capital ratio.
f. Borrowings from a credit provider.
g. Ability of a firm to meet short-term debts.
h. Items of value a business owns.
i. Money owing by a firm, usually to creditors.
j. Various types of debts of a firm.

2. For each situation below outline a strategy for managing working capital.

a. After a recent sale Johns Bros. has a cash surplus of $78 000.

b. Smith and Jenkins Ltd have a slow return rate for debtors, leading to high levels
for this receivable.

a. Frank and Earnest Pty Ltd have too much cash tied up in stock on hand.

50

b. Wright and Wong Ltd have had their overdraft at its limit for the past six months
and so havent been able to use it for its intended purpose.

e. Tim and Mikes Gameshop is overflowing with stock and suppliers are seeking
payment or else threatening to halt supplies.

f. Sheryl used a short-term personal loan to pay for half of her business. While the
business is going okay, shes having trouble getting enough extra cash each week to
cover these loan repayments.

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Sheet 5 Effective working capital (liquidity) management Review Tasks -
Answers

1. Match the following terms to their corresponding definition below.

Terms: working capital ratio, liquidity, receivables, inventories, assets, liabilities,
payables, loans, overdrafts, current ratio.

a. Stock held by a business. inventories
b. Recurrent loans based on a cheque account. overdrafts
c. Comparing current assets to current liabilities. working capital ratio
d. Money owing to a firm, usually from debtors. receivables
e. Another name for the working capital ratio. current ratio
f. Borrowings from a credit provider. loans
g. Ability of a firm to meet short-term debts. liquidity
h. Items of value a business owns. assets
i. Money owing by a firm, usually to creditors. payables
j. Various types of debts of a firm. liabilities

2. For each situation below outline a strategy for managing working capital.

a. After a recent sale Johns Bros. has a cash surplus of $78 000.

This should firstly be used to pay any overdraft, creditors or short-term loans (payables).
If there is any left it could be invested in the short-term money market.

b. Smith and Jenkins Ltd have a slow return rate for debtors, leading to high levels
for this receivable.

They need to look to their credit policy. They could reduce the credit period, say from
28 to 14 days and/or give discounts for early payments or consider factoring.

c. Frank and Earnest Pty Ltd have too much cash tied up in stock on hand.

To reduce stock levels they should implement a just-in-time inventory strategy. This would
mean that there is stock delivered on a more regular basis, rather than keeping too much.

52

d. Wright and Wong Ltd have had their overdraft at its limit for the past six months
and so havent been able to use it for its intended purpose.

They need to get some long-term finance, like extending their mortgage, to allow them to
access their overdraft. Reducing expenses should also decrease cash needs.

e. Tim and Mikes Gameshop is overflowing with stock and suppliers are seeking
payment or else threatening to halt supplies.

Creditors can be reduced by using a just-in-time stock control strategy. This will cut stocks
on the shelves and save the Gameshop from threats from this liquidity problem.

f. Sheryl used a short-term personal loan to pay for half of her business. While the
business is going okay, shes having trouble getting enough extra cash each week to
cover these loan repayments.

Sheryl should seek to change this loan to a long-term liability. She could extend a mortgage,
if she has one, or see a merchant bank or finance company for another alternative.

53

Sheet 5 Effective financial planning

The syllabus outlines two areas in effective financial planning:

Effective Cash Flow management

A cash flow statement usually shows monthly movements of cash in a firm. It starts
with a beginning balance, adds inflows, subtracts outflows and gives a final balance.

March April May June July August
Opening balance $1200 3200 2200 7000 4000 -2000
Cash inflow 12000 13000 14800 11000 10000 13000
Cash outflow 10000 14000 10000 14000 16000 10000
Closing balance 3200 2200 7000 4000 -2000 1000

It can be seen from the above that the closing balance from one month becomes the
opening balance for the next. In July the firm had a shortfall in cash due to higher
than normal outflows.

Two cash flow management strategies are listed in the syllabus:

a. Distribution of payments If a major cost occurs in one month, say insurance, a
firm should negotiate with the provider to spread the payment over the year.
b. Discounts for early payments To boost cash inflow, giving credit customers a
discount for early repayment of debts is a useful strategy.

Effective Profitability management.

Profit is derived by subtracting expenses from revenues. To manage these, the
syllabus lists the following strategies:
a. Cost Control Fixed costs such as rent may be reduced by finding a cheaper
location. Variable costs like stock can be reduced by seeking newer, cheaper
suppliers. Establishing cost centres within a firm to minimize each sections costs
can be effective as awareness is raised about the concern. Expense minimization
can range from simple things like photocopying on both sides of the paper to more
complex strategies like outsourcing consultants after downsizing employees.
b. Revenue Controls To boost revenues a firm will try to increase sales. Setting
sales objectives, such as targets or quotas for salespeople is one method used. The
sales mix can also be altered, so that more emphasis is placed on high-selling stock.
Pricing policy can also be used, e.g. slow moving stock can be discounted during a
sale to boost revenue.
54
Sheet 5 Effective financial planning Review Tasks

1. Complete the following Cash Flow Statement by filling in the blanks.

Opening balance $1000 7000 4000
Cash inflow 10000 21000 15000 10000
Cash outflow 7000 18000 19000 6000 20000
Closing balance 7000 4000 2000

In which months was there a positive cash flow?
In which months was there a negative cash flow?

What is the most common strategy used by firms to manage negative cash flows?


Terms: revenue controls, sales objectives, sales mix, pricing policy, cost
control, fixed costs, variable costs, cost centres, expense minimization, effective
profitability management.

a. Costs that do not change with the level of production.
b. Setting of targets or quotas for salespeople.
c. Managing cost and revenue controls.
d. Sections in a firm that check on expenditure on expenses.
e. Overall methods used to reduce costs for a business.
f. Strategies used to boost income for a firm.
g. Costs that change with the level of production.
h. Changing the emphasis on items for sale by a firm.
i. Saving costs by cutting on expenses.
j. Adjusting the amount charged for products to boost funds.
55
Sheet 5 Effective financial planning Review Tasks Answers

1. Complete the following Cash Flow Statement by filling in the blanks.

Opening balance $1000 4000 12000 7000 4000 8000
Cash inflow 10000 21000 15000 16000 10000 14000
Cash outflow 7000 18000 20000 19000 6000 20000
Closing balance 4000 12000 7000 4000 8000 2000

In which months was there a positive cash flow? March, April and July
In which months was there a negative cash flow? May, June and August

What is the most common strategy used by firms to manage negative cash flows?

Most firms establish an overdraft facility with their local bank to tide them over when they
have a lack of funds in the short run. This normally operates on their cheque account.


Terms: revenue controls, sales objectives, sales mix, pricing policy, cost
control, fixed costs, variable costs, cost centres, expense minimization, effective
profitability management.

a. Costs that do not change with the level of production. fixed costs
b. Setting of targets or quotas for salespeople. sales objectives
c. Managing cost and revenue controls. effective profitability management
d. Sections in a firm that check on expenditure on expenses. cost centres
e. Overall methods used to reduce costs for a business. cost control
f. Strategies used to boost income for a firm. revenue controls
g. Costs that change with the level of production. variable costs
h. Changing the emphasis on items for sale by a firm. sales mix
i. Saving costs by cutting on expenses. expense minimization
j. Adjusting the amount charged for products to boost funds. pricing policy
56

Sheet 6 Ethical and legal aspects

The syllabus outlines several ethical and legal aspects. They are:

1. Audited Accounts An audit is a check into the accuracy and reliability of a
firms accounting records. Internal auditing processes are usually in place, but
an external audit provides for independent analysis of a business finances.
2. Inappropriate cut off periods Accounts need to be done on a regular basis
and the introduction of the GST and Business Activity Statements (BAS) by
the Australian Tax Office has overcome problems in this area.
3. Misuse of funds Fraud and embezzlement are real problems for firms. Too
often an accountant has too much faith put in them. When temptation becomes
overwhelming, the money disappears. Regular, independent auditing helps.
4. Australian Securities and Investment Commission Or ASIC as it is better
known (its okay for you to use well-known acronyms like ASIC in answers.
It saves time and the examiners arent all stupid!) is the corporate watchdog or
the business police in Australia. They pursue businesses and directors/owners
who do the wrong thing. Probably their most famous case was chasing
Christopher Skase. You can visit their website for more information.
5. Corporate raiders are companies that see when the share price for a business
is at an artificially low price and take advantage of this situation by buying
controlling interests in the firm. Frequently they will then break up the
business and sell off the assets. This is a process known as asset stripping. It
is legal, but not very ethical. If youve seen the movie, Pretty Woman, this is
what Richard Gere does for a living and is one of the moral dilemmas raised in
the movie.

Okay, its been a long chapter, so Im going to let you off. No revision tasks for
sheet 6. (Too short to think anything up!) Did I hear someone say hooray!?

57

MULTIPLE CHOICE REVIEW Topic 2

1. The objectives of financial management include

(A) liquidity, profitability, efficiency and honesty.
(B) liquidity, profitability, growth and honesty.
(C) liquidity, profitability, efficiency and honesty.
(D) liquidity, profitability, efficiency and growth.

2. The sale of a firms debts to a third party is known as

(A) factoring.
(B) leasing.
(C) mortgage.
(D) overdrafting.

3. The accounting equation is correctly expressed as

(A) Assets + Liabilities = Owners Equity.
(B) Assets = Liabilities = Owners Equity.
(C) Assets = Liabilities + Owners Equity.
(D) Assets + Liabilities - Owners Equity.

4. The ability of a business to meet long-term debt is referred to as its

(A) liquidity.
(B) solvency.
(C) profitability.
(D) efficiency.

5. An intangible asset that must be closely examined by prospective purchasers of a
business is

(A) debtors.
(B) creditors.
(C) drawings.
(D) goodwill.
58

6. When a business goes public by listing on the stock exchange for the first time it
does so through the ASXs

(A) product market.
(B) primary market.
(C) secondary market.
(D) tertiary market.

7. The bank responsible for monetary stability and interest rate control in Australia
is the

(A) Reserve Bank.
(B) Commonwealth Bank.
(C) Australian Securities and Investment Commission.
(D) Merchant Bank Guild of Australia.

8. A financial statement that shows revenues and expenses to calculate Net Profit is

(A) a Cash Flow Statement.
(B) the Balance Sheet.
(C) a Revenue Statement.
(D) the Revenue Sheet.

9. The rate of return on owners equity is a measure of a business

(A) liquidity.
(B) solvency.
(C) profitability.
(D) efficiency.

10. An effective strategy for managing excess stock is

(A) just-in-time.
(B) factoring.
(C) leasing.
(D) sale and lease back.

59
11. When interest rates in the USA rise, the likely impact in Australia will be

(A) an inflow of funds into Australia, so rates would rise.
(B) an inflow of funds into Australia, so rates would drop.
(C) an outflow of funds from Australia, so rates would drop.
(D) an outflow of funds from Australia, so rates would rise.

12. A long-term loan based on collateral by way of real estate:

(A) overdraft.
(B) personal loan.
(C) mortgage.
(D) debentures.

13. An account that shows a firms assets, liabilities and owners equity:

(A) a Cash Flow Statement.
(B) the Balance Sheet.
(C) a Revenue Statement.
(D) the Revenue Sheet.

14. The accounts receivable turnover ratio helps show a firms

(A) liquidity.
(B) solvency.
(C) profitability.
(D) efficiency.

15. An effective management strategy for cash flow control is

(A) discounts for early repayments.
(B) sales objectives.
(C) expense minimisation
(D) pricing policy.
60

16. Two internal sources of funds for businesses are

(A) owners equity and overdraft.
(B) retained profits and overdraft.
(C) owners equity and retained profits
(D) overdraft and bank bills

17. A firms debt to equity ratio is often called its

(A) debentures.
(B) gearing.
(C) solvency.
(D) liquidity.

18. A business current ratio is a measure of its

(A) liquidity.
(B) solvency.
(C) profitability.
(D) efficiency.

19. The body that has the power to investigate and prosecute businesses who act
illegally is the

(A) Australian Conciliation and Arbitration Commission
(B) Australian Securities and Investment Commission.
(C) Australian Consumers Competition Commission.
(D) Australian Corporate Affairs Commission.

20. Two external sources of funds for businesses are

(A) owners equity and overdraft.
(B) retained profits and overdraft.
(C) owners equity and retained profits
(D) overdraft and bank bills

61
MULTIPLE CHOICE REVIEW Topic Two Answers

1. d
2. a
3. c
4. b
5. d
6. b
7. a
8. c
9. c
10. a
11. d
12. c
13. b
14. d
15. a
16. c
17. b
18. a
19. b
20. d
62

63

64

65
66
67
HSC TOPIC 3: MARKETING

Sheet 1 Nature and role of markets and marketing

The role of marketing in the firm is to boost overall sales so that the business can
improve profitability. The role of marketing in society is to promote awareness
about what products are on the market, what these products do and what they cost.

