2. Unit 1.2 Types of Organization

4. On completing this chapter you should be able to: Analyze and apply: –The distinction between the private sector and public sector Evaluate: –The main features of the following types of for-profit organizations: sole trader, partnership and companies/corporations

5. On completing this chapter you should be able to: Evaluate: –The main features of the following types of for-profit social enterprises: cooperatives, microfinance providers, public-private partnerships. –The main features of the following types of non-profit social enterprises: non- governmental organizations, charities

6. Businesses can be classified into different economic sectors. Private sector Public sector

7. Organizations Private Sector Public Sector Not owned by the government Owned and controlled by private individuals and organizations Aim is to make profit Types: Sole Traders, Partnerships and Companies (Corporations) Ownership and control by the government Provide essential goods and services Organizations wholly owned by the govt. are called Public Corporations (i.e. US Postal office)

8. Reasons why some organizations belong in the public sector: To ensure everyone has access to basic services such as education, health care, public parks and public libraries. To avoid wasteful competition since the gov ’ t. is able to achieve huge economies of scale (cost savings from operating on a large magnitude) in the provision of certain services, such as postal services or national defense.

9. Reasons why some organizations belong in the public sector: To protect citizens and businesses through institutions such as the Police or the Courts that govern the law and order system. To create employment (gov’ts tend to be a large employer of teachers, doctors and nurses). To stabilize the economy (several private sector banks were nationalized (bought by the gov’t) during the global credit crisis to prevent further financial turmoil.

10. Economies of Scale The cost advantage that arises with increased output of a product. The greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies and synergies.

11. Economies of Scale http://www.investopedia.com/terms/e/econ omiesofscale.asp http://www.investopedia.com/terms/e/econ omiesofscale.asp

12. Many public corporations and assets have been PRIVATIZED (sale of public sector organizations to the private sector) BENEFITS: Efficiency gains Efficiency gains Lower cost of production Lower cost of production Increased choice Increased choice Incentives to innovate Incentives to innovate Less financial burden Less financial burden Source of government revenue Source of government revenue

13. Privatization - Investopedia http://www.investopedia.com/video/play/pri vatization/ http://www.investopedia.com/video/play/pri vatization/ http://www.investopedia.com/video/play/pri vatization/ http://www.investopedia.com/video/play/pri vatization/

14. DEFINITION OF 'SARBANES-OXLEY ACT OF 2002 - SOX' An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards. http://www.investopedia.com/terms/s/sarbanesoxleyact.a sp http://www.investopedia.com/terms/s/sarbanesoxleyact.a sp

15. Question 1.2.1 Provision of basic services

16. (a) (b)

17. PROFIT-BASED ORGANIZATIONS 3 types of businesses SOLE TRADER PARTNERSHIPS COMPANIES (CORPORATIONS)

18. SOLE TRADERS Also known as sole proprietor is an individual who is the owner of his or her own business May work alone or they may employ other people to help run the business Usually small family-run business Start-up capital from owner ’ s personal savings and borrowing Business is UNINCORPORATED Unlimited liability

19. Sole Trader Advantages Disadvantages Few legal formalities Owner gets all the profits Your own boss Personalized service Privacy Unlimited liability Limited sources of finance High risks Workload and stress Lack of continuity Higher costs of production

20. Unlimited Liability A type of business where owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. If the business is unable to meet any financial obligations or settle any outstanding liabilities, the owner's personal assets can be seized to satisfy the debts. http://www.investopedia.com/terms/u/unlimited- liability.asp http://www.investopedia.com/terms/u/unlimited- liability.asp

21. Question 1.2.2 Flowers by Cam

22. Question 1.2.2 Exquisite Flowers Natalie Tran is a self-employed florist who operates from her home in Kuala Lumpur, Malaysia. She is married with three school-aged children. Her husband ’ s work commitments mean that he only comes home at the weekends. Natalie arranges and delivers flowers to hospitals and schools in central Kuala Lumpur. From time to time she also receives large orders for weddings. Analyze the costs and benefits to Natalie in operating as a sole trader

