‫‪1‬‬ ‫‪ | Book 1‬ملخص الدكتور هالل عفيفي ‪ /‬تنسيق محمد العليان‬

Session 1: What is a business?

1.1 What is a business?

 Often, people think about business in terms of very large multi-national corporations, for example,
Microsoft, Toyota, GlaxoSmithKline (GSK), Gulf Bank (GB) and Saudi Aramco.
 However, most businesses in the world are very small, enterprises, such as that depicted on the front cover
of Book 1. Many businesses are owned and managed by one person.
 Business is hard to define for the very reason that there is so much of it around us, in all sorts of different
shapes and sizes, but businesses have three factors in common: people, objectives and structure.

Some common characteristics of businesses:

 They consist of a number of people.

 The people who belong to them will probably share some values and views about the purpose(s) of the
business.
 They will have some income and costs.
 They will need different types of resources to produce different types of goods and services.
 They are likely to need to co-ordinate a number of different activities undertaken by individuals.
 They are identifiable as different from other groups of people.

Types of businesses:

1. The private sector: Private individuals and firms that are owned by private individuals (not controlled by the
government). It include Sole Traders, Private Limited Companies (Ltd), Partnerships and Public Limited
Companies (PLC).
2. The public sector: Made up of central government, local government, and businesses that are owned by
government (controlled and operated by the government).

Public sector Not for profit

Local authorities, schools, governmental Voluntary organizations, clubs and societies,

departments, armed forces pressure groups, religious organizations

Private sector For profit

Sole traders, partnerships, producer and Railways, airlines, nationalized industries

consumer co-operatives

Not For Profit Businesses

 Many charity-based business organisations are run as ‘not for profit’ operations.
 They typically receive donations or funds from groups or government.
 Any financial surplus is ploughed back into the business.
 The organisation does not aim to generate profits.

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1.3 Similarities and differences between businesses (Morgan’s metaphors, 1986):

One of the famous academic theory, by Garith Morgan, uses metaphors to illuminate and extend our thinking regarding
the question, “what is business”. The ‘images of organization’ offered by the following eight metaphors:

A machine Businesses are often designed and operated as if they are machines, with highly
visible structures and procedures.

An organism Seeing the business as behaving in similar ways to our own biological
mechanisms.

A brain This means realizing it has to be able to respond to change and also capable of
rational thinking and intelligent change.

A culture The values, believes, norms, essentials and principles.

A political system The social relations between individuals and groups in a business that involve
authority and power.

Psychic prison Some businesses may be constrained by themselves.

As flux and The constant change shaping our lives.

transformation

A vehicle for domination Businesses can be dominant.

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 Session 2: The external environment

The external environment

A business exists within an external environment consisting of the actions of other players who are outside the
business. A Key Success Factor (KSF) for any type of business is an accurate understanding of the external environment
can be defined and analysed using the STEEP model (STEEP is an acronym for Sociological, Technological, Economic,
Environmental and Political factors).

2.1 STEEP stands of five factors:

1. Sociological factors:

It include demographic changes in the age and structures of populations, patterns of work, gender roles, patterns of
consumptions and ways in which culture of population or country changes and develops.

2. Technological factors:

It include information technology (IT) for business management and information and communications technology
(ICT) which influence on:

• Lowering the barriers of time and place.

• Creates new industries.
• Depends of many individual jobs and internal service functions on ICT systems.

3. Economic factors:

It include economic growth, interest rates, inflation, energy prices, exchange rates and levels of employment.

4. Environmental factors:

The impact of businesses activities on the natural environment (sustainability, recycling, emissions and waste
disposal). Businesses need to consider a number of environmental factors (such as: legislations, environmental
management systems 'ISO 14000', information about environmental audit and performance reports, employees,
shareholders, pressure groups, and customers).

5. Political factors:

It include legislations, trading relationships (such as: the World Trade Organization ‘WTO’ and the European Union
‘EU’), government, the level and nature of public services (e.g. health, education etc.), financial policy, levels of taxation
and potential elections.

2.2 Stakeholders:

Stakeholders are groups of people who have an interest in a business. They can be seen as being either external
(e.g. creditors, customers, suppliers, government, community), or internal (e.g. shareholders ‘owners’, managers, staff
or employees).

