English for Economist and managers-1

160

The first one is the Production Manager, who is responsible for seeing that our products are made properly and on time. The Marketing Manager's main job is to sell the product. Then there's the Purchasing Manager, who makes sure we have the raw materials for the Production Manager to make the product. Then comes the Chief Accountant, who is in charge of the financial picture of the company and keeps books. Then there's the Company Secretary, whose job is to organize the work of the Board of Directors. And the Personnel Manager recruits people to work in the company, and looks after their welfare.

The Managing Director is responsible for running the whole company, and is accountable to the Board. He is assisted by four executive departments. These are: Human Resources (Personnel) department, Management Services department, Finance department, Research & Development department (R&D). Human Resources Dpt. is responsible for personnel, training and management development. Finance Dpt. takes care of corporate finance and accounting. Management Services Dpt. is in charge of rationalization throughout the company. R&D Dpt. is responsible for new product development. Under the Managing Director there are five Regional Managers; each of them is responsible for the day-to-day management of a territory. The five regions are supported by two sections - Marketing and Technical Services.

In addition to the parent there are several subsidiaries. The subsidiaries report to the Export Sales department, which in turn is accountable to the Board. Export and Sales Dpt. is responsible for selling the company's product. Technological Dpt. is responsible for the mode of production and elaborating new technologies. Marketing Dpt. is in charge of marketing activities of the company. Production Dpt. is responsible for all the aspects of production. Promotion Dpt. is in charge of advertising activities. Commercial Dpt. is responsible for trading activities of the company.

Public relations. To complete the picture of portraying the company it should be noted that the company‘s managers not only perform their office duties, but also participate in the communal work. At the Headquarters public relations officers are engaged in their day-to-day activities aimed at working with clients, mass-media, and members of the staff. They are in close touch with the press. Therefore, from time to time they have the pleasure of seeing our "image" in some leading papers.

Forms of Business. Business is based on common sense. People concentrate on doing certain things that they are good at. Then they exchange their work for money

161

which can in its turn be exchanged for the goods and services which they require. This is much more efficient than if each person worked purely to satisfy his or her own needs. There are many different types of business in the modern world. They range from very small ones to enormous multinational companies.

Areas of business. Every business either provides a service, produces goods or buys and sells goods and services for a profit (this is called trading). Many are involved in all these activities. The following are the main areas of business going on around you every day. Which of the business activities each business entails? Financial services: banking and insurance. Retail trade business-shops which sell goods. The hotel and catering businesses. Communication business: telephone, mail and courier services. Transportation businesses which move materials, products and people from place to place by road, rail, sea and air. Public services: police, fire brigades, armed forces and local and central governments.

Lines of business. About 90 per cent of all businesses are small, that is they employ less than 200 people if they are in manufacturing, or less than 10 people in any other business. About 3,000 small businesses are set up every week in the U.K. Anyone who thinks about setting up a business is to make sure that he or she is choosing one which will work. This involves a thorough investigation into the customers' needs. For example, however good you are at car mechanics, your car service will not succeed if very few people in your area actually own cars or if there is a good local garage which people already use. There are construction businesses which build houses and roads, food producing activities such as farming and fishing, various services including those provided by lawyers, accountants, architects, estate agents, hairdressers and entertainers. When choosing a business weigh all PROS and CONS!

Types of business. Before starting your business there are a number of decisions you will have to make. For example, who should you buy your supplies from? What premises will you work from? How much control do you want to keep in the business? This last question depends on whether you decide to work as a sole trader, a partnership or a limited company.

Suppose you decided to work as a sole trader. It means that you alone have responsibility for the business; you also take all profits after paying income tax on them. What advantages do you have if you work as a sole trader? They are as follows: you do not have to disclose details of your financial affairs except to the tax

162

authorities; you have the final say in any decisions that affect the company. The only disadvantage is that you alone are personally responsible for any business debts; if necessary, your personal possessions could be taken to pay them.

Partnership. It is a group of between two and twenty people trading as one firm. They share responsibility for debts, decision making and the profits. Partnership can be useful, and effective when partners have skills in different areas. What are the disadvantages of a partnership? All partners are personally liable for any business debts, even if they are caused by mismanagement by another partner. So it is essential to know your partners well and trust them.