23. The benefits to Natalie in operating as a sole trader include: It would have been relatively simple for Natalie to set up the business since there are few legalities and procedures involved Being her own boss allows Natalie to have more flexibility in decision making, e.g. closing the store early so that she can pick up her children from school or to attend parents ’ evening at the children ’ s school The profits would be reaped only by Natalie as there are no other owners Being a small business, she could keep all business transactions private, i.e. only the tax authorities need to know about her financial accounts

24. However, there are also costs for Natalie choosing to operate as a sole trader: Sole proprietors have unlimited liability so this means that Natalie could possibly lose her personal possession in order to finance any debts that she might incur As a sole trader, Natalie would find it difficult to secure various sources of finance, especially as she does not sell a wide range of products There might also be costs related to her private circumstance, e.g. child care or loss of time with the family

25. Examine whether sole traders, like florists, benefit from a high degree of specialization Advantages of specialization include: Being able to provide a specialized, focused and personalized service to their customers means that sole traders can thrive Sole traders become experts/specialists at their jobs and this enhances their productivity There are lower costs involved compared to providing a wide range of different goods and services. Note: although sole traders specialize in the provision of a good or service, they tend to need a variety of management skills since they cannot afford to hire specialists (and hence do not benefit from the division of labor).

26. Disadvantages of specialization include: There is greater risk in providing only a limited range of products or services, i.e. sole traders are not able to enjoy risk bearing economies of scale Specialization and repetitive tasks can become boring and demotivate the worker. In this case, Natalie may get ‘ fed up ’ with selling only flowers There is a limited customer base if firms specialize too much in the provision of one or two products only; this therefore reduces their profitability.

27. Sole Trader http://www.youtube.com/watch?v=L4RXETxb W9M http://www.youtube.com/watch?v=L4RXETxb W9M

28. Partnerships Profit-seeking business that is owned by 2 or more persons Maximum number of partners allowed by law is 20 (vary per country) Financed by personal funds Unincorporated – Unlimited Liability Legal contract such as Deed of Partnership

29. Deed of Partnership or Partnership Deed The amount of finance contributed by each partnerThe amount of finance contributed by each partner The roles, obligations and responsibilities of each partnerThe roles, obligations and responsibilities of each partner How profits and losses will be shared among the partnersHow profits and losses will be shared among the partners Conditions for introducing new partnersConditions for introducing new partners Clauses for the withdrawal of a partner from the businessClauses for the withdrawal of a partner from the business Procedures for ending the partnershipProcedures for ending the partnership

30. Partnerships Advantages Disadvantages More financial strengthMore financial strength Division of labor and specializationDivision of labor and specialization Privacy – do not have to publicize their financial recordsPrivacy – do not have to publicize their financial records Unlimited liability Decision making may take longer Disagreements and conflicts likely to occur Lack of continuity if partner dies or leave the partnership Huge amount of mutual trust Difficulty in raising capital

31. EXAM TIP! Unlimited liability exists to prevent sole traders and partners from making careless decisions in managing their businesses. It makes private individuals accountable for their actions and decisions. However, the risk of loss of private property can influence some entrepreneurs, causing them to make safe decisions instead of taking risks.

32. Question 1.2.3 EXP: The Chinese Experience

33. Question 1.2.3 EXP: The Chinese Experience EXP is a small Chinese restaurant with take-away service located in Brockley, London (UK). It was established in early 2006 by partners Keith and Tonina Hoang. They had been in business before, having set up another successful take-away franchise, The Wok Express, in nearby towns.

34. EXP is run as an ordinary partnership with Keith and Tonina each having 50% of the stake in the business. EXP relies heavily on local customers who have a choice from neighboring competitors, such as pizza outlets and Indian restaurants. They have a workforce of 12 people, from chefs to delivery staff.