There are six different types of markets mentioned in the syllabus:
1. Resource Where primary products are gained for further use.
2. Industrial Where primary products are processed and turned into finished
or semi-finished goods.
3. Intermediate Both resource and industrial markets are usually intermediate
markets. Their products are usually not sold to the final consumer, but used in
further production or on-sold to retailers.
4. Consumer The final stage of the selling process where the buyer gets their
product.
5. Mass These are large-scale markets where homogeneous products are sold.
6. Niche These are small-scale markets where specialized products are sold.

Over time there has been a change in the orientation of firms in the marketplace. In
earlier times businesses simply produced goods that they knew people wanted. This
production orientation was a feature soon after industrialization. As wealth grew,
so too did peoples choices, so firms began using a selling approach. An example
was the use of door-to-door sales in the post-WWII long boom of the 1950s and
1960s. While such approaches still exist today, many modern businesses have a
marketing orientation. This means that they use a more integrated approach,
seeking out consumer needs before providing products that are suited to these needs.

This marketing concept or orientation is sometimes referred to as relationship
marketing. This process involves building an ongoing bond between a business and
its customers. Such a customer orientation means that firms need to take a personal
interest in their consumers. This is assisted by computer databases that allow regular
contacts to be kept with customers through mailouts, phone calls, emails and/or SMS
messages so that the relationship is maintained and developed.

68
Sheet 1 Nature and role of markets and marketing Revision Tasks

1. Place the products listed below into the appropriate markets as shown in the table:

Products : coal, steel, hot dogs, llama wool jumper, milk in a carton, wheat, pigs,
commodore car, computer circuits, surgeons scalpel, lathe, marine oil, sulphuric
acid, Picasso painting, television, bauxite.

Intermediate markets Consumer markets
Resource Industrial Mass Niche

2. Match the following terms with their corresponding definitions.

Terms: customer orientation, relationship marketing, marketing orientation, selling
approach, production orientation, marketing, resource, industrial, mass, niche.

a. Business approach that was used after the Industrial Revolution.

b. Methods used to promote the sale of a firms products.

c. Market for specialised products such as goats milk cheese.

d. Notion that firms develop ongoing bonds with customers.

e. Large-scale market for homogeneous products.

f. Business holding the needs of consumers as a priority.

g. Market for primary products.

h. Business approach that uses door-to-door technique.

i. Market for manufactured goods.

j. Modern, integrated approach by businesses in selling.

69
Sheet 1 Nature and role of markets and marketing Revision Tasks - Answers

1. Place the products listed below into the appropriate markets as shown in the table:

Products : coal, steel, hot dogs, llama wool jumper, milk in a carton, wheat, pigs,
commodore car, computer circuits, surgeons scalpel, lathe, marine oil, sulphuric
acid, Picasso painting, television, bauxite.

Intermediate markets Consumer markets
Resource Industrial Mass Niche
coal steel hot dogs llama wool jumper
wheat computer circuits milk in a carton surgeons scalpel
pigs lathe commodore car marine oil
bauxite sulphuric acid television Picasso painting

2. Match the following terms with their corresponding definitions.

Terms: customer orientation, relationship marketing, marketing orientation, selling
approach, production orientation, marketing, resource, industrial, mass, niche.

a. Business approach that was used after the Industrial Revolution.
production orientation

b. Methods used to promote the sale of a firms products.
marketing

c. Market for specialised products such as goats milk cheese.
niche
d. Notion that firms develop ongoing bonds with customers.
relationship marketing

e. Large-scale market for homogeneous products.
Mass
f. Business holding the needs of consumers as a priority.
customer orientation

g. Market for primary products.
resource

h. Business approach that uses door-to-door technique.
selling approach

i. Market for manufactured goods.
industrial

j. Modern, integrated approach by businesses in selling.
marketing orientation
70

Sheet 2 Elements of a marketing plan

One of the major tasks for a marketing manager is to create and use a marketing
plan. The elements of a marketing plan include:

1. Situational Analysis This is an overview of a business. This analysis
examines the history of the business, how it has grown, where it is now and
where it hopes to go in the future. A product life cycle diagram may be used
to indicate where the firm is in the four stages that exist. An important part of
this analysis is the SWOT. This stands for Strengths and Weaknesses from the
internal environment of the firm and external Opportunities and Treats. This
process allows a business to view its current position.
2. Establishing Marketing Objectives Businesses need to establish what
products the want to put on the market and how many of each they hope to
sell. A marketing plan helps to quantify such objectives by developing a
product line and sales targets.
3. Identifying the Target Market Most firms cant sell to the entire market.
The part of the market that they do try to sell to is known as the target
market. By identifying its target market a business can better focus its
marketing efforts.
4. Developing Marketing Strategies The four Ps of marketing need to be
mixed in a manner that allows a firm to best achieve its objectives. The four Ps
are:
a. P1 Product What type of goods or service is to be provided?
b. P2 Price How do you work out a price? Cost plus margin, what the
market will bear or recommended retail pricing.
c. P3 Promotion Methods to be used such as advertising or personal
selling.
d. P4 Place How will products be distributed? Where will it be sold?

5. Implementation Once the plan has been finalised its components need to be
communicated to all who need to know. At this stage financial forecasts are
usually made, to provide people with an idea of targets.
6. Monitoring Once the process is in place, management need to gather data to
compare actual results with those planned.
7. Controlling After analyzing the data collected, management may revise
various strategies. If sales are too low they may increase advertising or drop
prices to boost sales. Alternatively, they may realize targets were too high and
revise them to more realistic levels.
71
Sheet 2 Elements of a marketing plan Revision Tasks

1. Outline the need for a marketing plan in a business.

2. Answer the following true or false.

a. A SWOT analysis should have a history of the firm.
b. Growth is the first stage of the product life cycle.
c. The T in SWOT stands for external threats.
d. Establishing market objectives can be achieved through targets.
e. Most target markets are mass markets.
f. There are four Ps of the marketing mix.
g. Once devised, marketing plans should be carefully shelved.
h. Financial forecasts are often developed in the implementation
stage of a marketing plan.
i. Monitoring a marketing plan involves comparing planned
results with forecasts.
j. One way of revising marketing strategies would be to draw
up new sales quotas for selling staff.

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Sheet 2 Elements of a marketing plan Revision Tasks - Answers

1. Outline the need for a marketing plan in a business.

A business gains its profits by maximizing the difference between revenues and costs.
The best way to boost revenues is to increase sales of products offered by the business.
A marketing plan allows management to examine their current sales situation and come
up with strategies that will improve this result.


a. A SWOT analysis should have a history of the firm. F
b. Growth is the first stage of the product life cycle. F
c. The T in SWOT stands for external threats. T
d. Establishing market objectives can be achieved through targets. T
e. Most target markets are mass markets. F
f. There are four Ps of the marketing mix. T
g. Once devised, marketing plans should be carefully shelved. T
h. Financial forecasts are often developed in the implementation
stage of a marketing plan. T
i. Monitoring a marketing plan involves comparing planned
results with forecasts. F
j. One way of revising marketing strategies would be to draw up
new sales quotas for selling staff. T

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Sheet 3 Market research process and Consumer and buyer behaviour.

Businesses must determine what marketing information needs they have. Data
collection can be from primary sources, which are best because they are specific to the
firm and its requirements, or secondary sources. Primary sources like surveys are more
expensive than secondary ones, such as data from the Australian Bureau of Statistics or
industry associations. Secondary data can help with overviews and looking into the future,
e.g. by using the ABS census data, firms can gauge likely population growth in emerging
areas. Such analysis and interpretation of this data takes care as large quantities exist.

The syllabus lists seven types of customers: People, households, firms, educational
institutions, government, clubs and societies and, finally, religious organisations. Just
why it lists these, Im not sure, but there they are.

The syllabus also points out that in the buying process two groups can be identified:
buyers and users. Obviously these two groups arent the same. Im sure your parents
buy things for you and you buy for others. Why this is in the syllabus I dont know
either. The writers must have had a bad day, or two.

Finally, in this blockbusting section, the syllabus lists four factors influencing
consumer choice. At least with four alternatives it might come up as a multiple choice
question! These are:

a. Psychological Buyers may be influenced by their thinking when
making a purchase. If a business can get consumers to believe that
they are doing themselves good when buying, theyll be hooked.
b. Socio-cultural We live in a multicultural society that is heavily
influenced by American media. Both of these influence consumer
behaviour.
c. Economic How much money you have to spend often depends on
economic factors out of your control. High inflation pushes prices up,
but not how much you consume. An increase in interest rates will
mean more income goes on the mortgage, less on consumer spending.
d. Government Through policies, like anti-smoking campaigns; or
laws, like banning whale products; governments influence consumers.

These two sections seem very lame to me, so no revision tasks. About the only
important thing to remember is the difference between primary and secondary data.
Primary is best because it involves direct research by or for that particular business, but
it is much more expensive and time consuming.
74

Sheet 4 Developing marketing strategies

When identifying target markets many firms engage in a process called market
segmentation. This involves breaking up a market into separate, identifiable parts.
The new car market, for example, can be segmented into cars for young people,
family sedans, people movers and 4WDs. By segmenting in this way businesses
establish their target market/s and can introduce product differentiation so that their
goods or service stands out from the crowd. Volvos are well regarded as safe cars,
rather than for their zippy performance.

The four Ps are the major tools used by management in mixing marketing strategies.

a. P1 Product might be goods and/or a service. Aspects to consider are:
1. Positioning What part of the market are you aiming at? If you are
mass producing cheese, its likely to be at the broad end. If youre
making GMF free goats milk cheese, youre into a market niche.
2. Branding Establishing a well-known, identifiable brand is priceless.
The use of logos and trademarks are greatly protected by firms like
Nike. By getting a well-known handle, a firm increases customer
loyalty.
3. Packaging How the product looks on the shelf will have a huge
impact. I wonder how many of you have bought a computer game based
on the look of the box. Open it up and its still just a disc.

b. P2 Price needs to be right, or profits will be reduced. Aspects include:
1. Pricing Methods Common strategies include cost plus margin, what
the market will bear, and competition-based (follow the leader).
2. Pricing Tactics Include price skimming where high prices are
charged by those first into the market to take advantage of the monopoly
position. Price penetration usually involves selling at low prices to
establish a market share. If this price is below cost level sellers are
referred to as loss leaders (they might do this for a while to drive out
competition, as QANTAS did to the now defunct Compass Airlines).
Price points could involve firms giving customers bonus points as
loyalty rewards for buying their products.
3. Price and quality interaction Generally people accept the notion that
the better a product is, the more it will cost. Firms often use the sizing-
up or added extras ploys to get customers to buy bigger/better
models.
75
c. P3- Promotion The most obvious form of marketing and what too many
think it is all about. Elements of the promotion mix mentioned in the
syllabus are:
1. Personal Selling This is particularly useful in service provisions.
The idea of having your own personal financial consultant sounds a lot
better than an insurance salesperson getting at your superannuation.
2. Advertising The most visual promotional element, and quite
frequently the one that has the most money spent on it.
3. Below-the-line promotions These are in-house activities such as
demonstrations at trade fairs or samples at expos.
4. Public Relations Using the media through news and current
affairs is one of the main reasons why some firms attach themselves to
sporting or media identities. Every time Tiger turns up at a media
conference, the Nike swish is sure to be on his hat.
5. Opinion Leaders Identities, usually within the media, are used to
promote products. This area has come under scrutiny as an unethical
activity after radio personalities John Laws and Allan Jones were found
guilty of talking-up products for profit.
6. Word-of-mouth This has always been the best form of promotion.
Its free and builds up a firms reputation.

d. P4 Place This relates to how the product is distributed. Most products
go through intermediaries such as warehousers, who buy in bulk from
manufacturers and then distribute to retailers as demand arises. The
improved use of couriers and the desire for just-in-time inventory strategies
has meant that warehousing has grown in popularity. Three types of
distribution channel are specified in the syllabus:
1. Intensive Channels are those that widely distribute a good, like milk
vendors selling milk.
2. Selective Channels take more care in choosing who sells their
products. Car companies will only sell their new models through
established dealers, although there is usually one in each big town.
3. Exclusive Channels are the most selective of all. It may be that you
are the only retailer in a region, state or even the country who can sell a
product. CC Amatil has exclusive rights to distribute Coke products in
Australia.

The syllabus also notes some environmental effects on distribution.
Technology, especially with the increase in internet selling, has proven a boon
for warehousers selling directly to consumers. Local governments have zoning
laws that may restrict some activities and firms need to check these out.
76
Sheet 4 Developing marketing strategies Revision Tasks

1. Explain how market segmentation assists firms in target marketing and product
differentiation.

2. Match the following terms to their corresponding definitions:

Terms: selective, price penetration, warehousing, personal selling, branding,
zoning laws, exclusive, target market, intensive, price skimming.

a. Distribution channel with the fewest number of outlets.
b. Selling of products at low prices to gain market share.
c. Intermediary activity between manufacturers and retailers.
d. Distribution channel with many, but restricted outlets.
e. Restrictive rules that Local Governments possess.
f. Charging a high price for newly released products.
g. Distribution channel with the most outlets.
h. Promotion technique best suited for sale of services.
i. The market segments to which a firm tries to sell.
j. Use of logos and trade marks to identify products.