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A stakeholders for - profit business:

Expectations
Stakeholders
Primary Secondary
Owners Financial return Capital growth
Employees Pay Work satisfaction, training, social integration
Customers Supply of goods/services Quality
Creditors Creditworthiness Security
Suppliers Payment Long-term relationships
Community Safety and security Contribution to the community
Government Compliance Improved competitiveness

Why the concept of stakeholder is important?

The concept of stakeholder is important for two rezones:

1. It emphasizes that stakeholders groups have different interests, and hence lead to the conflict of interests.
2. It illustrates the relationships between businesses and their external environments (as explained through the
STEEP model).

Example of stated business objectives that incorporate the stakeholders' concept (British Telecom):

Stakeholders statement
We aim to be at the heart of the information society - a communications-rich world in which everyone, irrespective of
nationality, culture, class, creed or education, has access to the benefits of information and communications
technology (ICT).
In practical terms, that means we are committed to doing business in a way that:
 Maximizes the benefits of ICT for individuals.
 Contributes to the communities in which we operate.
 Minimizes any adverse impact that we might have on the environment.
 It means doing business in a way that will persuade customers to buy from us, investors to back us, the best
people to work for us and communities to have us around.
If we had to say what we believe in a single sentence, it would be this: better communications help create a better
world.

Conflict between stakeholders:

Management, employees and shareholders:

Employees seeking higher wages might conflict with the desire by management to cut costs to boost profit and
thus satisfy their own ambitions and meet the needs of the shareholders.

Shareholders and customers:

Customers want high quality and low prices, while shareholders are interested in minimizing costs and
maximizing profits.

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Managers and shareholders:

Mangers will argue that without their leadership and managerial ability, the corporation would not have been as
profitable. The shareholders will argue that without their money, the corporation would not have been able to invest in
its growth.

Analyzing stakeholders:

The relative power and interest of the stakeholders (four categories in the matrix), shown in the following figure:

For example:

Category D (cell D) refer to stakeholders with high power and high interest are key players in the organization
and are often involved in managing the organization and its future.

Level of interest
Low High
Low Category A Category B
Minimal effort Keep informed
(e.g. customers, suppliers or competitors) (e.g. associate members, employees)
Power

High Category C Category D

Keep satisfied Key player
(e.g. institutional stakeholders) (e.g. directors)

2.3 Business and society:

 The relationships between the business and the community depend on the type of business and its relationships
with the community.
 The field of corporate social responsibility has grown considerably over the last decade. Many businesses are
becoming more active in contributing to society now than used to be the case. Corporate social responsibility
(CSR) issues are now being integrated into all aspects of business operations and explicit commitment to CSR is
made in the visions, missions and value statements of an increasing number of companies all over the world.
CSR reports issued usually go beyond profit maximization to include the company’s responsibilities to a broad
range of stakeholders including employees, customers, community and the environment (see for example: the
social responsibility of Gulf Bank in Kuwait 'www.e-gulfbank.com/eng/aboutUs/index.jsp').

2.4 SWOT Analysis:

Another important tool is the SWOT analysis as this helps managers to look at both the external circumstances,
the possible Opportunities (O) and Threats (T) that the firm faces and the internal factors, Strengths (S) that the firm can
build upon and Weaknesses (W), which the firm need to understand.

A SWOT analysis generates information that is helpful in matching an organization or group’s goals, programs,
and capacities to the social environment in which it operates. It is an instrument within strategic planning, since
developing a full awareness of your situation can help with both strategic planning and decision - making.

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Threats:

 External factors, beyond an organization’s control, which could place the organization mission or operation at
risk. The organization may benefit by having contingency plans to address them if they should occur.
 Classify them by their “seriousness” and “probability of occurrence”.
 Any unfavorable situation in the future, in the market, that is potentially damaging, now or in the future.

Opportunities:

 External attractive factors that represent the reason for an organization to exist and develop. What
opportunities exist in the environment, which will propel the organization?
 Identify them by their “time frames”.

Weaknesses:

 Factors that are within an organization’s control that detracts from its ability to attain the core goal. Which
areas might the organization improve?
 A limitation, fault or defect of the organization or team that will hinder achievement of objectives now or in the
future.

