Lect. univ. dr.

Gabriela erbnoiu

An English handbook for students (MARKETING,

ECONOMIC FRAUD INVESTIGATION, BUSINESS
LAW AND BUSINESS CONSULTING)

Lect. univ. dr. Gabriela erbnoiu

An English handbook for students (MARKETING,

ECONOMIC FRAUD INVESTIGATION, BUSINESS
LAW AND BUSINESS CONSULTING)

Editura SITECH
Craiova, 2014

Corectura aparine autorului.

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Descrierea CIP a Bibliotecii Naionale a Romniei

ERBNOIU, GABRIELA
An English handbook for students (MARKETING, ECONOMIC FRAUD
INVESTIGATION, BUSINESS LAW AND BUSINESS CONSULTING) /
Gabriela erbnoiu. - Craiova : Sitech, 2014
Bibliogr.
ISBN 978-606-11-4303-0
651.7:336

ISBN 978-606-11-4303-0

PREFACE

This is a for- professionals handbook as well as a student- oriented

guide.
It is designed for classroom activities, as well as for self study and it
is the outcome of my accumulated professional experience and of my
doing a research work at London Guildhall University (London) and
University of Texas at Austin (USA), which were important points in my
career development.
I would like to thank Dr Diana Ionita- the Head of Modern
Languages Department at the University of Bucharest- for her pertinent
advise.
The author

CONTENTS

CHAPTER 1
Globalization and Business.......page 9
CHAPTER 2
Ethics and Deontology in Business.page 13
CHAPTER 3
Managerial Accounting and Controlling...page 21
CHAPTER 4
Bureaucracy and Red Tape.. page 28
CHAPTER 5
Organizational Culture...page 37
CHAPTER 6
Management of Change...page45
CHAPTER 7
Setting up Own Business.page 50
CHAPTER 8
Types of Companies....page 61
Companies Alliances and Acquisitions
CHAPTER 9
Licensing and Franchising..page 73
CHAPTER 10
Types of Contracts...page 81

CHAPTER 11
A Perspective on Marketing..page 91
CHAPTER 12
Business Letters....page 106
CHAPTER 13
English Vocabulary Exercises ...page 117

CHAPTER 1
GLOBALIZATION AND BUSINESS
Globalization is the process of international integration arising from the interchange
of world views, products, ideas, and other aspects of culture.1 Put in simple terms, globalization
refers to processes that promote world-wide exchanges of national and cultural resources.
Advances in transportation and telecommunications infrastructure, including the rise of
the Internet, are major factors in globalization, generating further interdependence of economic and
cultural activities. Globalization also implies the opening of local and nationalistic perspectives to a
broader outlook of an interconnected and interdependent world with free transfer of capital, goods,
and services across national frontiers. However, it does not include unhindered movement
of labor and, as suggested by some economists, may hurt smaller or fragile economies if applied
indiscriminately.
In 2000, the International Monetary Fund (IMF) identified four basic aspects of
globalization: trade and transactions, capital and investment movements, migration and movement
of people and the dissemination of knowledge. 2 Further, environmental challenges such as climate
change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with
globalization.
The Indicators of Globalization
There are three main economic and nancial indicators of globalization, these are:
international trade in goods and services
the transfer of money capital from one country to another
the movement of people across national borders.
There are many factors which have contributed to the growth of globalization, such as:
1. Technological change, especially in communications technology. For example, UK
businesses and data by satellite to India (taking advantage of the difference in time zones) where

Al-Rodhan, Nayef R.F. and Grard Stoudmann. (2006, 19 June). "Definitions of

Globalization: A Comprehensive Overview and a Proposed Definition
2 International Monetary Fund . (2000). "Globalization: Threats or Opportunity." 12th
April, 2000: IMF Publications
9

skilled but cheaper data handlers input the data and return it by satellite for the start of the UK
working day.
2. Transport is much cheaper and faster. This is not just aircraft, but also ships. The
development of containerization in the 1950s was a major breakthrough in goods handling, and
there have been continuing improvements to shipping technology since then.
3. Deregulation. From the 1980s onwards (starting in the UK) many rules and regulations in
business were removed, especially rules regarding foreign ownership. Privatisation also took place,
and large areas of business were now open to purchase and/or take-over. This allowed businesses in
one country to buy those in another. For example, many UK utilities, once government businesses,
are owned by French and US businesses.
4. Removal of capital exchange controls. The movement of money from one country to
another was also controlled, and these controls were lifted over the same period. This allowed
businesses to move money from one country to another in a search for better business returns; if
investment in one's own country looked unattractive, a business could buy businesses in another
country. During the 1990s huge sums of money, mainly from the US, have come into the UK
economy.
5. Free Trade. Many barriers to trade have been removed. Some of this has been done by
regional groupings of countries such as the EU.
6. Consumer tastes have changed, and consumers are more willing to try foreign
products.The arrival of global satellite television, for example, has exposed consumers to global
advertising. Consumers are more aware of what is available in other countries, and are keen to give
it a try.
7. Emerging markets in developing countries
Almost every aspect of the economy is impacted by globalization.A large aspect and concern of
every economy is the many global influences that affect business.A business (also known
as enterprise or firm)

is

an organization engaged

in

the trade of goods, services,

or

both

to consumers. Businesses are predominant in capitalist economies, where most of them

are privately owned and administered to earn profit to increase the wealth of their owners.
Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals
may be referred to as a company, although that term also has a more precise meaning. Also a
business is the work of buying or selling products or services for money.4

Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle
River, New Jersey 07458: Pearson Prentice Hall. p. 29
4 Macmillan English dictionary for advanced learners, International Student Edition
10

Globalization may have a great deal of influence on many businesses throughout the world.
The impact may be stronger on some businesses, especially large businesses, but weaker on others.
There are a number of effects of globalization on businesses. Some provide opportunities
while others may provide threats to businesses.
The effects of globalization on businesses are:

Increasing competition: More and more foreign businesses have entered local markets so
the competition has been intensified.

Meeting consumer needs in more effective ways: Consumers have choices for products
and services. They can buy the best products for the best prices

Being able to enjoy economies of scale: Businesses can enjoy as large scale of production
in the whole world. Their production costs can thus be reduced.

Affecting the choice of location: Businesses can choose the most favorable place for
production or business operation. The production of Motorola company in China can reduce
the production costs of labor and eliminate the tariff restrictions of exports.

Increasing mergers or joint-development opportunities in the world market: Businesses

have more partners worldwide. They can join together to produce goods and services or to
penetrate foreign markets.

In conclusion, the continuous global trends are unseeingly affecting all businesses throughout
this economy. These global trends cause a constant need to accommodate, which is applying
more costs and frustration to all businesses. Outsourcing opens doors for many businesses to
gain access in a foreign market, but not all businesses can handle and maintain activity in these
economies.

DICUSSION POINT
Modern capitalism has always been global in its orientation but now global production
networks reach across the world and violate basic human rights at work. News of these violations
are not new. In the 1990s the Nike CEO was forced to declare that Nike had become synonymous
with slave wages, forced over-time and arbitrary abuse (Cushman, 1998). The garment industry has
become worried about the risk of sweatshop stigma (Bartley and Child, 2007). Nokia were found
to be including Congolese and Rwandan warlords using slave labour in their supply chain (Smith
and Mantz, 2006). In 2010 the managers of H&M were dismayed to learn of a deadly fire that had
engulfed a suppliers factory in Bangladesh and that workers had been locked inside (Vallas, 2012).
One of Apples and Sonys contractors (Foxconn) was found to have working conditions so poor

11

that 18 workers threw themselves from the tops of the company's buildings, resulting in 14 deaths
(Moore, 2012). Even more recently Primark and other major retailers have admitted to sourcing
clothing from a factory that collapsed in Bangladesh killing 1129 people (Butler, 2013). This
organizational behaviour shocks us.
What is your response to these facts? Do you want to find out more for yourself about how
companies treat their workers? Does this organizational behaviour influence your buying
behaviour? Do you want to make a change in management for the future? If yes, how would you do
this? For example, would you boycott a companys goods?

Word list
1. globalization
2. ongoing
3. combination
4. political
5. economic
6. technological
7. sociocultural
8. force
9. politician
10. hampering
11. prosperity
12. interdependence
13. accelerate
14. driving force
15. business
16. mass media
17. consumer
18. financing
19. capital
20. regulate
21. relationship
22. guarantee
23.rights
24. fibre optic communication
25. interconnectedness
26. interaction
Bibliography
http://www.businessdictionary.com/definition/globalization.html
http://en.wikipedia.org/wiki/Globalization
http://wiki.answers.com/Q/Factors_affecting_globalisation
http://www.oup.com/uk/orc/bin/9780199213993/hamilton&webster_ch01.pdf
http://en.wikipedia.org/wiki/Business

12

CHAPTER 2
ETHICS AND DEONTOLOGY IN COMPANIES
Deontology is a form of moral philosophy centered around the principles of eighteenth
century philosopher Immanuel Kant. Its name comes from the Greek words deon and logos,
meaning the study of duty. This school of ethics is based on the notion that people have the duty to
always obey moral rules, regardless of any positive outcomes that can come from breaking them.5
The basis of deontology is to assess a persons character by how well he or she follows
moral rules, even if by doing so, tragic results occur. It is in direct contrast to consequentialism, a
form of ethics that determines the morality of actions by the results they produce. Consequentialism
favors the Good over the Right, while deontology always advocates the Right over the Good.
The deontological model of ethics determines the correctness of a moral action by
determining if it follows moral norms. There is no subjectivity and a moral rule is always be obeyed
without any thought. For instance, Kant gave the example that it is wrong to lie even if it could save
a persons life.
Deontology is an ethical theory that the morality of an action should be based on whether that
action itself is right or wrong under a series of rules, rather than based on the consequences of the
action6.
In most businesses the model of corporate governance has changed from the shareholder to
stakeholder model. There have been implemented new laws and regulations such as the Federal
Sentencing Guidelines for Organizations (FSGO) and the Sarbanes-Oxley Act. Despite all these
efforts, there still remains a tension between business and ethics. The reason will become clear in
the light of consequentialism (utilitarianism) and non-consequentialism (deontology) debate in
classical ethical theory. One approach to business ethics is that morality is embedded in the success
of business. But some unethical behaviors are included in and some moral obligations are excluded
from the maximization of profits. The upshot is that in some cases there is a stark contrast between
the greatest good and the rights of all individuals. The pursuit of profits relatively easily escapes the
observance of the moral obligations and there must be some moral force to prevent business
practices from unethical behaviors.
Employees who exhibit a duty-based ethic usually justify their behaviors in terms of
honoring company policy or satisfying their customers. Although there are more than a dozen major

Stanford Encyclopedia of Philosophy: Deontological Ethics; Larry Alexander et. al.;

November 2007
6 "Morality and the Meaning of Life"; Joseph Ellin; 1995
13

ethical paradigms, the duty-based approaches emphasize the satisfaction of expectations as the
major contributor to their behavior: It's just what they have to do7.
1. Duty-Based Ethics
In general, a duty-based ethic -- called deontology by philosophers -- focuses on the act and
not its consequence. The morally binding nature of a deontological norm derives from the actor's
obligation to perform some act in some specified manner, sometimes voluntarily and sometimes
not. Duty-based approaches are heavy on obligation, in the sense that a person who follows this
ethical paradigm believes that the highest virtue comes from doing what you are supposed to do -either because you have to, e.g., following the law, or because you agreed to, e.g., following an
employer's policies. It matters little whether the act leads to good consequences; what matters is
"doing your duty."
2. Typical Employee Profile
Although no person perfectly locks into a single ethical profile, and every person is a unique
human and not a textbook case, it's possible nevertheless to derive some general statements about
how a deontologist functions in the workplace. An employee who very strongly adheres to a dutybased ethic usually presents as an "inside the box" thinker. He will do what his boss told him to do,
because he is required to honor his boss's directives. Even if the employee recognizes that the boss's
commands are irrational or counterproductive, he will still comply. He will also be conscientious
about details, usually following a procedure through to completion without taking shortcuts,
because that's what the company expects of him.
Example: Accounts Payable Clerk
Consider an accounts payable clerk. This person is responsible for reviewing invoices and
expense reports, ensuring that they conform to policy and then issuing prompt payment. If company
policy required original receipts to justify the items on the expense report, and the employee
submitted photocopies only, a clerk with a duty-based ethic may reject the report and require the
originals even though other clerks may simply process the report without question. The clerk acts in
this manner because he believes he has a duty to follow the full and literal policy that the employer
had imposed, irrespective of whether the need for originals instead of copies made any difference.
Example: Customer Service Manager
The manager of a retail store with a posted merchandise return policy may choose to honor
the policy or to make exceptions, depending on the circumstances of a particular return. Managers
with a strong duty-based ethic will typically hold closely to the literal text of the policy and make

Internet Encyclopedia of Philosophy: Ethics; James Fieser; June 2003

BBC: Ethics
14

fewer exceptions, because she views upholding her employer's policy as her job. Consequentialists that is, people who favor evaluating the outcome of an act rather than the act itself - may be more
willing to grant exceptions to keep customers happy.
3. The importance of ethics in bussines- a practical approach
In order to exemplify the importance of ethics we choose to illustrate the bussines policy
that Google promotes regarding its employees8.