77

Sheet 4 Developing marketing strategies Revision Tasks - Answers

1. Explain how market segmentation assists firms in target marketing and product
differentiation.

Market segmentation occurs when businesses analyse a market and separate it according to
its identifiable parts. These parts have defining qualities such as age of most customers, type
of demands or level of income. Firms can then decide which segment or segments that they
wish to make their target market. Firms frequently differentiate their products by making
some modifications that set them apart from the rest. Such differences gives some buyers
the desired exclusivity.

2. Match the following terms to their corresponding definitions:

Terms: selective, price penetration, warehousing, personal selling, branding,
zoning laws, exclusive, target market, intensive, price skimming.

a. Distribution channel with the fewest number of outlets. exclusive
b. Selling of products at low prices to gain market share. price penetration
c. Intermediary activity between manufacturers and retailers. warehousing
d. Distribution channel with many, but restricted outlets. selective
e. Restrictive rules that Local Governments possess. zoning laws
f. Charging a high price for newly released products. price skimming
g. Distribution channel with the most outlets. intensive
h. Promotion technique best suited for sale of services. personal selling
i. The market segments to which a firm tries to sell. target market
j. Use of logos and trade marks to identify products. branding

78


Various issues of an ethical nature are listed in the syllabus, including:

a. Environmentally responsible products With the worlds population growth
putting increased pressure on resources, businesses are being expected to seek out
products and production methods that are sustainable. Recycling, re-using and/or
using renewable resources are all strategies firms are employing.
b. Creation of needs Do we really need all these products? Firms are increasingly
being asked to reduce investment in areas that are of no real benefit.
c. Impacts of retail developments Loss of free space and destruction of habitat
are both aspects associated with more retail developments. Local governments
can use zoning laws to restrict unwanted developments.
d. Sugging An interesting term, based on the notion of selling under the guise of
research. This unethical approach to selling sees salespeople chatting to buyers,
as if doing research, and then trying to sell products to them.

Consumer laws have an important role to play in marketing in Australia today. The
Commonwealth Trade Practices Act and the NSW Fair Trading Act are probably the
two most influential laws for customers in this state. Some of the things outlawed
include:

a. Deceptive and misleading advertising Claims made by advertisers must be
able to be enforced. For example, if a product is advertised in a sale, reasonable
quantities must be available to satisfy demand.
b. Price Discrimination Businesses can charge whatever price they want, but they
cannot take unfair advantage through discrimination.
c. Implied Conditions All goods that are sold should be of merchantable
quality. This basically means a toaster should safely cook toast. Goods should
also be fit for the purpose if a buyer outlines a need. So someone who mows
lawns for a living should be sold a long-lasting lawnmower.
d. Warranties Products need to have a back-up by way of guarantee. Relationship
marketing has gone a long way to increase firms interest in this area.
e. Resale Price Maintenance It is illegal for firms to refuse to supply a retailer
with product unless they charge a set retail price. This is why you see RRP
(recommended retail price) on many objects for sale.

The ACCC (Australian Competition and Consumer Commission) and the NSW
Department of Commerces Office of Fair Trading are the two bodies established
under these Acts to protect consumers.
79
Sheet 5 Ethical and legal aspects Revision Task

Find the terms that match the clues in the wordmaze below.

1. Environmentally ? products often use renewable resource input.
2. Are firms providing us with required products or just ? needs?
3. Local zoning laws are useful against unwanted retail ?
4. Selling under the guise of marketing can be called ?
5. The main Commonwealth consumer law is the Trade ? Act
6. The main NSW consumer law is the Fair ? Act
7. Both the above laws forbid misleading and ? advertising
8. Businesses cannot engage in unfair price ?
9. Implied ? for goods on sale include merchantable quality
10. Fit for the ? is an implied condition when a buyer wants a certain quality
11. Products usually are sold with a ? or guarantee
12. ? price maintenance is an illegal activity by wholesalers
13. The Australian ? and Consumer Commission protects consumers nationally
14. The NSW Department of ? looks at similar matters at a state level
15. This Departments ? of Fair Trading directly assists with consumer problems

C Q W E E L A S E R R T Y U I O P O
W O S D F G H S U G G I N G J K F L
A A M S D F G H J K L M N B V F D C
R V C M C O N D I T I O N S I X I Z
R B N M E Q W E R T Y U I C O P S A
A A G S D R F G H J K P E L M N C B
N G N P O I C U Y T R R E W D Q R B
T N I A S D F E G A N H J E K L I F
Y I T E W Q Z X C O C V C B N M M E
E D A R T Y H T I U I E P L K J I L
A A E S D F I T G H P J K L P O N B
Z R R X C C I V B T N M L K J H A I
A T C S E T D F I G H J K L M N T S
W Q E S E R T V Y U I O P L K J I N
R S C P Z Q E C E R D F F G H J O O
M C G D E V E L O P M E N T S T N S
X O Z C V B N M J K L O P U Y T E E
C A Y E S O P R U P E S D V V S F R

80
Sheet 5 Ethical and legal aspects Revision Task - Answers

Find the terms that match the clues in the wordmaze below.

1. Environmentally responsible products often use renewable resource input.
2. Are firms providing us with required products or just creating needs?
3. Local zoning laws are useful against unwanted retail developments
4. Selling under the guise of marketing can be called sugging
5. The main Commonwealth consumer law is the Trade Practices Act
6. The main NSW consumer law is the Fair Trading Act
7. Both the above laws forbid misleading and deceptive advertising
8. Businesses cannot engage in unfair price discrimination
9. Implied conditions for goods on sale include merchantable quality
10. Fit for the purpose is an implied condition when a buyer wants a certain quality
11. Products usually are sold with a warranty or guarantee
12. Resale price maintenance is an illegal activity by wholesalers
13. The Australian Competition and Consumer Commission protects consumers
nationally
14. The NSW Department of Commerce looks at similar matters at a state level
15. This Departments Office of Fair Trading directly assists with consumer
problems
C E L A S E R O
W O S U G G I N G F
A M F D
R M C O N D I T I O N S I I
R E C S
A G R P E C
N G N C R D R
T N I E A N E I
Y I T C O C M E
D A T I E I L
A E I T P N B
R R C I T A I
T C E T I T S
S E V I N
P E O O
M D E V E L O P M E N T S N S
O E
C E S O P R U P R
81

1. Typically an intermediate market is one that is in the

(A) resource sector and produces finished goods.
(B) industrial sector and produces semi-finished goods.
(C) mass sector and produces finished goods.
(D) tertiary sector and produces niche goods.

2. When comparing actual results with those that were planned, managers are

(A) implementing.
(B) monitoring.
(C) controlling.
(D) forecasting.

3. To work out how much to charge, Ron calculates his expenses to do a job and
then doubles the number. Ron is using a

(A) cost plus margin method of pricing.
(B) what the market will bear method of pricing.
(C) follow the market leader method of pricing.
(D) Recommended Retail Price method of pricing.

4. Tamaras pet supplies advertised very cheap dog food, knowing full well that they
have only a very small amount of stock for sale. This is illegal because it is

(A) price discrimination.
(B) implied conditions.
(C) resale price maintenance.
(D) deceptive advertising.

5. Jenkins and Sons improved their sales by giving away samples of their
goat cheese spread at supermarkets. This type of promotion is

(A) personal selling.
(B) advertising.
(C) public relations.
(D) below-the-line promotions.
82

6. Modern firms are more likely to adopt

(A) a production orientation to customers.
(B) a selling orientation to customers.
(C) a marketing orientation to customers.
(D) a fiscal orientation to customers.

7. When developing marketing strategies businesses will mix the four Ps of

(A) Product, Price, Promotion and Packaging.
(B) Product, Price, Position and Packaging.
(C) Product, Price, Promotion and Place.

8. Bloggs and Co engaged a market researcher to interview their customers in an
attempt to find out why sales are dropping. Such information is an example of

(A) primary data.
(B) secondary data.
(C) tertiary data.
(D) quaternary data.

9. Bianca has had her retail development application rejected by local council
because she wanted to build in an industrial area. The council is applying

(A) Trade Practices laws.
(B) Fair Trading laws.
(C) Commercial laws.
(D) Zoning laws.

10. Abletex has just brought out a new DVD player that can out-perform all others.
They are charging very high prices, but people are happy to pay because the
quality is so much better. Abletex is engaging in

(A) price discrimination.
(B) price points.
(C) price skimming.
(D) loss leader actions.

83
11. Relationship marketing involves firms developing

(A) close relationships with suppliers.
(B) ongoing relationships with customers.
(C) physical relationships with creditors.
(D) psychological relationships with all stakeholders.

12. A firm will usually identify its target market because

(A) this makes planning strategies easier.
(B) this is where most of the firms customers are found.
(C) time can be saved by not appealing to the mass market.

13. The Reserve bank has just increased their rates, forcing mortgages up. This
reflects which factor influencing customer choice?

(A) psychological.
(B) socio-cultural.
(C) economic.
(D) government.

14. When developing marketing strategies for their product, businesses look at

(A) positioning, branding and packaging.
(B) positioning, distribution and packaging.
(C) positioning, branding and distribution.
(D) distribution, branding and packaging.

15. Jessica has established an intermediary site where she buys in bulk from
manufacturers and then on-sells to retailers. This activity is known as

(A) transporting.
(B) warehousing.
(C) globalisation.
(D) hoarding.
84

16. A dynamic tool that allows marketing managers to lay plans for the future is a

(A) marketing plan.
(B) business plan.
(C) SWOT analysis.
(D) situational analysis.

17. Businesses are likely to pursue product differentiation to satisfy customers who
are identified by

(A) age and incomes.
(B) census data.
(C) product segmentation.
(D) market segmentation.

18. The Trade Practice Act has established a body that investigates and prosecutes
unscrupulous businesses. This body is called the

(A) Australian Corporate Affairs Commission.
(B) Department of Fair Trading
(C) Australian Competition and Consumer Commission.
(D) Consumer Claims Tribunal.

19. Shana has the only outlet for de Boozes diamonds in Australia. This is an
example of

(A) an intensive distribution channel.
(B) a selective distribution channel.
(C) an exclusive distribution channel.
(D) an impressive distribution channel.

20. Market objectives can be established by

(A) setting monthly targets or quotas for sales staff.
(B) negotiating terms of employment contracts.
(C) providing ongoing support and consultation.
(D) defining the business mission statement.

85
MULTIPLE CHOICE REVIEW Topic Three Answers

1. b
2. b
3. a
4. d
5. d
6. c
7. c
8. a
9. d
10. c
11. b
12. d
13. c
14. a
15. b
16. a
17. d
18. c
19. c
20. a
86

87

88

89
90
91
HSC TOPIC 4: EMPLOYMENT RELATIONS

Sheet 1 Nature of employment relations

A business employees can be its best form of sustainable competitive advantage.
They can also create a range of problems for management that can slow production
down or even force business closure. Employment relations is about developing the
former statement and minimizing the latter.
Various stakeholders have a great deal of interest and influence in the employment
relations process. The syllabus lists the following:

1. Employers Bosses are the ones who get the whole process going by hiring
workers. They do so with the view that by having a larger workforce they will
meet more of the firms objectives.
2. Employees Workers provide employers with their labour, experience and
expertise. In return they expect to paid the correct amount and be provided
with a safe and healthy working environment.
3. Employer Associations Business owners realize that when the time comes
for negotiations on a large scale, such as industry wide, they need assistance.
Employer Associations provide owners with representation at such times.
4. Unions Trade unions developed in response to the need for support for
workers in their arguments with employers for better conditions. In Australia
the trade union movement has been of significant importance for much of
commercial history. Today the Australian Council of Trade Unions (ACTU)
is the peak union body and is a powerful lobby group.
5. Government Organisations For most of the twentieth century Australia
had a centralised system of employment relations. At both State and Federal
levels Industrial Commissions have been established. They are like
specialised courts that deal with issues that arise in employment relations.

Managing the employment relations function has changed over time. Line
managers, or production managers, previously took control of this function. In
modern firms of a suitable size the employment relations function is fulfilled by
specialists, often referred to as Human Resource Managers. HRM consultants
exist for smaller businesses who cant afford a specialist. Firms can outsource such
consultants as the need arises.

92
Sheet 1 Nature of employment relations Revision Tasks

1. Explain how employment relations can be both a positive and negative aspect for
business owners and managers.

2. Match the terms listed below with the definitions that follow:

Terms: employers, line managers, employment relations, stakeholders, employees,
employer associations, trade unions, Industrial Commissions, Australian Council of
Trade Unions, Human Resource Managers.

a. Government bodies that hear employment matters.
b. Those who hire workers.
c. Those with an interest in a matter or area.
d. Specialist managers in employment relations.
e. Bodies developed to represent employers.
f. Those who sell their labour for money.
g. Peak body that represents Australian unions.
h. Bodies developed to protect employees.
i. The process of employers and employees interacting.
j. Those in charge of the production line.

