Business Risks
Risk is the danger that something will happen to destroy the best-laid plans. The more venturesome the enterprise, the greater the profits or losses that can be expected.
Despite the return for risk taking, the businessman prefers to eliminate as many hazards to successful operation as possible. Some he must assume while others he can reduce to a minimum.
Kinds of Business Risks
Hence, the risks that confront a business may be divided into 2 types:
1. Uninsurable Risks
2. Insurable Risks
Uninsurable Risks
--------------------------------------------------------------------------------
Some risks may be due to external causes over which little or no control can be exercised. These are uninsurable risks and few of them are as follows:
1. Fluctuations in Price Level
A business firm typically produces goods in anticipation of demand and incurs expenditure on raw material, wages and various other costs with a view to sell goods at profit. In the meantime of the prices of the product fall, the firm will have to bear loss.
2. Changes in Distribution Method
The recent development of chain stores, supermarkets and shopping centers has had an impact on small, independently owned stores. Many of them have been forced to shut their doors.
3. Changes in Laws
Often changing of laws also affects business e.g. if the government bans the import of certain items for any reason or plates excessive duties on their import, the dealers of such items will be forced out of business.
4. Change in Technology (Advancement)
The development of new products or new brands of better quality, new production techniques etc constitute a continuous hazard for those who do not keep up with time.
5. Change in Consumer Tastes
A company produces goods keeping in view the tastes of customers. A shift in the whims and fancies of customers and consequently a fall in demand constitute a risk and bring loss to the company.
Insurable Risks
--------------------------------------------------------------------------------
Not all risks are insurable. Only those that are economic in character can be insured. But not all economic risk is insurable either. They can be divided into SPECULATIVE and PURE RISKS. Speculation consists of chances and can result in either gain or loss. Insurance is limited to pure risk because in it there is not chance of gain.
By definition, insurance is a system devised to reduce the burden of financial loss due to some specified but uncertain event.
1. Risk of Fire
A factory or office building may be damaged by fire. This risk is insured with the insurance company, whereby the insurance carrier agrees to make goods any loss sustained by a person on property destroyed by fire.
2. Risk of Theft
A business may be robbed by burglars or a dishonest employee may steal money or goods handled by the business.
3. Transportation Risk
Maritime perils like sinking, capsizing, damage by sea water etc, and risks due to rains, accidents etc faced by goods while in transit come under this category.
4. Casualties
A business may suffer losses due to each casualties as wind store or earthquake, employee accidents, suits against directors and officers by disgruntled stockholders etc.
Other Risks
--------------------------------------------------------------------------------
1. Marketing Risks
Risks are involved in marketing a new product. Even after a product is successfully introduced to the market, risks continue to plague its existence. To minimize these risks, many companies often use the means of test marketing.
2. Equipment Risks
The purchase of special facilities and equipment can involve great risks. The expensive equipment required to produce that new wonder drug may prove useless, if the drug has dangerous side effects. Practically any major purchase decision involves risks.
3. Credit Risks
Each time a company extends credit to a customer, there is danger that the customer will not pay his bill. If the credit manager becomes too careful and screen out everybody who has ever been late with a payment, he runs the risk of restricting company sales.
4. Inventory Risks
Inventories also present the businessman with a dilemma. If he fails to buy adequate supplies, there is the danger of running out of stock. Yet, the maintenance of large inventories means heavy storage costs plus potential dangers of theft, deterioration, price declines of obsolescence.
5. Government Risks
Certain Federal laws add to the risks associated with being a businessman. Product Liability means that the manufacturer may be held liable if someone is injured because of a defective part in his product and so on with other government laws and conditions.
Methods of Handling Risks
Risks are inherent in business. Some risks must be assumed while others can be minimized. Following are the five general risk management techniques:
1. Risk Avoidance
A manufacturer can avoid the risk of product failure by refusing to introduce the new products. But this risk avoidance would be at a very high cost. The business that does not take a chance on new products will probably fail when the product life cycle catches up with it.
There are however situations in which risk avoidance is a practical technique. Individuals who stop smoking or jeweler stores that lock up their merchandise in vaults are avoiding risks.
2. Risk Reduction (Protective Measures)
If a risk cannot be avoided, perhaps it can be reduced. A manufacturer can reduce the risk of product failure through careful product planning and market testing.
Among the techniques used to reduce risks are:
Establishment of employee safety programmes.
Use of proper safety equipment.
Burglar alarms, security guards etc.
Fire proof building, fire alarms, sprinkler system etc.
Accurate and effective accounting and financial controls.
3. Self Insurance (Risk Assumption)
A firm takes on certain risks as part of doing business e.g. a firm assumes that some creditors will not come up with payments. Risk assumptions is then the act of taking on responsibility for the loss or injury that may result from a risk.
This usually means setting aside a financial reserve that can be drawn upon, should the loss occur. (Self-insurance is the process of establishing a monetary fund that can be used to cover the cost of a loss) e.g. companies maintain an allowance for bad debts.
Self insurance does not eliminate risks, it only provides a means for covering losses. it is more appropriate for large organizations than for the small businesses.
4. Business Adaptation and Flexibility
Another method of dealing with risks seeks to reduce the potential impact of an undesirable event. Business firms confronted by risk due to rapid changes in technology should stress on maximum adaptation of production facilities, organizational structure and procurement method. By hedging they can minimize the losses due to fluctuation ins price levels.
5. Shifting Risks (Insurance Coverage)
The most commonly used method of dealing with risks is to shift or transfer the risk to professional risk taker the insurance company.
The insurance company is a firm that agrees, for a fee, to assume financial responsibility for losses that may result from a specific risk. The fee charged by an insurance company is called Premium. A contract between an insurer and the person or firm whose risk is assumed is known as an Insurance Policy. Generally an insurance policy is written for a period of one year and is renewed each year.
Insurance is thus the protection against loss that is afforded by the purchase of an insurance policy. Insurance companies only assume insurable risks. These estimate on the basis of past experience, the amount that will have to pay in case losses occur. In addition to covering the losses, it must also recover its own costs of operation.
Types of Insurance Coverage
Life Insurance
Life insurance does not insure life, as tis replacement is impossible. Practically it provides insurance either to the assured or beneficiary on agreed amount of money that becomes payable either maturity of the period or in case of death of the assured. In case if the assured amount becomes payable to the assured on the expiry of certain period it is known as endowment policy. In case if the insured amount becomes payable on death only, it is known as whole life policy. In whole life policy the some of the beneficiary must be specified or mentioned by the insured so that payment could be made to correct person in case of this death. For the benefit and facility of the insured, there is limited payment plan policy also that also permits the insured to pay insurance premium to a limited number of years. After that period the policy comes the paid up policy for the full value of the insured amount. In life insurance, group life coverage is also gaining popularity due to its sizeable fringe benefits employees. Employers obtain group life insurance policy to cover all employees less expensively than employees could buy individual polices for themselves.
Fire Insurance
Fire insurance policies protect property owners against losses resulting from damage to property used by fire, Now its scope has been widened to cover losses from windstorms, hail, riots earthquake, explosion, flood, chemical or smoke. The amount of premium chargeable by fire insurance companies depend upon the amount of coverage obtained, type of property, and fire fighting arangements made by the company obtaining protection.
Marine Insurance
Marine insurance protection is available to merchandise in transit. In fact international trade owes to it. Had there been no marine insurance, perhaps foreign trade would not have expanded to the extent which we find today. By offering protection to shippers and foreign traders, marine insurance is playing a vital role in international commerce. It insures cargo, ship and freight.
When a ship sinks in ocean, three things are lost. Firstly, we lose cargo, secondly the ship itself and thirdly the freight that would have been earned by the shipping lines. Cargo is insured by the trader, while ship and freight are insured by the shipping company.