35. Their popularity has grown with a budding and loyal customer base. Keith and Tonina even had to decide to discontinue with the distribution of take-away menus in the local area as business was already steady and EXP was working at near capacity. Keith and Tonina thought it best to maintain the quality of their food and the punctuality of their home deliveries in order to maintain the image that they have established in the local area. This does not mean, of course, that they wouldn ’ t like more customers if opportunities allowed!

36. Define the terms franchise and ordinary partnership A franchise is a form of business ownership (and business growth strategy) whereby a person or business buys the license to trade using another firm ’ s name, logo, brands and trademarks. In this case, Tonina and Keith are the franchisors who have sold the rights to others to use their Wok Express brand name of Chinese restaurants. In return, the franchisee pays Tonina and Keith a royalty payment. An ordinary partnership exists when there are up to twenty owners in a partnership, including any silent partners. At least one of these partners must have unlimited liability. In this case, Tonina and Keith each own 50% of the business and both are held personally liable for any debts that EXP might incur.

37. Outline the advantages and disadvantages of running the restaurant as a partnership Advantages to Tonina and Keith running the partnership include: Division of labor can yield cost-saving benefits to EXP Since there are two owners, it is more likely that the restaurant can raise additional finance compared to if it had been set up as a sole proprietorship The financial accounts of the business are private to the owners, except for the tax authorities

38. However, there are also disadvantages in running the restaurant as a partnership, including: The need to split profits 50:50 Disputes between the partners could bring the business to a halt It still has limited finance compared to limited companies that could raise finance through the sale of shares Ordinary partnerships still have unlimited liability, meaning that Keith and Tonina stand to lose their personal possessions if the business falls into debt and/or collapses.

39. EXP is a small business. Explain the potential problems that this might create, compared to larger restaurants Smaller restaurants might find it difficult to operate and compete in comparison to larger restaurants for a few reasons, including: Limited sources of finance reduce the scale and scope of the firm ’ s operations. This will therefore limit EXP ’ s ability to benefit from economies of scale. In addition, smaller businesses are statistically more prone to severe cash flow problems. Since they lack human and financial resources, smaller restaurants will not be able to benefit from division of labour. This will therefore mean a greater workload for Keith and Tonina. Smaller businesses also have a limited customer base and therefore this limits their profitability (and hence their ability to survive)

40. Examine the benefits to the owners of EXP of remaining small as a business Small businesses can remain highly lucrative and beneficial to their owners. Some reasons for this include: The owners remain highly flexible and adaptable to change, so if business idea or plan does not work out then Keith and Tonina are quite flexible in making the necessary changes, e.g. it is relatively easy to transfer a small restaurant to a hair salon than for McDonalds to change their operations. Small businesses such as EXP might operate in niche markets and can become highly profitability yet these markets may be untouched by larger businesses that are more concerned with mass market operations. There is more autonomy in decision making for the owners of small businesses such as EXP. By contrast, managers working in large multinational companies are held accountable to their shareholders. There are far less legality involved in the running of a small business. Large businesses are held accountable to a much wider range of stakeholders and their accounts may need to be made public. EXP is already operating at near capacity and stretching operations beyond their means (overtrading) might harm the firm ’ s reputation (late deliveries and lower quality food).

41. Companies or Corporations Business owned by shareholders Business owned by shareholders (Shareholders – are individuals or other businesses that have invested their money to provide capital for a company) Companies are sometimes called: Companies are sometimes called: - Joint Stock Companies - Corporations (common term in N. America)

42. Companies or Corporations Companies are INCORPORATED businesses. Companies are INCORPORATED businesses. - there ’ s legal difference between the owners of the company and the business itself - separate entity, own legal rights and duties Limited Liability Limited Liability - maximum shareholders can lose is the value of their investment in the business Set up is complicated and expensive Set up is complicated and expensive

43. Board of Directors Elected by shareholders to run the company on their behalf Elected by shareholders to run the company on their behalf Held responsible for daily running of the business Held responsible for daily running of the business Held accountable to their shareholders Held accountable to their shareholders Each share equals one vote; the more shares held by an investor the more voting power they have Each share equals one vote; the more shares held by an investor the more voting power they have