A limited company (Ltd.). A company formed by two or more shareholders who put money into the business in return for a share of the profits. They appoint directors who control the company. A limited company must be registered. (You can get help from a solicitor to do this.) The advantages of a limited company are: the financial liability of the shareholders is limited. If the business goes bust the personal belongings of the shareholders cannot be taken to pay the debts. You each lose only the value of the shares you own. The disadvantages are as follows: you may find it difficult to get credit from suppliers or loans from banks unless you give personal guarantees that you will pay your debts to them. In addition to sending details of your financial affairs to the taxman, you must send a copy of your annual accounts to the Register of Companies. These accounts must be checked by an outside accountant to prove that they present a true picture of the company's finances.

Monopoly. Monopoly is a market structure with only a single seller of a commodity or service dealing with a large number of buyers. When a single seller faces a single buyer, that situation is known as bilateral monopoly. The most important features of market structure are those which influence the nature of competition and price determination. The key element in this segment of market organization is the degree of seller concentration, or the number and size distributions of the sellers. There is monopoly when there is only one seller in an industry, and there is competition when mere are many sellers in an industry.

Today the term monopoly is usually extended to include any group of firms which act together to fix prices or levels of production. Complete control of all output is not necessary to exercise monopoly power. Any combination of firms, which controls at least 80 percent of an industry's production, can dictate the prices of the remaining 20 percent. Aside from private monopolies, there are public monopolies.

163

Although the precise definition of monopoly cannot be applied directly to a labor union because a union is not a seller of services, labor unions have monopolistic characteristics. For example, when a union concludes a wage settlement, which sets wage rates at a level higher than that acceptable to unorganized workers, the union clearly contributes to monopolistic wage results. In effect, the price of labor (wages) is set without regard to the available supply of labor.

The monopolist establishes market position by ability to control absolutely the supply of a product or service offered for sale and the related ability to set price. Theoretically profit maximization is the primary objective, and it is often possible to achieve this by restricting output and the quantity of goods offered for sale. Levels of output are held below the quantity that would be produced in a competitive situation. Hence, monopoly is of interest to economic policy makers because it may impede the most efficient possible allocation of nation's economic resources.

Monopolies held by individuals or organizations may begin by the granting of a patent or a copyright, by the possession of a superior skill or talent or by the ownership of strategic capital. The huge capital investment necessary to organize a firm in some industries, raises an almost insurmountable barrier to entry in these monopolistic fields and, thus provides established corporations in these industries with potential monopoly power. The use of such monopoly power may lead to the development of substitute products, to an attempt at entry into monopolistic fields by new firms, or to public prosecution or regulation. The antitrust policy of the federal government has prevented the domination of an industry by one firm. Thus, the trend during the last years has been away from monopolies.

Companies in the UK. The company is a corporate body, whose regulation is governed by one of the various Companies Acts. The liability of members may be limited by shares, or by guarantees, or may be unlimited. The commonest type of company in existence in the UK is a company limited by shares. The principle characteristics of a company limited by shares are that each is a separate legal person and that the liability of the company is limited to the nominal value of the shares.

Companies may also be public or private. About 97 percent of the limited companies registered in Great Britain are private companies. A private company is one which restricts 4 the right to transfer its shares, limits its members to fifty (but has a minimum of two), and cannot invite the public subscribe for shares. It has certain legal privileges, but these are not of great consequence.

164

A company may have any name provided that the Board of Trade does not think it undesirable. Undesirable names are those too much like those of other companies. At one time words like "royal" and "imperial" were prohibited. They may still be disallowed by the Board of the Trade. The last word must be "Limited" except in the case of certain non-profit-making companies formed to promote the arts, science, etc. The name must be fixed or painted outside every office or place of business. It must also appear on all business letter, notices, of checks, advertisements, bills, etc. If the word "Limited" is omitted the consequences could be serious. Where the word "Limited" does not appear, the organization is not a company in the legal sense.

The objects of a company must be stated in its memorandum of association. If the main object of the company disappears, the company may be wound up. Objects must not be illegal. Objects or powers may be changed by altering the memorandum by special resolution.

Unit 4

Ways of Selling. One of the most exciting parts of building up a business is when you begin to receive orders for your goods or services. The selling process is hard to work, but also extremely satisfying. There are several ways of selling.

Direct selling. This is when you sell a product direct to the public, for I example, in your shop, market stall or by mail order. Its great advantage is that by listening to comments made by customers you can judge the market more accurately. Mail order. You can advertise in newspapers or magazines, inviting customers to order goods from you by post. This is called mail order. Customers send in money with their orders. Direct mail is another way of selling by post. You send sales leaflets with order forms to potential customers. Working to order. If you provide a service or make personalized goods, you need to encourage orders from customers. Although many orders may come as a result of recommendations from satisfied customers, you must place yourself firmly in the public eye by promoting yourself.