93
Sheet 1 Nature of employment relations Revision Tasks

1. Explain how employment relations can be both a positive and negative aspect for
business owners and managers.

A business employees can be a firms best source of sustainable competitive advantage. By
keeping customers happy businesses are likely to build their goodwill. This will boost their
profits and add value to the business. If employees are happy at their workplace, productivity
will be high and worker satisfaction maximized.
However, employment relations can sour. If employees feel that their wage demands, safety
concerns or future prospects are threatened they may institute action. If these matters cant
be resolved quickly and amicably there could be disruption to the firms activities. Production
might slow or even stop. Customers may seek alternative sources, so that the business could
be in long term trouble.

2. Match the terms listed below with the definitions that follow:

Terms: employers, line managers, employment relations, stakeholders, employees,
employer associations, trade unions, Industrial Commissions, Australian Council of
Trade Unions, Human Resource Managers.

a. Government bodies that hear employment matters. Industrial
Commissions
b. Those who hire workers. employers
c. Those with an interest in a matter or area. stakeholders
d. Specialist managers in employment relations. Human Resource
Managers
e. Bodies developed to represent employers. employer associations
f. Those who sell their labour for money. employees
g. Peak body that represents Australian unions. Australian Council of
Trade Unions
h. Bodies developed to protect employees. trade unions
i. The process of employers and employees interacting. employment relations
j. Those in charge of the production line. line managers

94

Sheet 2 Key influences on employment relations

The syllabus outlines four key influences on employment relations. They are:

1. Social Influences As society changes so too do work patterns. In Australian
society today it is more normal for both partners in a relationship to work,
leaving childcare for others. There has also been a shift away from permanent
employment to part-time and casual work as our workforce has been made more
flexible. Population shifts are another factor here. Australias ageing population
has led to changes in retirement ages and expectations about how long a person
could or should work.

2. Legal Influences Major employment legislation in recent times includes the
Howard governments Workplace Relations Act and the NSW Industrial
Relations Act, both from 1996. They emphasized decentralisation of the
employment function to create a more flexible workplace. With the election of
the Rudd Labor government new laws winding back the oppressive Work
Choices provisions will soon be upon us and need to be examined carefully for
their impact. Other important laws include Occupational Health and Safety Acts
and discrimination laws such as the Racial Discrimination Act, Sex
Discrimination Act, etc. Such laws follow on a tradition that includes the
Conciliation and Arbitration Act (Cwealth) 1904.

3. New organisational behavioural influences Most modern firms have a
flattened organisational structure. Quite frequently they use team structures to
build improved cooperation in the workplace. This means that managers and
workers are much closer and interact much more than in the past. With improved
communication, issues that arise in the employment relationship should be able to
be resolved more quickly and amicably.

4. Economic Influences The relative power of employers and employees tends to
shift as the economic cycle turns. In upswings, when demand is strong and
profits high, employees are able to make significant gains in their conditions and
pay. During a downturn employers are able to wield the stick. With rising
unemployment, workers fear for job security and so are less likely to make claims
that put further pressure on business survival. Globalisation has thrown a huge
spanner in the works of employment relations. All too frequently we hear of firms
moving activities offshore to cut labour costs. In a wealthy country like Australia
it is virtually impossible for workers to compete on a level playing field with
workers in Asia or the Pacific.
95
Sheet 2 Key influences on employment relations Revision Tasks


a. Unions are able to exercise most power during a recession.
b. Flattened organisational structures should improve communications
between employers and employees.
c. The Workplace Relations Act centralised employment relations.
d. Part-time and casual work is growing faster than permanent
employment as the preferred option by employers.
e. Globalisation has opened up opportunities for Australian
manufacturing and process workers.
f. Modern businesses often group workers together in teams to
gain synergy benefits that arise.
g. Legal influences mean that Australian employment relations
have been centralised for much of their history.
h. Australias ageing population has led to a decrease in retirement age.
i. Occupational Health and Safety issues are part of the legal
influence on employment relations.
j. Employers are able to restrict trade union demands best in an
economic boom or upswing.

2. Complete the cloze passage below by using the terms shown.

Terms: Industrial, speed, social, Act, population, behavioural, labour, team,
decentralisation, boom, cycle.

Employment relations can be influenced by _ _ _ _ _ _aspects such as changing work
patterns and _ _ _ _ _ _ _ _ _ _ _ shifts. Many laws exist that impact upon
employment relations such as the NSW _ _ _ _ _ _ _ _ _ _ Relations Act and the
federal Workplace Relations _ _ _ . These two laws have pushed the idea of
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ in the workplace, a big change from most of their
predecessors. New organisational _ _ _ _ _ _ _ _ _ _ _ influences on employment
relations include flat management and _ _ _ _ structures, both of which improve
communication _ _ _ _ _. Economic influences on employment relations include
where the world is in terms of the economic _ _ _ _ _, upswing or downswing,
recession or _ _ _ _. Globalisation is another economic influence, with many jobs
leaving Australia as firms take advantage of cheaper _ _ _ _ _ _ rates in Asia and
Pacific nations.
96
Sheet 2 Key influences on employment relations Revision Tasks - Answers


a. Unions are able to exercise most power during a recession. F
b. Flattened organisational structures should improve communications between
employers and employees. T
c. The Workplace Relations Act centralised employment relations. F
d. Part-time and casual work is growing faster than permanent employment as the
preferred option by employers. T
e. Globalisation has opened up opportunities for Australian manufacturing and
process workers. F
f. Modern businesses often group workers together in teams to gain synergy
benefits that arise. T
g. Legal influences mean that Australian employment relations have been
centralised for much of their history. T
h. Australias ageing population has led to a decrease in retirement age. F
i. Occupational Health and Safety issues are part of the legal influence on
employment relations. T
j. Employers are able to restrict trade union demands best in a economic boom or
upswing. F

2. Complete the cloze passage below by using the terms shown.

Terms: Industrial, speed, social, Act, population, behavioural, labour, team,
decentralisation, boom, cycle.

Employment relations can be influenced by social aspects such as changing work
patterns and population shifts. Many laws exist that impact upon employment
relations such as the NSW Industrial Relations Act and the federal Workplace
Relations Act. These two laws have pushed the idea of decentralisation in the
workplace, a big change from most of their predecessors. New organisational
behavioural influences on employment relations include flat management and team
structures, both of which improve communication speed. Economic influences on
employment relations include where the world is in terms of the economic cycle,
upswing or downswing, recession or boom. Globalisation is another economic
influence, with many jobs leaving Australia as firms take advantage of cheaper
labour rates in Asia and Pacific nations.
97

Sheet 3 Effective employment relations

The role of employment relations is to develop trust between employers and
employers for the mutual benefit of both. If each group treats the other with honesty
and sincerity, gains can be made in what is usually called a win/win situation.
To have effective employment relations firms need to have established
communications systems. Aspects of such systems listed in the syllabus are:
a. Grievance Procedures These are formalised steps that will be followed if
an issue arises in the workplace.
b. Worker Participation The flow of information needs to be in both
directions, not just from the top down. Quality circles allow workers time to
meet with management and each other to put forward ideas that they believe
will be of benefit to the firm.
c. Team Briefings Allow groups to understand why decisions have been made,
where the business is heading and how that team fits into this picture.
To promote effective employment relations businesses use both financial and non-
financial rewards. Financial rewards include wages and salaries, bonuses, payment of
school fees, etc. Non-financial rewards tend to be more associated with building up the
esteem of the workers. Peer recognition, promotion and increased autonomy and/or
responsibility are all examples of such rewards.
Training and development is an important component of effective employment
relations. New staff need an effective induction program that allows them to understand
how the firm operates. Mentoring via a long-term staff member is a popular method.
Flexible working conditions encourage effective employment relations.
Family-friendly programs such as onsite childcare, job-sharing and extended
maternity/paternity leave provisions are examples of these flexible working conditions.
Measures of effectiveness of employment relations listed in the syllabus are:
a. Levels of staff turnover the higher the number of staff who resign, the less
effective are employment relations.
b. Absenteeism The more sickies taken by employees, the more likely they are
to be dissatisfied at work. Comparisons should be made with industry standards.
c. Disputation Levels of industrial disputes such as strikes and stop-work
meetings will show the effectiveness of employment relations.
d. Quality The quality of products and the rate of returns or warranty
requirements will also show the effectiveness of employment relations.
e. Benchmarking Many firms seek accreditation with standards bodies like the
ASA or ISO organisations. Failure to meet or keep such benchmarks shows
problems with employment relations.
98
Sheet 3 Effective employment relations Revision Tasks

Match the correct term to the corresponding definition.

Terms: maternity/paternity, communications systems, grievance procedures,
worker participation, quality circles, team briefings, financial rewards, salaries,
promotion, training and development, induction, flexible working conditions,
mentoring, measures, staff turnover, absenteeism, strikes, quality, warranty,
benchmarking.

1. Process of establishing a standard for your product.
2. Having an older worker guide a new employee.
3. A non-financial reward based on a career path.
4. Involving employees in decision-making.
5. Leave to allow parents to care for newly born children.
6. Ways of judging the effectiveness of employment relations.
7. Education of workers.
8. Workers meeting in groups to discuss improvements.
9. Steps devised to deal with workplace issues.
10. Management tool to inform groups about information.
11. Training processes for new employees.
12. Methods of passing out information.
13. Number of employees who leave a firm each year.
14. Incentives to workers of a monetary nature.
15. The most obvious form of disputation.
16. A guarantee for products sold.
17. Family-friendly programs are part of these.
18. Level of leave taken by staff.
19. Pay based on a yearly rate for employees.
20. If this drops it may reflect effectiveness of employment relations.

99
Sheet 3 Effective employment relations Revision Tasks - Answers

Match the correct term to the corresponding definition.

Terms: maternity/paternity, communications systems, grievance procedures,
worker participation, quality circles, team briefings, financial rewards, salaries,
promotion, training and development, induction, flexible working conditions,
mentoring, measures, staff turnover, absenteeism, strikes, quality, warranty,
benchmarking.

1. Process of establishing a standard for your product. benchmarking
2. Having an older worker guide a new employee. mentoring
3. A non-financial reward based on a career path. promotion
4. Involving employees in decision-making. worker participation
5. Leave to allow parents to care for newly born. maternity/paternity
6. Ways of judging the effectiveness of employment relations. measures
7. Education of workers. training and development
8. Workers meeting in groups to discuss improvements. quality circles
9. Steps devised to deal with workplace issues. grievance procedures
10. Management tool to inform groups about information. team briefings
11. Training processes for new employees. induction
12. Methods of passing out information. communications systems
13. Number of employees who leave a firm each year. staff turnover
14. Incentives to workers of a monetary nature. financial rewards
15. The most obvious form of disputation. strikes
16. A guarantee for products sold. warranty
17. Family friendly programs are part of these. flexible working conditions
18. Level of leave taken by staff. absenteeism
19. Pay based on a yearly rate for employees. salaries
20. If this drops it may reflect effectiveness of employment relations. Quality

100

Sheet 4 Legal framework of employment

The employment contract, like any other, is subject to common law provisions.
Under such provisions certain rights and obligations are imposed on both employers
and employees. A right for one party effectively becomes an obligation for the other,
so we will examine the rights only.

Rights of Employers There are three main rights of employers. Employees should:
1. Act in good faith by keeping trade secrets, secret recipes or customer
information.
2. Use skills and care when performing tasks workers should do their best.
3. Obey lawful and reasonable commands so long as instructions fall within
normal bounds for such an occupation.

Rights of Employees Similarly, the three major rights of employees mean
employers should:
1. Provide a duty of care much of which is outlined in Occupational Health
and Safety legislation.
2. Payment of income workers should be paid required wages and have work
related expenses refunded.
3. Provide work employees should have productive activities so they can
maintain their skills.

Many employees are employed under other formal arrangements including:

1. Statute Some government employees have their employment contract
passed as a law by parliament eg., soldiers.
2. Awards Many workers are covered by industrial awards. They cover a
whole industry such as the hospitality industry or the teaching profession.
These outline provisions for workers such as pay, leave, overtime rates and
hours of work..
3. Australian Workplace Agreements AWAs are individual agreements that
may be made with or without union involvement in the federal jurisdiction.
They may disappear or change considerably under the Rudd government
4. Certified Agreements CAs are collective agreements made with or without
union help, again in the federal area under the Workplace Relations Act.
5. Enterprise Agreements EAs are similar to the above, but state-based under
the NSW Industrial Relations Act and better protect union rights and
commonly are specific industry based. Eg qantas

101
Within these various employment arrangements contract types can include casual,
part-time, flexible and permanent. These reflect the changing nature of
employment in Australia today.
102
Sheet 4 Legal framework of employment Revision Tasks

1. Explain why a right for an employer becomes an obligation for an employee.

2. Explain why there has been a shift away from awards towards workplace type
agreements such as AWAs, CAs and EAs.


a. All employees have a formal employment contract.
b. Some government employees are covered by statutes.
c. Most workers are employed on a permanent basis.
d. Workers minimum conditions are usually listed in awards.
e. Employees are obliged to work overtime when requested.
f. Employers must provide a safe system of work for employees.
g. OH&S legislation outlines many employee duties.
h. CAs and AWAs are commonwealth based agreements.
i. Awards are no longer used in todays employment relations.
j. Casual and part-time work are the fastest growing areas of
employment in Australia today.