Strengths:

 Positive tangible and intangible attributes, internal to an organization. They are within the organization’s
control.
 A resource or capacity of the organization or team that can be used effectively to achieve objectives now or in
the future.

Strengths Weaknesses
Internal Focus

What do we do well? What is wrong now?

 What are your advantages?  What could you improve?
 What do you do well?  What do you do badly?
 What relevant resources do you have?  What should you avoid?
 What do other people see as your strengths?
Opportunities Threats
What possibilities exist? What can go wrong?
External Focus

 Where are the good opportunities facing you?  What are risks, obstacles, sustainability
 What are the interesting trends you are aware problems?
of? Useful opportunities can come from such
things as: changes in technology; government
policy; organizational structure and business
priorities?
Benefits of the SWOT Analysis:

 Simple process which lowers costs;

 No extensive training required;
 Flexible-enhances strategic planning;
 Integration-synthesizes qualitative & quantitative information;
 Collaboration-encourages interdepartmental coordination.

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SWOT Matrix:

Strengths Weaknesses
S-O strategies: W-O strategies:
Opportunities

build on success, good practices, models use opportunities to address weaknesses

S-T strategies: W-T strategies:

use success to minimise threats defensive actions vs. susceptible areas
Threats

SWOT strategies and STEEP analysis:

SWOT
S-O strategies S-T strategies W-O strategies W-T strategies
Sociological
Technological
STEEP

Economic
Environment
Political

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 Session 3: Business structures

Why are we studying ‘business structures’?

1. A structure gives a business an identity and provides continuity.

2. A structure provides a framework for the allocation of roles and responsibilities.

3.1 Different types of structure:

 A business might be structured in various ways: by function, by product, by service or by geography.

 There is no best model for structure.

3.2 Why have a structure? What are the advantages from it?

1. Enabling participation.
2. Providing a framework for the allocation of responsibilities and authority.
3. Establishing an identity for the business.
4. Continuity and change.

3.3 Formal and informal structures:

1. The formal structure: organizations have a formal structure which is the way that the organization is
organized by those with responsibility for managing the organization. They create the formal structures that
enable the organization to meet its stated objectives. Often these formal structures will be set out on paper
in the form of organizational charts.
2. The informal structure: is more about the relationships between individuals. This can be complicated
because it involves the ‘human’ elements such as respect, motivation and commitment. This informal
structure may be different from that which is set out on paper. Informal structures develop because people
find new ways of doing things which they find easier and save them time and it is easier to work with
informal structures.

3.4 Dimensions of structures:

The main dimensions of business structure that may be helpful in identifying the type of structure within a
business, and the reasons for it (Pugh and Hickson, 1968), as shown in the following table:

Dimensions of Features
structures
Specialization The extent to which specialized tasks and roles are allocated to individuals who work in the
business.
Standardization The extent to which a business has standard procedures
Formalization The extent to which rules, procedures, instructions and so on are written down, or formalized.
Centralization The extent to which decision making and authority are located at the top of the hierarchical
structure and/or at the centre of the business if there is more than one site.
Configuration The shape of the role structure, whether the chain of command is short or long.

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 Session 4: Business cultures

What is culture?

1. Culture is predominantly implicit in people's minds neither is it directly observed.

2. Culture is that it is shared – it refers to the ideas, meanings and values people hold in common and to which
they subscribe collectively.
3. Culture is that it is transmitted by process of socialisation.

4.1 National cultures

Dimensions of national culture (Hofstede, 1980):

In the mid 1970's, the Dutch academic, Geert Hofstede, based his five dimensions of culture on an extensive
survey at IBM in which he investigated the influence of national culture. His methodology was both unique in size as well
in structure. He defined organizational culture is an idea system that is largely shared between organizational members.
By filtering out IBM's dominant corporate culture from his data on IBM's national subsidiaries, Hofstede was able to
statistically distinguish cultural differences between countries.