Burglary, Theft and Robbery Insurance
The insurance company draws fine distinctions among burglary, theft and robbery. Burglary is taking of property by forcible entry, theft is the unlawful taking of property and robbery is the unlawful taking of property from another person by force or threat of force. Insurance premium rates vary for these different types of risks. Where all three risks are covered by insurance the insured pays an average premium and is protected against any losses that do occur.
Automobile Insurance
Automobile insurance offers protection against fire, theft, bodily inquiry, property damage, and collision. It also covers public liability or damage to the insured automobile. Bodily injury liability insurance under it will pay the policy holder legal liability, for injury to one person or to a group. If a driver hits a pedestrian or causing injury to person in other car, the insurance company will pay damages up to the amount of coverage carried.
Workmen's Compensation Insurance
The purpose of workman's compensation insurance is to guarantee medical and salary payments to workers who are injured on the job unless it can be show that the employees injury or death was will full or caused by intoxication. This insurance is now required in many countries of the world as a part of legal requirement. The cost of insurance is born by both employers and employees, but the major share is assumed by employers.
Fidelity and Surety Bonds
Fidelity bonds are usually written to cover employees occupying positions of trust in which they have jurisdiction over funds. The employer is guaranteed against loss caused by the dishonesty of such employees and the insurance company will reimburse the policy holder for loss up to the amount specified in the policy.
Surety bonds are written to protect the insured against loss from the non-performance of a contract. A building contractor, for example, who agrees to erect a factory according to specification and within a certain time, might be required to furnish surety bonds guaranteeing performance of the contract. Such fidelity and guarantee are covered by insurance company.
Title Insurance
Title insurance guarantees the title to real estate that is purchased by a firm or by an individual. There are many examples on record of people who build homes on plots that were not theirs. With title insurance, losses that result under such circumstances are covered by the title insurance company. Title insurance, therefore, is essential on all real estate owned by a business.
Credit Insurance
This insurance is designed to protect a business firm against excessive, losses from accounts receivable that are owned to the firm. Most policies of this type cover only losses that exceed the normal rate of loss on such debt and the rate is specified in the policy. This insurance is taken up by business firms to protect against excessive bad debts.
Aviation Insurance
Air travel has now become a common means of transport. It involves passengers, cargo and aircraft itself. They need insurance and for which aviation insurance has come up in action. The insurance of aircraft relates to aeroplanes, gliders and helicopters. The comprehensive policy issued in respect of aeroplane covers loss or damage to the aircraft itself and third party legal liability including legal liability for accidents to passengers. Beside the aircraft it also offers protection to air traveling passengers and crew members. Further, goods sent by air could also be insured against loss.
Showing posts with label ITB B.Com Part 1 (KU). Show all posts
Showing posts with label ITB B.Com Part 1 (KU). Show all posts
B.Com.Part-1 Introduction to Business - Chapter 9 - Human Resources and Personnel Management
The Personnel Process
The essential and time-honoured function of personnel department is to provide competent people for all positions in the business firm. The steps that are followed in the process are briefly explained as follows:
1. Determination of Needs
For this purpose job analysis becomes the first requirement. Job analysis involves inquiry into all the details of each job of the company that is to be filled up. Location of the job, its duties and responsibilities, working conditions, the salary, the promotion opportunities, and whether or not any training for the job is offered, are the things that are looked into. Job analysis practically makes a job description and helps in guiding the person responsible for making selection in determining the qualification, experience and health requirements of the conditions to be considered for the job.
2. Selection and Recruiting
The procedures for recruiting applicants vary depending upon the firm and the type of work. In usual cases generally they agree to follow:
Screening
Screening is usually carried through processing the applications blanks and preliminary interview. Each application or job letter is throughly examined in the light of the job to determine the suitability of the candidate. Preliminary interview helps in filtering out the correct persons.
Tests
Tests are carried to find out the proficiency and capability of the candidates. For this purpose there could be intelligence test, aptitude tests, and ability or achievement tests. This may include medical tests to determine physical fitness.
Main Interview
Applicants who clear above two stages are then invited to a personal or main interview. It involves the most careful and balanced judgment on the part of the manager, as upon this the human balance sheet of the enterprise depends.
3. Orientation and Training
Orientation
--------------------------------------------------------------------------------
After the applicant has been hired he must be properly introduced to the policies of the company, to the job and the surrounding and to the people with whom he will work. The idea is to relive tension, minimize critical sensitivity and ease the adjustment in new environment.
Things Helpful in the Procedure of Orientation
Lectures in the personnel department on history, producers, policies of the company.
Movies, pamphlets and booklets, which cover company operations and services.
A conducted tour of the factory of office.
A personal introduction to fellow workers and new surroundings.
Subjects Covered in An Orientation Programme
Whatever the method, the following types of subjects are usually covered:
1. Company history, products and major operations.
2. General company policies and regulations.
3. Relation of foremen and personnel department.
4. Rules and regulations regarding:
a) Wages and wage payment
b) Hours of work and overtime
c) Safety and accidents
d) Holidays and Vacations
e) Methods of Reporting Tardiness and Absences
f) Discipline and grievances
g) Uniforms and badges
h) Parking
5. Economic and recreational services available:
a) Insurance plans
b) Pensions
c) Athletic and Social Activities
6. Opportunities
a) Promotion and transfer
b)Job stabilization
c) Suggestion systems
Training
--------------------------------------------------------------------------------
Employee training is the process of teaching and operating technical employers, how to develop their present jobs more efficiently. It aims at improving employee skill and abilities.
Companies that hope to stay competitive typically make huge commitments to employee training and development.
Methods or Types of Training
A variety of methods are available for employee training and development. Following are the various methods that can be used:
1. Training on the Job
This is the most universal method and makes the most lasting impression. Certain types of work lend themselves to training on the job, whereby the employees learn by doing the work under the supervision of an instructor.
2. Vestibule Training
This is the method in which the work situation is simulated in a separated area so that learning takes place away from day-to-day pressures of work. Many firms operate company schools to which new employees are sent for training. This is used when the work involves dangers or costs, which might lead to expensive mistakes.
3. Apprentice Training
Apprentice training is traditional in various trades, crafts and technical fields where proficiency is acquired after years of instruction by experts. It is a combination of class room lectures, special work area practice and actual work experience.
4. Internship
This provides for cooperation between schools and businesses with intermittent periods of time assigned to each. Outside experiences can well enhance the development of a new manager.
5. Class Room Teaching and Lectures
Training with industry or short lecture and demonstration courses to show supervisors how to develop better methods of handling human relationships and to rain subordinates.
6. Conference and Seminar Techniques
Here small groups are brought together to discuss problems, exchange ideas or be briefed on various situations. Participation in small groups of no more than fifteen is an excellent means of learning.
7. Psychodrama or Role Playing
This is the training in which executives learn by acting out what they should do in actial situations under the guidance of a trainer from the personnel department.
8. Job Rotation
At higher levels of an organization, management training may take place through job rotation. Position rotation or moving executives from one job to another so that they get to know the individual and total problems of a company. Assistant to promotions permit trainees to broaden their view point and background.
9. Outside Courses
These are used by many organizations that do not have the resources to do their own training. Outside courses in colleges, correspondence courses, trade association conferences and evening schools are also commonly used to educate executives.
10. Understudy Plans
This provides for an assistant to be assigned o a skilled worker or executive. By working directly under a particular man, the under study can learn the ropes and then take on the job when vacancy occur.
11. The Group Dynamics
Under this method, employees are organized into a squadron or group with a view to giving them broad idea and necessary skills on a number of jobs. This is applicable particularly in those cases where a large number of potential executives care to be trained up to fill different executive and managerial positions.