You can promote yourself by printing leaflets and giving information about yourself and your work in the advertising sections of newspapers and magazines. Design and draw up an advertisement for your business!

Selling through agents and sales reps. While expanding sales you may need to employ sales representatives or agents. Agents are people who have a number of contacts and a special knowledge in a particular field. They work freelance for

165

several clients at once. They make their money by taking a percentage (say 10 %) on everything they sell. It is possible to employ sales reps who work for you alone. They can provide you with weekly sales reports giving comments, assessments, and desires expressed by customers about each product.

Taxation. Many governments collect taxes from both private individuals and businesses to pay for schools, prisons and so on. Businesses have to pay various types of tax, some related to sales, some related to wages, and some related to local governments (these are called "rates").

Types of taxes. VAT (Value added tax). In many countries a tax is added to the price of goods and services. In Britain it is called VAT. All businesses which have a high turnover (e.g. 20,000 pounds) must register for VAT. This means that you must add the tax on to the price of your goods and services, and pay this to the GVT (government) about every three months.

Sales tax. In some countries (the U.S.) there is a sales tax instead of VAT. The sales tax is only put on at the final stage, when the shop sells goods to the general public. It is not usually added to services.

Income tax. In many countries people are charged income tax on the money they earn. They pay a percentage of their annual income. Often it is the responsibility of the employer to deduct this from their pay and pass it to the GVT. The employer must always keep a record of the amounts earned by each employee and the amount of tax that has been deducted.

Business tax. All businesses have to pay tax on their profits. How much tax you have to pay will be calculated according to your total income from sales minus your business expenses. That is why it so important to keep accurate records of your expenditure.

National insurance. This is a kind of tax which employees in many countries have to pay as well as income tax. It goes partly towards financing state pensions and social security and partly into general taxation funds.

Overheads and Their Recovery. The costs of a business are of two types - direct and indirect. The direct costs vary directly with production. If one additional unit of production is made, there will be a measurable increase in direct cost. When one unit less is made, there will be similar measurable decrease in direct cost. Direct or raw - material is normally the largest component of direct cost. It includes all items of material that are of sufficient size to warrant the effort of charging directly to the

166

job. Small items, such as glue, paint and small quantities of nails, do not merit the clerical effort involved in charging directly to the job, and would be an overhead.

Direct wages will vary directly with production where remuneration is based upon piecework only. This means that a specific amount is paid when a production operation is successfully finished. If it is not finished, no payment is made. Many organizations remunerate labor on the basis of a large basic wage, topped up with a productivity bonus. The basic element is paid regardless of the level of production. In such cases wages will not vary directly with production, and fall into the category of an indirect cost or overhead.

Overhead is a general term applied to all the costs of involved in running a business other than direct costs. It covers the costs of running the works of organization: product research and development; the administration of the business; selling and distributing the product. Overheads are diverse, covering the whole of the business organization.

The management accountant has the problem of allocating these costs to the individual product lines being manufactured. The management accountant's task is to allocate the many, diverse overheads, onto the cost of each product manufactured. It is a major task requiring the use of main different bases of allocation.

The allocation of direct cost to a product can be precise, in the case of overhead allocation an element of logical guesstimate enters. There is a two-fold process, firstly to collect all overhead costs onto the product or profit centres and secondly to load the overheads onto each product passing through the centre.

The Auditing Framework. Auditing, is the analytical process of gathering sufficient evidential matter on a test or sampling basis to enable a competent professional to express an opinion as to whether a given set of financial statements meets established standards of financial reporting.

Now we can enumerate the major steps of the auditing process:

-become acquainted with the firm - its environment and its accounting, personnel, production, marketing, and other systems;

-review and evaluate the management and the accounting control system in operation;

-gather evidential matter on the integrity, of the system;

-formulate a judgement opinion on the basis of the evidence available.

167

Auditing is an analytical process applied to everyday business situations. Hence it is closely related to existing business practices. Therefore a getting-acquainted phase (which usually includes a visit to a client's facilities) initiates the typical audit process.

The auditor's evaluation of the control systems operating within the enterprise has a direct influence on the scope of the examination he undertakes and the nature of the tests he conducts.

Evidential matter supporting financial statements consists of the accounting data and all information available to the auditor. The auditor tests underlying accounting data by analysis and review.

One key justification for independent audits is the economy that results from producing expert opinion-based judgements from limited but reliable evidential matter.

Setting the Price. How are prices set? Through most of history, prices were set by buyers and seller negotiating with each other. Sellers would ask for a higher price than they expected to receive, and buyers would offer less than they expected to pay. Through bargaining, they arrive at an acceptable price.