Its no surprise that the employee benefits of Google are among the best in the landfree
haircuts, gourmet food, on-site doctors and high-tech cleansing toilets are among the most talkedaboutbut in a rare interview with Chief People Officer Laszlo Bock we found out that the latest
perk for Googlers extends into the afterlife.
This might sound ridiculous but weve announced death benefits at Google. We were
scheduled for a talk on Googles widening age-gap (the oldest Googler is currently 83); I wanted to
know how child- and healthcare benefits have evolved as the company has scaled.
Instead, Bock, who joined the company in 2006 after a stint with General Electric, blew me
away by disclosing a never-before-made-public-perk: Should a U.S. Googler pass away while
under the employ of the 14-year old search giant, their surviving spouse or domestic partner will
receive a check for 50% of their salary every year for the next decade. Even more surprising, a
Google spokesperson confirms that theres no tenure requirement for this benefit, meaning most
of their 34 thousand Google employees qualify.
One of the things we realized recently was that one of the harshest but most reliable facts
of life is that at some point most of us will be confronted with the death of our partners, Bock says.
And its a horrible, difficult time no matter what, and every time we went through this as a
company we tried to find ways to help the surviving spouse of the Googler whod passed away.
The case-by-case do-goodery was formally implemented in 2011. In addition to the 10-year pay
package, surviving spouses will see all stocks vested immediately and any children will receive a

www.wikipedia.org the benefits og googles employs

15

$1,000 monthly payment from the company until they reach the age of 19 (or 23 if the child is a
full-time student).
What makes the death benefit notable isnt just its generosityGoogle is, of course, far
from cash-strappedbut rather that, unlike most employee perks on Google campuses that aim to
increase happiness, creativity and productivity, providing death benefits is a no-win for the
company. Obviously theres no benefit to Google, Bock concedes. But its important to the
company to help our families through this horrific if inevitable life event.
Google has been anticipating the major life events of their employees since day one.
According to Bock, Sergey Brin got the ball rolling when the company had fewer than 100
employees, suggesting that the company could provide a nanny to each working mom or dad on
staff. The company does have on-site child care but has raised its monthly fees significantly in
recent years.
In maternity and paternity leave, however, Google benefits are at the head of the pack:
according to a company spokesperson, new dads enjoy six weeks of paid leave while moms can
take 18 weeks after the birth of a child. (Even better for the cash-strapped new parents: stocks will
continue to vest on your leave).
But the link between maternity benefits and retaining employees is clear. According to a
2008 report by the Bureau of Labor Statistics, more than 60 percent of men and women in the work
force have kids under the age of 6, so anticipating their needs can mean keeping new parents onboard and, most importantly, engaged.
Google People experts use three methods to tap into the needs of employees: an annual
survey called Googlegeist that measures the temperature of employees in every department and
analyzes data to identify emerging trends, employee resource groups (read: clubs) where likeminded employees share ideas that are funneled up to HR (Bock says the most active are the
Grayglers, the self-titled club for over-the-hill Googlers), and email aliases that run the gamut
from financial advice to childcare options to caf feedback.
Google gets a lot of press for its perks, Bock says, but hes loath to even use that word.
People say youre Google, of course you can offer these crazy things, but from where Bock sits,
its not even about the money. There is, of course, research that show employee benefit programs
like ours can improve retention, and appear to improve performance on some level, he says.
But it turns out that the reason were doing these things for employees is not because its important
to the business, but simply because its the right thing to do. When it comes down to it, its better to
work for a company who cares about you than a company who doesnt. And from a company
standpoint, that makes it better to care than not to care.

16

4. The importance of ethics in economics

The good life is not detached from social and economic behaviour, but embedded
in daily practices. These are often characterised, at least partially, by scarcity and its accompanying
contingencies for human life and well-being uncertainty,human fallibility, and power. From a
virtue ethics perspective, the idea of thegood in the economy can only be developed by studying
specic economic practices; it cannot be dened outside the context of time, location, agents, and
activity. As I have explained, virtue ethics is not a universal ethics but a contextual one, and so its
application to economics needs to be contextual too. Nevertheless, there are a few general
characteristics of virtue ethics that nd parallels in economic theory. The starting point is
MacIntyres (1987) useful conceptof practice, understood as an open system, subject to uncertainty,
scarcity, humanfallibility, and power. An economic practice may be dened as a set of continued
economic activities that create value added among related, committed agents. In the course of these
activities, sufcient external value is realised to sustain the practice over time. This understanding
of economic practices requires that agents are led by motivations and reasons that belong to the
particular practice and that cannot be made too instrumental for the pursuit of ends outside that
practice. Instrumental behaviour may undermine the basis of a practice, and so will erode the
meaning of this practice for its participants. This perspective leads to a characterisation of economic
agents as reective instead of calculative9 and as trustworthy instead of merely credible. In other
words, from a virtue ethics perspective, agent rationality needs to be meaningful and not
opportunistic10. This understanding of economic practices as concerned with meaningful interaction
between agents (that is, motivated and guided by shared values), enables the economist to provide a
fuller description, explanation, and to some extent also prediction, of economic behaviour than is
possible in utilitarian or deontological ethics. The economic theory that seems most compatible with
virtue ethics is the capability approach developed by Sen and others.Capability theory lends itself to
a characterisation of virtues, by considering them as ethical capabilities (van Staveren, 2001). Of
course, the idea of ethical capabilities is not new: Adam Smith recognised the importance of
virtuous character traits for the functioning of markets in his Theory of Moral Sentiments. One of
these he characterised as sympathy,about which he remarked that it is not motivated by selfinterest: Sympathy, however, cannot, in any sense, be regarded as a selsh principle11 . Ethical
capabilities may be understood as a moral guide for decision making, and as a moral intuition rather

see Davis, 2003, The Bourgeois Virtues: Ethics for an Age of Commerce, p. 114
see van Staveren, 2001, , The Values of Economics: An Aristotelian Perspective, pp. 149
152
11 Smith, 1984, The Theory of Moral Sentiments, p. 317
10

17

than as desire, calculation, or rules. Daniel Kahneman has shown how important the capability of
intuition.
Of course, older theories, such as institutional economics in the tradition of Veblen (1931),
also acknowledge intrinsic values; but these are often closer to deontology than to virtue ethics.
Beyond Utilitarianism and Deontology is in making economic choices in an uncertain context: The
central characteristic of agents is not that they reason poorly but that they often act intuitively. And
the behavior of these agents is not guided by what they are able to compute, but by what they
happen to see at a given moment12. This contextualised understanding of rationality not only
allows for partially contingent behaviour (depending on what one happens to see), but also enables
the economist to recognise behaviour patterns that are likely to have a moral basis in addition to a
social and cultural one. It is this combination of factors that guides agents and gives meaning to
their behaviour for themselves by expressing their identity, and for others by recognising
coherence in the social, cultural and moral patterns of the behaviour of others. This role of meaning
in economic practice enable an agent to be perceived as trustworthy by other agents, as someone to
engage in economic relationships within a context of uncertainty, fallibility, and power. Hence,
economic practices, like other social practices, entail checks and balances, and employ the trialanderror mechanism of nding a mean between deciency and excess, although power relations may
limit the adaptation process towards the mean. One suchsocial mechanism is the intrinsic
motivation of agents. It is intrinsic motivation, rather than extrinsic motivation (such as wages,
prots, or status) that drives agents to contribute to the value added of a practice, as Bruno Frey
(1997) has suggested. When extrinsic motivation becomes dominant, feelings of responsibility will
be reduced, as well as ones commitment and teamwork. When only prot counts, rm performance
may suffer from reduced productivity and less commitment to innovation and joint learning. When
intrinsic motivation is crowded out in an economic practice, whether it is a rm, a trading
relationship,or a public service, the practice itself will be undermined. Too much regard for
extrinsic reward will constrain the value added in the practice and eventually the practice itself.
Reputation is another social mechanism providing checks and balances in economic practices.
When some people reduce their commitment to a valued practice this may trigger resentment by
others and reduce the commitment of others to that practice. For example, excessive monetary
rewards for top-managers may frustrate workers who are denied wage increases with the argument
that a pay rise would reduce the rms competitiveness. Such a situation will likely reduce labour
productivity, increase labour turnover, and generate negative media coverage about the rms

12

Kahneman, 2003, Maps of bounded rationality: psychology for behavioral economics,

American Economic Review p. 1469
18

management. Trust is a third social mechanism that helps to keep the balance in an economic
practice. A joint commitment to the values in a practice creates trust among agents.This helps
reduce transaction costs, increase collective action, and strengthen mutual bonds.Trust replaces the
need for contracting and monitoring. Of course, transaction costs are not only reduced by trust, but
may be reduced, to some extent, by the exertion of power for example, through credible threats. In
some of the social capital literature it is generalised trust between weakly connected agents that is
likely to generate efciency gains. But such trust depends on a shared belief in the values
underlying the practice they are engaged in. Economic practices thus require a delicate balance
between excess and deciency. Too much focus on external rewards will undermine the basis of the
very practice itself, but too little concern with external value will drain outside resources and
threaten the continuity of the practice13. This is how virtue ethics help to create a balance in
economic practices, through the trial-and-error search for a virtuous mean that will let a practice
continue and the agents engaged in the practice ourish. Let me illustrate this balancing act with an
example from a recent study by Kees Cools (2005) on 25 cases of corporate fraud, including
WorldCom, Enron, and Ahold. The study could not nd any signicant differences in corporate
governance between the fraud rms and a control group. Apparently, no rules had been broken. The
study did reveal, however, signicant differences in leadership. The fraud CEOs had acquired icon
status, as corporate celebrities, which led, as in a Greek tragedy, to hubris (pride) and unrealistically
high targets, driven by the CEOs desire to sustain their icon status through stock market success.
The fraud rms had on average 18% yearly growth targets, compared to 7% for the non-fraud rms
in the same sector. But the hubris undermined the moral practices in the fraud rms, resulting in an
average loss of value of 29% on the day the frauds became public. Interestingly, the study also
found that the stock market had sensed the destructivestrategy of excessive external value xation
well before the fraud was discovered. An average of 40% of the market value of the rms had
already been lost in the year prior to the detection of the fraud. Thus, even though stock markets do
not meet MacIntyres criterion of a moral practice, they seem quite effective as a check against vice.
Virtue ethics understands morality as arising in economic practices through endogenous
mechanisms that make morality an integral part of agent motivations,reasons, and ends. This does
not require an authority to enforce moral rules that tell people what to do. Instead, morality as virtue
relies upon the internal social mechanisms embedded in economic practices, such as reputation,
responsibility and trust.

13see

McCloskey, 2006, The Bourgeois Virtues: Ethics for an Age of Commerce, for a study
along this line on the virtue of prudence versus other virtues in the economy
19

HOMEWORK

Definition of DEONTOLOGY : the theory or study of moral obligation

Business ethics are moral principles that guide the way a business behaves. The same
principles that determine an individuals actions also apply to business
Read more on : http://businesscasestudies.co.uk/anglo-american/business-ethics-andcorporate-social-responsibility/what-are-business-ethics.
Write an essay on Corporate governance-good practices
References and Resources

1. Stanford Encyclopedia of Philosophy: Deontological Ethics; Larry Alexander; November

2007
2. Internet Encyclopedia of Philosophy: Ethics; James Fieser; June 2003
BBC: Ethics
3. "Morality and the Meaning of Life"; Joseph Ellin; 1995
4. Davis, 2003, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago: University
of Chicago Press)
5. Van Staveren, 2001, The Values of Economics: An Aristotelian Perspective (London:
Routledge
6. Smith,Adam 1984, The Theory of Moral Sentiments (Indianapolis: Liberty Fund).
7. Kahneman,D. 2003, Maps of bounded rationality: psychology for behavioral economics,
American Economic Review
8. McCloskey, D. 2006, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago:
University
of Chicago Press).
9. www.wikipedia.org

20

CHAPTER 3
MANAGERIAL ACCOUNTING AND CONTROLLING
The American Accounting Association defined accounting in 1966 as the process of
identifying, measuring and communicating economic information to permit informed judgments
and decisions by users of the information.
On one hand, the management control is the process through which managers use their
power to influence other members of the organization to implement strategies, to realize goals and
objectives and, on the other hand, it integrates facts on long, medium and short terms, having well
determined implications in human factors, objectives and assignments. This is an important
definition because: it recognizes that accounting is a process: that process is concerned with
capturing business events, recording their financial effect, summarizing and reporting the result of
those effects, and interpreting those results; it is concerned with economic information: while this is
predominantly financial, it also allows for non-financial information; its purpose is to support
informed judgments and decisions: this emphasizes the decision usefulness of accounting
information and the broad spectrum of users of that information.
Management accounting is now implicated with: value-based management, non-financial
performance measurement systems, quality management approaches, activity-based costing and
management and strategic management accounting in order to help managers to increase the value.
The Institute of Management Accountants has recently updated its definition as follows:
"management accounting is a profession that involves partnering in management decision making,
devising planning and performance management systems, and providing expertise in financial
reporting and control to assist management in the formulation and implementation of an
organization's strategy"14. The Institute of Certified Management Accountants, states "A
management accountant applies his or her professional knowledge and skill in the preparation and
presentation of financial and other decision oriented information in such a way as to assist
management in the formulation of policies and in the planning and control of the operation of the
undertaking15".

14

"Definition of Management Accounting". Institute of Management Accountant. 2008.

Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches,
Techniques, and Management Processess". Cost Management (New York: Thomas Reuters
RIA Group) (May/Jun).
15

21

Management accountants therefore are seen as the "value-creators" amongst the

accountants. They are much more interested in forward looking and taking decisions that will affect
the future of the organization, than in the historical recording and compliance (score keeping)
aspects of the profession. Management accounting knowledge and experience can therefore be
obtained from varied fields and functions within an organization, such as information management,
treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc.
The meaning: Management accounting also known as management control is one of the
classical and most fundamental aspects of business administration. Also the management
accounting and controlling refers to that methods of controlling costs to make the business more
efficient and therefore increasing its profits. Management accounting combines accounting, finance
and management with the leading edge techniques needed to drive successful businesses.
Chartered management accountants:
x

Advise managers about the financial implications of projects.

Explain the financial consequences of business decisions.

Formulate business strategy.

Monitor spending and financial control.

Conduct internal business audits.

Explain the impact of the competitive landscape.

Bring a high level of professionalism and integrity to business.

The management accounting skills set:
Management accounting and controlling requires the followings skills:

Analysis they analyse information and using it to make business decisions.

Strategy they formulate business strategy to create wealth and shareholder value.

Risk they identify and manage risk.

Planning they apply accounting techniques to plan and budget.

Communication they determine what information management needs and explain the
numbers to non-financial managers.16

16Management

22

Accounting and Control Systems. John Wiley.2010

Planning Purpose: Managerial accountants plan future activities for the company in order
to maximize the financial benefits received and minimize financial consequences. Financial benefits
include revenues and gains on fixed asset sales. Financial consequences include expenses, capital
expenditures and income tax liability. Financing activities require interest payments from the
company. Managerial accountants work with management to minimize interest requirements.
Also the purpose of management control processes is to carry out the strategies arrived at in
the strategic planning process and thereby to attain the organizations goals. In that sense,
management control is a mechanism that enables managers to make informed decisions. The aim of
this activity is to build an understanding of this central role of management accounting and control
systems within the organizational context.
Controlling Purpose: Management accountants control department activities in order to
evaluate the performance of each area. This allows management to determine if the actual activities
tie in with the planned activities for each department or each capital expenditure. If management
accounting information systems are to be useful for strategic purposes, that is, to help managers
increase the likelihood that they can achieve their strategic goals and objectives, their designs and
use must follow from firms' missions and competitive strategies.
Management Accounting and controlling is the mechanism which can be used by managers as a
vehicle for the overview of the whole internal structure of the organization to facilitate their control
functions within an organization.
Role within a corporation: Consistent with other roles in today's corporation, management
accountants have a dual reporting relationship. As a strategic partner and provider of decision based
financial and operational information, management accountants are responsible for managing the
business team and at the same time having to report relationships and responsibilities to the
corporation's finance organization.17 The activities management accountants provide inclusive of
forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in
the business are ones that have dual accountability to both finance and the business team. Examples
of tasks where accountability may be more meaningful to the business management team vs. the
corporate finance department are the development of new product costing, business driver metrics,
sales management score carding, and client profitability analysis. Conversely, the preparation of
certain financial reports, reconciliations of the financial data to source systems, risk and regulatory

17

Taking Control of IT Costs". Nokes, Sebastian. London (Financial Times / Prentice Hall):
March 20, 2000,p 253
23

reporting will be more useful to the corporate finance team as they are charged with aggregating
certain financial information from all segments of the corporation.
In corporations that derive much of their profits from the information economy, such as
banks, publishing houses, telecommunications companies and defense contractors, IT costs are a
significant source of uncontrollable spending, which in size is often the greatest corporate cost after
total compensation costs and property related costs. A function of management accounting in such
organizations is to work closely with the IT department.18
Given the above, one widely held view of the progression of the accounting and finance
career path is that financial accounting is a stepping stone to management accounting. Consistent
with the notion of value creation, management accountants help drive the success of the business
while strict financial accounting is more of a compliance and historical endeavor.
The role of management accounting systems is also highlighted in the case of mergers and
acquisitions, which are a typical way of extending operations to foreign countries.
The Management Control acts through the following phases in sequence:
1) planning, where for any companys unit a set of objectives must be defined, that is of
specific expected results, which need to be: understandable, agreed, measurable in extent
and time, reachable, consistent with one another and with the available resources,
2) programming, where a program is drawn up in order to get the planned objectives, taking
into account the internal and external restraints to the company,
3) result checking, where it is measured whether each companys unit has achieved or not the
assigned objectives,
4) shifting analysis, where the possible shifting between objectives and results is analyzed and
5) corrective action implementation, in order to optimize the units behavior against the
planned objectives.
The distinction between traditional and innovative accounting practices is perhaps best
illustrated with the visual timeline (see sidebar) of managerial costing approaches presented at the
Institute of Management Accountants 2011 Annual Conference.

18

Taking Control of IT Costs". Nokes, Sebastian. London (Financial Times / Prentice Hall):
March 20, 2000,p 210
24

Traditional standard costing , used in cost accounting dates back to the 1920s and is a
central method in management accounting practiced today because it is used for financial statement
reporting for the valuation of income statement and balance sheet line items such as cost of goods
sold and inventory valuation. Traditional standard costing must comply with generally accepted
accounting principles and actually aligns itself more with answering financial accounting
requirements rather than providing solutions for management accountants. Traditional approaches
limit themselves by defining cost behavior only in terms of production or sales volume.
In the late 1980s, accounting practitioners and educators were heavily criticized on the
grounds that management accounting practices (and, even more so, the curriculum taught to
accounting students) had changed little over the preceding 60 years, despite radical changes in the
business environment. In 1993, the Accounting Education Change Commission Statement
Number19 4 calls for faculty members to come down from their ivory towers and expand their
knowledge about the actual practice of accounting in the workplace.6 Professional accounting
institutes, perhaps fearing that management accountants would increasingly be seen as superfluous
in business organizations, subsequently devoted considerable resources to the development of a
more innovative skills set for management accountants.
Traditional vs. innovative practices

19

Clinton, B.D.; Matuszewski, L.; Tidrick, D. (2011). "Escaping Professional Dominance?".

Cost Management (New York: Thomas Reuters RIA Group) (Sep/Oct).
25

Variance analysis is a systematic approach to the comparison of the actual and budgeted
costs of the raw materials and labor used during a production period. While some form of variance
analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with
innovative techniques such as life cycle cost analysis and activity-based costing, which are designed
with specific aspects of the modern business environment in mind. life-cycle costing recognizes that
managers' ability to influence the cost of manufacturing a product is at its greatest when the product
is still at the design stage of its product life-cycle (i.e., before the design has been finalized and
production commenced), since small changes to the product design may lead to significant savings
in the cost of manufacturing the products.
Activity-based costing (ABC) recognizes that, in modern factories, most manufacturing
costs are determined by the amount of 'activities' (e.g., the number of production runs per month,
and the amount of production equipment idle time) and that the key to effective cost control is
therefore optimizing the efficiency of these activities. Both lifecycle costing and activity-based
costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as
machine breakdowns and quality control failures) is of far greater importance than (for example)
reducing the costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost
driver and concentrates instead on activities that drive costs .Other approach that can be viewed as
innovative to the U.S. is the German approach (GPK). Although it has been in practice in Europe
for more than 50 years, neither GPK nor the proper treatment of 'unused capacity' is widely
practiced in the U.S. Thus GPK and the concept of unused capacity is slowly becoming more
recognized in America, and "could easily be considered 'advanced' by U.S. standards".20One of the
more innovative accounting practices available today is resource consumption accounting (RCA).
Resource consumption accounting has been recognized by the International Federation of
Accountants as a "sophisticated approach at the upper levels of the continuum of costing
techniques" because it provides the ability to derive costs directly from operational resource data or
to isolate and measure unused capacity costs. Resource consumption accounting was derived by
taking the best costing characteristics of the German management accounting approach GPK, and
combining the use of activity-based drivers when needed, such as those used in activity-based
costing. With the resource consumption accounting approach, resources and their costs are
considered as "foundational to robust cost modeling and managerial decision support, because an

20

Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches,
Techniques, and Management Processess". Cost Management (New York: Thomas Reuters
RIA Group) (May/Jun).
26

organization's costs and revenues are all a function of the resources and the individual capacities
that produce them.
Conclusion:
Management control is a core business function and exists as a separate, well established
discipline within the management field. The extension of this discipline to business ethics and its
partial merging with legal risk management has been one of the more important developments in
international business of the last two decades.
Management accounting and controlling is one of the most important activity in a company.
This kind of activity requires expertise in financial reporting, important knowledge, also involves
partnership in management decision making, devising planning and performance management
systems.
Management accounting and controlling helps managers to find out if in their company,
their employees are confident,

if they commit or not offences, illegal acts connected to

management accounting .

Bibliography:

x Management Accounting and Control Systems. John Wiley & Sons, 21.09.2010
x Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches,
Techniques, and Management Processes".
x "Definition of Management Accounting". Institute of Management Accountant. 2008.
x Sharman, Paul A. (2003. "Bring On German Cost Accounting".

27

CHAPTER 4
BUREAUCRACY AND RED TAPE
A bureaucracy is a group of specifically non-elected officials within a government or other
institution that implements the rules, laws, ideas, and functions of their institution2122.In other
words, a government administrative unit that carries out the decisions of the legislature or
democratically-elected representation of a state23.
Bureaucracy may also be defined as a form of government: "government by many bureaus,
administrators, and petty officials24. A government is defined as: "the political direction and control
exercised over the actions of the members, citizens, or inhabitants of communities, societies, and
states; direction of the affairs of a state, community, etc25."
On the other hand democracy is defined as: "government by the people; a form of
government in which the supreme power is vested in the people and exercised directly by them or
by their elected agents under a free electoral system26", thus not by non-elected bureaucrats. Term
"bureaucracy" was created from words: fr. bureau desk or office and gr. kratos rule or
political power.
Development
Bureaucracies date back to ancient societies across the globe. Yet Weber was the one who
tried to give a definition of bureaucracy and that led to the Weberian bureaucracy.
Weberian bureaucracy has its origin in the works by Max Weber (1864-1920), a notable
German sociologist, political economist, and administrative scholar who contributed to the study of
bureaucracy and administrative discourses and literatures during the late 1800s and early 1900s.
Max Weber belongs to the Scientific School of Thought, who discussed such topics as
specialization of job-scope, merit system, uniform principles, structure and hierarchy. His
contemporaries include Frederick Taylor (1856-1915), Henri Fayol (1841-1925), Elton Mayo
(1880-1949), and later scholars, such as Herbert A. Simon (1916-2001), Dwight Waldo (19132000), and others27.

21

Wilson, Woodrow (1887). "The Study of Administration". Political Science Quarterly 2

(2): 197222.
22 Bureaucracy @ Merriam-Webster.com - http://www.merriam-webster.com/dictionary
/bureaucracy
23 Democracy versus bureaucracy by Richard W. Rahn, The Washington Times, December
5, 2011
24 Bureaucracy @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy
25 Government @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy
26 Democracy @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy
27 Jeong Chun Hai @Ibrahim. (2007). Fundamental of Development Administration.
Selangor: Scholar Press.
28

Bureaucratic administration means fundamentally domination through knowledge

Max Weber
Weber described many ideal types of public administration and government in his magnum
opus Economy and Society (1922). His critical study of the bureaucratisation of society became one
of the most enduring parts of his work2829. It was Weber who began the studies of bureaucracy and
whose works led to the popularization of this term30. Many aspects of modern public administration
go back to him, and a classic, hierarchically organized civil service of the Continental type is called
"Weberian civil service"31. As the most efficient and rational way of organizing, bureaucratization
for Weber was the key part of the rational-legal authority, and furthermore, he saw it as the key
process in the ongoing rationalization of the Western society.
Weber listed several precondititions for the emergence of bureaucracy32. The growth in space and
population being administered, the growth in complexity of the administrative tasks being carried
out, and the existence of a monetary economy requires a more efficient administrative system.
Development of communication and transportation technologies makes more efficient
administration possible but also in popular demand, and democratization and rationalization of
culture resulted in demands that the new system treats everybody equally.
Weber's ideal bureaucracy is characterized by hierarchical organization, delineated lines of
authority in a fixed area of activity, action taken on the basis of and recorded in written rules,
bureaucratic officials need expert training, rules are implemented by neutral officials, career
advancement depends on technical qualifications judged by organization, not individuals.
The decisive reason for the advance of bureaucratic organization has always been its
purely technical superiority over any other form of organization
Max Weber
While recognizing bureaucracy as the most efficient form of organization, and even
indispensable for the modern state, Weber also saw it as a threat to individual freedoms, and the
ongoing bureaucratization as leading to a "polar night of icy darkness", in which increasing
rationalization of human life traps individuals in the aforementioned "iron cage" of bureaucratic,
rule-based, rational control33. In order to counteract bureaucrats, the system needs entrepreneurs and
politicians.
In Max Weber's "Economy and Society", Weber describes six bureaucratic values that are
vital in obtaining a functioning and self-sufficient business. These six characteristics include
28