4. Performance Appraisal
Performance appraisal or evaluation makes the personnel manager estimate and understand the effectiveness and performance capability of an employee. This also helps him to find out to what extent the employee has made improvement in his work performance. Further performance appraisal can also guide the manager in correctly rewarding the employees, honestly allocating the human resources, fairly filling up the higher jobs and building the atmosphere of trust and confidence within the enterprise.
To the employee, performance appraisal provides a feedback to him that can greatly guide his future adjustment and greater preparedness to overcome his weaknesses.
5. Compensation
Compensation is the monetary reward and other benefits that are offered to employees. People should be paid or rewarded according to what they produce or how much risk they take. It is because compensation is real lubricant to work performance. Fair compensation to employees always pays in the long run. That is the reason good personnel manager always recommends a fair compensation to employees.
Compensations that are expected by employees today and which are included in the programme are:
1. Fair wages
2. Continuous employment
3. Reasonable hours of work
4. Pleasant and safe working conditions
5. Future prospects
6. Feeling of contribution
6. Promotion
One of the important considerations in personnel policy is to device and work out the way that would assure promotion to deserving employees of the enterprise. The hope for earning promotion on the basis of their competency makes the employees work with greater devotion and sincerity. Good personnel managers do recognize it and take care in deciding this issue with fair justice. They know that attraction of good employees and their retention within the enterprise depends upon a formidable promotion policy.
7. Termination
The employees may retire from their jobs after attaining certain age or completing the terms of service. They may leave the job on their own accord or may be declared surplus by the management. These all virtually result in termination of the job. Such termination should always end with a happy note. The management in recognition of the service of their employees determines the retirement benefit in the shape of pension, provident fund and gratuity.
Trade Unions
Definition
Modern industrialization has given rise to great number of problems.There has come to be a clash between the interests of labour and organization, the former claiming higher wages and the latter higher profits. Today, labourers have come to realise that they can improve their conditions of work only through collective bargaining with the employees. Thus they combine themselves into Trade or labour unions.
The aim of the trade unions is thus to protect the interests of the workers by
1. Conserving the advantages already received.
2. Doing everything legally possible to obtain further the just and genuine benefits from the employers.
Function of Trade Unions
Trade unions assist labour in that they perform three types of functions.
a. Militant Function.
b. Fraternal Function.
c. Political Function.
(a)Militant Functions
The main function of the trade union is to fight for the basic rights and interests of its members. In doing this they offer the following benefits to the labour community.
1. Collective Bargaining
Labour has weak bargaining power as against his employer. A labourer sells his services as an individual while the employer buys them on a large scale. Labour is therefore in much greater competition for employment then the employers are for labour. If labourers do not combine themselves into trade unions they are likely to be taken advantage by the employers. Trade unions strengthens the bargaining power of labour through the introduction of what is called collective bargaining. Now instead of each worker negotiating with the employers on various demands, the trade unions bargain on behalf of them all. If their reasonable terms are not accepted, they curtail the supply of labour and resort to strikes boycotts or lockout etc.
2. Standardizing Wage Rate
Modern trade unions fight for the raising of standard wage rate. For that, they try to improve the efficiency of labour, (by standardizing conditions of work and fostering habits of honesty regularity etc) ensure that wages are raised up to marginal productivity level, restrict labour supply, increase labour demand and thereby seek to establish standard wage for a standard quality of work.
3. Job Security
For achieving this objective, seniority rights of workers, control over hiring of labour, grievance procedure for handling cases of discharge etc. are used as devices.
4. Improving Conditions of Work
Trade unions put pressure on the employers to provide workers with better conditions of work, sufficient recreation, standardized hours of work etc.
5. Limitation of Output
If a given number of labourers produce more than what they ought to, employment for labour will be reduced. Hence, output per worker is standardized by the unions.
(b) Fraternal Functions
Fraternal functions consist of mutual help for the welfare of the workers. In this context, trade unions offer the following benefits:
1. A Ministrant Association
Trade unions act as ministrant association and provide monetary protection to workers against temporary unemployment, sickness, accident etc. Some trade unions give loans and advances to their members for meeting their social obligations.
2. Professional Training
Trade unions also arrange for education and professional training of their members and as such assist them in improving their efficiency and skill.
3. Source of Information
Trade unions serve as a source of defusing labour information the workers. The workers are guided and advised by trade unions leaders who also defuse information by organizing of workers.
4. Insurance Facilities
Trade unions also arrange for insurance facilities against risks of accidents.
5. Legal Help
Trade unions help the labourers in legal proceedings at the court, in the disputes of labourers.
(c) Political Functions
Many trade unions fight elections to capture the government. In many countries, strong labour parties have grown up. We have some labour seats in the legislature.
The essential and time-honoured function of personnel department is to provide competent people for all positions in the business firm. The steps that are followed in the process are briefly explained as follows:
1. Determination of Needs
For this purpose job analysis becomes the first requirement. Job analysis involves inquiry into all the details of each job of the company that is to be filled up. Location of the job, its duties and responsibilities, working conditions, the salary, the promotion opportunities, and whether or not any training for the job is offered, are the things that are looked into. Job analysis practically makes a job description and helps in guiding the person responsible for making selection in determining the qualification, experience and health requirements of the conditions to be considered for the job.
2. Selection and Recruiting
The procedures for recruiting applicants vary depending upon the firm and the type of work. In usual cases generally they agree to follow:
Screening
Screening is usually carried through processing the applications blanks and preliminary interview. Each application or job letter is throughly examined in the light of the job to determine the suitability of the candidate. Preliminary interview helps in filtering out the correct persons.
Tests
Tests are carried to find out the proficiency and capability of the candidates. For this purpose there could be intelligence test, aptitude tests, and ability or achievement tests. This may include medical tests to determine physical fitness.
Main Interview
Applicants who clear above two stages are then invited to a personal or main interview. It involves the most careful and balanced judgment on the part of the manager, as upon this the human balance sheet of the enterprise depends.
3. Orientation and Training
Orientation
--------------------------------------------------------------------------------
After the applicant has been hired he must be properly introduced to the policies of the company, to the job and the surrounding and to the people with whom he will work. The idea is to relive tension, minimize critical sensitivity and ease the adjustment in new environment.
Things Helpful in the Procedure of Orientation
Lectures in the personnel department on history, producers, policies of the company.
Movies, pamphlets and booklets, which cover company operations and services.
A conducted tour of the factory of office.
A personal introduction to fellow workers and new surroundings.
Subjects Covered in An Orientation Programme
Whatever the method, the following types of subjects are usually covered:
1. Company history, products and major operations.
2. General company policies and regulations.
3. Relation of foremen and personnel department.
4. Rules and regulations regarding:
a) Wages and wage payment
b) Hours of work and overtime
c) Safety and accidents
d) Holidays and Vacations
e) Methods of Reporting Tardiness and Absences
f) Discipline and grievances
g) Uniforms and badges
h) Parking
5. Economic and recreational services available:
a) Insurance plans
b) Pensions
c) Athletic and Social Activities
6. Opportunities
a) Promotion and transfer
b)Job stabilization
c) Suggestion systems
Training
--------------------------------------------------------------------------------
Employee training is the process of teaching and operating technical employers, how to develop their present jobs more efficiently. It aims at improving employee skill and abilities.
Companies that hope to stay competitive typically make huge commitments to employee training and development.
Methods or Types of Training
A variety of methods are available for employee training and development. Following are the various methods that can be used:
1. Training on the Job
This is the most universal method and makes the most lasting impression. Certain types of work lend themselves to training on the job, whereby the employees learn by doing the work under the supervision of an instructor.