44. 2 Types of Limited Companies Private Limited Company Public Limited Company

45. Limited Companies Private Public Cannot share capital from general public Cannot share capital from general public Shares sold to private family members and friends Shares sold to private family members and friends Uses Limited or Ltd. (varies by country) Uses Limited or Ltd. (varies by country) Before trading, agreement with the Board of Directors Before trading, agreement with the Board of Directors Owners have greater control of the business Owners have greater control of the business Cheaper to set up than Public Cheaper to set up than Public Limited finance than Public Limited finance than Public Advertises and sells its shares to general public via the stock exchange ‘PLC’ after its name Disadvantage: dilution of control Exposed to ‘takeover bids’ from other investors that seek to purchase a majority stake in the company

46. Examples: Private Limited Co. Chanel – fashion and cosmetics (FRANCE) Chanel – fashion and cosmetics (FRANCE) Ernst & Young – Accounting firm (USA) Ernst & Young – Accounting firm (USA) IKEA – home furnishing (SWEDEN) IKEA – home furnishing (SWEDEN) LEGO – toys (DENMARK) LEGO – toys (DENMARK) Mars Limited – confectionary (USA) Mars Limited – confectionary (USA) Tutor2u Limited – online education (UK) Tutor2u Limited – online education (UK) Virgin Group – global conglomerate (UK) Virgin Group – global conglomerate (UK)

47. Examples: Public Limited Co. China Mobile – mobile phone services (China) China Mobile – mobile phone services (China) Coca-cola Company – soft drinks (USA) Coca-cola Company – soft drinks (USA) HSBC – banking (UK and Hong Kong) HSBC – banking (UK and Hong Kong) Michelin – tire manufacturer (France) Michelin – tire manufacturer (France) Microsoft – computer software (USA) Microsoft – computer software (USA) Nike, Inc. – sportswear & sports equip. (USA) Nike, Inc. – sportswear & sports equip. (USA) Porsche – automobiles (Germany) Porsche – automobiles (Germany) Samsung – electronics (South Korea) Samsung – electronics (South Korea)

48. Documents needed before Private and Public Limited Companies can trade 1.Memorandum of Association - Name, main purpose, registered address, original amount of share capital invested - Brief document 2.Articles of Association - Longer document, stipulates the internal regulations and procedures of the company - Section on how profits will be distributed

49. Document Flow Memorandum of Association Articles of Association Application Fee License Business as a separate legal entity Start to trade

50. Flotation or Initial Public Offering (IPO) It occurs when a business first sells all or part of its business to external investors (shareholders) Company gets listed on a stock exchange Helps generate additional sources of finance

51. What are stocks? http://www.investopedia.com/video/play/what -are-stocks/ http://www.investopedia.com/video/play/what -are-stocks/ http://www.investopedia.com/video/play/what -are-stocks/ http://www.investopedia.com/video/play/what -are-stocks/

52. IPO http://www.investopedia.com/terms/i/ipo.asp http://www.investopedia.com/terms/i/ipo.asp http://www.investopedia.com/terms/i/ipo.asp

53. LondonNew York BombayPhilippines Madrid

54. The NASDAQ (acronym of National Association of Securities Dealers Automated Quotation System) is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,200 companies, has more trading volume per day than any other stock exchange in the world. The Dow Jones Industrial Average (NYSE: DJI), also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Dow compiled the index as a way to gauge the performance of the industrial component of America's stock markets. It is the second oldest continuing U.S. market index, after the Dow Jones Transportation Average, which Dow also created.NYSEDJIWall Street JournalDow Jones & CompanyDow Jones Transportation Average ******Stock exchange.docStock exchange.doc

55. How the stock exchange work https://www.youtube.com/watch?v=F3Qp gXBtDeo https://www.youtube.com/watch?v=F3Qp gXBtDeo https://www.youtube.com/watch?v=F3Qp gXBtDeo https://www.youtube.com/watch?v=F3Qp gXBtDeo