Hofstede classified a country's cultural attitudes as five dimensions:

1. Power Distance: the extent to which power is distributed equally within a society and the degree that
society accepts this distribution. A high power distance culture prefers hierarchical bureaucracies, strong
leaders and a high regard for authority. A low power distance culture tends to favor personal responsibility
and autonomy.
2. Individualism versus Collectivism: the degree to which individuals base their actions on self-interest versus
the interests of the group. In an individual culture, free will is highly valued. In a collective culture, personal
needs are less important than the group's needs. This dimension influences the role government is expected
to play in markets.
3. Masculinity versus Femininity: a measure of a society's goal orientation. A masculine culture emphasizes
status derived from wages and position; a feminine culture emphasizes human relations and quality of life.
4. Uncertainty Avoidance: the degree to which individuals require set boundaries and clear structures. A high
uncertainty culture allows individuals to cope better with risk and innovation; a low uncertainty culture
emphasizes a higher level of standardization and greater job security.
5. Confucian versus Dynamism: the degree to which a society does or does not value long-term commitments
and respect for tradition. Long-term traditions and commitments hamper institutional change.

Diagnoses hidden aspects of business (Trice and Beyer, 1984):

1. High-level symbols: (more obvious such as: company buildings and logos).
2. Low-level symbols: (less obvious such as: practices, communications, physical forms and a common
language).

4.2 Definitions of organisational culture:

Culture is a pattern of beliefs and expectations shared by the organizational members. These beliefs and
expectations produce norms that powerfully shape the behavior of individuals and groups within the organization

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4.3 Factors influencing culture:

Drennan (1992) proposed 12 key factors that shape the culture of a business. These are:

1. The influence of a dominant leader;

2. The history and tradition of the business;
3. The types of technology used by the business;
4. The type of industry or sector and the nature of competition;
5. The customers of the business;
6. Company expectations;
7. The type of information and control systems used;
8. The legislations and wider business environment;
9. The procedures and polices within the business;
10. The reward systems and the measurement of performance;
11. How the business is organized and resourced;
12. Goals, values and beliefs - reflected in objected, actions and language, that is, in Trice and Beyer’s symbols.

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 Session 5: Business ethics

Business ethics is concerned with the study of how we ought to conduct business; the study of what makes
certain actions within the business context the right, rather than the wrong, thing to do.

5.1 Defining Business ethics:

Ethics:

 A system of values and principles that guide the behavior of a specified group.
 A set of moral principles or values that governs the conduct of an individual or a group.
 The branch of philosophy that deals with what is considered to be right and wrong
 Ethics consists of the standards of behavior that our society accepts.

Business ethics:

Deal with the right and wrong actions that arise in any work environment.

Ethics and the law

To a certain extent, the laws of any democratically constituted society define the ethical standards that are widely
accepted within that society. They codify the values that a society holds dear, and therefore provide minimum standards
of ethical conduct.

Compliance with the law?

Knowing right from wrong - doing right

Important Point:

Doing right is more than not doing wrong!

1. Law often represents an ethical minimum. Ethics often represents a standard that exceeds the legal
minimum.
2. Law is the basic framework of society and is the context for application of ethics.

Doing the right thing

Nature of ethics: Concern with what is right and wrong in:

 Relationships;
 Actions;
 Beliefs;
 Attitudes.

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Law versus Ethics

LAW ETHICS
Obligatory and enforceable by threat of Compliance is voluntary and reinforced by moral respect for
punishment values
Definitive Ambiguity and indeterminacy
Laws constantly change Gradually change with time, but generally immune from
deliberate changes

Business ethics, morality and corporate social responsibility (CSR):

Morality:

Ethics is the study of morality. Morality can be defined as: a system of rules for guiding human conduct, and principles
for evaluating those rules.

Social responsibility:

1. Is the set of obligations an organization has to protect and enhance the society in which it functions.
2. Refers to a business’s obligation to maximize its positive impact and minimize its negative impact on society.

A Code of Ethics

A credo or statement which generally describes the highest values to which the company aspires to operate. The code
specifies the ethical rules of operation.

The Ethics Resource Center (ERC) defines a Code of Ethics as:

".. A central guide to support day-to-day decision making at work. It clarifies the cornerstones of your
organization – its mission, values and principles – helping your managers, employees and stakeholders understand how
these cornerstones translate into everyday decisions, behaviors and actions. While some may believe codes are designed
to limit one’s actions, the best codes are actually structured to liberate and empower people to make more effective
decisions with greater confidence." (Available at: http://www.ethics.org/resources/ethics-glossary.asp)

Levels of corporate social responsibility (CSR):

Social Obligation: Meet minimum regulations, do what is required by law, no more.