2. Vestibule Training
This is the method in which the work situation is simulated in a separated area so that learning takes place away from day-to-day pressures of work. Many firms operate company schools to which new employees are sent for training. This is used when the work involves dangers or costs, which might lead to expensive mistakes.
3. Apprentice Training
Apprentice training is traditional in various trades, crafts and technical fields where proficiency is acquired after years of instruction by experts. It is a combination of class room lectures, special work area practice and actual work experience.
4. Internship
This provides for cooperation between schools and businesses with intermittent periods of time assigned to each. Outside experiences can well enhance the development of a new manager.
5. Class Room Teaching and Lectures
Training with industry or short lecture and demonstration courses to show supervisors how to develop better methods of handling human relationships and to rain subordinates.
6. Conference and Seminar Techniques
Here small groups are brought together to discuss problems, exchange ideas or be briefed on various situations. Participation in small groups of no more than fifteen is an excellent means of learning.
7. Psychodrama or Role Playing
This is the training in which executives learn by acting out what they should do in actial situations under the guidance of a trainer from the personnel department.
8. Job Rotation
At higher levels of an organization, management training may take place through job rotation. Position rotation or moving executives from one job to another so that they get to know the individual and total problems of a company. Assistant to promotions permit trainees to broaden their view point and background.
9. Outside Courses
These are used by many organizations that do not have the resources to do their own training. Outside courses in colleges, correspondence courses, trade association conferences and evening schools are also commonly used to educate executives.
10. Understudy Plans
This provides for an assistant to be assigned o a skilled worker or executive. By working directly under a particular man, the under study can learn the ropes and then take on the job when vacancy occur.
11. The Group Dynamics
Under this method, employees are organized into a squadron or group with a view to giving them broad idea and necessary skills on a number of jobs. This is applicable particularly in those cases where a large number of potential executives care to be trained up to fill different executive and managerial positions.
4. Performance Appraisal
Performance appraisal or evaluation makes the personnel manager estimate and understand the effectiveness and performance capability of an employee. This also helps him to find out to what extent the employee has made improvement in his work performance. Further performance appraisal can also guide the manager in correctly rewarding the employees, honestly allocating the human resources, fairly filling up the higher jobs and building the atmosphere of trust and confidence within the enterprise.
To the employee, performance appraisal provides a feedback to him that can greatly guide his future adjustment and greater preparedness to overcome his weaknesses.
5. Compensation
Compensation is the monetary reward and other benefits that are offered to employees. People should be paid or rewarded according to what they produce or how much risk they take. It is because compensation is real lubricant to work performance. Fair compensation to employees always pays in the long run. That is the reason good personnel manager always recommends a fair compensation to employees.
Compensations that are expected by employees today and which are included in the programme are:
1. Fair wages
2. Continuous employment
3. Reasonable hours of work
4. Pleasant and safe working conditions
5. Future prospects
6. Feeling of contribution
6. Promotion
One of the important considerations in personnel policy is to device and work out the way that would assure promotion to deserving employees of the enterprise. The hope for earning promotion on the basis of their competency makes the employees work with greater devotion and sincerity. Good personnel managers do recognize it and take care in deciding this issue with fair justice. They know that attraction of good employees and their retention within the enterprise depends upon a formidable promotion policy.
7. Termination
The employees may retire from their jobs after attaining certain age or completing the terms of service. They may leave the job on their own accord or may be declared surplus by the management. These all virtually result in termination of the job. Such termination should always end with a happy note. The management in recognition of the service of their employees determines the retirement benefit in the shape of pension, provident fund and gratuity.
Trade Unions
Definition
Modern industrialization has given rise to great number of problems.There has come to be a clash between the interests of labour and organization, the former claiming higher wages and the latter higher profits. Today, labourers have come to realise that they can improve their conditions of work only through collective bargaining with the employees. Thus they combine themselves into Trade or labour unions.
The aim of the trade unions is thus to protect the interests of the workers by
1. Conserving the advantages already received.
2. Doing everything legally possible to obtain further the just and genuine benefits from the employers.
Function of Trade Unions
Trade unions assist labour in that they perform three types of functions.
a. Militant Function.
b. Fraternal Function.
c. Political Function.
(a)Militant Functions
The main function of the trade union is to fight for the basic rights and interests of its members. In doing this they offer the following benefits to the labour community.
1. Collective Bargaining
Labour has weak bargaining power as against his employer. A labourer sells his services as an individual while the employer buys them on a large scale. Labour is therefore in much greater competition for employment then the employers are for labour. If labourers do not combine themselves into trade unions they are likely to be taken advantage by the employers. Trade unions strengthens the bargaining power of labour through the introduction of what is called collective bargaining. Now instead of each worker negotiating with the employers on various demands, the trade unions bargain on behalf of them all. If their reasonable terms are not accepted, they curtail the supply of labour and resort to strikes boycotts or lockout etc.
2. Standardizing Wage Rate
Modern trade unions fight for the raising of standard wage rate. For that, they try to improve the efficiency of labour, (by standardizing conditions of work and fostering habits of honesty regularity etc) ensure that wages are raised up to marginal productivity level, restrict labour supply, increase labour demand and thereby seek to establish standard wage for a standard quality of work.
3. Job Security
For achieving this objective, seniority rights of workers, control over hiring of labour, grievance procedure for handling cases of discharge etc. are used as devices.
4. Improving Conditions of Work
Trade unions put pressure on the employers to provide workers with better conditions of work, sufficient recreation, standardized hours of work etc.
5. Limitation of Output
If a given number of labourers produce more than what they ought to, employment for labour will be reduced. Hence, output per worker is standardized by the unions.
(b) Fraternal Functions
Fraternal functions consist of mutual help for the welfare of the workers. In this context, trade unions offer the following benefits:
1. A Ministrant Association
Trade unions act as ministrant association and provide monetary protection to workers against temporary unemployment, sickness, accident etc. Some trade unions give loans and advances to their members for meeting their social obligations.
2. Professional Training
Trade unions also arrange for education and professional training of their members and as such assist them in improving their efficiency and skill.
3. Source of Information
Trade unions serve as a source of defusing labour information the workers. The workers are guided and advised by trade unions leaders who also defuse information by organizing of workers.
4. Insurance Facilities
Trade unions also arrange for insurance facilities against risks of accidents.
5. Legal Help
Trade unions help the labourers in legal proceedings at the court, in the disputes of labourers.
(c) Political Functions
Many trade unions fight elections to capture the government. In many countries, strong labour parties have grown up. We have some labour seats in the legislature.
B.Com.Part-1 Introduction to Business - Chapter 8 - Making Goods and Services Available
Purchasing
Producers or manufacturers purchase raw materials to be fabricated into products that are needed in the market. These products may be purchased by industrial customers for further processing, or by distributors for eventual sale to ultimate consumers. Purchasing, as such, is a major task of a businessman. For producers, such purchases should be sufficient enough and timely to ensure uninterrupted production, and for distributors it should be at a reasonable level to avoid the risk of under or overstocking. High degree of skill, therefore, is required in making purchases.
Steps in Purchasing
1. Establishing Specification and Determining the Need For Goods
The first step in purchasing is to determine exactly the goods that are to be acquired. It is done in the light of specifications that are received by purchase office from departments concerned. For non-repetitive goods, endorsement is also obtained from engineering or technical department to determine their exactness. For repetitive goods, confirmation as obtained from production department in case of manufacturers or assemblers, and sales manager in case of distributors or middleman.
2. Investigating the Supply Market
After determining the requirements, the next step is to search out all possible sources of the supply market. Purchase officer must find out all the suppliers, their products, their prices, the quality of their wares, their terms and conditions, their reputation in the trade and other related things that would help him in deciding the list of potential suppliers.