Richard Swedberg; Ola Agevall (2005). The Max Weber dictionary: key words and central
concepts
29 George Ritzer (29 September 2009). Contemporary Sociological Theory and Its Classical
Roots: The Basics
30 Marshall Sashkin; Molly G. Sashkin (28 January 2003). Leadership that matters: the
critical factors for making a difference in people's lives and organizations' success
31 Liesbet Hooghe (2001). The European Commission and the integration of Europe:
images of governance
32 Kenneth Allan; Kenneth D. Allan (2 November 2005). Explorations in Classical
Sociological Theory: Seeing the Social Worl
33 Enchanting a Disenchanted World: Revolutionizing the Means of Consumption, Pine
Forge Press, 2004,
29

imperial positions, rule-governed decision making, professionalism, chain of command, defined

responsibilities, and bounded authority (Weber 956-958). Although many of these values seem to
collide and be seemingly similar to each other, they are unique with individualized qualities.
Imperial positions should be utilized for three main purposes. The first is every day
activities must be maintained by official positions (Weber 956). These positions are needed for a
successful bureaucratic business. The second purpose is for those who hold these positions to
disseminate orders in a specific and stable manner (Weber 956). Finally, the third purpose is for
methodical provision, which is used for the constant fulfillment of these specified duties (Weber
956). The imperial positions are on the top of the communication hierarchy and determine the
methods as to which the information is shared throughout the organization.34
Furthermore, professionalism is another important aspect of a successful bureaucratic
business that Weber goes on to describe. A sense of professionalism in the workplace creates a
distinguished atmosphere creating the opportunity for workers to achieve their utmost potential
(Weber 957). This feeling yields a drive in the workplace because the workers want to perform well
for those in command thus creating a positive overall attitude in the workplace.
Yet another Weberian value is chain of command. Everyone in the organization must
know whose directives they should follow. The hierarchy of power is exemplified through salaries
(Weber 958-965). Those that have higher salaries in turn have more power in the decision-making
process. Those in power make decisions and relay these decisions to an associate who will then tell
a manager, who will then tell his employees, and so on. The chain of command is extremely
important to a bureaucratic business because it sets up a specific ladder that allows for information
and important decisions to be relayed swiftly and efficiently.
When employees are asked to give examples of things they think of as being bureaucratic,
they frequently cite the following35:
Each department has its own agenda, and departments dont cooperate to help other
departments get the job done.
The head of a department feels responsible first for protecting the department, its people
and its budget, even before helping to achieve the organizations mission.
There is political in-fighting, with executives striving for personal advancement and
power.
Ideas can be killed because they come from the "wrong" person. Ideas will be supported
because they are advanced by the "right" person.
People in other departments spend so much time protecting their "turf" that they dont have
time to do the work they are responsible to do.

34

Richard Swedberg; Ola Agevall (2005). The Max Weber dictionary: key words and
central concepts
35 http://www.bustingbureaucracy.com/excerpts/effects.html
30

 They are treated as though they cant be trusted.

They are treated as though they dont have good judgment.
They are treated as though they wont work hard unless pushed.
Their work environment includes large amounts of unhealthy stress.
Promotions are more likely to be made on the basis of politics, rather than actual
achievements on the job.
Top managers are dangerously ill-informed and insulated from what is happening on the
front lines or in "the field.36"
Information is hoarded or kept secret and used as the basis for power.
Data is used selectively, or distorted to make performance look better than it really is.
Mistakes and failures are denied, covered up or ignored.
Responsibility for mistakes and failure tends to be denied, and where possible, blame is
shifted to others.
Policies, practices and procedures tend to grow endlessly and to be followed more and
more rigidly37.
Quantitative measurements are favored over qualitative measurements, so the
concentration is on quantities of output, with less and less concern for quality of output.
Both employees and customers are treated more as numbers than people. Personal issues
and human needs are ignored or discounted.
In Karl Marx's theory of historical materialism, the historical origin of bureaucracy is to be
found in four sources38: religion, the formation of the state, commerce, and technology.
According to Marx's analysis, the earliest bureaucracies consisted of castes of religious clergy,
officials, and scribes operating various rituals, and armed functionaries specifically delegated to
keep order. In the historical transition from primitive egalitarian communities to a civil society39
divided into social classes and estates, occurring from about 10,000 years ago, authority is
increasingly centralized in, and enforced by, a state apparatus existing separately from society. This

36

http://www.bustingbureaucracy.com/excerpts/effects.html
Liesbet Hooghe (2001). The European Commission and the integration of Europe:
images of governance
38 Draper, Hal. 1979. State and Bureaucracy. Vol. 1 of Karl Marx's Theory of Revolution New
York: Monthly Review Press.
39 Watson, Tony J. 1980. Sociology, Work and Industry. Routledge
37

31

state formulates, imposes and enforces laws, and levies taxes, giving rise to an officialdom enacting
these functions. But the growth of trade and commerce adds a new, distinctive dimension to
bureaucracy, insofar as it requires the keeping of accounts and the processing/recording of
transactions, as well as the enforcement of legal rules governing trade. A fourth source of
bureaucracy inheres in the technologies of mass production, which require many standardized
routines and procedures to be performed. This type of bureaucracy is nowadays often called a
technocracy, which owes its power to control over specialized technical knowledge.
In Marx's theory, bureaucracy rarely creates new wealth by itself, but rather controls,
coordinates, and governs the production, distribution, and consumption of wealth. The bureaucracy
as a social stratum derives its income from the appropriation of part of the social surplus product of
human labor. Wealth is appropriated by the bureaucracy by law through fees, taxes, levies, tributes,
licensing etc. Bureaucracy is therefore always a "cost" to society, but this cost may be accepted
insofar as it makes social order possible, and maintains it.
Advantages
Bureaucracies emerged as society moved into its most developed form, the state. As such, it
provides the possibility for government to function effectively and efficiently, leading the larger and
larger societies, with increasingly complex and diverse ways of life for its citizens. Beyond
government, numerous other social organizations, both in the public and private sectors have
developed bureaucratic forms of leadership, which have succeeded in advancing the goals of their
organizations.
Some specific advantages of bureaucracies include:
x
x
x
x

Standardization40 of procedures creates the ability to easily pass knowledge to future

workers as well as facilitating better communication among colleagues.
Division of labor creates economies of scale within organizations, enhancing productivity.
Formal hierarchy can also increase efficiency, as there is a clear chain of command
eliminating the potential for some conflicts.
Impersonal relationships also lead to easier dismissal of workers, which contributes to
greater efficiency41.

Despite many actual and potential drawbacks, bureaucracy is the most ubiquitous form of
dividing labor among members of an organization, town, state, or nation. It is indeed the hallmark
of modern society throughout the world. While bureaucracies may not always function in the ideal
form that Weber described, when the people working within the structure live for the sake of others
rather than for self-centered pursuits the bureaucratic system offers the most efficient method of
maintaining a social institution.

40

Weber, Max. [1947] 1997. The Theory of Social and Economic Organization. Free Press.
Albrow, Martin. 1970. Bureaucracy. London: Pall Mall Press. Originally published in de
Grimm, Baron, and Diderot. 1813. Correspondance littraire, philosophique et critique,
1753-69. 4: 146, 508.
41

32

Even a non-degenerated bureaucracy can be affected by common problems:

x
x
x
x
x

Overspecialization, making individual officials not aware of larger consequences of their

actions;
Rigidity and inertia of procedures, making decision-making slow or even impossible when
facing an unusual case, and similarly delaying change, evolution, and adaptation of old
procedures to new circumstances;
The phenomenon of "group thinking": zealotry, loyalty, and lack of critical thinking
regarding the organization which is viewed as "perfect" and "always correct" by definition,
making it unable to change and realize its own mistakes and limitations;
Disregard for dissenting opinions, even when such views suit the available data better than
the opinion of the majority;
The Catch-22 phenomenon (named after the novel by Joseph Heller): as bureaucracy creates
more and more rules and procedures, their complexity raises and coordination diminishes,
facilitating the creation of contradictory rules.
Red tape

Red tape is excessive regulation or rigid conformity to formal rules that is considered
redundant or bureaucratic and hinders or prevents action or decision-making. It is usually applied to
governments, corporations and other large organizations.
One definition is the "collection or sequence of forms and procedures required to gain
bureaucratic approval for something, especially when oppressively complex and timeconsuming"42. Another definition is the "bureaucratic practice of hair splitting or foot dragging,
blamed by its practitioners on the system that forces them to follow prescribed procedures to the
letter"43.
Red tape generally includes filling out paperwork, obtaining licenses, having multiple
people or committees approve a decision and various low-level rules that make conducting one's
affairs slower, more difficult, or both. Red tape can also include "filing and certification
requirements, reporting, investigation, inspection and enforcement practices, and procedures44".
The origin of the term is somewhat obscure, but it is first noted in historical records in the
16th century, when Henry VIII besieged Pope Clement VII with around eighty or so petitions for
the annulment of his marriage to Catherine of Aragon. A photo of the petitions from Cardinal
Wolsey and others, now stored in the Vatican archives, can be seen on page 160 of "Saints and
Sinners, a history of The Popes", by Eamon Duffy (published by Yale University Press in 1997).
The documents can be viewed rolled and stacked in their original condition, each one sealed and
bound with the obligatory red tape, as was the custom.

42

red tape: Definition from". Answers.com. Retrieved 2012-10-09.

What is red tape? definition and meaning". Businessdictionary.com. Retrieved 2012-1009.
44Red Tape Reduction Initiative | Business". Gov.nl.ca. Retrieved 2012-10-09.
43

33

It appears likely that it was the Spanish administration of Charles V in the early 16th
century, who started to use the red tape in an effort to modernise the administration that was
running his vast empire. The red tape was used to bind the important administrative dossiers that
had to be discussed by the Council of State, and separate them from the issues that were treated in
an ordinary administrative way, which were bound by an ordinary rope. Most of the red tapes
arriving to the Council of State were manufactured in the city of 's-Hertogenbosch in the
Netherlands, because most of the important dossiers came from the Low Countries and Germany.
The Spanish name for red tape "balduque" took the name from the Spanish translation of the city of
's-Hertogenbosch which is "Bolduque".
Although they were not governing such a vast territory as Charles V, this practice of using
red tape to separate the important dossiers that had to be discussed, was quickly copied by the other
modern European monarchs to speed up their administrative machines.
In this age of civil servants using computers and information technology, a legacy from the
administration of the Spanish Empire can still be observed where some parts of the higher levels of
the Spanish administration continue the tradition of using red tape to bind important dossiers that
need to be discussed and to keep them bound in red tape when the dossier is closed. This is, for
example, the case for the Spanish Council of State, the supreme consultative council of the Spanish
Government. In contrast, the lower Spanish courts use ordinary ropes to bundle documents as their
cases are not supposed to be heard at higher levels. The Spanish Government plans to phase out the
use of paper and abandon the practice of using ordinary ropes.
The tradition continued through to the 17th and 18th century. Although Charles Dickens
is believed to have used the phrase before Thomas Carlyle45, the English practice of binding
documents and official papers with red tape was popularized in Carlyle's writings, protesting
against official inertia with expressions like "Little other than a red tape Talking-machine, and
unhappy Bag of Parliamentary Eloquence". To this day, most defense barristers' briefs, and those
from private clients, are tied in a pink-colored ribbon known as "pink tape" or "legal tape".
Government briefs, including those of the prosecution counsel, are usually bound with white tape,
introduced as an economy measure to save the expense of dyeing the tape red. Traditionally, official
Vatican documents were also bound in red cloth tape.
All American Civil War veterans' records were bound in red tape, and the difficulty in
accessing them led to the modern American use of the term, but there is evidence (as detailed
above) that the term46 was in use in its modern sense sometime before this.
Red tape reduction
The "cutting of red tape" is a popular electoral and policy promise.[citation needed] In the
United States, a number of committees have discussed and debated Red Tape Reduction Acts.

45
46

34

p.1152, Brewer's Dictionary of Phrase & Fable, 17th Edition; Revised by J Ayto, 2005
Red Tape, North and South, in the Civil War". Civilwarhome.com. Retrieved 2012-10-09.

The European Commission has a competition that offers an award for the "Best Idea for
Red Tape Reduction". The competition is "aimed at identifying innovative suggestions for reducing
unnecessary bureaucracy stemming from European law47".In 2008, the European Commission held
a conference entitled 'Cutting Red Tape for Europe'. The goal of the conference was "reducing red
tape and overbearing bureaucracy" to help "business people and entrepreneurs improve
competitiveness".48
READING COMPREHENSION
Excessive bureaucracy or red tape as it is often referred to is a derisive term for
excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic
and hinders or prevents action or decision-making (Anti-Corruption Business Portal, Corruption
Vocabulary). As a result, red tape imposes a disproportionate bureaucratic burden on firms and
citizens. It can manifest itself through excessive or overly rigid administrative procedures,
requirements for unnecessary licences, protracted decision-making processes involving multiple
people or committees and a myriad of specific rules that slow down business operations. There is a
broad consensus that unnecessary and excessive administrative requirements for complying with
regulations create both incentives and opportunities for bribery and corruption.
Countries across the world have implemented reforms aimed at reducing bureaucracy. While
in some countries such reforms are part of broader anti-corruption strategies, in others it primarily
aims to improve service delivery or to increase competitiveness. There are a wide range of tools
used by countries to reduce red tape, such as the establishment of one-stop shops, the use of datasharing and standardisation, and reforms aimed at simplifying administrative procedures and cutting
bureaucratic burden. ICTs and E-government have also been used to improve administrative
regulations, and most importantly, to improve transparency and accountability. This answer
analyses the case of Portugal, where extensive and ambitious reforms aimed at reducing
bureaucracy have been implemented, and the case of Georgia, which is often referred to as a best
practice example in reducing red tape and curbing bureaucratic corruption.
x Write a summary of this excerpt and and add your own ideas.