103
Sheet 4 Legal framework of employment Revision Tasks - Answers

1. Explain why a right for an employer becomes an obligation for an employee.

A right for an employer is something that they expect, and can legally enforce, a worker to
do. So, for the employee, expectations such as using skills and keeping become secrets
become obligations. The same applies in reverse. Employees expect fair pay and safe
working conditions, obligations for employers.

2. Explain why there has been a shift away from awards towards workplace type
agreements such as AWAs, CAs and EAs.

Over the past decade the major thrust in employment relations has been towards decent-
ralisation. Government policy has been to promote a more flexible workplace. Awards
are viewed as a hangover from the old, centralised approach. AWAs, CAs and EAs
allow employers to negotiate agreements that suit their specific workplace. They can
take into account particular circumstances, unlike awards that cover whole industries.


a. All employees have a formal employment contract. F
b. Some government employees are covered by statutes. T
c. Most workers are employed on a permanent basis. T
d. Workers minimum conditions are usually listed in awards. T
e. Employees are obliged to work overtime when requested. F
f. Employers must provide a safe system of work for employees. T
g. OH&S legislation outlines many employee duties. F
h. CAs and AWAs are commonwealth based agreements. T
i. Awards are no longer used in todays employment relations. F
j. Casual and part-time work are the fastest growing areas of
employment in Australia today. T

104

Sheet 5 Industrial conflict

In Australia the Bureau of Statistics defines industrial disputes as issues that arise in the
workplace that cause a disruption to production. Often conflict will exist long before an
actual dispute begins.

Causes of such conflicts listed in the syllabus (in order of importance) are:
a. Management Policy Changes to mission statements, objectives and
organisational structure are aspects that can lead to conflict.
b. Wage Demands Most people think this would be number one, but lags well
below the above. Attempts to gain higher pay will often be resisted by employers.
c. Working Conditions Increased working hours, loss of career paths and less
overtime are all ways workers may conflict with employers as new conditions are
put in place, often under the guise of a more flexible workplace.
d. Political Goals Unions started the Australian Labor Party and maintain close
ties today. Disputes can be politically motivated, especially near elections.
e. Social Issues Unions and Employer Associations are powerful lobby groups.
They use their influence in a range of issues like trade, wars and the environment.

The syllabus lists three perspectives on conflict:
a. Unitary This approach sees stakeholders acting in a united way to make
improvements for all concerned.
b. Pluralist This perspective recognizes that different groups involved in conflict
will always have different views. Trade Unions will always push for a better
share of the cake, while employers will resist such efforts.
c. Radical - This view builds on the pluralist perspective, stating that conflict
represents the ongoing class struggle between the bourgeoisie and the proletariat.

There are many types of industrial action, found within two broad groups:
Overt, or obvious, actions include:
a. Lockouts are used by employers to stop workers having access to their jobs.
b. Pickets are lines established by unions in the hope that other union members
wont cross, thereby placing businesses under pressure.
c. Strikes occur when workers withdraw their labour, with subsequent loss of pay.
They hope that long-term gains outweigh short-term sacrifice.
d. Bans may be placed on products for various reasons. Bans on James Hardie
products were related to the dispute about workers and asbestosis.
e. Work-to-rule is a device to slow down production, as workers refuse to do
anything outside of their specific duties.
105
Covert, or less obvious, types of industrial action include:
a. Absenteeism, or days off (sickies) will often increase when conflict occurs.
b. Sabotage of equipment or production can be an extreme action.
c. Turnover of staff may increase if disputes cant be resolved and workers can
gain better conditions elsewhere.
d. Exclusion from decision-making in business is used by management to put
unions and/or workers back in their place by showing who is the boss.

The roles played by stakeholders in resolving disputes includes:
a. Employers Negotiate directly with individual employees, groups of employees
and/or their union representatives.
b. Employees May deal directly with employers, but are more likely to use an on-
site union representative or bring in outside union organisers for help.
c. Employer Associations Represent employers as disputes escalate. These
bodies have standing which means they can act as representatives in formal
hearings.
d. Trade Unions They can become involved at the shop-floor level or at any stage
if the matter worsens. They also have standing to represent workers.
e. Industrial Relations Commissions These autonomous government bodies will
hear matters if parties make an application for help, or enter a dispute if they
believe it is in the best interests of the nation or state.
f. Other government bodies include the Australian Industrial Registry (where
CAs are filed and checked by a no-disadvantage test); the Employment
Advocate (where AWAs are policed); the Workplace Ombudsman and the
whole court system where the common law can used to pursue issues.

The dispute resolution process can be represented diagrammatically as:

N
E
G
O
T
I
A
T
I
O
N
S

R
A
T
I
F
I
C
A
T
I
O
N
GRIEVANCE PROCEDURES
The dispute will often be raised on the shop floor. Direct
negotiations will resolve most disputes, which will then be
sent for ratification. If not, the next step is
CONCILIATION
This involves an independent third party mediating. This
means they help the disputees to find common ground to
resolve the dispute. If not, the next step is
ARBITRATION
If the disputees cannot resolve the matter they may get the
third party to arbitrate. This means both sides present their
case and the arbitrator makes a binding decision.
106
As well as any of the above, parties can seek actions at common law, a ploy
sometimes used to improve the negotiation position of one group. In extreme
situations business closure of a division of the firm or even the whole entity can
occur.

Costs and benefits arise as a consequence of industrial conflict. The syllabus lists:

a. Financial Costs include the loss of pay by workers in strike, lost sales
and production for the business and court costs for both if they end up there.
Benefits for employees may include improved conditions and higher pay rates.
Firms may introduce new methods that increase productivity.

b. Personal Costs for workers can be loss of career paths if management is
flattened, business managers may lose power if the dispute is resolved heavily in
favour of workers. Benefits can be an improvement in employment relations for
both employees and employers if a win/win resolution can be found.

c. Social Costs for employees can include physical and mental strain
associated with demonstrations that can occur during prolonged campaigns, while
businesses may lose goodwill within the community. Benefits for workers and
bosses could be the saving of jobs, firms or even whole industries. In some
mining communities conflicts have led to ghost towns when conflicts could not
be resolved in a satisfactory manner.

d. Political Costs and benefits tend to accrue to either the government of the
day or their opposition. If the government is backing a particular policy and the
dispute relates to this then they can be winners or losers, depending on the
resolution. The political career of Peter Reith, a prominent minister in John
Howards cabinet, was left in tatters after the Patricks dispute was won by
unions.

e. International Long running disputes tend to make our trading partners
nervous. If contracts are not met, importers may look to other nations to fulfill
their needs. This will have long-term negative consequences for both employees
and employers. When disputes are resolved with a win/win solution firms may
well find themselves in a more internationally competitive situation. If this
improves exports, workers job situations will also be enhanced.

107
Sheet 5 Industrial conflict Revision Task

Use the following terms to complete the cloze passage below.

Terms: AIRC, covert, disruption, associations, pluralist, before, negotiations,
Marxist, policy, overt, political, win/win, issues, costs, strikes, binding, unitary,
management, arbitration, exclusion, grievance, resolve, common, personal.

Strictly an industrial dispute does not occur until some to production has
arisen. Conflict has often featured well this stage is reached.
Change to management is the most frequent cause of such conflict,
followed by wage demands, working conditions, political goals and social .
A perspective on conflict sees disputing parties put the common good of the
business before personal desires. The more common approach sees
disputees accepting that different groups will have different hopes and so act in their
own best interests. The radical approach is based on notions of class
struggle between business owners and their employees.
Industrial action can be , or obvious, as shown by lockouts, , bans,
pickets and/or work-to-rule. Less obvious, , actions include absenteeism,
sabotage, staff turnover and from decision-making.
When attempting to industrial disputes employees and employers usually
follow established procedures in the first instance. This might involve an
employee, or their on-site union rep, notifying about the problem.
Negotiations at this stage will usually resolve the dispute in quick time. However, if the
conflict escalates, employer and trade unions may step in to represent
their members in continued . Sometimes an independent specialist,
called a mediator, is called in to try and help disputees reach an agreed solution. If the
matter is referred to either the or the NSW IRC this mediator takes on the role
of conciliation. By helping conflicting parties reach an amicable solution the conciliator
is more likely to help achieve a situation. If the matter remains unresolved
the disputees may seek . Here a third party (usually the same person who
acted as conciliator) will listen to arguments from both sides and then hand down a
decision that is legally . Such decisions usually have win/lose scenarios,
so are avoided if possible.
After all of this, parties can still resort to law actions and
division/business closure in extreme cases.
Industrial conflict does have its and benefits. Financially firms and employees
lose money as work stops. Both groups suffer from and social costs such
as loss of reputation and stress, but can gain if the air is cleared quickly. Governments
and their oppositions can have losses and victories, whilst new
international markets can be opened if productivity gains increase competitiveness.
108
Sheet 5 Industrial conflict Revision Task Answers

Use the following terms to complete the cloze passage below.

Terms: AIRC, covert, disruption, associations, pluralist, before, negotiations,
Marxist, policy, overt, political, win/win, issues, costs, strikes, binding, unitary,
management, arbitration, exclusion, grievance, resolve, common, personal.

Strictly an industrial dispute does not occur until some disruption to production has
arisen. Conflict has often featured well before this stage is reached.
Change to management policy is the most frequent cause of such conflict, followed by
wage demands, working conditions, political goals and social issues.
A unitary perspective on conflict sees disputing parties put the common good of the
business before personal desires. The more common pluralist approach sees disputees
accepting that different groups will have different hopes and so act in their own best
interests. The radical approach is based on Marxist notions of class struggle between
business owners and their employees.
Industrial action can be overt, or obvious, as shown by lockouts, strikes, bans, pickets
and/or work-to-rule. Less obvious, covert, actions include absenteeism, sabotage, staff
turnover and exclusion from decision-making.
When attempting to resolve industrial disputes employees and employers usually follow
established grievance procedures in the first instance. This might involve an employee,
or their on-site union rep, notifying management about the problem. Negotiations at this
stage will usually resolve the dispute in quick time. However, if the conflict escalates,
employer associations and trade unions may step in to represent their members in
continued negotiations. Sometimes an independent specialist, called a mediator, is called
in to try and help disputees reach an agreed solution. If the matter is referred to either
the AIRC or the NSW IRC this mediator takes on the role of conciliation. By helping
conflicting parties reach an amicable solution the conciliator is more likely to help
achieve a win/win situation. If the matter remains unresolved the disputees may seek
arbitration. Here a third party (usually the same person who acted as conciliator) will
listen to arguments from both sides and then hand down a decision that is legally
binding. Such decisions usually have win/lose scenarios, so are avoided if possible.
After all of this parties can still resort to common law actions and division/business
closure in extreme cases.
Industrial conflict does have its costs and benefits. Financially firms and employees lose
money as work stops. Both groups suffer from personal and social costs such as loss of
reputation and stress, but can gain if the air is cleared quickly. Governments and their
oppositions can have political losses and victories, whilst new international markets can
be opened if productivity gains increase competitiveness.
109


The syllabus lists six issues in the workplace of an ethical or legal nature.

1. Working Conditions. Whilst awards, agreements and various laws outline
minimum working conditions, some employees are often disadvantaged. Those with
poor language skills, outworkers, casuals, the young and non-unionists frequently suffer
in this way.
2. Occupational Health and Safety. Legally businesses have such issues clearly
outlined, but too often shortcuts are taken. Workers may disregard safety equipment or
corners may be shaved if firms are running behind schedule.
3. Workers Compensation. In NSW, WorkCover is a statutory body that
investigates workplace incidents and may make recommendations to the Compensation
Court. The emphasis in recent years has been towards rehabilitation, rather than
financial compensation, for victims of workplace injury. People are always able to
pursue compensation through common law redress. Many solicitors now advertise fee
free services for such actions, but many workers view ambulance chasers skeptically.
4. Anti-discrimination. Numerous laws exist to protect employees from
discrimination on the grounds of sex, sexual preference, race, age, physical/mental
disability, religion, politics, marital status and pregnancy. Despite this long (and
growing) list, people still regularly front the Human Rights and Equal Opportunities
Commission (HREOC) to have cases heard.
5. Equal Employment Opportunities (EEO). In 1996 the Affirmative Action
(Equal Opportunity for Women) Act was passed. The thrust of this was to overcome the
imbalance that existed, particularly in promotions positions, for women in the
workplace. Despite many measures people still talk of glass ceilings and women
remain underrepresented in parliament and on courts benches.
6. Unfair Dismissal. Workers protected from harsh, unjust, unlawful or
unreasonable termination by industrial laws lost ground under WorkChoices. The Rudd
Labor government was elected on a platform to re-establish such protections. It will be
interesting to see how such changes unfold. Currently those employed in smaller
businesses have less protection.