Social Responsibility: Go beyond what is required by law, mitigate negative effects.

Social Responsiveness: Proactive approach, promote positive change.

I am ethical because… I am……..

1. Loyal; 2. Truthful;

3. Respectful; 4. Honest;

5. Dependable; 6. Have integrity.

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Ethics and conflicting values

Conflict of Interest:

 A situation in which the self-interest of an individual is in conflict with an obligation.

 Business ethics decisions usually present choices between competing value-based principles.

Business Ethics Sources:

1. Values;
2. National and international law;
3. Corporate citizenship.

Moral Values:

1. Your values - beliefs or attitudes about what is good, right, desirable, worthwhile (your beliefs about what is
important in life) example, to be honest, self-disciplined, kind.
2. Your value system (the ways you organize, prioritize and make decisions based on your values) provide the
foundation from which you make your personal and professional judgments and choices.
3. Other values refer to what one wants to accomplish or obtain in life (for example, to want a lot of money,
security, fame, health, salvation, wisdom).

5.2 Why is business ethics important?

This is due to:

1. Business need to conform to the expectations of key stakeholders.

2. Business depends on society, so it must respond to the needs of society.
3. Business can only operate effectively if certain norms are respected.
4. Business exercises considerable power over the lives of people
5. Ethical behavior has an intrinsic value.

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5.3 In what ways do ethics relate to business?

Ethical issues pervade all types of business in many different ways (three levels):

1. The relationship between ethics and business at a macro level: At a macro (wide, strategic) level business ethics
considers the overall framework within which business operates (as discussed before in STEEP model).
2. The relationship between ethics and business and the social and environmental impact of business: Ethical
considerations at this level relate to the impact of business activities on people, communities and the natural
environment. Key issues include:
 Should businesses promote employment in local communities, or should they transfer production to cheaper
overseas locations in order to make more money for shareholders and offer cheaper products to customers?
 Should businesses promote potentially harmful products, such as alcohol, tobacco and foods with high fat and
sugar content, to vulnerable groups such as children?
 Should businesses actively promote environmental practices, such as using recycled raw materials or reducing
environmentally damaging waste, or should they only focus on maximizing profits and thus promoting
shareholder wealth?
 Transfer materials and money between countries to escape paying taxes.

3. The relationship between ethics and the personal of business people: At this level, business ethics considers the
personal conduct of individuals in business. It asks how we should behave towards other people (inside and
outside the business).

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5.4 What are the responsibility of business?

Four broad perspectives have been adopted towards the role, or the purpose, of business in society, as follows:

1. The responsibility of business is to build shareholder value:

 Business exists for the purpose of maximizing the wealth of shareholders.

 Business’ managers have a duty to maximize profits in order to maximize the wealth of owners. Therefore,
any activities that don't maximize shareholder value are violations of this duty.

2. The responsibility of business is to build long-term shareholder value:

Business need support the relationships with stakeholders groups (e.g. treat employees fairly; build long-term positive
relationships with its suppliers; adopt ethical policies that conform to expectations of customers and other stakeholder
groups) to be profitable in the long term.

3. The responsibility of business is to respect the rights of a range of stakeholders (multi-stakeholder

approach):

Businesses have a responsibility to a wide range of stakeholders (such as employees; customers; suppliers; local
communities; and shareholders).

 Responsibility toward consumers: The right to safe products, to be informed, to choice, and to be heard.
 Responsibility toward employees: Equal employment opportunity, affirmative action, and occupational
health and safety.

4. The responsibility of business is to help to shape society:

 This perspective goes one stage further than perspective 3. It propose that businesses should be proactive in
supporting good causes.
 Maximising profits is socially inefficient when costs are not paid. For example, pollution, no taxes, poorly
educated workforce.
 A business should consider the positive and negative impact that it may have on society and should respond
accordingly.