3. Starting Purchasing Negotiations
After searching or investigating the market and picking up the names of potential suppliers the purchase officer carries negotiation with them. Through letters of inquiry, information is collected about the goods. Letters of quotation provide him facts regarding price, mode of packing, terms of sales, and the time of delivery. Purchase officer through such negotiation tries to obtain maximum facility that a supplier could give and comes in a position to decide to which he should place the order.
4. Placing the Order
Soon after deciding about the supplier, the purchase officer places the order to him for supply of the goods on terms and conditions already settled. Such order is usually placed in writing to have evidence in case of any dispute that may arise later on. Order in writing carries an exact description of the goods required, the prices, the quantities desired, the delivery date, the discount terms, shipping or dispatch instructions, billing instructions, and mode of packing etc. A copy of the purchase order is always maintained by the purchase officer.
5. Following Up the Order
In order to make sure that the order is executed by the supplier in time, following up the order becomes the usual step in purchasing. Purchase officer, therefore, monitors the progress of this order and finds out whether it is being executed by the supplier in time and as desired. This involves frequent contacts with suppliers and efforts to make certain that there are no delays in dispatch of the goods on their part and the goods so ordered will be received in time.
6. Receiving the Goods
On receiving the goods, the purchase officer immediately makes them to be compared with order form to see whether these are correctly sent by the supplier and meet the requirements as per order form. If the shipment is correct in both quality and quantity, the goods are sent to stock. If there is any differences in the order and the shipment, the matter is immediately brought to the knowledge of the supplier. Till the settlement of the discrepancy, the goods so received are held in the receiving room.
Inventory Control
Need of Inventory Control
With few exceptions, most businesses have a considerable financial investment in materials of all kinds. Inventories are maintained in stock rooms, in process and in transit to and from the company. Such inventories really constitutes life blood of the business organization.
It is very important that this stream of materials be properly maintained without gaps and without overflows. Too little means that production will stop or those customers cannot be served. Too much means excessive storage, and investment costs, with possibilities excessive deterioration or obsolescence.
The right solution lies in steering between two disasters. It is therefore necessary to take steps to see that flow and amount material supplies throughout the operations are properly adjusted. Th steps taken are termed inventory control.
Importance of Inventory control
Such controls serve the following purpose:
1. Provide opportunities to save money and eliminate wastes in the quality of goods selected, in the quantities ordered and used and in the expenditures for transportation, storage, and distrubution to markets.
2. Replenish supplies before they are dangerously depleted.
3. Prevent accumulation of excessive supplies.
4. Allocate materials to specific needs.
5. Provide proper accounting of inventory positions.
a) Provide written record of transfer of materials from one department to another.
b) provide record of the manufacturing processes through which the materials pass.
c) Serves as an authority for such movement.
d) Serves as a source of cost data for the cost accounting department.
Control Procedure
The details of materials control procedure vary from company to company. The basic philosophy of the operation however is much the same in all concerns.
1. When the goods are first received and placed in stock, records are made of all pertinent data.
2. All subsequent movements of the materials are accompanied by such paper work as is necessary to inform the management of their exact location at all times.
3. Periodic counts are made to e certain that cone of the items have been lost in the production process.
4. Whenever materials move from one place to another within the plenty, records are adjusted to reflect this transfer and to fix the responsibility for their custody.
5. Identifying tags accompany all goods to facilitate accurate checking.
6. As a means of providing information on the number of items of each kind in the stock room, perpetual inventory records are kept.
Producers or manufacturers purchase raw materials to be fabricated into products that are needed in the market. These products may be purchased by industrial customers for further processing, or by distributors for eventual sale to ultimate consumers. Purchasing, as such, is a major task of a businessman. For producers, such purchases should be sufficient enough and timely to ensure uninterrupted production, and for distributors it should be at a reasonable level to avoid the risk of under or overstocking. High degree of skill, therefore, is required in making purchases.
Steps in Purchasing
1. Establishing Specification and Determining the Need For Goods
The first step in purchasing is to determine exactly the goods that are to be acquired. It is done in the light of specifications that are received by purchase office from departments concerned. For non-repetitive goods, endorsement is also obtained from engineering or technical department to determine their exactness. For repetitive goods, confirmation as obtained from production department in case of manufacturers or assemblers, and sales manager in case of distributors or middleman.
2. Investigating the Supply Market
After determining the requirements, the next step is to search out all possible sources of the supply market. Purchase officer must find out all the suppliers, their products, their prices, the quality of their wares, their terms and conditions, their reputation in the trade and other related things that would help him in deciding the list of potential suppliers.
3. Starting Purchasing Negotiations
After searching or investigating the market and picking up the names of potential suppliers the purchase officer carries negotiation with them. Through letters of inquiry, information is collected about the goods. Letters of quotation provide him facts regarding price, mode of packing, terms of sales, and the time of delivery. Purchase officer through such negotiation tries to obtain maximum facility that a supplier could give and comes in a position to decide to which he should place the order.
4. Placing the Order
Soon after deciding about the supplier, the purchase officer places the order to him for supply of the goods on terms and conditions already settled. Such order is usually placed in writing to have evidence in case of any dispute that may arise later on. Order in writing carries an exact description of the goods required, the prices, the quantities desired, the delivery date, the discount terms, shipping or dispatch instructions, billing instructions, and mode of packing etc. A copy of the purchase order is always maintained by the purchase officer.
5. Following Up the Order
In order to make sure that the order is executed by the supplier in time, following up the order becomes the usual step in purchasing. Purchase officer, therefore, monitors the progress of this order and finds out whether it is being executed by the supplier in time and as desired. This involves frequent contacts with suppliers and efforts to make certain that there are no delays in dispatch of the goods on their part and the goods so ordered will be received in time.
6. Receiving the Goods
On receiving the goods, the purchase officer immediately makes them to be compared with order form to see whether these are correctly sent by the supplier and meet the requirements as per order form. If the shipment is correct in both quality and quantity, the goods are sent to stock. If there is any differences in the order and the shipment, the matter is immediately brought to the knowledge of the supplier. Till the settlement of the discrepancy, the goods so received are held in the receiving room.
Inventory Control
Need of Inventory Control
With few exceptions, most businesses have a considerable financial investment in materials of all kinds. Inventories are maintained in stock rooms, in process and in transit to and from the company. Such inventories really constitutes life blood of the business organization.
It is very important that this stream of materials be properly maintained without gaps and without overflows. Too little means that production will stop or those customers cannot be served. Too much means excessive storage, and investment costs, with possibilities excessive deterioration or obsolescence.
The right solution lies in steering between two disasters. It is therefore necessary to take steps to see that flow and amount material supplies throughout the operations are properly adjusted. Th steps taken are termed inventory control.
Importance of Inventory control
Such controls serve the following purpose:
1. Provide opportunities to save money and eliminate wastes in the quality of goods selected, in the quantities ordered and used and in the expenditures for transportation, storage, and distrubution to markets.
2. Replenish supplies before they are dangerously depleted.
3. Prevent accumulation of excessive supplies.
4. Allocate materials to specific needs.
5. Provide proper accounting of inventory positions.
a) Provide written record of transfer of materials from one department to another.
b) provide record of the manufacturing processes through which the materials pass.
c) Serves as an authority for such movement.
d) Serves as a source of cost data for the cost accounting department.
Control Procedure
The details of materials control procedure vary from company to company. The basic philosophy of the operation however is much the same in all concerns.
1. When the goods are first received and placed in stock, records are made of all pertinent data.
2. All subsequent movements of the materials are accompanied by such paper work as is necessary to inform the management of their exact location at all times.