56. Reasons why investors buy shares in a limited company DIVIDENDS - they are paid to shareholders biannually - represent a share of the profits that are distributed to its owners - paid on each share that a shareholder owns; the more shares held the higher the total payment

57. DIVIDEND http://www.investopedia.com/terms/d/dividen d.asphttp://www.investopedia.com/terms/d/dividen d.asphttp://www.investopedia.com/terms/d/dividen d.asphttp://www.investopedia.com/terms/d/dividen d.asp

58. Reasons why investors buy shares in a limited company CAPITAL GROWTH - shares outperform the return from savings in a bank account - shareholders sell their shares at a higher price to make a financial gain (capital growth or capital gain) - note: prices can also fall without warning due to the volatility of stock markets

59. Reasons why investors buy shares in a limited company VOTING POWER - Shareholders who hold enough shares in a limited company can become a major influence in the management and operation of the company - Example of these shareholders are the senior directors of a company

60. Annual General Meeting (AGM) Shareholders vote on resolutions (promises or declarations) and the re-election (or sometimes election) of the Board of Directors. Shareholders ask questions to the chief executive officer, directors and the chairperson about various aspects of the company. Shareholders approve the previous year’s financial accounts.

61. Advantages of Companies ► Companies can raise large amounts of capital by selling shares ► Limited liability ► Companies benefit from continuity – should anything happen to one owner, the business does not need to cease trading but can continue as a separate entity from that owner

62. Advantages of Companies ► Directors generally own a large amount of shares – they have an incentive to perform well to achieve capital growth (higher share prices) and dividends ► Can benefit from economies of scale due to their larger scale business (ex. cheaper to borrow money than sole or partnership) ► Hire specialist directors and managers to run the firm

63. Disadvantages of Companies ► Financial information must be provided to all shareholders  time consuming and expensive  Auditors have to be paid  Annual reports must be published and distributed  Privacy no longer exists ► Communication problems as the firm becomes larger

64. Disadvantages of Companies ► More legal requirements  Memorandum and Articles of Association  Lawyers must be hired  Advertising and promotion of share flotation  Host the Annual General Meeting ► Dividends are only paid out if the business makes a profit

65. EXAM TIP! Students often use the words ‘business’ and ‘company’ interchangeably. While this can be true, it is important to remember that companies are owned by shareholders and so there can only be 2 types of companies – private limited and public limited companies. ‘Business’ will cover other forms of ownership, such as sole trader and partnerships. In summary then, all companies are businesses but not all businesses are companies.

66. Question 1.2.4 Mars Inc.

67. What are the stages (sector) of production? What are the factors of production? What are the functional departments? Reasons why people set up their own business. What are the concepts in BM?

68. FOR-PROFIT SOCIAL ENTERPRISE

69. For-profit Social Enterprise Social enterprise is a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners. Social enterprise is a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners. Social enterprises strive to return a surplus for social gain. Social enterprises strive to return a surplus for social gain. Goals: to achieve social objectives and to earn revenue in excess of costs. Goals: to achieve social objectives and to earn revenue in excess of costs.

70. Social Enterprise https://www.youtube.com/watch?v=1ecKK 3S8DOE https://www.youtube.com/watch?v=1ecKK 3S8DOE https://www.youtube.com/watch?v=1ecKK 3S8DOE https://www.youtube.com/watch?v=1ecKK 3S8DOE

71. Social Enterprise UK https://www.youtube.com/watch?t=86&v= VAuZWGnfW6s https://www.youtube.com/watch?t=86&v= VAuZWGnfW6s https://www.youtube.com/watch?t=86&v= VAuZWGnfW6s https://www.youtube.com/watch?t=86&v= VAuZWGnfW6s

72. 3 types of for-profit social enterprises Cooperatives Cooperatives Microfinance Providers Microfinance Providers Public-Private Partnerships (PPP) Public-Private Partnerships (PPP)

73. COOPERATIVES Cooperatives – a group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically (all members have a vote). Cooperatives – a group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically (all members have a vote). Cooperatives share any profits earned between their members. Cooperatives share any profits earned between their members.