HOMEWORK

Motto: We must cut through the red tape

x
x
x

Start from the definition of red tape given by the Cambridge dictionary and enlarge on the
idea of how it reflects in Public administration.
Which difficulties encounter the entrepreneurs when they decide to set up their own
business?
What alternatives would you offer if you had authority?

47

"Red Tape Reduction Initiative | Business". Gov.nl.ca. Retrieved 2012-10-09.

de beste bron van informatie over cuttingredtape. Deze website is te koop!".
cuttingredtape.eu.
48

35

RED TAPE=official rules and processes that seem unnecessary and delay
results.
(Definition of red tape from the Cambridge Advanced Learners Dictionary & Thesaurus
Cambridge University Press)

Bibliography:
1. Democracy versus bureaucracy by Richard W. Rahn, The Washington Times, December 5,
2011
2. Jeong Chun Hai @Ibrahim. (2007). Fundamental of Development Administration. Selangor:
Scholar Press
3. George Ritzer (29 September 2009). Contemporary Sociological Theory and Its Classical
Roots: The Basics. McGraw-Hill. pp. 3842.
4. Marshall Sashkin; Molly G. Sashkin (28 January 2003). Leadership that matters: the critical
factors for making a difference in people's lives and organizations' success. Berrett-Koehler
Publishers. p. 52.
5. George Ritzer, Enchanting a Disenchanted World: Revolutionizing the Means of
Consumption, Pine Forge Press, 2004
6. http://en.wikipedia.org/wiki/Bureaucracy
7. Karl Marx: Hal Draper, Karl Marx's Theory of Revolution, Volume 1: State and
Bureaucracy. New York: Monthly Review Press, 1979.
8. Barry Bozeman (2000) Bureaucracy and Red Tape Prentice-Hall Publishing
9. OECD (2006) 'Cutting red tape; national strategies for administrative simplification' OECD
Editions, Paris.

36

CHAPTER 5
ORGANIZATIONAL CULTURE
Organizational culture is the collective behavior of humans who are part of an
organization and the meanings that the people attach to their actions. Culture includes the
organization values, visions, norms, working language, systems, symbols, beliefs and habits. It is
also the pattern of such collective behaviors and assumptions that are taught to new organizational
members as a way of perceiving, and even thinking and feeling. Organizational culture affects the
way people and groups interact with each other, with clients, and with stakeholders
Organizational culture refers to culture in any type of organization be it school, university,
not-for-profit groups, government agencies or business entities. In business, terms such
as corporate culture and company culture are sometimes used to refer to a similar concept.
Although the idea that the term became known in businesses in the late 80s and early 90s is
widespread, in fact corporate culture was already used by managers and addressed in sociology,
cultural studies and organizational theory in the beginning of the 80s.
The idea about the culture and overall environment and characteristics of organization, in fact, was
first and similarly approached with the notion of organizational climate in the 60s and 70s, and the
terms now are somewhat overlapping.
According to Schein (1992), culture is the most difficult organizational attribute to change,
outlasting organizational products, services, founders and leadership and all other physical
attributes of the organization. His organizational model illuminates culture from the standpoint of
the observer, described by three cognitive levels of organizational culture.
At the first and most cursory level of Schein's model is organizational attributes that can be
seen, felt and heard by the uninitiated observer - collectively known as artifacts. Included are the
facilities, offices, furnishings, visible awards and recognition, the way that its members dress, how
each person visibly interacts with each other and with organizational outsiders, and even
company slogans, mission statements and other operational creeds.
Artifacts comprise the physical components of the organization that relay cultural meaning. Daniel
Denison (1990) describes artifacts as the tangible aspects of culture shared by members of an
organization. Verbal, behavioral and physical artifacts are the surface manifestations of
organizational culture.
Rituals, the collective interpersonal behavior and values as demonstrated by that behavior,
constitute the fabric of an organization's culture The contents of myths, stories, and sagas reveal the
history of an organization and influence how people understand what their organization values and
believes. Language, stories, and myths are examples of verbal artifacts and are represented in rituals
and ceremonies. Technology and art exhibited by members or an organization are examples of
physical artifacts.
The next level deals with the professed culture of an organization's members - the values.
Shared values are individuals preferences regarding certain aspects of the organizations culture
(e.g. loyalty, customer service). At this level, local and personal values are widely expressed within
the organization. Basic beliefs and assumptions include individuals' impressions about the
trustworthiness and supportiveness of an organization, and are often deeply ingrained within the
organizations culture. Organizational behavior at this level usually can be studied by interviewing
37

the organization's membership and using questionnaires to gather attitudes about organizational
membership.
At the third and deepest level, the organization's tacit assumptions are found. These are the
elements of culture that are unseen and not cognitively identified in everyday interactions between
organizational members. Additionally, these are the elements of culture which are often taboo to
discuss inside the organization. Many of these 'unspoken rules' exist without the conscious
knowledge of the membership. Those with sufficient experience to understand this deepest level of
organizational culture usually become acclimatized to its attributes over time, thus reinforcing the
invisibility of their existence. Surveys and casual interviews with organizational members cannot
draw out these attributesrather much more in-depth means is required to first identify then
understand organizational culture at this level. Notably, culture at this level is the underlying and
driving element often missed by organizational behaviorists.
Using Schein's model, understanding paradoxical organizational behaviors becomes more
apparent. For instance, an organization can profess highly aesthetic and moral standards at the
second level of Schein's model while simultaneously displaying curiously opposing behavior at the
third and deepest level of culture. Superficially, organizational rewards can imply one
organizational norm but at the deepest level imply something completely different. This insight
offers an understanding of the difficulty that organizational newcomers have in assimilating
organizational culture and why it takes time to become acclimatized. It also explains why
organizational change agents usually fail to achieve their goals: underlying tacit cultural norms are
generally not understood before would-be change agents begin their actions. Merely understanding
culture at the deepest level may be insufficient to institute cultural change because the dynamics of
interpersonal relationships (often under threatening conditions) are added to the dynamics of
organizational culture while attempts are made to institute desired change.

Types of cultures:
Robert A. Cooke, PhD, defines culture as the behaviors that members believe are required to
fit in and meet expectations within their organization. The Organizational Culture Inventory
measures twelve behavioral norms that are grouped into three general types of cultures:
1.Constructive cultures
Constructive cultures are where people are encouraged to be in communication with their
co-workers, and work as teams, rather than only as individuals. In positions where people do a
complex job, rather than something simple like a mechanic one, this sort of culture is an efficient
one.
1. Achievement: completing a task successfully, typically by effort, courage, or skill (pursue a
standard of excellence) (explore alternatives before acting) - Based on the need to attain
high-quality results on challenging projects, the belief that outcomes are linked to one's
effort rather than chance and the tendency to personally set challenging yet realistic goals.
People high in this style think ahead and plan, explore alternatives before acting and learn
from their mistakes.
2. Self-Actualizing: realization or fulfillment of one's talents and potentialities - considered as
a drive or need present in everyone (think in unique and independent ways) (do even simple
tasks well) - Based on needs for personal growth, self-fulfillment and the realisation of

38

one's potential. People with this style demonstrate a strong desire to learn and experience
things, creative yet realistic thinking and a balanced concern for people and tasks.
3. Humanistic-Encouraging: help others to grow and develop (resolve conflicts constructively)
- Reflects an interest in the growth and development of people, a high positive regard for
them and sensitivity to their needs. People high in this style devote energy to coaching and
counselling others, are thoughtful and considerate and provide people with support and
encouragement.
4. Affiliative: treat people as more valuable than things (cooperate with others) - Reflects an
interest in developing and sustaining pleasant relationships. People high in this style share
their thoughts and feelings, are friendly and cooperative and make others feel a part of
things.
Organizations with constructive cultures encourage members to work to their full potential,
resulting in high levels of motivation, satisfaction, teamwork, service quality, and sales growth.
Constructive norms are evident in environments where quality is valued over quantity, creativity is
valued over conformity, cooperation is believed to lead to better results than competition, and
effectiveness is judged at the system level rather than the component level. These types of cultural
norms are consistent with (and supportive of) the objectives behind empowerment, total quality
management, transformational leadership, continuous improvement, re-engineering, and learning
organizations
2.Passive/defensive cultures
Norms that reflect expectations for members to interact with people in ways that will not
threaten their own security are in the Passive/Defensive Cluster.
The four Passive/Defensive cultural norms are:
x Approval
x Conventional
x Dependent
x Avoidance

In organizations with Passive/Defensive cultures, members feel pressured to think and

behave in ways that are inconsistent with the way they believe they should in order to be effective.
People are expected to please others (particularly superiors) and avoid interpersonal conflict. Rules,
procedures, and orders are more important than personal beliefs, ideas, and judgment.
Passive/Defensive cultures experience a lot of unresolved conflict and turnover, and organizational
members report lower levels of motivation and satisfaction.
3.Aggressive/defensive cultures
This style is characterized with more emphasis on task than people. Because of the very
nature of this style, people tend to focus on their own individual needs at the expense of the success
of the group. The aggressive/defensive style is very stressful, and people using this style tend to
make decisions based on status as opposed to expertise.
1. Oppositional- This cultural norm is based on the idea that a need for security that takes
the form of being very critical and cynical at times. People who use this style are more likely to
question others work; however, asking those tough question often leads to a better product.
Nonetheless, those who use this style may be overly-critical toward others, using irrelevant or trivial
flaws to put others down.

39

2. Power - This cultural norm is based on the idea that there is a need for prestige and
influence. Those who use this style often equate their own self-worth with controlling others. Those
who use this style have a tendency to dictate others opposing to guiding others actions.
3. Competitive - This cultural norm is based on the idea of a need to protect ones status.
Those who use this style protect their own status by comparing themselves to other individuals and
outperforming them. Those who use this style are seekers of appraisal and recognition from others.
4. Perfectionistic - This cultural norm is based on the need to attain flawless results. Those
who often use this style equate their self-worth with the attainment of extremely high standards.
Those who often use this style are always focused on details and place excessive demands on
themselves and others.
Organizations with aggressive/defensive cultures encourage or require members to appear
competent, controlled, and superior. Members who seek assistance, admit shortcomings, or concede
their position are viewed as incompetent or weak. These organizations emphasize finding errors,
weeding out "mistakes" and encouraging members to compete against each other rather than
competitors. The short-term gains associated with these strategies are often at the expense of longterm growth
Mergers, organizational culture, and cultural leadership
One of the biggest obstacles in the way of the merging of two organizations is organizational
culture. Each organization has its own unique culture and most often, when brought together, these
cultures clash. When mergers fail employees point to issues such as identity, communication
problems, human resources problems, ego clashes, and inter-group conflicts, which all fall under
the category of "cultural differences".
One way to combat such difficulties is through cultural leadership. Organizational leaders
must also be cultural leaders and help facilitate the change from the two old cultures into the one
new culture. This is done through cultural innovation followed by cultural maintenance.
x Cultural innovation includes:
x Creating a new culture: recognizing past cultural differences and setting realistic
expectations for change
x Changing the culture: weakening and replacing the old cultures
x Cultural maintenance includes:
x Integrating the new culture: reconciling the differences between the old cultures and the
new one
x Embodying the new culture: Establishing, affirming, and keeping the new culture
Impacts
Research suggests that numerous outcomes have been associated either directly or indirectly
with organizational culture. A healthy and robust organizational culture may provide various
benefits, including the following:
x Competitive edge derived from innovation and customer service
x Consistent, efficient employee performance
x Team cohesiveness
x High employee morale
x Strong company alignment towards goal achievement
Although little empirical research exists to support the link between organizational culture
and organizational performance, there is little doubt among experts that this relationship exists.
Organizational culture can be a factor in the survival or failure of an organization - although this is
difficult to prove considering the necessary longitudinal analyses are hardly feasible.

40

A 2003 Harvard Business School study reported that culture has a significant impact on an
organizations long-term economic performance. The study examined the management practices at
160 organizations over ten years and found that culture can enhance performance or prove
detrimental to performance. Organizations with strong performance-oriented cultures witnessed far
better financial growth. Additionally, a 2002 Corporate Leadership Council study found that
cultural traits such as risk taking, internal communications, and flexibility are some of the most
important drivers of performance, and may impact individual performance. Furthermore,
innovativeness, productivity through people, and the other cultural factors cited by Peters
and Waterman (1982) also have positive economic consequences.
Denison, Haaland, and Goelzer (2004) found that culture contributes to the success of the
organization, but not all dimensions contribute the same. It was found that the impacts of these
dimensions differ by global regions, which suggests that organizational culture is impacted by
national culture. Additionally, Clarke (2006) found that a safety climate is related to an
organizations safety record.
Organizational culture is reflected in the way people perform tasks, set objectives, and
administer the necessary resources to achieve objectives. Culture affects the way individuals make
decisions, feel, and act in response to the opportunities and threats affecting the organization.
Adkins and Caldwell (2004) found that job satisfaction was positively associated with the
degree to which employees fit into both the overall culture and subculture in which they worked. A
perceived mismatch of the organizations culture and what employees felt the culture should be is
related to a number of negative consequences including lower job satisfaction, higher job strain,
general stress, and turnover intent.
It has been proposed that organizational culture may impact the level of employee creativity,
the strength of employee motivation, and the reporting of unethical behavior, but more research is
needed to support these conclusions.
Organizational culture also has an impact on recruitment and retention. Individuals tend to
be attracted to and remain engaged in organizations that they perceive to be compatible.
Additionally, high turnover may be a mediating factor in the relationship between culture and
organizational performance. Deteriorating company performance and an unhealthy work
environment are signs of an overdue cultural assessment.