3. Periodic counts are made to e certain that cone of the items have been lost in the production process.
4. Whenever materials move from one place to another within the plenty, records are adjusted to reflect this transfer and to fix the responsibility for their custody.
5. Identifying tags accompany all goods to facilitate accurate checking.
6. As a means of providing information on the number of items of each kind in the stock room, perpetual inventory records are kept.
B.Com.Part-1 Introduction to Business - Chapter 7 - Creating Goods and Services
Production Control
Production control consists of a well defined set of procedures that has its objective, the coordination of all the elements of productive process men, machines, tools and materials into a smoothly flowing whole, which results in the fabrication of products with a minimum interruption.
Management is responsible to see that all business plans are properly adhered to and the standard sets are attained. production control therefore involves in control of cost, quality, and time of production. An effective system of production control minimizes the idleness of men and machines, optimizes the number of setups required, keeps in process inventories at a satisfactory level, reduces material handling and storage costs and consequently permits good quality and sufficient quantity of production at low unit cost.
Steps in Production Control
The basic steps in production control, in occur in which they occur are:
(a) Planning
Planning is the part of production control that determines which materials and work are needed in order to produce the products offered from the manufacturing division. Each order is broken down into its basic parts on a bill of materials, which lists all the materials, parts and sub assemblies needed to complete that order. The time needed to supply all required materials must be determined, and thus must be indicated to other production control personnel. Further, the production controller has to determine whether the required equipment and trained employees are available for the job at band.
(b) Routing
Routing is the part of production control that determines which route, or path the work will take through the factory and where and by whom the processing shall be done. This requires the production controller to know in detail how each machine operation or work process is performed. Route, sheets are prepared to show the sequence of operations for all parts and materials and for all activities. Route charts are constructed to indicate the production processes. A route file is constructed that consists of all the necessary job tickets required to move the materials out of stock to the various machine positions.
(c) Scheduling
Scheduling involves the getting up o the time tables that will govern the movement of the work, which is subjected to the various fabricating processes. For this, the production controller ha to understand the nature of work and workload capability of each department. After reviewing them he prepares a master schedule, which indicates the number of finished products that will come off the assembly each month or weak until the order is completed. When the job on hand involves several departments, a weekly departmental schedule is used to show the expected production from each department for each week of the total production period. Finally load ahead schedule is prepared to indicate the amount of back work that must be processed in each department before it can handle new work.
(d) Dispatching
dispatching is that part of production control that releases final work orders to the operating departments. it is the step where work order spell out which work is to be done and the amount of time estimated for its completion. Besides authorizing the department to proceed with work on the job, the work order states the priority of the work and gives necessary instructions about it.
(e) Performance Follow-up and Control
Lastly, the production controller must verify or assess the performance results. for this purpose elaborate control boards are some time set up, utilizing various printed forms that show the progress of the work section wise or department wise and serve as indicators of satisfactory or unsatisfactory performance. Many managements use schedule performance reports for this purpose. These reports are issued by the production controller, but the information on them comes from the operating departments. The report compares what was accomplished with, what was assigned and scheduled. Additional follow up control is achieved through scrap reports. They show which work was rejected by inspectors, and why and what is to be done with rejected products.
The Emerging Service Industry
Service industry has gained prominence during the last two decades. Principles of production management applicable to manufacturing industry apply to service industry also. The difference between the two types of industries is of nature of product. One producers goods (tangible) whereas the produces services (intangible). Banking, insurance, transportation, hotels and motels are engaged in production of services for customers. As such, planning is as important in banking a in steel industry. Routing must be of a major concern to a taxi driver. Scheduling should be important for doctors for listing patients.
The characteristics of most of the service industries are as follows:
There is no inventory of completed products in stock. It is so because an unsold airline seat cannot be restored for the future.
Preferably operated under single ownership, because the initial investment involves small capital.
Operation area usually remains limited because it needs personal attention and supervision.
In a service industry, skill is more important than capital.
Labour is the largest expenditure because of the smaller investment and importance of skilled personnel.
The product is often intangible and consists of maintenance. Haircuts, health care and entertainment need to be replaced on a regular basis.
Production control consists of a well defined set of procedures that has its objective, the coordination of all the elements of productive process men, machines, tools and materials into a smoothly flowing whole, which results in the fabrication of products with a minimum interruption.
Management is responsible to see that all business plans are properly adhered to and the standard sets are attained. production control therefore involves in control of cost, quality, and time of production. An effective system of production control minimizes the idleness of men and machines, optimizes the number of setups required, keeps in process inventories at a satisfactory level, reduces material handling and storage costs and consequently permits good quality and sufficient quantity of production at low unit cost.
Steps in Production Control
The basic steps in production control, in occur in which they occur are:
(a) Planning
Planning is the part of production control that determines which materials and work are needed in order to produce the products offered from the manufacturing division. Each order is broken down into its basic parts on a bill of materials, which lists all the materials, parts and sub assemblies needed to complete that order. The time needed to supply all required materials must be determined, and thus must be indicated to other production control personnel. Further, the production controller has to determine whether the required equipment and trained employees are available for the job at band.
(b) Routing
Routing is the part of production control that determines which route, or path the work will take through the factory and where and by whom the processing shall be done. This requires the production controller to know in detail how each machine operation or work process is performed. Route, sheets are prepared to show the sequence of operations for all parts and materials and for all activities. Route charts are constructed to indicate the production processes. A route file is constructed that consists of all the necessary job tickets required to move the materials out of stock to the various machine positions.
(c) Scheduling
Scheduling involves the getting up o the time tables that will govern the movement of the work, which is subjected to the various fabricating processes. For this, the production controller ha to understand the nature of work and workload capability of each department. After reviewing them he prepares a master schedule, which indicates the number of finished products that will come off the assembly each month or weak until the order is completed. When the job on hand involves several departments, a weekly departmental schedule is used to show the expected production from each department for each week of the total production period. Finally load ahead schedule is prepared to indicate the amount of back work that must be processed in each department before it can handle new work.
(d) Dispatching
dispatching is that part of production control that releases final work orders to the operating departments. it is the step where work order spell out which work is to be done and the amount of time estimated for its completion. Besides authorizing the department to proceed with work on the job, the work order states the priority of the work and gives necessary instructions about it.
(e) Performance Follow-up and Control
Lastly, the production controller must verify or assess the performance results. for this purpose elaborate control boards are some time set up, utilizing various printed forms that show the progress of the work section wise or department wise and serve as indicators of satisfactory or unsatisfactory performance. Many managements use schedule performance reports for this purpose. These reports are issued by the production controller, but the information on them comes from the operating departments. The report compares what was accomplished with, what was assigned and scheduled. Additional follow up control is achieved through scrap reports. They show which work was rejected by inspectors, and why and what is to be done with rejected products.
The Emerging Service Industry
Service industry has gained prominence during the last two decades. Principles of production management applicable to manufacturing industry apply to service industry also. The difference between the two types of industries is of nature of product. One producers goods (tangible) whereas the produces services (intangible). Banking, insurance, transportation, hotels and motels are engaged in production of services for customers. As such, planning is as important in banking a in steel industry. Routing must be of a major concern to a taxi driver. Scheduling should be important for doctors for listing patients.
The characteristics of most of the service industries are as follows:
There is no inventory of completed products in stock. It is so because an unsold airline seat cannot be restored for the future.
Preferably operated under single ownership, because the initial investment involves small capital.
Operation area usually remains limited because it needs personal attention and supervision.
In a service industry, skill is more important than capital.
Labour is the largest expenditure because of the smaller investment and importance of skilled personnel.