74. COOPERATIVES https://www.youtube.com/watch?v=ecSMt Murws https://www.youtube.com/watch?v=ecSMt Murws https://www.youtube.com/watch?v=ecSMt Murws https://www.youtube.com/watch?v=ecSMt Murws

75. 3 main types of cooperatives Consumer cooperatives Consumer cooperatives Worker cooperatives Worker cooperatives Producer cooperatives Producer cooperatives

76. CONSUMER COOPERATIVES Owned by the customers who buy the goods and/or services for personal use. Owned by the customers who buy the goods and/or services for personal use. Example: grocery stores, credit unions, child care, housing, health care cooperatives Example: grocery stores, credit unions, child care, housing, health care cooperatives Members get access to goods and services at lower price than those charged by traditional commercial businesses. Members get access to goods and services at lower price than those charged by traditional commercial businesses.

77. NP Consumer Cooperative NP Co-op: http://npco-op.com/about- us/society-profile/ NP Co-op: http://npco-op.com/about- us/society-profile/http://npco-op.com/about- us/society-profile/http://npco-op.com/about- us/society-profile/

78. WORKER COOPERATIVES A business that is owned and operated by the workers themselves. A business that is owned and operated by the workers themselves. Example: production and manufacturing, cafes, tourism and communications Example: production and manufacturing, cafes, tourism and communications By operating as an enterprise, members are provided with work. By operating as an enterprise, members are provided with work.

79. Green Worker Cooperatives http://www.greenworker.coop http://www.greenworker.coop http://www.greenworker.coop

80. PRODUCER COOPERATIVES Where groups of producers collaborate in certain stage of production. Where groups of producers collaborate in certain stage of production. Cooperatives that join and support each other to process or market their products. Cooperatives that join and support each other to process or market their products. Example: a farmer coop might unite to buy equipment, fertilizers and seeds collectively, by pooling their funds, thus benefitting from bulk-purchase discounts. Example: a farmer coop might unite to buy equipment, fertilizers and seeds collectively, by pooling their funds, thus benefitting from bulk-purchase discounts. Many producers pool their resources to obtain the cost efficiencies. Many producers pool their resources to obtain the cost efficiencies.

81. Citadelle Producer Cooperatives http://www.citadelle-camp.coop/maple- syrup/The-Cooperative/Why-Citadelle.aspx http://www.citadelle-camp.coop/maple- syrup/The-Cooperative/Why-Citadelle.aspx http://www.citadelle-camp.coop/maple- syrup/The-Cooperative/Why-Citadelle.aspx http://www.citadelle-camp.coop/maple- syrup/The-Cooperative/Why-Citadelle.aspx

82. Examples of Cooperatives Box 1.2.c Associated Press – a non-profit multinational news agency headquartered in the USA Associated Press – a non-profit multinational news agency headquartered in the USA Ocean Spray – a farmer-based cooperative of the popular cranberry and grapefruit juice drinks Ocean Spray – a farmer-based cooperative of the popular cranberry and grapefruit juice drinks Sunkist – US farmer-based producer cooperative that makes the famous Sunkist brand of fruit juices Sunkist – US farmer-based producer cooperative that makes the famous Sunkist brand of fruit juices

83. COOPERATIVES ADVANTAGES Incentives to work Decision-making power Social benefits Public support DISADVANTAGES Disincentive effects Limited sources of finance Slower decision- making Limited promotional opportunities

84. 3 types of for-profit social enterprises Cooperatives Cooperatives Microfinance Providers Microfinance Providers Public-Private Partnerships (PPP) Public-Private Partnerships (PPP)

85. MICROFINANCE PROVIDERS Microfinance is a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes. Microfinance is a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes. Microfinance providers enable the disadvantaged members of society to gain access to essential financial services to help eradicate poverty. Microfinance providers enable the disadvantaged members of society to gain access to essential financial services to help eradicate poverty. Main aim is to help those who would previously never have had access to finance to take the first steps towards economic independence. Main aim is to help those who would previously never have had access to finance to take the first steps towards economic independence.