EXERCISE
Fill in the gaps with the most appropriate missing word:

1 After a motion is made in a business meeting, the board can then vote on a decision about the
motion. The final decision regarding a motion is called a ..........
(a) resolution
(b) minute
(c) weight
(d) command

41

In a business meeting, a secretary usually takes the .......... This refers to an official record of
what happened and what was said during the meeting.

(a) minutes
(b) words
(c) trends
(d) authority

When two parties are negotiating an agreement or contract, a ......... situation occurs when
both parties benefit in some way.

(a) win-win
(b) heads up
(c) trend
(d) cash cow

When a person makes a decision very quickly, it is often called a ......... decision.

(a) mind
(b) snap
(c) dodge
(d) bear

42

If a job advertisement states that a company offers a ......... salary that means the company is
willing to offer a salary that is equal or better than salaries paid by other companies in the same
industry.

(a) advantage
(b) benefit
(c) competitive
(d) just

If a job advertisements states that they are looking for someone with an ......... for detail, the
company wants to hire someone who can spot mistakes or errors quickly and easily as well as
pay attention to the very smallest details in order to strive for perfection.

(a) nose
(b) eye
(c) air
(d) ear
Many companies really want their sales' teams to .......... In other words, they want their
employees to persuade customers to buy more items such as expensive upgrade features, addons and warranties.

(a) quick hit

(b) up-sell
(c) slam dunk
(d) offline
If a company announces a ........., that means there is something wrong with a product sold
that was sold and all customers should return the item they bought as soon as possible. It is
an official order to return something.

43

(a) recall
(b) rekindling
(c) summon
(d) push
The company asked its employees to reinvent the .......... The employees have to start the
process one more time, from the beginning, because the first attempt was not successful or
efficient.

(a) boat
(b) wheel
(c) rope
(d) ball
Tim really dropped the ......... at work this week. This means that Tim made a big or serious
mistake at work.
(a) wheel
(b) boat
(c) bat
(d) ball

BIBLIOGRAFY
1. Hofstede, Geert (1991), Cultures and Organizations: Software of the Mind., McGraw-Hill
Professional
2. Adkins, B. and Caldwell, D. (2004). "Firm or subgroup culture: Where does fitting in matter
most?" Journal of Organizational Behavior
3. Handy, Charles B. (1976) Understanding Organizations, Oxford University Press
4. Parker, M. (2000) Organizational Culture and Identity, London: Sage.

44

CHAPTER 6
MANAGEMENT OF CHANGE
1. Nature and impact of change
People adapt to circumstances and events in the society they live in, is not only a
requirement for survival, but also a factor of development and progress, without which man and
human society in general should not evolve.
Any evolutionary process involves a change, a fundamental change, a transformation of the
mode of action in a continuous interaction with the environment.
Change occurs not only at the individual level but also in human groups and organizations.
Human group grows, matures and becomes permanently under the influence of internal and
external factors.
Organizations are involved in a process of continuous interaction with the environment and
to withstand competitive regime increasingly outspoken, must adapt continuously, the most exposed
and rapid change to respond to the new demands of the external environment,
Dynamic organization and rapid adaptation to environmental requirements, are determinants
not only of survival but also the development and progress of an organization.
To cope with change, most often requires "reinventing" organization which involves
simultaneous changes of several elements of the organization. Processes are redesigned, new
opportunities will arise and strategies, organizational structures and relationships will change both
inside and outside the organization will require new infrastructure, information technology, work
managers will change and will require new behavior of the people. All this will complicate the work
of managers, especially as shareholders and customers will require change to happen quickly.
Choosing the right management to initiate a change, is one of the most important
components of managing their business and obviously one of the most exciting and demanding. In
developed countries, management is situated on the same level with top technique is considered an
essential component of progress. The rapid development of science and technology in all fields of
economic and social causes of all these spheres leaders work to seek to adopt and implement new
methods, techniques, standards and organizational and managerial procedures to deal effectively
with the activities operations.
2. The concept of organizational change
Organizational change proposes making significant modifications of the organization as a
whole involves changing its mission and vision, introduction of new technologies with new types of
activities, the introduction of a performance appraisal system, essential changes in organizational
structure, orientation towards new target groups of customers with other needs and behavior of
customers totally different than envisaged, until then, introduction of management by objectives and
others.

45

In new construction, people need new knowledge and skills to operate. In addition,
managers are required new skills to support subordinates to cross change.
Organizational change can not be done just for the sake of change. It can be caused by a
number of major cases, such as:
- Reduction of competitiveness against its main competitors,
- The need to improve productivity, profitability and prestige,
- Change in legal status, organization or ownership (privatization, for example almost all
cases requires an organizational change)
- Change objectives and strategies
- New technologies;
Organizational change is caused by a number of factors that circumscribe internal and
external sources and can provide a range of opportunities such as:
- The opportunity to acquire and practice new skills,
- Increased job satisfaction,
- Improving working conditions and practices,
- Working with new people and working with new technology
- Increasing competitiveness,
- Achieve a higher status, or an increase of autonomy.
Management of change involves a set of specific activities (communication, training, tutorial
and training) to guide people in order to obtain the desired results.
Change management involves managing it - the adoption of changes in a planned,
structured, organized manner.
3. Organizational development
Organizational development is the process of improving the organization's effectiveness and
welfare of its members through planned interventions.
This means:
1. increased effectiveness - achieving the goals and objectives of the organization
2. welfare of members - employee satisfaction with work
3.planned interventions - sets of structured activities in which selected groups or individuals
are engaged in tasks that are directly or indirectly related to organizational improvement
Generally for organizational development is the success of organizational change where can
derive specific aims:
46

- Redesigning the organization structure

- Increasing the effectiveness of internal communication,
- Clarifying roles and responsibilities,
- Stimulating Creativity and Innovation
- Increasing the efficiency of decision processes;
The changes are part of managerial and organizational life and produce increasingly more
common and can be decisive for the survival of the organization
4. Defining factors generating change
Kurt Lewin considers change as a dynamic balance of forces on the one hand, pressure on
change, on the other hand, causes a resistance to change.
Elements that hinder change:
- Outdated mentality
- Mental blocks
- Disinterest
- Fear of new
- Fear of failure
- Low level of professionalism
- Change the structure of labor
Within the organization there are two categories of factors influencing change:
1. External factors that can be controlled to a limited extent managers:
- Socio-psychological factors (unlimited access to information, modified the taste and
values, deterioration of interpersonal relationships, acquisition liberties)
- Technological factors - free access to information and communication systems, the
emergence and implementation of high technologies
- Economic factors
- Political factors
- Hazards - earthquakes, fires, accidents, weather conditions, war, etc..
2.Internal factors that trigger positive pressure change:
- Desire to increase productivity and quality,
- Desire to improve the services offered
47

- Desire to improve staff motivation, etc..

Internal factors can be controlled, modified heavily by the organization.
5. The need and importance of changing
Clear and deep perception of the need for change by managers of the change process is
essential. While understanding the need for change is important to realize not only managers but
also by the entire staff of the organization.
Understanding the need for change requires knowledge that a continuation of the
management and execution processes oldest structures in the new conditions inevitably lead to
critical situations for the organization.
Organizations today operate in a constantly changing environment, ability to adapt to
environmental changes has become a prerequisite for success of the organization and a growing
number of cases, a prerequisite for survival
6. Stages of change
The existence of organizational change involves three steps:
1. Opening or defrosting occurs when the state of affairs no longer meets the requirements
of the organization.
Defrosting involves the realization that the old ways no longer meets the current
requirements of the organization.
At this stage occur:
- Involvement of people affected by the change,
- Providing the necessary support,
- People receiving respite to adapt to change.
2. Change or transformation - phase transformations occurring in seas that allow the desired
situation.
In this phase change plans are put into practice giving necessary support those involved.
Occurs continuously monitor changes.
3. Refreezing or closing - stage in which the great balance of the organization by accepting
new values, new patterns of behavior.
This stage has a relative because current realities require frequent changes and therefore to
develop modern organizations must cope with constant changes.
7. Establish the methods to implement the change
There are many types of organizational change:
1.unplanned change - in any organization changes occur natural progression.
These changes occur beyond the control of management. Although they can not really be

48

planned, they should be considered when planning the future of the organization.
2.Planned change
Planning does not eliminate completely unplanned changes, but helps the organization to
adequately prepare for some changes that can be anticipated and reduce the number of
situations where changes should be made in haste, in an atmosphere of panic.
Planning change involves addressing a series of typical questions:
"What changes occur in the environment? What will be the implications for the
organization? "
"What changes should be made to achieve development goals?"
"What will cause unwanted changes in the organization if no action is taken in time?"
"What kind of change is necessary and to what degree the organization is able to enter?"
"What kind of change will people accept and support?"
"What will be the relationship between the various changes that are intended to achieve?".
3.Required change- most of the changes are imposed by management. Most times it
generates dissatisfaction and resentment.
4.Participatory change - people want to be able to influence the changes that concern them.
A participatory process of change is slower, requires more time and is more expensive than
imposed change but is considered being sustainable. Besides, it helps management to benefit
from the experience and creativity of people.
5.Negotiated change
Many situations require negotiated change (staff,, suppliers, shareholders, etc.). Sometimes
the result can be a compromise when neither side believes it is not the ideal solution.
Major changes in the organization simply does not happen. Administration involves running
a complex change in the forces facing pressures for change and the forces that resist change.

In conclusion we can admit that change is a process, not an accident and it takes hard work
from not only the management but also the staff to correctly implement the change so that progress
can occur in the organization.

49

CHAPTER 7
SETTING UP YOUR OWN BUSINESS
Assumptions about the business
The business:
x Is a limited liability company (or its legal equivalent). If there is more than one type of
limited liability company in the economy, the limited liability form most popular among domestic
firms is chosen. Information on the most popular form is obtained from incorporation lawyers or the
statistical office.
x Operates in the economys largest business city.
x Is 100% domestically owned and has 5 owners, none of whom is a legal entity.
x Has start-up capital of 10 times income per capita, paid in cash.
x Performs general industrial or commercial activities, such as the production or sale to the
public of products or services. The business does not perform foreign trade activities and does not
handle products subject to a special tax regime, for example, liquor or tobacco. It is not using
heavily polluting production processes.
x Leases the commercial plant and offices and is not a proprietor of real estate.
x Does not qualify for investment incentives or any special benefits.
x Has at least 10 and up to 50 employees 1 month after the commencement of operations,
all of them nationals.
x Has a turnover of at least 100 times income per capital.
x Has a company deed 10 pages long.

Doing Business records all procedures officially required, or commonly done in practice, for
an entrepreneur to start up and formally operate an industrial or commercial business, as well as the
time and cost to complete them and the paid-in minimum capital requirement (figure 1). These
procedures include obtaining all necessary licenses and permits and completing any required
notifications, verifications or inscriptions for the company and employees with relevant authorities.

50

The ranking on the ease of starting a business is the simple average of the percentile rankings on its
component indicators (figure A.1).

Doing Business records all procedures officially required, or commonly done in practice, for
an entrepreneur to start up and formally operate an industrial or commercial business, as well as the
time and cost to complete them and the paid-in minimum capital requirement. These procedures
include obtaining all necessary licenses and permits and completing any required notifications,
verifications or inscriptions for the company and employees with relevant authorities. The ranking
on the ease of starting a business is the simple average of the percentile rankings on its component
indicators.
After a study of laws, regulations and publicly available information on business entry, a
detailed list of procedures is developed, along with the time and cost of complying with each
procedure under normal circumstances and the paid-in minimum capital requirement. Subsequently,
local incorporation lawyers, notaries and government officials complete and verify the data.
Information is also collected on the sequence in which procedures are to be completed and
whether procedures may be carried out simultaneously. It is assumed that any required information
is readily available and that the entrepreneur will pay no bribes. If answers by local experts differ,
inquiries continue until the data are reconciled.
To make the data comparable across economies, several assumptions about the business and
the procedures are used.
Procedures
A procedure is defined as any interaction of the company founders with external parties (for
example, government agencies, lawyers, auditors or notaries). Interactions between company
51

founders or company officers and employees are not counted as procedures. Procedures that must
be completed in the same building but in different offices or at different counters are counted as
separate procedures. If founders have to visit the same office several times for different sequential
procedures, each is counted separately. The founders are assumed to complete all procedures
themselves, without middlemen, facilitators, accountants or lawyers, unless the use of such a third
party is mandated by law. If the services of professionals are required, procedures conducted by
such professionals on behalf of the company are counted separately. Each electronic procedure is
counted separately. If 2 procedures can be completed through the same website but require separate
filings, they are counted as 2 procedures.