Important web sites:

1. International Business Ethics Institute: http://www.business-ethics.org/primer.asp

2. The Corporate Scandal Sheet: http://www.forbes.com/2002/07/25/accountingtracker.html
3. The Ethics Resource Center: http://www.ethics.org/

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 Session 6: An introduction to business functions

6.1 Human resource management (HRM):

Is responsible for all the activities concerned with the employment of the people within a business. HRM involve
a wide, ongoing debate about deferent approaches to the management of people.

Activities within the HRM function

1. Staffing policy and planning;

2. Job design and analysis;
3. Recruitment and selection;
4. Induction and socialization;
5. Performance management-job appraisal;
6. Motivation;
7. Health and safety;
8. Industrial relations;
9. Training and development;
10. Downsizing, redundancy, dismissal;
11. Discipline.

6.2 Marketing

Is the term given to the activities that occur at the interface between the business and its customers. It is not
just “selling and advertising”; it is the process by which companies create value for customers and build strong customer
relationships in order to capture value from customers in return.

The development of the concept of marketing (Blythe, 2005):

A. Production orientation;
B. Product orientation;
C. Sales orientation;
D. Consumer orientation.

A more recent development is social marketing, which means that marketers should take some responsibility the needs
of society at large and the responsibility of their production activities.

Activities within the marketing function

The ‘marketing mix’ according to (McCarthy, 1960) which called the four Ps of marketing:

1. Product: The product should be what the customer wants and expects to get.
2. Place: The product should be available from wherever the target group of customers finds it easiest to shop.
3. Promotion: Strategies to make the consumer aware of the existence of a product or service. It is not just
advertising.
4. Price: The product should always be seen as representing good value for money (value to customers means the
ratio of what they receive ‘benefits’ to what they give up ‘costs’).

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Booms and Bitner (1981) added another three Ps, to make the 7-Ps framework:

1. People: Virtually all services are dependant on the people who perform them.
2. Process: Services are usually carried out with the customer present.
3. Physical evidence: Almost all services contain some physical evidence.

6.3 Accounting and finance

This function is responsible for communicating appropriate financial information to internal and external
stakeholders, many of whom will not be financial experts.

Managerial accounting: is concerned with providing information to managers - that is, to those who are inside an
organization and who direct and control its operations.

Financial accounting: is concerned with providing information to shareholders, creditors, and others stockholders who
are outside an organization.

Activities within the accounting and finance function

The nature and purpose of the accounting and finance activities carried out within a business fall into two main
categories:

1. Management accounting: for internal use:

1. Planning and budgeting.

2. Management, operational control.
3. Performance evaluation.
4. Making decisions about particular activities, tasks and functions.
5. Making decisions about investment and disinvestment.

2. Financial accounting: for external use:

1. External reporting.
2. Provide information for the current and potential investors.
3. Disclosure about stewardship.
4. Disclosure that facilitate public accountability.
5. Encouraging competition by making information available to competitors.

6.4 Operations

The activities that produce the goods and/or deliver the services required by its customers. This function is often
seen as a transformation process, changing inputs into outputs.

Operation management objective is making sure that the processes work effectively and efficiently.

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Operations management activities includes:

1. Forecasting;
2. Design;
3. Capacity planning;
4. Scheduling;
5. Processing;
6. Managing inventories;
7. Assuring quality;
8. Motivating employees;
9. Deciding where to locate facilities;
10. Supply chain management;

And more . . .

6.5 Information management (IM)

"Information management is the range of processes by which information is handled by individuals and
organizations. These processes aim to define, collect, process, analyze, present, distribute and record information. The
combined result of these processes is to make the work of the organization more effective."

IM is central because:

1. IM is a conscious process; it does not just happen, but should be based on planning.
2. The purpose of IM is to assist in decision making.
3. The definition of IM highlights that IM is for the benefit of all levels of a business.

Activities within the information management function

Both internal and external communication and information systems.

 IM can bring about change in almost all business processes and is critical to much of the innovation that takes
place
 Information and communication technologies can manipulate, analyze, and transport information in a host of
new and creative ways.
 Increasing use of ICT by customers.
 The security of both business and customer information is a major concern.