86. Microfinance https://www.youtube.com/watch?v=_LK4X MF2u8Y https://www.youtube.com/watch?v=_LK4X MF2u8Y https://www.youtube.com/watch?v=_LK4X MF2u8Y https://www.youtube.com/watch?v=_LK4X MF2u8Y

87. Microfinance Example: BRAC Formerly known as the Bangladesh Advancement Committee; is the largest microfinance provider in Bangladesh. Formerly known as the Bangladesh Advancement Committee; is the largest microfinance provider in Bangladesh. Founded in 1972, its headquarters are in Dhaka, Bangladesh. Founded in 1972, its headquarters are in Dhaka, Bangladesh. BRAC has more than 44,300 staff and has helped around 135 million people in Asia, Africa and the Caribbean. BRAC has more than 44,300 staff and has helped around 135 million people in Asia, Africa and the Caribbean. http://www.brac.net/#who_we_are http://www.brac.net/#who_we_are http://www.brac.net/#who_we_are

88. Microfinance Providers ADVANTAGES Accessibility Job creation Social well being DISADVANTAGES Immorality Limited finance Limited eligibility

89. 3 types of for-profit social enterprises Cooperatives Cooperatives Microfinance Providers Microfinance Providers Public-Private Partnerships (PPP) Public-Private Partnerships (PPP)

90. Public-Private Partnerships (PPP) PPP occur when the government works together with the private sector to jointly provide certain goods or services. PPP occur when the government works together with the private sector to jointly provide certain goods or services. In some countries the private sector runs the public sector hospitals and schools, without the services being actually privatized. In some countries the private sector runs the public sector hospitals and schools, without the services being actually privatized. Example: London’s olympic stadium, the Sydney Harbor Tunnel, New York’s central park, Hong Kong Disneyland (see Q 1.2.5) Example: London’s olympic stadium, the Sydney Harbor Tunnel, New York’s central park, Hong Kong Disneyland (see Q 1.2.5)

91. PPP http://www.investopedia.com/terms/p/publi c-private-partnerships.asp http://www.investopedia.com/terms/p/publi c-private-partnerships.asp http://www.investopedia.com/terms/p/publi c-private-partnerships.asp http://www.investopedia.com/terms/p/publi c-private-partnerships.asp

92. Question 1.2.5 Hong Kong Disneyland

93. Non-Profit and Non-Governmental Organizations (NGOs) Non-profit Organizations (NPOs) Non-profit Organizations (NPOs) Also known as not-for-profit organization Also known as not-for-profit organization Run in a professional and business-like manner but without profit being the major objective Run in a professional and business-like manner but without profit being the major objective Any surplus (profit) is invested back into the business for the benefits of its members Any surplus (profit) is invested back into the business for the benefits of its members Aim to provide a service or to promote special causes Aim to provide a service or to promote special causes Examples: public libraries, state schools, museums, government hospitals & social services, YMCA, Boy Scouts, Girl Scouts Examples: public libraries, state schools, museums, government hospitals & social services, YMCA, Boy Scouts, Girl Scouts

94. Non-Profit and Non-Governmental Organizations (NGOs) Non-governmental organizations (NGOs) Non-governmental organizations (NGOs) Operates in the private sector Operates in the private sector Not owned or controlled by the government Not owned or controlled by the government Not-for-profit organization Not-for-profit organization Also known as Private Voluntary Organization (PVOs) Also known as Private Voluntary Organization (PVOs) Examples: Friends of the Earth (environmental protection), Amnesty International (human rights), Unicef (children ’ s welfare) – activist stance to influence change within the government & society Examples: Friends of the Earth (environmental protection), Amnesty International (human rights), Unicef (children ’ s welfare) – activist stance to influence change within the government & society