The James Hardie dispute was a good example of ethical and legal issues in the
workplace. Despite workers being exposed to life-threatening asbestos dust and many
having consequently died, the firm acted legally, rather than ethically in dealing with the
issue. By moving their operations offshore they seemed to try to circumvent legal
actions that fall under Australian jurisdiction. Fortunately, most businesses work with
their employees to improve workplace health and safety.
110
Sheet 6 Ethical and legal aspects Revision Task

Find these terms in the wordmaze below:

Terms: ethical, legal, conditions, awards, outworkers, occupational, health,
safety, compensation, WorkCover, rehabilitation, anti-discrimination, race,
disability, religion, EEO, affirmative, promotions, glass ceilings, women, unfair,
dismissal, unreasonable, termination.

G O C C U P A T I O N A L S N O I T I D N O C A
C L L E G A L Q N O I T A T I L I B A H E R N A
O D A P R O M O T I O N S X S R E K R O W T U O
M C D S W O R K C O V E R D R E T L A C I H T E
P V I G S F G Y U J H M J J K L K M X D F R T Y
E Q S W E C R T Y U N F A I R U I S I O P L K J
N A A S D F E D I S M I S S A L D S F G H J K E
S N B Z X C V I B N M A S D F R C G E R H J K L
A O I Q W E R T L Y U I O P A R S V D F A G H B
T I L Z X V B Y N I M J U W I D I S E C F C R A
I T I Z X V T B N M N W A M E T R T Y U I O E N
O A T Z X E C V B N M G I A A S D F G H J K L O
N N Y Q F W E E O E R N S M T N O I G I L E R S
A I S A D F G H J K A L R Z X C V B N M Q W E A
Q M S W E R T Y U T I I O P O I H T L A E H Y E
A R S D F G H J I K F L M N B V C X Z Q W E R R
Z E A S C D F O C F R O O S T E R S F O R E V N
E T R D E S N V A R S W R T G N E M O W B F E U

111
Sheet 6 Ethical and legal aspects Revision Task - Answers

Find these terms in the wordmaze below:

Terms: ethical, legal, conditions, awards, outworkers, occupational, health,
safety, compensation, WorkCover, rehabilitation, anti-discrimination, race,
disability, religion, EEO, affirmative, promotions, glass ceilings, women, unfair,
dismissal, unreasonable, termination.

G O C C U P A T I O N A L S N O I T I D N O C A
C L L E G A L N O I T A T I L I B A H E R N
O A P R O M O T I O N S S R E K R O W T U O
M D S W O R K C O V E R L A C I H T E
P I S D
E S C U N F A I R S I
N A E D I S M I S S A L D S E
S N B I R C E R L
A O I L A R V A B
T I L Y I W I I C A
I T I T N A M T E N
O A T E G I A O
N N Y F E E O N S M N O I G I L E R S
I A A R A
M S T I H T L A E H E
R I F R
E O F N
T N A N E M O W U

112

1. A stakeholder in the employment relations process that should take an unbiased,
objective view is

(A) employees.
(B) employer associations.
(C) trade unions.
(D) government organisations.

2. An employment contract that applies to a whole industry group and has
developed over many decades of workplace negotiations is

(A) a statute.
(B) an Australian Workplace Agreement.
(C) a Certified Agreement.
(D) an award.

3. A major economic influence on employment relations in Australia today:

(A) changing work patterns.
(B) the Workplace Relations Act 1996.
(C) flat management structures.
(D) downswings in the economic cycle.

4. The training and development process that involves familiarising new employees
with the business is called

(A) instruction.
(B) induction.
(C) initiation.
(D) interview.

5. Chantelle has encouraged co-workers to do exactly the tasks describes in their
AWA with their employer. The industrial tactic being employed is called

(A) pickets.
(B) strikes.
(C) bans.
(D) work-to-rule.
113

6. A specialist manager in the area of employment relations is a

(A) line manager.
(B) general manager.
(C) human resource manager.
(D) human acquisition manager.

7. One of the major organisational influences on employment relations in Australia
today is


8. Young mothers Rhianan and Laurey job-share by working two days one week
and three the next. Their employer is demonstrating flexibility and providing a

(A) family-friendly program.
(B) financial reward.
(C) non-financial reward.
(D) measure of effectiveness of employment relations.

9. Peter and James have locked out employees, fearing that they may destroy
equipment as a consequence of severe industrial conflict. Peter and James
actions are

(A) an overt type of industrial action.
(B) a covert type of industrial action.
(C) a type of industrial sabotage.
(D) a common dispute resolution process.

10. Teresa has decided to call in the controlling government body to help overcome a
long-running dispute in her Sydney transport business. The body used would be
the

(A) NSW Industrial Relations Commission.
(B) Australian Industrial Relations Commission.
(C) International Industrial Relations Commission.
(D) Local Court.
114

11. One of the major social influences on employment relations in Australia today is


12. Jessicas Pump Shop has experienced increasing levels of staff turnover and high
levels of absenteeism. This reflects a

(A) positive measure for the effectiveness of employment relations.
(B) negative measure for the effectiveness of employment relations.
(C) no measure for the effectiveness of employment relations.
(D) all measures for the effectiveness of employment relations.

13. After being unable to resolve a dispute in the workplace Tamara has called on an
unbiased third party to help sort out a solution. This process is known as

(A) arbitration.
(B) reconciliation.
(C) mediation.
(D) lockout.

14. The notion that employers and employees have basically different viewpoints in
employment relations and so will put forward conflicting arguments when
conflict arises is called a

(A) unitary perspective.
(B) pluralist perspective.
(C) radical perspective.
(D) Marxist perspective.

15. Tim decides to pay his employees a Christmas bonus of $500 each after the firm
has had a good year. This is an example of a

(A) family friendly program.
(B) financial reward.
(C) non-financial reward.
(D) measure of effectiveness of employment relations.
115

16. One of the major legal influences on employment relations in Australia today is


17. EEO is mainly about

(A) improving employment opportunities for women.
(B) improving employment opportunities for men.
(C) improving employment opportunities for everyone.
(D) improving environment employment opportunities.

18. The major cause of industrial conflict in Australia is

(A) wage demands.
(B) working conditions.
(C) management policy.
(D) political goals.

19. Bianca has applied to the Australian Standards Association for an audit to ensure
the quality of her products meets government requirements. This is known as

(A) work-to-rule.
(B) quality control.
(C) benchmarking.
(D) just-in-time inventory control.

20. A set of steps to be followed in the workplace when an issue arises is known as

(A) grievance procedures.
(B) team briefings.
(C) mediation.
(D) negotiation.

116
MULTIPLE CHOICE REVIEW Topic Four Answers

1. d
2. d
3. d
4. b
5. d
6. c
7. c
8. a
9. a
10. a
11. a
12. b
13. c
14. b
15. b
16. b
17. a
18. c
19. c
20. a

There are some funny patterns in above letters. Try your best to always ignore such
patterns, as the one that you change will probably be the correct answer.
117

118
119

120

121
122
123
HSC TOPIC 5: GLOBAL BUSINESS

Sheet 1 Globalisation

The global economy has been growing since the Industrial Revolution. Global trade
took off after World War II as new transport methods and mass production techniques
became more common. The notion of globalisation became popular in the 1990s as
internet technology, the end of communism in Eastern Europe, and deregulation by
government all opened up markets. The use of the internet had a particular influence on
finance markets. Traders were able move money from nation to nation with the press of
a button. Capital inflows and outflows became virtually impossible for governments to
control. Similarly, consumers were able to access products from their homes using the
world-wide-web. Even labour became more mobile as people sought employment
internationally. Businesses, in an effort to minimise costs, moved operations offshore to
take advantage of cheaper labour rates.

The syllabus identifies five drivers of globalisation:

1. Role of transnational corporations (TNCs). As large companies continued to
expand some chose to open new production activities in other nations. They might do so
to take advantage of new markets, resources or government incentives. Many were able
to build on their success, making TNCs even more powerful than before.
2. Global consumers. For most of our history people had to rely on local retailers
for their purchases. Internet buying allows consumers to link with sellers virtually
anywhere in the world. Products can be bought and delivered quickly this way.
3. Impact of technology. The world-wide-web, personal computers and mobile
phones are just some examples of technologies that have driven globalisation. Improved
communications and transportation have effectively shrunk our world in commercial
terms.
4. Role of government. A shift away from centralisation and towards deregulation
by many governments around the world has also made globalisation easier. Some would
say that governments hands have been forced because new technologies make effective
control impossible.
5. Deregulation of financial markets. Of special importance to driving
globalisation has been the improved access to financial markets. Money, shares and
derivatives are all traded 24/7. Moves to common currencies such as the Euro are
likely to continue, although the US dollar already acts as an unofficial world currency.

Australian domestic business has long been restricted by its small local market.
Globalisation has provided many opportunities for them to enter the export arena.
124
Sheet 1 Globalisation Revision Tasks.


a. The global economy has been only growing since WWII.
b. Ford motor company is an example of a TNC.
c. Governments have recently increased financial regulations.
d. The world-wide-web has boosted international trade.
e. Consumers now have a global market to choose from.
f. Transport changes have slowed globalisation.
g. The role of governments in business has diminished since globalisation.
h. A driver of globalisation will reduce world trade.
i. Political change has had little impact on globalisation.
j. Globalisation has hurt most Australian domestic businesses.

2. Explain why governments have been forced to accept the process of globalisation
and the impact this has had on different regimes around the world.

125
Sheet 1 Globalisation Revision Tasks - Answers


a. The global economy has been only growing since WWII. F
b. Ford motor company is an example of a TNC. T
c. Governments have recently increased financial regulations. F
d. The world-wide-web has boosted international trade. T
e. Consumers now have a global market to choose from. T
f. Transport changes have slowed globalisation. F
g. The role of governments in business has diminished since globalisation. T
h. A driver of globalisation will reduce world trade. F
i. Political change has had little impact on globalisation. F
j. Globalisation has hurt most Australian domestic businesses. F

2. Explain why governments have been forced to accept the process of globalisation
and the impact this has had on different regimes around the world.

Globalisation has grown at such a rate that governments have had little chance to impose
their wills upon it. The main reason for this is that globalisation has been driven by rapid
technological changes of a world-wide nature. The internet, personal computers and the
computerization of share and money markets have allowed virtually anyone to become a
player in the worlds financial markets. Governments found it nearly impossible to regulate
these activities and so were effectively forced to open up these markets.
For those in the free or capitalist nations this was seen as an extension of existing ways. For
those in closed, communist regimes, the internet opened the way to access to information
and communication. Changes in such societies have been significant, with westernisation of
politics, human rights as well as business activities.

126

Sheet 2 Global business strategy

The syllabus lists five methods of international expansion. They are:

1. Export. The traditional method for firms to trade internationally. Goods that have
been provided to domestic markets are sold to buyers in foreign markets.
2. Foreign direct investment. This occurs when a business buys into an existing
business in another country or provides the required funds to start a new firm.
3. Relocation of production. This is a method popular with Australian firms keen
to cut labour costs. Movement of our clothing industry to Fiji is an example.
4. Management contract. Some firms expand by applying existing management
structures to firms from other nations. A fee is charged for providing this service.
5. Franchises/Licensing. Successful business structures are sold complete with
name and processes. Im sure you Mcknow a Mcxample or two.

The syllabus also lists nine reasons for expansion. They are:

1. Increase sales. When the domestic market is exhausted firms will look overseas
for new markets in an attempt to boost sales.
2. Acquire resources. One of the reasons why people have traded throughout time
is to gain access to inputs that may be scarce or missing in their homelands.
3. Access to technology. Businesses are protective of new technologies, so much so
that sometimes the only way to get it is to buy the firm out.
4. Diversification. Not having all your eggs in the one basket is an age-old strategy.
Spreading investments means that drops in one area are covered by rises in
others.
5. Minimise competitive risk. If a business expands internationally it is likely to
cut down on the number of competitors in this market.
6. Economies of scale. Big businesses get to buy in bulk and so get cheaper input
prices. They often also operate 24/7, taking full advantage of capital investments.
7. Cushioning economic cycle. Different nations will experience upswings and
recessions at different times and to different degrees. By having international
investments TNCs will spread the effects of such cycles.
8. Regulatory differences. Some countries have strict controls, others less so. An
unethical practice of many TNCs is to do their dirty production in poor nations
where restrictions are either missing or less enforced.
9. Tax minimisation. Certain nations provide businesses with very attractive, low
tax rates, making it desirable for them to relocate.
127
Sheet 2 Global business strategy Revision Task

The hardest part of this is that there are heaps and theyre similar. Is it a method, a
reason or a driver of expansion? You might want to try this task a few times, as
repetition will improve your long-term memory. Fill in the blanks below.

