location of business & business risk
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All about locations of Business and risk associated with businesses. Unit 3 (BBA 104: Business Organisation) as per the syllabus of Jiwaji University, Gwalior.TRANSCRIPT
Location of Business & Business Risks
RAHUL PRATAP SINGH KAURAV
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2What is Industrial Location?
It is an important decision.
Helps in achieving objective of firm.
If not chosen correctly, it would result in heavy losses.
It is faced by new and old units.
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3Problem of location arises under the following condition?
At starting of business
While increasing volume of business; Expansion
Lease has expired
Lack of power and electric supply
Social & economic factors
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4Theories of location
Traditional approach
Weber’s deductive theory of location
Andreas Predohl’s Approach
Sargant Florance’s Inductive Theory
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5Traditional Approach
Personal Choice
Local Loyalty of entrepreneur
Availability of raw material
Labor
Market
Transport
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6Weber’s deductive theory of location [Alfred Weber [1909] (1868-1958]
Primary Factors
Which influence distribution of industrial units over the different regions.
1. Transport cost
2. Labor cost
Secondary Factors
a) Element of cost
Building, labor, machines, fixed assets, power & fuel
b) Agglomerative
c) Deagglomerative
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8Critics of Weber’s theory
It is over simplified and unrealistic.
Assumptions for fixed labor centers is wrong.
Assumptions of fixed consumption centers is also not good.
Transportations and labor cost is not measures in monetary terms.
Government factors are ignored.
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Andreas Predohl’s approach
He suggested that every change in location of industry involves an change of combination of means of production
Sargant Florence’s approach
Explained as the degree of dissimilarities between geographical distribution of the industry and population of the country
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10Hotelling 1929: Locational Interdependence
This is the impact of demand upon location
The interaction of entrepreneurial decisions
He used two ice cream sellers on a beach as an example
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11Factors influencing location
Raw material availability
Nearness to market Availability of labor. Fuel and power Transport facilities Soil and climate Personal factors
Government policy Financial facilities Political and economic policies Future expansion Competition nearby
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12Government policy towards the localization
Positive Approach Provision of public utility services in selected areas. These
services include electricity, water, gas transport, etc.
Provision of socio- economic amenities like recreation, education, health, etc.
Certain ancillary economic facilities, like institutions for imparting technical knowledge to the workers and marketing organizations for the benefit of localized industries.
Granting of direct and indirect subsidies. Direct subsidies
Indirect subsidies
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13Government policy towards the localization
Positive Approach Granting of income tax exemption to the units set- up in
backward areas. Giving assurance by the State to purchase the products of
the industrial units established in backward areas. Providing adequate and cheap financial facilities directly by
the Government or through the financial institutions. Liberal issue of licenses on a preferential basis for setting
up industrial units in backward areas.
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14Government policy towards the localization
Negative Approach Enhanced rates of local taxes may be introduced. Licensing policy may be so designed that it discourages
new units in highly developed regions. The Industrial Policy, 1977 stated that no more licenses
should be issued to new industrial units within certain limits of big cities having a population of more than ten lakhs and urban areas with a population of more than 5 lakhs.
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15Balanced regional development
“ A country can only develop if there is over all development of all regions.”
“It should be done to remove regional disparities.”
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16Objectives of regional development
Use of local resources
Creation of employment
Proper use of overhand facilities
Social problems
Strategic considerations
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17Causes of regional imbalances
Historic factors
Resource availability
Infrastructure facilities
Technical factors
Social factors
Development strategies
Business Combinations
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19Meaning of business combination
Business combination is a method of economic organization where in a common control, of greater or lesser completeness, is exercised over a number of firms which are operating in competition or are independent.
Whenever two or more business units engaged in the same line of business or in different relate processes or stages of the same line of their business federate or unit or associate together with a view to carry on their activities and shape their polices on common coordinated basis for mutual benefit, they are said to form a business combination.
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20Causes of combination
Elimination of the competition and price war. Economies of large scale business. Rise of joint stock company. Improved mean of transport and communication. Requirement of huge capital. Desire to enjoy monopoly. Personal ambition. Government pressure.