The product is often intangible and consists of maintenance. Haircuts, health care and entertainment need to be replaced on a regular basis.
B.Com.Part-1 Introduction to Business - Chapter 6 - Business in the Global Market
International Marketing
International marketing refers to the marketing activities that are performed across the international boundaries. The planning and control of such marketing activities are carried by the parent producing company through its strategic marketing activities that are designed and established to meet the requirements of such a market. The main goal is to introduce and familiarize the product in a manner that customers get satisfied, develop liking for the product, and build a better image of the multinational manufacturer.
Marketing strategies are adopted to overcome hindrances and restraints. Greater the multinational companies pay attention to marketing mix, greater becomes the possibility of exercising effective control or better grip over the international market. Further the success of international marketing also depends upon how the producers understand social and cultural built up economic pattern, political environment, and the technological advertisement that has been acquired by the country where goods and services are to be provided. In fact, successful international marketing depends upon how the producing company gets adjusted and fully familiarized with the conditions that prevail in the country where the goods and services are to be provided.
Balance of Trade
By balance of trade we mean the difference between what a country pays for imports and what is receives for its exports. It records all visible items that are exported to and imported from other countries through sea, air and land routes. Balance of trade, as such gives an estimation of total inflow and outflow of goods that are recorded at the inlet and outlet points.
Balance of Payment
Balance of payment refers to the net results that are drawn after recording all the visible and invisible items that are imported and exported from the country. Balance of payment, as such, provides a comprehensive statement over the net results of foreign trade and gives a true picture as to where the country stands in the international trade. It clearly exposes the economic viability, strength, and in capability by correctly measuring its imports and exports, competency in goods and services as well as technical know-how. By services we mean the services of shipping lines, insurance companies, banking concerns, and others. It also includes the foreign loan that is either provided by it or accepted from other country or countries.
Arguments for Restraints on International Trade
Free international trade is hardly found today. The most popular arguments that are given for restricting foreign trade among nations are as follows:
1. Military Argument
This argument holds that all industries vital to the national defence should be kept alive through tariff protection, if necessary.
2. The Home Industry Argument
This argument holds that if foreign goods are kept out of the country. Domestic manufacturers will enjoy a larger home market. But this argument favours selfish businessmen who are thus able to free themselves from foreign competition and charge high prices for their own goods. In this view, protective tariff unnecessarily makes imported goods costlier and render local producers to enjoy a larger home market where by losing foreign buyers.
3. The Infant Industry
The tenor of this argument is that young struggling industries should be protected from foreign competition until they are matured enough to face it. But determining how long this protection is needed for each individual industry and when it should be discarded is a difficult task.
4. The Wages Argument
This argument holds that by excluding foreign goods, goods made by higher paid domestic labour are encouraged thereby raising the domestic wage level. But by doing this:
1. The domestic prices are unduly raised.
2. Since high wages do not cause high productivity, this results in subsidizing uneconomic production to the long run disadvantage of all parties concerned.
5. Favourable Balance of Trade Argument
In an attempt to have a favourable balance of trade, a country may make every effort to reduce the import burden as much as possible by resorting to increased import duty, surcharge etc. while on the other hand, to increase exports to gain as much favourable results of foreign trade as possible.
Methods of Restricting Free Trade
Some of the methods used as barriers to free foreign trade are briefly given as follows:
1. Tariffs
Tariffs are simply taxes imposed by a nation on products imported from other nations. There are two broad types of tariffs:
(a) Revenue Tariffs, which are imposed to raise revenue, not necessary to prohibit specific imports.
(b) Protective Tariffs, which are designed to protect domestic industries against foreign competition.
Revenue tariffs are specific duty tariffs and they are levied on imports of a stated amount per unit (such as per pair, per kilo, per liter and so on). The usual objective is to produce revenue. Protective tariffs, on the other hand are based on the value of imported products, rather than the quantity. They are of often known as ad valorem taxes that aim at controlling the retail prices. They thus protect the domestic producers. If the ad valorem tax is high enough, it can keep foreign products out of the domestic market altogether.
2. Quotas
It is a trade restriction technique where a country simply sets an upper limit on the amount of a certain product that may be imported. Quota is fixed to restrict import of a certain commodity, to avoid foreign competition and the home industry operates without any major upset.
3. Embargo
An embargo is a completed prohibition on imports of certain products or from certain countries. It is more a political motivated action that puts a ban on imports rather than an economic one. Example may be given of the United States tat prohibited the imports of products from certain communist countries.
4. Difficult Custom Procedures
The creation of complicated and expensive custom procedures can be effective in limiting imports. It can also be used to discourage exports. Importers and exporters get fed up with difficult custom procedures that are intelligently introduced by the government.
Organization for Multinational Operation
Multinational operations are conducted by companies with the help of one of different organizational structures. The four identified organizational structures are:
1. International Division
Some companies set up a separate division, which looks after the multinational operations. The international division created for the purpose assumes its own-identity apart from the principal organization.
2. Geographical Division
Some companies have separated divisions to handle business independently in different parts of the world.
3. Functional Division
A third form of organizational structure is based on function. The marketing for the world wide organization is planned by the Marketing Division. The Finance Department manages international finance along with domestic finance.
4. Product Division
A company divides its operations according to products of the company. A specific department handles the complete activity of producing and marketing its products.
Problems of Multinational Operation
Problems tend to sneak up on executives of multinational firms in the most unexpected ways, including the following:
1. Language Differences
Differences in language constitutes one of the outstanding barriers to international trade. Failure to communicate properly and adequately through correspondence, advertising and conversation retards attainment of the full possibilities of a foreign market.
2. Different Monetary Standards
Every nation has its own peculiar currency. Rupee in Pakistan yen in Japan, Lira in Italy etc. This situation requires not only a mechanism whereby the seller may be paid in his own currency while the buyer makes payment in his, but also a method whereby each of these national currencies may be value in terms of every other one. The non-existence of gold standard, which at one time served as a common denominator, has greatly complicated the problem.
3. Local Attitudes
Local attitudes about certain products may become very important. If a product is thought to be mainly for men or mainly for children, its sales could certainly be affected. Furthermore, stereotypes about foreign countries are often incorrect and misleading.
4. Difference of Tastes
Tastes vary from country to country and even within a country from person to person. This difference of taste may cause drastic problems to multinational companies, which intend to have their plan of operations in many countries.
5. Lack of Marketing Information
Lack of precise, current marketing information about most foreign countries may also cause a hindrance .Helpful data can be secured from such sources as foreign trade associations, banks etc. but this information is usually quite general and can be applied only in part to problems concerning specific products and markets.
6. Trade Barriers
Practically all countries for one reason or another, interpose barriers that tend to restrict the free flow of goods across their borders. These barriers can make the free practice of business very difficult. They consist of tariffs, quotas, exchange restrictions, barter arrangements, laws and occasionally absolute prohibitions to the import of certain commodities.
7. Climate Difference
In this area, difficulty is anticipated but still encountered. For some commodities, which are sensitive to climate conditions, special scheduling, and packaging are often required for protection from exceptional moisture, heat or cold.
8. Business Customs and Bargaining Customs
Business customs and bargaining customs are rarely part of written law. Nevertheless they are sure to affect marketing strategy.
9. Shortage of Qualified Management Personnel
There is critical shortage of qualified management personnel for multinational operations. Schools are now training for international management. Some companies are beginning to try to make overseas experience attractive and a requisite for advancement within the corporation.
10. Interface of Divisions
A final difficulty often occurs in the upper echelons of multinational companies at the critical interface of divisions. Relationships between divisions can become strained and aggressive when the competitiveness of division executives is increased by nationalistic pride. Hence great care, for detail and fairness must be tied, into the agreements and plans for marketing areas and responsibilities of each corporate arm.