95. 2 Types of NGOs Operational NGOs Operational NGOs - established from a given objective or purpose - organizations involved in relief-based and community projects - i.e. Unicef, Oxfam Advocacy NGOs Advocacy NGOs - more aggressive approach to promote or defend a cause - raise awareness through direct action (lobbying, public relations, mass demonstration) - i.e. Greenpeace and Amnesty International

96. Charities Type of non-profit organization Type of non-profit organization Key function of collecting donations from individuals & organizations in order to support a cause that is beneficial to society Key function of collecting donations from individuals & organizations in order to support a cause that is beneficial to society Large organizations are run by a group of managers & trustees, similar to a limited company ’ s board of directors Large organizations are run by a group of managers & trustees, similar to a limited company ’ s board of directors Some managers or employees are paid for their services while others operate on a voluntary basis Some managers or employees are paid for their services while others operate on a voluntary basis

97. Advantages of Charities Provide financial support for the welfare of society Provide financial support for the welfare of society Usually exempt from paying income tax or corporation tax Usually exempt from paying income tax or corporation tax Donors may get income tax credits Donors may get income tax credits Can also register to be limited companies so as to protect the interest of employees and management who have limited liability Can also register to be limited companies so as to protect the interest of employees and management who have limited liability

98. Disadvantages of Charities Lack of profit motive may cause problems such as staff demotivation Lack of profit motive may cause problems such as staff demotivation Trustees are not allowed to receive any financial benefits Trustees are not allowed to receive any financial benefits Must go through the process of being registered Must go through the process of being registered Financial activities and records must be recorded and reported to a governing body set up by the government Financial activities and records must be recorded and reported to a governing body set up by the government Limited liability which may lead to inefficiencies or degree of charity fraud Limited liability which may lead to inefficiencies or degree of charity fraud Survive only on one source of finance - donations Survive only on one source of finance - donations

99. Pressure Groups Non-profit organizations established by their members to address a special interest of the group Non-profit organizations established by their members to address a special interest of the group Aim to win public and media support from their actions Aim to win public and media support from their actions Try to influence government legislation Try to influence government legislation They force businesses and government to take account of the true costs of business activity (such as pollution and environmental damage) They force businesses and government to take account of the true costs of business activity (such as pollution and environmental damage) Examples: trade unions, animal rights activist groups and environmental protection groups Examples: trade unions, animal rights activist groups and environmental protection groups

100. That’s the end of Unit 1.2 for BMS SL

101. Relationship between organizations in the private and public sectors PUBLIC SECTORSPUBLIC SECTORS - provide services to the general public rather than selling products for a profit - 3 options for the government in providing these services: (1) supply the service themselves (2) allow private firms to provide these services (3) form a public-private sector partnership

102. Public Goods vs. Private Goods Enjoyed by general public with gov’t. intervention Non-rivalry: consumption by one person does not reduce the benefits available to others Non-excludability: cannot be excluded from the benefits even if they do not pay Non-rejectable: people cannot simply reject since they are provided for everyone Provided only by private sector Purchase & use diminishes the amount that is available for others Person is denied the benefit if he/she cannot pay Household can choose to reject the consumption simply by not purchasing them

103. Merit Goods Products that yield higher social benefits of consumption than private benefit to an individual Should be provided in greater quantities Example: education, training, public libraries and health care Private firms can provide these goods but not everyone can afford to pay; government support is needed to provide to everyone in society All public goods are merit goods

104. Public and Private Enterprise Takes place when governments create partnerships with the private sector in the provision of certain services Also referred to as (PPP) – Public Private Partnership Private sector firms are hired for their expertise for projects that are funded by both private investors & the gov ’ t. Examples: Sydney Harbor Tunnel, HKD Disneyland, NY ’ s Central Park

105. That’s the end of Unit 1.2