Both pre- and post incorporation procedures that are officially required for an entrepreneur
to formally operate a business are recorded (table A.1). Procedures required for official
correspondence or transactions with public agencies are also included. For example, if a company
seal or stamp is required on official documents, such as tax declarations, obtaining the seal or stamp
is counted. Similarly, if a company must open a bank account before registering for sales tax or
value added tax, this transaction is included as a procedure. Shortcuts are counted only if they fulfill
4 criteria: they are legal, they are available to the general public, they are used by the majority of
companies, and avoiding them causes substantial delays.
Only procedures required of all businesses are covered. Industry-specific procedures are
excluded. For example, procedures to comply with environmental regulations are included only

52

when they apply to all businesses conducting general commercial or industrial activities. Procedures
that the company undergoes to connect to electricity, water, gas and waste disposal services are not
included.
Time
Time is recorded in calendar days. The measure captures the median duration that
incorporation lawyers indicate is necessary in practice to complete a procedure with minimum
follow-up with government agencies and no extra payments. It is assumed that the minimum time
required for each procedure is 1 day. Although procedures may take place simultaneously, they
cannot start on the same day (that is, simultaneous procedures start on consecutive days). A
procedure is considered completed once the company has received the final document, such as the
company registration certificate or tax number. If a procedure can be accelerated for an additional
cost, the fastest procedure is chosen if that option is more beneficial to the economys ranking. It is
assumed that the entrepreneur does not waste time and commits to completing each remaining
procedure without delay. The time that the entrepreneur spends on gathering information is ignored.
It is assumed that the entrepreneur is aware of all entry requirements and their sequence from the
beginning but has had no prior contact with any of the officials.
Cost
Cost is recorded as a percentage of the economys income per capita. It includes all official
fees and fees for legal or professional services if such services are required by law. Fees for
purchasing and legalizing company books are included if these transactions are required by law.
The company law, the commercial code and specific regulations and fee schedules are used as
sources for calculating costs. In the absence of fee schedules, a government officers estimate is
taken as an official source. In the absence of a government officers estimate, estimates of
incorporation lawyers are used. If several incorporation lawyers provide different estimates, the
median reported value is applied. In all cases the cost excludes bribes.
Paid-in minimum capital
The paid-in minimum capital requirement reflects the amount that the entrepreneur needs to
deposit in a bank or with a notary before registration and up to 3 months following incorporation
and is recorded as a percentage of the economys income per capita. The amount is typically
specified in the commercial code or the company law. Many economies require minimum capital
but allow businesses to pay only a part of it before registration, with the rest to be paid after the first
year of operation. In Turkey in June 2012, for example, the minimum capital requirement was 5,000
Turkish liras, of which one-fourth needed to be paid before registration. The paid-in minimum
capital recorded for Turkey is therefore 1,250 Turkish liras, or 7.2% of income per capital
10 Steps for a Business Foundation
Starting a business involves planning, making key financial decisions and completing a series of
legal activities. These 10 easy steps can help you plan, prepare and manage your business.

Step 1: Write a Business Plan

Use these tools and resources to create a business plan. This written guide will help you map
out how you will start and run your business successfully.

53

Step 2: Get Business Assistance and Training

Take advantage of free training and counseling services, from preparing a business plan and
securing financing, to expanding or relocating a business.
Step 3: Choose a Business Location
Get advice on how to select a customer-friendly location and comply with zoning laws.
Step 4: Finance Your Business
Find government backed loans, venture capital and research grants to help you get started.
Step 5: Determine the Legal Structure of Your Business
Decide which form of ownership is best for you: sole proprietorship, partnership, Limited
Liability Company (LLC), corporation, S corporation, nonprofit or cooperative.
Step 6: Register a Business Name ("Doing Business As")
Register your business name with your state government.
Step 7: Get a Tax Identification Number
Learn which tax identification number you'll need to obtain from the IRS and your state
revenue agency.
Step 8: Register for State and Local Taxes
Register with your state to obtain a tax identification number, workers' compensation,
unemployment and disability insurance.
Step 9: Obtain Business Licenses and Permits
Get a list of federal, state and local licenses and permits required for your business.
Step 10: Understand Employer Responsibilities
Learn the legal steps you need to take in order to give employment.
There might be almost 50 questions an entrepreneur (also called self starter) asks himself before
getting down to business (Questions to Ask Before You Start a Business)49
You attitude is to be applied here, so:
If you want to start a business dont just read this and move on. Make sure you figure out the answer
to each questions so that you understand your personal goals but also your business goals. The more you
understand the leap you are about to make into starting a business the better chances it will be a successful
one.
Step 1: Make a List
1. What do you spend your money on?
2. What do you love to do? Hobbies?
3. What are everyday problems in your life that you can solve?
4. What are your skills/talents? What are you good at?

49

Under30CEO, 50 Questions to Ask Before You Start

http://under30ceo.com/50-questions-to-ask-before-you-start-a-business
54

Business,

5. What do you want to do everyday? What makes you get up in the morning?
6. What do you want to be when you grow up?
7. Who do you want to hangout with each day?
8. What do you want your purpose to be?
9.What impact can you make on the world?
10. What do you want your legacy to be?
11. What would you do if money was not an option?
12. What would be your rockstar job title?
13. What are your strengths and weaknesses?
14. What would your dream life look like?
Step 2: Engulf Yourself in Your Industry!
15. What are the leading blogs/magazines/publications?
16. Who are the leaders and influencers in the industry?
17. How are people already making money in the industry?
18. What are the leading companies in the space?
19. Can you get a position or internship to learn about the industry first?
20. What are the common questions the customers and readers of the blogs have?
21. How has the industry changed in the last 5, 10, 20 years? Where is it headed?
22. What companies have failed in the industry? Why did they fail?
23. Who is the average consumer? What are their characteristics?
24. What niches are unserved? Where are the holes in the market?
25. How can you improve, disrupt or turn this industry upside down?
Step 3: Network Your A** Off!
26. Were does your target market hang out?
27. How are the local leaders in your industry?
28. Which one of your friends would buy a product from you?
29. What can you learn from them?
30. What problems do these people have?
31. What skills do you have and what skills do you need in a business partner?
32. Who are the most talented/passionate people in the industry? What makes them successful?
33. Are their groups/meetups around your passion?
34. What can you learn from your competition?
Step 4: Take the Leap!
35. Is there healthy competition around your industry? Why or why not?
36. Can you stand out from the pack? Is your business idea unique?
37. Is your business scalable?
38. Can you start small without huge capital investment?
39. Can you see yourself doing this 5 years from now?

55

40. Is the market for your business big enough to support your idea?
41. What is the most effective way to reach your customers?
42. How much money will my idea cost to start?
43. Will my business always rely on me or can I delegate responsibility?
44. Will this idea make me money?
45. What are my goals? Short term? Long term?
46. Who will actually pay for this?
47. Do you really believe in your idea?
48. Does your idea provide value to the customer?
49. Can you explain your idea to your kid sister?
50. How will you exit your business?

BIBLIOGRAPHY
1."Innovation and Entrepreneurship," by Peter Drucker
2. "The Lean Startup," by Eric Ries
3. "Start With Why," by Simon Sinek
4. Execution: The Discipline of Getting Things Done by Larry Bossidy, Ram Charan

56

1.

A Business Plan

It is also important to know as theoretical part50how to write a business plan:

Here is a business plan structure and the sections that need to be included when
writing your business plan (see also Table of Content sample below):
Cover page:
Name of the business, contact details of the person who submitted the plan, and date.
Table of contents:
A quick overview of the documents content.
1. Executive summary:
A concise summary highlighting the:
- services (or products)
- geographical area of operation
- objectives
- mission
- company staff
- targeted clients and marketing
- budgets
- keys to success
- timescale.
Many investors read this section first, so it must be concise, short, to the point, and engaging
with relevant details.
About 2-3 pages.
2. Company summary:
Basic information on the current status of the business, ownership, successes to date,
expertise, and start-up summary.
3. Services:
Details of services, and how they are delivered to clients.

50

http://www.poeticmind.co.uk/business/structure-of-business-plan
57

4. Market analysis:
Your target market and its size, trends, segmentation, and the opportunity for revenue.
This section should include analysis of your potential clients, where they are based, what are
their needs, why they will buy from you (how your services meet market needs), and how much of
your services they will buy. If you already have paying customers include that information in this
section, and specify how much they are paying.
Also describe in this section your competitors, their services, their advantages over you as
well as disadvantages which you can fill.
5. Strategy and Implementation summary:
This section is your marketing strategy, describing your competitive edge and tactics in
promoting and advertising your services. Discuss your sales strategy, forecast, and milestones. Use
a SWOT analysis.
6. Management summary:
A short description of the management.
7. Financial plan:
A realistic estimate for investment required (start up funding), projected profit and loss
(income), projected cash flow statement, projected balance sheet, as well as break-even analysis
which indicates when the business will become self sufficient and solvent.
Appendix:
Include in the appendix detailed tables of sale forecasts, personnel payroll, Profit and Loss,
Cash Flow, and Balance Sheet. Include also any promotional materials, media publications, awards,
and other materials you wish to share with the reader.
2. A SWOT Analysis is of a paramount importance in this context:
NIKE51
Parent
Company
Category
Sector
Tagline/
Slogan
USP

Segment

51
52

58

Nike Inc
Apparel, Sports Equipment
and Accessories
Lifestyle and Retail
Just do it
Shoes that are made for
professional athletes
Sports enthusiasts

ADIDAS52
Parent
company
Category

Adidas Group

Sector
Tagline/
slogan
Usp

Lifestyle and retail

All in; Impossible is Nothing

Segment

Apparel and accessories

World renowned company for

sports equipment, clothing and
other accessories
Young men ,women and children
who have passion for fitness and
sports

http://www.mbaskool.com/brandguide/lifestyle-and-retail/3329-nike.html
http://www.mbaskool.com/brandguide/lifestyle-and-retail/2460-adidas.html

Men, women and children

from urban upper-middle
and upper class
High quality, high price
Positioning
which gives satisfaction
and comfort
Competitors 1.Nike
2.Reebok
3.Bata
4.Liberty
5.Puma
6.Fila
SWOT Analysis
1. Worlds leading brand
Strengths
for sports shoes and
apparel
2.Recognized three times
by fortune magazines on
100 best companies to
work for
3.Listed among 50 most
innovative corporate
4.It differentiates by
making innovative
products which has global
recognition
5. Effective business
relationship globally
6. Launched many other
products in collaboration
with companies e.g.
launched music player,
watches etc
7. Leading top of the mind
brand with excellent
innovative advertising and
branding
8. Exclusive shops all over
the world apart from
availability through multibrand retail stores
9. Ranked in top three for
climate-friendly companies
10. Associates itself with
leading international sports
teams, players and events
1. In Vietnam the company
Weakness
faced allegations of labor
and wage laws with
employees
2. In Cambodia and
Pakistan there have been
Target
Group

Target
group

Urban upper-middle and upper

class

Positioning

Adidas stands for passion for

sports

Competitors

1.Nike
2.Reebok
3.Bata
4.Liberty
5.Puma
6.Fila
SWOT Analysis
1. The company has a long
heritage and high brand value
since 1924.
2. The company sponsors major
sporting events including
Olympics and major sportsmen
and teams.
3. The company has worldwide
presence and is internationally
recognized.
4. The company has a very
diversified product portfolio
ranging from sports shoes,
equipments to clothing and
accessories.
5. Strong and innovative
marketing since years have created
a strong brand retention in the
minds of customers
6. Has a workforce of over 45,000
employees

Strengths

Weakness

1. The products can sometimes be

costly due to innovative
technology or production method
2. Stiff competition and similar big
brands means customers have high
brand switching

59

Opportunity

Threats

allegations for child labor

and poor working
conditions
1. Product expansion in
areas like more
concentration in
sunglasses, sportswear etc.
which gives high profit
2. Can open their stores in
tier 2 cities in emerging
economies as well
3. Enhance brand visibility
by opening sports
academies across the world
for nurturing talent
1.Footwear market is so
competitive, major
competition from other
brands
2.As it is an international
brand currency fluctuations
of countries affects the
business
3. Fake imitations and
replicas often cause a
problem
4. Adaption of new
techniques and innovation
by other brands

Opportunity

1. To keep up with the

competition, Adidas generates
close to 60 new foot-friendly
designs each year.
2.The company can venture into
making more stylish designs and
cuts
3. Tie-up with emerging sports
teams/clubs/players internationally
4. Brand building by setting up
sports academies

Threats

1.Other brands offer more styles

and varieties, thus more
competition
2. Threat from other competitive
brand who produce sports
equipment and accessories at a
lesser cost
3. Pirated/fake imitations affect
brand image

Comparasion
http://www.slideshare.net/dolly_g/nike-vs-adidas-8917122

60

CHAPTER 8

8. A THE MEANING OF BUSSINES

A business (also known as enterprise or firm) is an organization engaged in the trade of
goods, services, or both to consumers.[1] Businesses are predominant in capitalist economies, where
most of them are privately owned and administered to earn profit to increase the wealth of their
owners. Businesses may also be not-for-profit or state-owned. A business owned by multiple
individuals may be referred to as a company, although that term also has a more precise meaning.
WHAT IS A COMPANY?
A company is a business organization. It is an association or collection of individual real
persons and/or other companies, who each provide some form of capital. This group has a common
purpose or focus and an aim of gaining profits. This collection, group or association of persons can
be made to exist in law and then a company is itself considered a "legal person". The name
company arose because, at least originally, it represented or was owned by more than one real or
legal person
A Company is a voluntary association of person formed for the purpose of doing some
business. A company is a juristic person (in the eyes of law it is a person). The company can sue
and it can be sued. It has its own name and a separate legal entity, distinct from its members who
constitute it. A company has its own property, the members (shareholders) can not claim the
property of the company as their own property.
A company is a legal person but it is not a citizen.
What is a company? Is it the people who work there? Is it the brand? Could it be the
customers? Is it the product or service? Is it a combination of all of these elements?
And once youve answered that question; where lies your loyalty? With your customer?
Your partners? The shareholders?
The older I get the more I get the impression that a company is a lot more than a fiscal
entity. It is a living thing. An organism with forces pulling at it from all sides. It seems to have a
mind of its own. Not like a human being has but more like a beehive. Or maybe it doesnt even have
a mind but it does have purpose.
So what is the purpose of a company?
The obvious answer: to make money.
The real answer: a whole lot more complicated than that.
As our company grows I struggle with these questions. When we hire (or fire) someone I
talk to my company in my head. I ask it What is best for you? and Where do you want to go and
who do you want to be?
You cant focus on just the shareholders, or the customers, or the employees. You will have
to make decisions that are beneficial for all the components. Sometimes that will mean making