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21Types of combinations
Horizontal Vertical Circular Diagonal
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22Horizontal combination
“ It takes place where units carrying identical business activities join hands to achieve common objectives.”
Eg. :- Association of cement manufacturers, sugar syndicate
Features of horizontal combination
Combination of firms with same business
Common policies & common management
Firms face problems together
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23Horizontal combination
Advantages
To minimize the Cost per unit.
To eliminate competition.
To hire the services of experts.
To supply the goods at lowest price.
To avoid over production.
To achieve the benefits of large scale.
To find proper market for their product.
To reduce the middleman commission.
Disadvantages
Exploitation of customer
Manipulation in prices
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24Vertical Combination
“In this combination such firms which are inter-dependent for the supply for processing.”
“The firm operates at successive stages of same industry.”
Characteristics of vertical combination:-
One finished material becomes raw for another.
All process are compulsory.
Important for balanced production and control over it.
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25Vertical Combination
Advantages Assurance of raw material.
To minimize the cost per unit.
To eliminate competition.
To hire the services of experts.
To supply the goods at lowest price.
To avoid over production.
To use improved methods of production.
To find proper market for their product.
To reduce the middleman commission.
To earn maximum profit.
Disadvantages Limited Utility
Mutual dependence
Less coordination
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26Circular or Mixed Business Combination
Concept When different types of business
units combine themselves under the one management it is called circular combination.
Objectives The main object of mixed
combination is to secure the benefits of administrative ability through common management.
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27Diagonal Business Combination
Concept When two or more than two
business units performs subsidiary services, if they combine themselves under the main industry it is called diagonal combination.
Objective The main object and advantage f
this combination is that it makes the business unit very large and self sufficient.
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Risk – the possibility of loss or injury
Business risk – risk of loss that is naturally incurred by owing and operating a business
Risk and Business Risk
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Insurable vs.
uninsurable risk
Controllable vs.
uncontrollable risk
Types of Business Risk
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Pure risk Economic risk Human risk Natural risk
Other types of risk
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31Pure Risk
o Threat of loss with no opportunity for gain
Examples:
Employee theft
Accidents
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32Economic risk
Occurs when there is likelihood of financial loss
May result from changes in overall business conditions
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33Human risk
Risk of harm caused by human mistakes, dishonesty or other factors attributed to people
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34Natural risk
The possibility of a catastrophe caused by natural elements that can cause damage of loss or property
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35EXAMPLE
Floods
Tornados
Hurricanes
Fires
Lightning
Droughts
Earthquakes etc.
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36Types of businesses and their risk
Small scale businesses
Medium scale businesses
Large scale businesses
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Breakdown of machinery and equipment High employees turnover or loss of key staff
members especially if they have unique skills Security of data and intellectual property theft
Common risks in small businesses
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38 Common risks
Bad debts creating customers Increase in competition Negative cash flow Natural disasters such as fires and storms
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39Common risks
Intellectual property
Theft
Increased competition
Operational risk
Political risk
Country risk
Technological risk
Environmental risk
Economic risk
Financial risk
Terrorism risk
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Causes of Business Risk
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Strikes, dishonesty, carelessness are examples of human causes of business risk.
Dishonesty of employees, misappropriation of cash and theft of goods may also become a cause of loss for business
Human causes
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Which is caused mainly due to fluctuation in the market prices of various commodities
Inflation and unemployment are examples of economic causes of business risk
Trade cycle and other unforeseen changes in the economy may also create business risks
Economic causes
Assets used in business may depreciate in value
Technical changes and mechanical defects also result in business risks
Physical causes
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Some political events can change the business scenario
A major policy change by government can change the business environment
Changes in the taxation policies create uncertainty and loss
political disturbances such as fall of government and civil war etc. may lead to heavy loss in business
Political causes
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44Methods Of Risk Protection
Reducing or eliminating the risk
Efficient management
A reserve cash
Shifting of risks
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Thank You!