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 Session 7: Small business and entrepreneurship

SMEs facts and figures:

 Small business make up about 98% of all business activity in the UK. With similar figures across the European
Union (EU).
 2.3 million jobs created by new businesses between 1995 and 1998, 85% were in small businesses.
 23 million SMEs in EU.
 99% of all EU enterprises.
 57% of the Union's total economic added value.
 75 million jobs (67% of private employment).

It is the entrepreneurial skills and spirit of individuals that create businesses and make them a success.

7.1 The benefits of small business

1. The small and medium sized enterprise (SMEs) sector plays a major role in creating employment;
2. SMEs sector can offer specialised services to customers to that larger businesses may not regard as
cost effective to provide. Small businesses often work as sub-contractors on big projects being
managed by larger companies.
3. SMEs are likely to have specialised knowledge of the local business environment and can tailor their
products and services appropriately.
4. In contributing to the local infrastructure, SMEs assist in regional and local growth and rejuvenation.
5. Smaller businesses may be able to innovate in ways that larger ones would find difficult. They tend
to be less bureaucratic and more flexible in their respond to customer demand.

7.2 Defining small and medium sized enterprises:

 No universal definition of SMEs

 A 'small business' can be a limited small company or a non-limited company that has a sole-trader or partner
as the owner(s).
 Definitions commonly use one or a combination of the following parameters:
1. Number of employees;
2. Turnover;
3. Invested Capital;
4. Total assets.

SME Definition:

The European Union (Commission Recommendation of 6 May 2003):

1. The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which
employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million,
and/or an annual balance sheet total not exceeding EUR 43 million.
2. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50
persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.

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 3. Within the SME category, a micro-enterprise is defined as an enterprise which employs fewer than 10
persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.

Enterprise category Headcount Turnover or Balance sheet total

Medium-sized < 250 ≤ € 50 million ≤ € 43 million

Small < 50 ≤ € 10 million ≤ € 10 million

Micro < 10 ≤ € 2 million ≤ € 2 million

(http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/index_en.htm)

7.3 Were do small businesses come from?

Motives for starting up a small business:

1. Push factor, individual made redundant from his job;

2. Pull factor, personality of the individual, don’t like to be given orders;
3. Management buy-out, starting on a small scale, leading to a new small business, owners decide to sell a
part of an existing business;
4. Purchase of a franchise, buying a local outlet of an existing and, often proven idea for a product or service;
5. Perceived opportunity and availability of assistance; and the perceived attributes and resources of the
individuals concerned;
6. Individuals prior experience; hobbies; strong interest;
7. Minority ethnic group enters mainstream society on one’s own terms and breaking through barriers to
employment;
8. Low level of formal education leading to self employment as way forward;
9. Exposure to role models, a family where entrepreneurial activity is present.

7.4 The risks involved

1. The risk of personal loss is a barrier;

2. Income may be low in early stages of the business;
3. Lack of knowledge about the opportunities and support for entering the new business;
4. Lack of role models within the society or family of those who have set up their own businesses.
Advantages and disadvantages of private family ownership of a business:

Advantages Disadvantages

 ‘family-ness’  Emotional ties may override commercial

 Greater motivation and enterprising drive. sense.
 No outside shareholders seeking ever increasing  No agreement over the purpose of the
monetary gains business.
 Less organisational politics.  Later generations may not be as
 Greater flexibility. enterprising.

7.5 Entrepreneurship

1. Activity of entrepreneurs, people who create new products, processes, services and markets.
2. Entrepreneurs often develop new ways of working and doing business.

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Characteristics of an entrepreneur:

1. Drive to excel.
2. Tendency to be a risk taker.
3. Ability to cope with and tolerate ambiguous situations.
4. Need for personal autonomy.
5. Ability to open to and spot opportunities as they arise
6. High belief in themselves.

7.6 Support for the small business start-up:

1- Many countries have their support programs for small businesses.

2- The economic policies help the growth of small businesses.
3- The goals of support to SMEs are:
1- Building an enterprise culture;
2- Encouraging a more dynamic start-up market;
3- Building the capability for small business growth;
4- Improving access to finance for small businesses;
5- Encouraging more enterprise in disadvantaged communities;
6- Improving small businesses' experience of government services;
7- Developing better regulation and policy.

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