Setting one price for all buyers is a relatively modern idea. It was given impetus by the development of large-scale retailing at the end of the nineteenth century.

Through most of history, price has operated as the major determinant of buyer choice. This is still true in poorer nations and among poorer groups.

However, non-price factors have become relatively more important in buyerchoice behavior in recent decades. Yet price still remains one of the most important elements determining company market share and profitability.

Price is the only element in the marketing mix that produces revenue, the other elements represent costs. Yet many companies do not handle pricing well.

The most common mistakes are: pricing is too cost oriented, price is not revised often enough; price is set independently of the rest of the marketing mix; and price is not varied enough for different product items.

Companies handle pricing in a variety of ways. In small companies, prices are often set by top management rather than by the marketing or sales department.

In large companies pricing is typically handled by divisional or product-line managers. Even here, top management sets the general pricing objectives and policies and often approves the prices proposed by lower levels of management.

168

In the industries where pricing is a key factor companies will often establish a pricing department to set prices or assist others in determining appropriate prices. This department reports either to the marketing department or top management. Others who exert an influence on pricing include sales managers, production managers, finance managers, and accountants.

Unit 5

What is Marketing. What does the term marketing really mean? Many people mistakenly think of it as advertising and selling. However, advertising and selling are only two of several marketing functions, and not necessarily the most important ones.

The most basic concept underlying marketing is that of human needs. We have needs including ones such as affection, knowledge and a sense of belonging as well as the physical need for food, warmth and shelter. Marketing can thus be defined as any business activity, which is directed at satisfying needs and wants by creating and exchanging goods value with others. Marketing has become a key factor in the success of western businesses. Today's companies face stiff competition and the companies which can best satisfy customer needs those which will survive and make the largest profits.

Marketing consists of individual and organizational activities to satisfy exchange relationships in a dynamic environment through the creation, distribution, promotion and pricing of goods, services, and ideas. The four variables, creation, distribution, promotion, pricing are called the marketing mix. For an exchange to take place, four conditions must exist. First, an exchange require participation by two or more individuals, groups, or organizations. Second, each party must possess something of value that the other party desires. Third, each must be willing to give up its 'something of value' to receive the 'something of value' held by the other. Fourth, me parties to the exchange must be able to communicate with each other to make their 'something of value' available. Note, though, that an exchange will not necessarily take place just because these fi conditions exist. However, even if there is no exchange marketing activities still have occurred. The 'something of value' held by the two parties are most often products and/or financial resources such as money or credit. When an exchange occurs, products are traded for either other products or financial resources.

169

Product-market Strategy. ―Product-market strategy‖ is the term used to describe all the decisions, which the organization makes about its target markets and the products it offers to those markets. The use of the word ―strategy‖ is important, for it implies a chosen route to a defined goal and suggests long-term planning. This is quite different from ―tactical activities‖, which are used to achieve short-term objectives by gaining immediate results. ―Product-market strategy‖ represents a decision about the current and future direction of the organization. ―Product-market strategy‖ must be developed in the most cost-effective manner, paying attention to cash flow and profitability requirements. To minimize costs at the outset, a sound marketing approach will usually attempt to increase profits and cash flow from existing markets. The following examples can help illustrate the total strategy at work.

Market penetration. Heinz revamped its marketing strategy to increase consumption of its tinned soups. This product was traditionally a winter purchase, but Heinz successfully promoted the idea of celery soup, drank hot or cold, as a suitable summer purchase. The product attributes of celery were linked with concepts of slimming and refreshment on summer days. Market development: A British hotel chain opened up a new market by offering ―Leisure Learning‖ weekends in its hotels. Product range extension: A European breakfast cereal manufacturer brought out a new ―variety‖ pack to appeal to young children who liked the freedom of choosing a new cereal each morning. Product development: Manufacturers of digital watches soon combined the watch function with an alarm component. This not only attracted customers who liked the novelty of the idea, but seriously threatened the traditional watch market.

The Promotion Mix. Advertising. Because of the many forms and uses of advertising it is hard to generalize about its unique qualities as a part of the promotion mix. Yet several qualities can be noted. Advertising‘s public nature suggests that the advertised product is standard and legitimate. Because many people see ads for the product, buyers know that purchasing the product will be publicly understood and accepted. Advertising lets the seller repeat a message many times and compare the message of various competitors. Large-scale advertising, by a seller, says something positive about the seller's size, popularity, and success. Advertising is also very expressive, letting the company dramatize its products through the artful use of print, sound, and color. On the one hand, advertising can be used to build up a long-term