1. D_ _ _ _ _ _ of globalisation

a. Role of t_ _ _ _ _ _ _ _ _ _ _ _ corporations
b. G _ _ _ _ _ consumers
c. Impact of T _ _ _ _ _ _ _ _ _
d. Role of g _ _ _ _ _ _ _ _ _
e. D _ _ _ _ _ _ _ _ _ _ _ of financial markets

2. M _ _ _ _ _ _ of international expansion

a. E _ _ _ _ _
b. Foreign direct I _ _ _ _ _ _ _ _ _
c. R _ _ _ _ _ _ _ _ _ of production
d. M _ _ _ _ _ _ _ _ _ contract
e. F _ _ _ _ _ _ _ _ _/Licensing

3. R _ _ _ _ _ _ for expansion

a. Increase s _ _ _ _
b. Acquire r _ _ _ _ _ _ _ _
c. Access to t _ _ _ _ _ _ _ _ _
d. D _ _ _ _ _ _ _ _ _ _ _ _ _ _
e. Minimise c _ _ _ _ _ _ _ _ _ _ risk
f. Economies of s _ _ _ _
g. Cushioning e _ _ _ _ _ _ _ cycle
h. R _ _ _ _ _ _ _ _ _ differences
i. Tax m _ _ _ _ _ _ _ _ _ _ _

128
Sheet 2 Global business strategy Revision Task - Answers

The hardest part of this is that there are heaps and theyre similar. Is it a method, a
reason or a driver of expansion? You might want to try this task a few times, as
repetition will improve your long-term memory. Fill in the blanks below.

1. Drivers of globalisation

a. Role of transnational corporations
b. Global consumers
c. Impact of Technology
d. Role of government
e. Deregulation of financial markets

2. Methods of international expansion

a. Export
b. Foreign direct investment
c. Relocation of production
d. Management contract
e. Franchises/Licensing

3. Reasons for expansion

a. Increase sales
b. Acquire resources
c. Access to technology
d. Diversification
e. Minimise competitive risk
f. Economies of scale
g. Cushioning economic cycle
h. Regulatory differences
i. Tax minimisation

129

Sheet 3 Specific influences on global business

The syllabus outlines four specific influences on global business, each with its own
components:

1. Financial influences occur as businesses deal with aspects such as:

a. Currency fluctuations. A business might begin trading with a firm from
another country that provides them with a good profit. When the deal is due, currency
fluctuations could mean that demand increases (if our currency depreciates), or profits
could drop if demand decreases (if our currency appreciates).
b. Interest rates. Some firms take advantage of lower interest rates on offer
overseas and so gain a competitive edge against rivals.
c. Overseas borrowings. Firms must consider the joint effects of the above two
factors. Overseas loans will become easier to service if our dollar increases in value,
effectively reducing interest rates. However, currency fluctuations can make these loans
much more expensive if our dollar depreciates.

2. Political aspects will always arise and include:

a. Tensions between protectionism and free trade have existed since trade
began. Free traders want a level playing field, whilst protectionists want to preserve
local jobs and ensure the future of domestic industries.
b. The World Trade Organisation (WTO) is an international organisation
that acts as a policing agent for firms who feel that they have been treated unfairly.
Treaties can be enforced or rescinded and intellectual property protected. Major
summits such as the G7 will set policies, but countries can only agree to be bound, not
forced to conform.
c. Trade agreements are often developed between nations to promote both
economic and defence arrangements. Unilateral agreements are between two nations,
multilateral ones involve several nations.
d. Regionalism has been an increasing trend as free trade blocs are secured to try
to give participating countries advantages. The European Union is a leading example
and Australia strives for similar advantages by joining ASEAN.
e. War and civil unrest are at the forefront since September 11. The choice of
the World Trade Towers on Wall St was as much driven by economic dogma as politics.
Many developing nations experience instability and overseas businesses can lose vast
amounts of invested funds if new regimes renege on contracts.

130
3. Legal influences on global business include

a. Contracts signed between businesses from different nations need to take into
account the domestic laws that exist in various countries. What we would expect as
normal and proper may not be the case for others. Because jurisdictions tend to stop at
national boundaries firms tread carefully when dealing with unknown entities.
b. Dispute resolution processes are developing in response to concerns by
businesses dealing globally. The WTO has established mediation and resolution
responses for firms having trouble in international legal matters, but because
international law cant be enforced easily, it means that this remains a grey area.
c. Intellectual property concerns are an ongoing problem as poor nations tend to
allow businesses to disregard copyright and patent laws. Many Australian tourists return
from Bali with pirated DVDs and CDs, a typical example of this issue.

4. Social/cultural aspects have specific influences for global businesses such as

a. Languages need to be carefully interpreted, especially if contracts are made up
in a foreign language. Other areas of concern here include making sure that instructions
are clear and can be correctly followed, along with listing of ingredients for food and
pharmaceutical products.
b. Tastes obviously vary and so firms that might have a successful recipe or
formula domestically may have to make changes for overseas markets. Even
McDonalds has altered its menus around the world to cater for variations in tastes.
c. Religion is a major part of the lives of many people around the world. For
firms selling to customers with beliefs that differ from their own, great care must be
taken. An example would be the need to kill and process meat products in different
ways to satisfy the requirements for people of Jewish or Islamic faiths.
d. Business practices and ethics vary significantly between nations. In Australia
we are accustomed to heavy regulation and high ethical standards, however in other
nations graft, corruption and taking advantage of unsuspecting consumers are all
normal parts of the business environment. Firms need to juggle requirements in one
nation with customs in another.

131
Sheet 3 Specific influences on global business Revision Task

Match the following terms to their corresponding definitions below.

Terms: specific influences, financial, currency fluctuations, interest rates, overseas
borrowings, political, protectionism, free trade, World Trade Organisation, trade
agreements, regionalism, war and civil unrest, legal, contracts, dispute resolution,
intellectual property, social/cultural, languages, tastes, religion, business practices,
ethics, graft, copyright.

1. Appreciations and depreciations in currency.
2. Trade without tariffs or duties.
3. Political instability often causes these problems.
4. These need to be carefully checked in foreign contracts.
5. Protective measure for intellectual property.
6. Money gained from loans offshore.
7. Formal contracts signed for international dealings.
8. Methods such as mediation to solve problems.
9. The ways in which firms are regulated.
10. Global business face four of these in the syllabus.
11. Influences that involve governments.
12. Development of trading blocs.
13. Includes trade marks and patents.
14. Taking a moral stand in business.
15. International organisation that deals with trade.
16. Illegal payment to bribe someone.
17. Influences like tastes, languages and religion.
18. Documents that set out terms of agreements.
19. These reflect the cost of money.
20. Trade policy that imposes tariffs to help local firms.
21. A system of beliefs and philosophies.
22. Influences of a monetary nature.
23. Desires, usually based on cultural upbringing.
24. Influence of the law on global business.

132
Sheet 3 Specific influences on global business Revision Task - Answers

Match the following terms to their corresponding definitions below.

Terms: specific influences, financial, currency fluctuations, interest rates, overseas
borrowings, political, protectionism, free trade, World Trade Organisation, trade
agreements, regionalism, war and civil unrest, legal, contracts, dispute resolution,
intellectual property, social/cultural, languages, tastes, religion, business practices,
ethics, graft, copyright.

1. Appreciations and depreciations in currency. currency fluctuations
2. Trade without tariffs or duties. free trade
3. Political instability often causes these problems. war and civil unrest
4. These need to be carefully checked in foreign contracts. languages
5. Protective measure for intellectual property. copyright
6. Money gained from loans offshore. overseas borrowings
7. Formal contracts signed for international dealings. trade agreements
8. Methods such as mediation to solve problems. dispute resolution
9. The ways in which firms are regulated. business practices
10. Global business face four of these in the syllabus. specific influences
11. Influences that involve governments. political
12. Development of trading blocs. regionalism
13. Includes trade marks and patents. intellectual property
14. Taking a moral stand in business. ethics
15. International organisation that deals with trade. World Trade Organisation
16. Illegal payment to bribe someone. graft
17. Influences like tastes, languages and religion. social/cultural
18. Documents that set out terms of agreements. contracts
19. These reflect the cost of money. interest rates
20. Trade policy that imposes tariffs to help local firms. protectionism
21. A system of beliefs and philosophies. religion
22. Influences of a monetary nature. financial
23. Desires, usually based on cultural upbringing. tastes
24. Influence of the law on global business. legal
133

Sheet 4 Managing global business

Managers of global businesses must apply their expertise to the four functions of
business, but in specialised ways. The syllabus outlines the following:

1. Financial management includes aspects such as:

a. Methods of payment will vary according to the level of trust between parties.
Payment in advance, clean payment and an open credit account are all simple methods
that operate much the same as domestic arrangements. A letter of credit provides an
assurance by a bank to pay for exported goods. A bill of exchange is a payment demand
from the exporter to the purchaser, requesting payment at a certain time. Its a bit like a
lay-by receipt that you use to actually get the goods from storage.

b. Credit risks of each of the above vary according to the position of parties. For
an exporter the safest method is payment in advance, followed by clean payment (which
means the payment is sent after the goods have been sent). A letter of credit is also
favoured by exporters as it has the backing of a bank. For an importer an open credit
account provides them with no risk as they get the goods before paying. A bill of
exchange is about the most common used in international transactions as it provides
safety for both parties, although the importer may not pick up the goods.

c. Hedging is the attempt by traders to minimize the impact of currency
fluctuations on deals. If someone wants to be sure of an exchange rate they can sign a
contract with a foreign exchange dealer that locks in a certain rate. If on the day the deal
is done the actual rate is better, the foreign exchange dealer wins (and vice versa). For
the business that signs the contract, there is prior knowledge of the figures.

d. Derivatives are a wide range of financial instruments, fraught with danger and
not used by many normal businesses. They relate to futures markets and buying rights
to buy or sell, rather than dealing in actual products. Specialist traders at stock markets
are the major users of derivatives, often on behalf of firms looking to hedge.

e. Insurance will normally be taken out to cover product defects, shipping
mishaps and hedging is a type of currency fluctuation insurance.

f. Obtaining finance from overseas sources does provide opportunities to access
lower interest rates, but may expose firms to problems that can arise from currency
fluctuations.

134
2. Managing the marketing function globally involves:

2. Managing the marketing function globally involves:

a. Research of the market. Australian firms can be assisted in this area by DFAT
(Department of Foreign Affairs and Trade) and Austrade but there is nothing like
making the effort to travel to overseas markets to get a feel for things as long as time
and finances allow.

b. Global branding involves establishing a trademark or logo that is protected
and gives customers a product that is easily identifiable and popular. Many consumers
buy products simply because of the prestige associated with a brand-name.

c. Managers can choose a standardization or differentiation approach to
marketing. The former means that they present their product in the same way for all
overseas buyers. The latter means that they will alter their products to suit different
markets in various nations around the world.

3. Operations management includes:

a. Sourcing raw materials and/or component parts can involve making decisions
about questions like Should we make or buy these? As firms grow they look at a
process called vertical integration as a means of expansion. It involves movement
either further back or forward the production process. So when Bill and Ben Pies buys
into a meat processing company they are looking to source their meat at a cheaper price.

b. Some TNCs take advantage of local natural resources or technologies to
produce components in different countries. They then develop a global web so that
these parts are put together to create a finished product. Many computer retailers source
their components in this way, getting a CPU from Microsoft in the USA, a DVD drive
from Japan etc etc until the machine is completed.

4. Employment relations have a variety of aspects for managers to consider including:

a. Organisational structure. With global businesses managers may consider a
geographical structure based on regions, continents or cultural beliefs to cater for
employment differences in each area. Alternatively, they may use a functional structure,
choosing to locate labour intensive activities in countries with low costs, technological
functions in IT areas etc.

b. Shortages of skilled labour can be more easily overcome when firms deal
globally. The supply of labour increases when you can look worldwide and recruits are
more likely to view a business more favorably if opportunities exist around the globe.
135
c. Labour laws will vary between nations and managers will need to be aware of
how these differences are likely to impact on the firm.

d. Global businesses need to make ethical decisions about minimum labour
standards for employees in different nations. Unfortunately, too often TNCs take unfair
advantage of locals. Stories of a major shoe manufacturer having employees tied to trees
and beaten for not making quotas may, or may not, be true.

e. Staffing systems can have three different bases:

i. Ethnocentric staffing means that the parent company sends staff from its
office to run overseas operations.
ii. Polycentric staffing means that locals fill management roles in
operations within their country, while the parent company still maintains overall control
from head office.
iii. Geocentric staffing means that nationalities are put aside and the best
person for the job is chosen, no matter their origin.

As with any management practice it is important for global managers to evaluate all of
these functions, sometimes making modifications in one global market, whilst leaving
others as they are. It is vital that managers develop strategies or structures to allow such
evaluations and modifications (if needed) to occur in each global market.