International marketing refers to the marketing activities that are performed across the international boundaries. The planning and control of such marketing activities are carried by the parent producing company through its strategic marketing activities that are designed and established to meet the requirements of such a market. The main goal is to introduce and familiarize the product in a manner that customers get satisfied, develop liking for the product, and build a better image of the multinational manufacturer.
Marketing strategies are adopted to overcome hindrances and restraints. Greater the multinational companies pay attention to marketing mix, greater becomes the possibility of exercising effective control or better grip over the international market. Further the success of international marketing also depends upon how the producers understand social and cultural built up economic pattern, political environment, and the technological advertisement that has been acquired by the country where goods and services are to be provided. In fact, successful international marketing depends upon how the producing company gets adjusted and fully familiarized with the conditions that prevail in the country where the goods and services are to be provided.
Balance of Trade
By balance of trade we mean the difference between what a country pays for imports and what is receives for its exports. It records all visible items that are exported to and imported from other countries through sea, air and land routes. Balance of trade, as such gives an estimation of total inflow and outflow of goods that are recorded at the inlet and outlet points.
Balance of Payment
Balance of payment refers to the net results that are drawn after recording all the visible and invisible items that are imported and exported from the country. Balance of payment, as such, provides a comprehensive statement over the net results of foreign trade and gives a true picture as to where the country stands in the international trade. It clearly exposes the economic viability, strength, and in capability by correctly measuring its imports and exports, competency in goods and services as well as technical know-how. By services we mean the services of shipping lines, insurance companies, banking concerns, and others. It also includes the foreign loan that is either provided by it or accepted from other country or countries.
Arguments for Restraints on International Trade
Free international trade is hardly found today. The most popular arguments that are given for restricting foreign trade among nations are as follows:
1. Military Argument
This argument holds that all industries vital to the national defence should be kept alive through tariff protection, if necessary.
2. The Home Industry Argument
This argument holds that if foreign goods are kept out of the country. Domestic manufacturers will enjoy a larger home market. But this argument favours selfish businessmen who are thus able to free themselves from foreign competition and charge high prices for their own goods. In this view, protective tariff unnecessarily makes imported goods costlier and render local producers to enjoy a larger home market where by losing foreign buyers.
3. The Infant Industry
The tenor of this argument is that young struggling industries should be protected from foreign competition until they are matured enough to face it. But determining how long this protection is needed for each individual industry and when it should be discarded is a difficult task.
4. The Wages Argument
This argument holds that by excluding foreign goods, goods made by higher paid domestic labour are encouraged thereby raising the domestic wage level. But by doing this:
1. The domestic prices are unduly raised.
2. Since high wages do not cause high productivity, this results in subsidizing uneconomic production to the long run disadvantage of all parties concerned.
5. Favourable Balance of Trade Argument
In an attempt to have a favourable balance of trade, a country may make every effort to reduce the import burden as much as possible by resorting to increased import duty, surcharge etc. while on the other hand, to increase exports to gain as much favourable results of foreign trade as possible.
Methods of Restricting Free Trade
Some of the methods used as barriers to free foreign trade are briefly given as follows:
1. Tariffs
Tariffs are simply taxes imposed by a nation on products imported from other nations. There are two broad types of tariffs:
(a) Revenue Tariffs, which are imposed to raise revenue, not necessary to prohibit specific imports.
(b) Protective Tariffs, which are designed to protect domestic industries against foreign competition.
Revenue tariffs are specific duty tariffs and they are levied on imports of a stated amount per unit (such as per pair, per kilo, per liter and so on). The usual objective is to produce revenue. Protective tariffs, on the other hand are based on the value of imported products, rather than the quantity. They are of often known as ad valorem taxes that aim at controlling the retail prices. They thus protect the domestic producers. If the ad valorem tax is high enough, it can keep foreign products out of the domestic market altogether.
2. Quotas
It is a trade restriction technique where a country simply sets an upper limit on the amount of a certain product that may be imported. Quota is fixed to restrict import of a certain commodity, to avoid foreign competition and the home industry operates without any major upset.
3. Embargo
An embargo is a completed prohibition on imports of certain products or from certain countries. It is more a political motivated action that puts a ban on imports rather than an economic one. Example may be given of the United States tat prohibited the imports of products from certain communist countries.
4. Difficult Custom Procedures
The creation of complicated and expensive custom procedures can be effective in limiting imports. It can also be used to discourage exports. Importers and exporters get fed up with difficult custom procedures that are intelligently introduced by the government.
Organization for Multinational Operation
Multinational operations are conducted by companies with the help of one of different organizational structures. The four identified organizational structures are:
1. International Division
Some companies set up a separate division, which looks after the multinational operations. The international division created for the purpose assumes its own-identity apart from the principal organization.
2. Geographical Division
Some companies have separated divisions to handle business independently in different parts of the world.
3. Functional Division
A third form of organizational structure is based on function. The marketing for the world wide organization is planned by the Marketing Division. The Finance Department manages international finance along with domestic finance.
4. Product Division
A company divides its operations according to products of the company. A specific department handles the complete activity of producing and marketing its products.
Problems of Multinational Operation
Problems tend to sneak up on executives of multinational firms in the most unexpected ways, including the following:
1. Language Differences
Differences in language constitutes one of the outstanding barriers to international trade. Failure to communicate properly and adequately through correspondence, advertising and conversation retards attainment of the full possibilities of a foreign market.
2. Different Monetary Standards
Every nation has its own peculiar currency. Rupee in Pakistan yen in Japan, Lira in Italy etc. This situation requires not only a mechanism whereby the seller may be paid in his own currency while the buyer makes payment in his, but also a method whereby each of these national currencies may be value in terms of every other one. The non-existence of gold standard, which at one time served as a common denominator, has greatly complicated the problem.
3. Local Attitudes
Local attitudes about certain products may become very important. If a product is thought to be mainly for men or mainly for children, its sales could certainly be affected. Furthermore, stereotypes about foreign countries are often incorrect and misleading.
4. Difference of Tastes
Tastes vary from country to country and even within a country from person to person. This difference of taste may cause drastic problems to multinational companies, which intend to have their plan of operations in many countries.
5. Lack of Marketing Information
Lack of precise, current marketing information about most foreign countries may also cause a hindrance .Helpful data can be secured from such sources as foreign trade associations, banks etc. but this information is usually quite general and can be applied only in part to problems concerning specific products and markets.
6. Trade Barriers
Practically all countries for one reason or another, interpose barriers that tend to restrict the free flow of goods across their borders. These barriers can make the free practice of business very difficult. They consist of tariffs, quotas, exchange restrictions, barter arrangements, laws and occasionally absolute prohibitions to the import of certain commodities.
7. Climate Difference
In this area, difficulty is anticipated but still encountered. For some commodities, which are sensitive to climate conditions, special scheduling, and packaging are often required for protection from exceptional moisture, heat or cold.
8. Business Customs and Bargaining Customs
Business customs and bargaining customs are rarely part of written law. Nevertheless they are sure to affect marketing strategy.
9. Shortage of Qualified Management Personnel
There is critical shortage of qualified management personnel for multinational operations. Schools are now training for international management. Some companies are beginning to try to make overseas experience attractive and a requisite for advancement within the corporation.
10. Interface of Divisions
A final difficulty often occurs in the upper echelons of multinational companies at the critical interface of divisions. Relationships between divisions can become strained and aggressive when the competitiveness of division executives is increased by nationalistic pride. Hence great care, for detail and fairness must be tied, into the agreements and plans for marketing areas and responsibilities of each corporate arm.
Subscribe to:
Posts (Atom)