136
Sheet 4 Managing global business Revision Task

So many to remember! Lets try another memory task.
Remember there are four functions a business manager has to deal with. For each of
these there are some special aspects to consider when dealing globally. See if you can
unscramble the following:

1. lincfania management = _ _ _ _ _ _ _ _ _ management

a. shedtom of tempany = _ _ _ _ _ _ _ of _ _ _ _ _ _ _
b. tecdir kissr = _ _ _ _ _ _ _ _ _ _ _
c. diggneh = _ _ _ _ _ _ _
d. esivatvired = _ _ _ _ _ _ _ _ _ _ _
e. creaniuns = _ _ _ _ _ _ _ _
f. obtaining cannife = Obtaining _ _ _ _ _ _ _

2. geminkart = _ _ _ _ _ _ _ _ _

a. screehar of the market = _ _ _ _ _ _ _ _ of the market
b. ballog grindban = _ _ _ _ _ _ _ _ _ _ _ _ _ _
c. dissatatdiorana = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
d. findfintiotrace = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

3. soaptinero = _ _ _ _ _ _ _ _ _ _

a. grocuins = _ _ _ _ _ _ _ _
b. kame or byu = _ _ _ _ or _ _ _
c. rivatelc nitetoaring = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
d. lobalg bew = _ _ _ _ _ _ _ _ _

4. tnemyolpem slationer = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

a. singoarlionata rultruces = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
b. throages of delklis buolar = _ _ _ _ _ _ _ _ _ of _ _ _ _ _ _ _ _ _ _ _ _ _
c. rabolu wal strivianoa = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
d. inmiumm bralou dartsdans= _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
e. fastginf mysstes = _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
i. thiccternone = _ _ _ _ _ _ _ _ _ _ _ _
ii. cypronlirct = _ _ _ _ _ _ _ _ _ _ _
iii. tericeong = _ _ _ _ _ _ _ _ _ _

5. vaultaenio and domfinciatio =_ _ _ _ _ _ _ _ _ _ _ and _ _ _ _ _ _ _ _ _ _ _ _ _
137
Sheet 4 Managing global business Revision Task Answers

So many to remember! Lets try another memory task.
Remember there are four functions a business manager has to deal with. For each of
these there are some special aspects to consider when dealing globally. See if you can
unscramble the following:

1. lincfania management = Financial management

i. shedtom tempany = Methods of payment
ii. tecdir kissr = Credit risks
iii. diggneh = Hedging
iv. esivatvired = Derivatives
v. creaniuns = Insurance
vi. obtaining cannife = Obtaining finance

2. geminkart = Marketing

a. screehar of the market = Research of the market
b. ballog grindban = Global branding
c. dissatatdiorana = standardization
d. findfintiotrace = differentiation

3. soaptinero = Operations

a. grocuins = Sourcing
b. kame or byu = make or buy
c. rivatelc nitetoaring = vertical integration
d. lobalg bew = global web

4. tnemyolpem slationer = Employment relations

a. singoarlionata rultruces = Organisational structure
b. throages of delklis buolar= Shortages of skilled labour
c. rabolu wal strivianoa = Labour law variations
d. inmiumm bralou dartsdans= minimum labour standards
e. fastginf mysstes = Staffing systems
i. thiccternone = Ethnocentric
ii. cypronlirct = Polycentric
iii. tericeong = Geocentric

5. vaultaenio and domfinciatio = evaluation and modification
138

Sheet 5 Management responsibility in a global environment

The opportunity to take advantage of unethical practices common in overseas
markets presents Australian managers with a dilemma. Should they do what others
do, or should they maintain the standards expected of them here?
Some common practices listed in the syllabus are:

1. Tax Havens. Some nations charge very low rates of tax, thereby encouraging
some businesses (and other shady characters with dirty money) to establish
accounts. The Cayman Islands is a popular destination for firms hoping to avoid tax.

2. Transfer Pricing. This usually involves TNCs taking advantage of different tax
rates in different nations and/or moving profits to the parent company. For example,
if tax rates are higher in Australia than the USA a subsidiary of the US TNC based in
Australia would sell its products at low prices to the parent company. This would
reduce profits for the subsidiary (so they pay less or no tax) and boost profits for the
parent company in the USA.

3. Minimum standards of labour. Many developing nations have huge populations
and few labour laws. Global businesses can take advantage of these conditions by
paying low wages and not providing OH&S measures that they would at home.

4. Dumping illegal products. In economics dumping refers to the process of selling
at well below market levels, often during periods where a glut of product exists.
These arent usually illegal products, but these actions make it difficult for
competitors to survive. Drugs, chemicals and foods may all be declared illegal in
developed countries. Some firms sell these off in developing nations where laws are
lax. Asia has been a huge target for cigarette companies in recent years.

5. Ecological sustainability. People in poor nations are concerned about day-to-day
survival. For them the decision to cut down a rare rainforest tree to survive is a
simple one. Businesses in Australia need to act ethically by not demanding such
products. Our government has banned many products to assist in protection of fragile
environments.

HOORAY!!
As Porky Pig would say Thats all folks. Last sheet, no revision task, just the topic
multiple guessI meanchoice questions. Hope youve found this useful.
139
MULTIPLE CHOICE REVIEW

1. The increasing role of transnational corporations (TNCs) in the global economy is
an important

(A) driver of globalisation.
(B) method of globalisation.
(C) reason for expansion.
(D) restriction on globalisation.

2. ICU insurance has put funds from policyholders into firms with potential in the
Asian market. This method of expansion is

(A) export.
(B) foreign direct investment.
(C) relocation of production.
(D) management contract.

3. Buckland Burgers have successfully sold their brand name and production
methods to twenty store owners who want to operate under license. This method
of expansion is best described as

(A) franchising.
(B) trade agreements.
(C) unilateral investment.
(D) treaty.

4. A political influence on global business is

(A) overseas borrowing.
(B) war and civil unrest.
(C) intellectual property.
(D) varying business practices.

5. Aleyshia has purchased a currency contract as a means of reducing financial risk
for a deal she has negotiated with a foreign firm. This is called

(A) hedging.
(B) derivatives.
(C) insurance.
(D) credit risking.
140

6. Jessica has relocated the production of her pumps to a nearby nation with low
wage rates. Jessica is taking advantage of

(A) regulatory differences.
(B) tax minimisation.
(C) minimum standards of labour.
(D) currency fluctuations.

7. Rebecca and Tamara have recently begun selling to customers in New Zealand.
They are expanding through

(A) export.

8. Relocation of production by a business is one


9. An aspect of legal influence in global business is

(A) overseas borrowing.
(B) war and civil unrest.
(C) intellectual property.
(D) varying business practices.

10. Two significant trends in global trade since World War II have been

(A) increases in tariffs and a move towards protectionism.
(B) improvements in transportation methods and a move towards
protectionism.
(C) increases in tariffs and improvements in transportation methods.
(D) improvements in transportation methods and a move away from
protectionism.

141
11. Smith and Jones have been very successful in developing a process of running
their business. Overseas companies have paid them money to apply these
processes in their firms. This method of international expansion is called

(A) export.

12. Peter thought he was getting a great deal by borrowing offshore at rates well
below domestic levels. However, he has found the loan is costing him more, even
though there has been no change in interest. This is most likely due to

(A) regulatory differences.
(B) tax minimisation.
(C) minimum standards of labour.
(D) currency fluctuations.

13. Laurey has an assembly plant in Australia, but accesses inputs for her widgets
from Japan, Korea and Malaysia. Laurey has developed a

(A) global network.
(B) global franchise.
(C) global integration.
(D) global web.

14. An unethical global business practice that involves subsidiaries selling at low
prices to parent companies is called

(A) tax haven.
(B) transfer pricing.
(C) dumping illegal products.
(D) ecological sustainability.

15. Bianca has a string of successful hairstyling salons, but has recently bought into a
boutique and a newsagency. This investment strategy is known as

(A) vertical integration.
(B) economies of scale.
(C) diversification.
(D) regionalism.
142

16. Economies of scale are one


17. A staffing system that sees global businesses employ people on their merits,
rather than their country of origin is called an

(A) ethnocentric system.
(B) polycentric system.
(C) geocentric system.
(D) ecologically sustainable system.

18. The Australian government has recently returned from the Pacific Forum with an
agreement between us, Fiji, New Guinea and the Solomon Islands for free trade.
This is an example of

(A) vertical integration.
(B) economies of scale.
(C) diversification.
(D) regionalism.

19. Chantelle has discovered that by purchasing her milk in bulk and bottling it
herself she can reduce costs. Chantelle is taking advantage of

(A) protectionism in production.
(B) licensing arrangements.
(C) dispute resolution processes.
(D) economies of scale.

20. Improvements in internet technology allowing the transfer of funds and shares at
the press of a button effectively forced governments to

(A) deregulate trade agreements.
(B) deregister trade unions.
(C) deregister financial markets.
(D) deregulate financial markets.
143

MULTIPLE CHOICE REVIEW Topic five Answers

1. a
2. b
3. a
4. b
5. a
6. c
7. a
8. b
9. c
10. d
11. d
12. d
13. d
14. b
15. c
16. c
17. c
18. d
19. d
20. d

(I told you that you sometimes get weird patterns in the letters. Did you change any?)

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Examination Hints

The HSC exam (and your trial) is a structured event and, as such, you can prepare for it.
I honestly believe that good exam technique can add as much as 10% to most students
results. So, if you can follow the basic techniques listed below, you should be able to
gain the very most from your efforts.

The exam lasts for 3 hours plus 5 minutes reading time. Thats 180 minutes of writing
time for 100 marks, or 1.8 minutes per mark. This is meant to guide you. I generally tell
students to spend about the following times and use these techniques:

a. Section I 20 Multiple Choice = about 25 minutes (20 marks)

Dont sweat an answer. Your gut feeling is usually your best option.

b. Section II 6 Short Answer = about 45 minutes (40 marks)

Each Short Answer question will have parts. Be guided by the marks for each part. If a
part is worth 1 mark it usually means you only need identify one aspect in one sentence
(or even one word). For a part worth 4 marks you may have to explain or describe two
things (two sentences each) or one thing (in about four sentences). Try to match your
points/sentences to the marks. Make it easy for the marker to give you marks. Two short
sentences are always better than one long one. Use numbers/letters or dot points to
separate your work. DONT WRITE TOO MUCH. Even though there may be space to
squeeze more information in, you should be able to get full marks by ONLY filling in
the space provided on the exam. Make sure you use syllabus terminology in every
answer.

This leaves you with about 110 minutes to finish the paper. Spend 55 minutes on each
of the final sections. REMEMBER each part is of equal value!! Dont get stuck on one.

c. Section III Business Report = about 55 minutes (20 marks)

Your teacher will have taught you how to present a Business Report. Remember in the
rubric it will say to use relevant business terminology and concepts. Show the marker
that you know your syllabus by including these, frequently!
Take care to read both the stimulus scenario provided AND what you are asked to do in
your report. A good technique is to underline the different things you have to do (as
asked in the last paragraph). Use these points to develop your report. You might use as
much as 5 minutes developing a plan to write your Business Report. Use the inside
cover of you booklet to write this plan. The marker will then see your logic and
structure (see rubric).

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Also remember to note the keywords. If it says to describe, just describe. If it says to
recommend, you may describe alternatives (from the syllabus) but recommend which
you think is best (and why). The last part usually has a higher order keyword like
analyse or evaluate. This part is obviously more difficult, and often separates the best
responses from the good ones. Make sure you get to understand what the different
keywords mean. A good way to let the marker know you are trying to do as you were
asked is to start a paragraph by saying In analysing the alternatives.. or In
critically evaluating this strategy... In other words throw the words used in the
question back at the marker (in a polite way, of course!). This is also a good strategy in
Section IV.

Finally, make sure that you have linked and answered/used the dot points from the
scenario in your answer. Remember that you are usually some consultant employed to
give advice. Use your creative writing skills to put yourself in that job and answer as a
consultant, not a kid doing the HSC.

d. Section IV Extended Response = about 55 minutes (20 marks)

The first part of the rubric will mention using case study/studies. DO IT! It is always
best to integrate case studies throughout you response, but try really, really hard to get
one into your first paragraph. Then refer back to them as needed. These questions
usually have a fairly easy first part (lower order keywords) and then a more difficult
second part (hard keywords). Remember that the basis of your answers is demonstrating
your syllabus knowledge and then relating this to the question and integrating your case
studies. Up-to-date examples will only enhance your mark, so follow the business news.

Some general hints for all written sections are:

Use black pen and write to get about 6-8 words to the line. No joke! A neat, well
spread out extended response will get more marks than a messy and small one.
Use syllabus terminology and well known acronyms (like ASIC). You can
highlight these, but dont over-use highlighter or underlining.
Use short sentences and paragraphs. Leave a line between paragraphs. Markers
often look for strings (responses that go for more than 8 pages). Size does
count!
Take care with your spelling. Markers dont like seeing buisness or payed.
Use you whole exam time. You should finish pretty well on the dot. Dont waste
exam time putting your number on. You can always do this after the test.
Remember the HSC is just another exam. Sure, it might effect the rest of you life,
but..just joking!
Good luck!!!

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