61

sacrifices and disappointing people. Your loyalty as an entrepreneur should always be with the
company.
Classification of companies by their size
1. Large-sized company
2. Medium-sized company
3. Small-sized company
4. Micro-sized company
Micro-sized company
Are the enterprises which meet 2 of the following 3 criteria and have not failed to do so for
at least 10 years:
Fewer than 10 employees
balance sheet total below EUR 2 mil
Turnover below EUR 2 mil
Small company
The European Union defines a small company as the one that has fewer than 50 employees
whose annual turnover or total assets do not exceed 10 mil. Euros.
Advantages
A small company can benefit from a formal organizational structure in place. Structure is
essential for growth; bringing too many employees on board without clearly defined reporting
relationships can cause confusion and inefficiency at all levels of an organization. As your company
becomes a medium-sized and larger entity, a formal structure will become more important. Large
multinationals, which often begin as small businesses, rely on extensive, intertwined structures
spanning several continents and business lines.
Disadvantages
While it is important for a business to have a structure in place as it grows, a formal
structure can have unique drawbacks while a company is still small. Employees in a startup
business need to feel more like partners in the company's vision than rank-and-file employees.
Placing employees in rigidly defined roles when the company is small enough to ensure that all
employees work together can create a rift in the relationship between business owners and
employees.
Medium-sized company
SMEs are defined as the enterprises which have fewer than 250 employees and whose
annual turnover is less than 50 mil. Euro or total assets do not exceed 43 mil. Euro
Large-sized company
Large companies are the one that have more than 250 employees and does not fall in the
category of companies presented above
Every company, doesnt matter how big it is, should:
x operate according to the law;
x report their activities;
x maintain proper records; and
x maintain an information database on company details
Small vs. Large Companies: Ten Differences Between Working For The Two Types of
Companies
All businesses arent created equal. What may be normal for a small company could be
strange for a large one. But when deciding where to work, those distinctions matter.
62

There are a number of differences, says Kathleen Downs, a recruiting manager at Robert
Half International. I wouldnt say one is better than the other, but they are certainly different.
From culture to job function, heres a look at ten differences between working for a small
firm and its larger brethren.
1. Getting the job
Even getting hired at a small business is different. According to Anita Campbell, Chief
Executive of Small Business Trends, chances are landing a job at a small business is going to be a
much quicker process. In large companies its not unusual to go through five, six even ten
interviews before you are actually given a job, she says.
2. The bigger the more bureaucratic
Everyone knows that when you work for a large company there are more hoops you have to
jump through to get anything done. Small businesses, on the other hand, tend to have less
bureaucracy, less organization and less complexity, says Kim Ruyle, vice president and managing
principal at Korn/Ferry International. In a small business its simpler to navigate the organizational
maze to know who makes a difference, says Ruyle.
3. Its a family affair
If you work in a large company, its likely youll only get to know the people you work with
day in and day out. At a small company youll probably know everyone from the receptionist all the
way up to the boss. Theres going to be more personal relationships, says Campbell. If you get
along then it may feel like a family, but on the other hand if you dont get along, you dont have the
distance of a big company.
4. You get to wear more hats
Working for a small business can give you much wider exposure to job functions, because
everyone tends to wear more than one hat. For instance a comptroller in small company may have
his or her hands in budgets, forecasting and creating financial statements while in a large company
he or she may only be responsible for preparing financial statements, says Downs.
5. Better working conditions
Small businesses typically have less rules and thus more flexibility in the work life balance
they offer. They know they cant provide the same benefits that a large corporation can, so often
times they will go out of their way to make the working conditions really good, says Campbell.
6. More specialization at large firms
At a large company youll get the chance to specialize and more fully develop a specific
expertise or job function. If you want a career in the tax side of accounting that can be great, but
according to Ruyle it may be less appealing to the person thats seeking a broader perspective of the
business.
7. Opportunities abound at big companies
Most of the time at a large company theres more opportunities to grow. After all large
companies typically have a structure in place to move up the career ladder. That doesnt mean you
will be stuck in a dead end job at a small firm. According to Ruyle many companies start out small
only to grow into huge enterprises.
8. Exacting change
Many people go into a career not only to make money but to make a difference. Chances are
much higher that you can affect change at a small firm. A publicly traded company has
documented processes and procedures for doing everything, says Downs. At a small business
things can change on a dime, she says.
9. Mission is more than the bottom line
Every business is created to make money, but at a small company its not only about
pleasing shareholders. According to Phil Marsosudiro of management consulting company
Marsosudiro & Company, at small companies the owners can have multiple goals. A small
business may have other priorities like the environmental benefits or other social benefits, says
Marsosudiro.

63

10. More job security

When you get a job at a small company, often times you are considered part of the family,
so letting you go may not be as easy. It can be painstaking, for the small business owner, says
Downs. Sometimes at larger companies there will be a mandate from someone at the top that cuts
will be this deep and they dont know the people personally.
Curiosities
1.How many jobs did the Mars landing create?
Answer: NASA spokesman Guy Webster said the rover, named Curiosity, is currently
supporting about 700 people, but has supported 7,000 jobs at various times over the last eight years.
The Curiosity project and its $2.5 billion budget has generated jobs not just at NASA but at
companies ranging from Lockheed Martin to a bicycle manufacturer in Chattanooga, Tenn.
2. Apple becomes biggest company in U.S. history as its stock reaches $623 BILLION
Apple has become the most valuable company in American history. Its surging stock propelled the
company's value to $623 billion, beating the record for market capitalization set by Microsoft Corp.
Apple's stock has hit new highs recently because of optimism around what is believed to be the
impending launch of the iPhone 5, and possibly a smaller, cheaper iPad.
BIBLIOGRAPHY
1) Law nr.31/1990
2) www.wikipedia.com
3) http://www.forbes.com/sites/ericjackson/2011/12/14/top-ten-reasons-why-largecompanies-fail-to-keep-their-best-talent/
4) http://www.glassdoor.com/blog/small-large-companies-ten-differences-working/
5) Investigarea fraudelor economico-financiare, Nicolae Ghinea, anul 2011, editura Sitech

8 B COMPANIES. ALLIANCES. ACQUISITIONS

COMPANIES.
A company is a business organization. It is an association or collection of individual real
persons and/or other companies, who each provide some form of capital. This group has a common
purpose or focus and an aim of gaining profits. This collection, group or association of persons can
be made to exist in law and then a company is itself considered a legal person".
In the United States, a company may be a "corporation, partnership, association, joint-stock
company, trust, fund, or organized group of persons, whether incorporated or not, and (in an official
capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the
foregoing"53.
In English law and in the Commonwealth realms a company is a body corporate or
corporation company registered under the Companies Acts or similar legislation 54. It does not
include a partnership or any other unincorporated group of persons, although such an entity may be
loosely described as a company.

53

Black's Law and lee Dictionary. Second Pocket Edition. Bryan A. Garner, editor. West.
2001.
54 Companies Act 2006, Section 1
64

Types
1. A company limited by guarantee. Commonly used where companies are formed for
non-commercial purposes, such as clubs or charities. The members guarantee the payment of
certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise
they have no economic rights in relation to the company. This type of company is common in
England. A company limited by guarantee may be with or without having share capital.
2. A company limited by shares. The most common form of company used for business
ventures. Specifically, a limited company is a "company in which the liability of each shareholder is
limited to the amount individually invested" with corporations being "the most common example of
a limited company. This can be a public company or private company."
3. A company limited by guarantee with a share capital. A hybrid entity, usually used
where the company is formed for non-commercial purposes, but the activities of the company are
partly funded by investors who expect a return. This type of company may no longer be formed in
the UK, although provisions still exist in law for them to exist55.
4. A limited-liability company. "A companystatutorily authorized in certain statesthat
is characterized by limited liability, management by members or managers, and limitations on
ownership transfer56.
5. An unlimited company with or without a share capital. A hybrid entity, a company
where the liability of members or shareholders for the debts (if any) of the company are not limited.
In this case doctrine of veil of incorporation does not apply.
Less commonly seen types of companies are:
Companies formed by letters patent. Most corporations by letters patent are corporations
sole and not companies as the term is commonly understood today.
Charter corporations. Before the passing of modern companies legislation, these were the
only types of companies. Now they are relatively rare, except for very old companies that still
survive (of which there are still many, particularly many British banks), or modern societies that
fulfil a quasi regulatory function (for example, the Bank of England is a corporation formed by a
modern charter).
Statutory Companies. Relatively rare today, certain companies have been formed by a
private statute passed in the relevant jurisdiction.
Note that "Ltd after the company's name signifies limited company, and PLC (public limited
company) indicates that its shares are widely held"57.
In legal parlance, the owners of a company are normally referred to as the "members". In a
company limited or unlimited by shares (formed or incorporated with a share capital), this will be
the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore
jurisdictions have created special forms of offshore company in a bid to attract business for their
jurisdictions. Examples include "segregated portfolio companies" and restricted purpose companies.
There are however, many, many sub-categories of types of company that can be formed in
various jurisdictions in the world.

55

Companies Act 2006

Definition of 'Limited Liability Company - LLC'
57 Company." Crystal Reference Encyclopedia. Crystal Reference Systems Limited. 27 Nov.
2007
56

65

Companies are also sometimes distinguished for legal and regulatory purposes between
public companies and private companies. Public companies are companies whose shares can be
publicly traded, often (although not always) on a regulated stock exchange. Private companies do
not have publicly traded shares, and often contain restrictions on transfers of shares.
The Companies Act 200658 (c 46) is an Act of the Parliament of the United Kingdom which
forms the primary source of UK company law. It had the distinction of being the longest in British
Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16
schedules (The list of contents is 59 pages long) but it has since been superseded, in that respect, by
the Corporation Tax Act 2009.
The Act was brought into force in stages, with the final provision being commenced on 1
October 2009. It superseded the Companies Act 1985.
The Act provides a comprehensive code of company law for the United Kingdom, and made
changes to almost every facet of the law in relation to companies. The key provisions are:
x the Act codifies certain existing common law principles, such as those relating to
directors' duties.
x it implements the European Union's Takeover and Transparency Obligations Directives.
x it introduces various new provisions for private and public companies.
x it applies a single company law regime across the United Kingdom, replacing the two
separate (if identical) systems for Great Britain and Northern Ireland.
x it otherwise amends or restates almost all of the Companies Act 1985 to varying degrees.
The Bill for the Act was first introduced to Parliament as "the Company Law Reform Bill"
and was intended to make wide-ranging amendments to existing statutes. Lobbying from directors
and the legal profession ensured that the Bill was changed into a consolidating Act, avoiding the
need for cross-referencing between numerous statutes.
The reception of the Act by the legal professions in the United Kingdom has been slightly
lukewarm. Concerns have been expressed that too much detail has been inserted to seek to cover
every eventuality. Whereas a complete overhaul of company law was promised, the Act seems to
leave much of the existing structure in place, and to simplify certain aspects only at the margins. In
other areas, it is said to have complicated and obfuscated previously settled law and may make
doing business more difficult for those operating small companies.
ALLIANCES59
Business alliances60 are often overlooked or not given much consideration by small
businesses, yet they can be vital in helping a company grow and prosper. All too often, small
businesses think alliances are just for big businesses; as a result, they neither explore nor pursue
them. However, they can be just as beneficial for small businesses as they are for large
corporations. If a small business is serious about gaining access to new markets, capitalizing on
technology, growing profits using shared resources, they should consider a business alliance.

58 Chatfield, Michael Companies Acts, In History of Accounting: An International

Encyclopedia, edited by Michael Chatfield and Richard Vangermeersch. New York:
Garland Publishing
59 http://EzineArticles.com
60 Kuglin, F.A; J. Hook(2002) Buiding, Leading and Managing Strategic Alliances

66

JOINT VENTURE
A joint venture is a contractual arrangement whereby a separate entity is created to carry on
a trade or business on its own, separate from the core business of the participating companies.
Businesses often come together to share knowledge, markets, funds and profits. In some cases, a
large company can decide to form a joint venture with a smaller business in order to quickly acquire
critical intellectual property, technology, or resources otherwise hard to obtain. Companies with
identical products and services can also join forces to penetrate markets they wouldn't or couldn't
consider without investing a tremendous amount of resources. Separation is often inevitable
because JVs generally have a limited life and purpose.
Example: You've developed a product but have a limited distribution base. Another
company has the distribution system in place with a sizable market and wants to expand its
company's product offerings. You form a joint venture with the other company to jointly promote
the product. It's a win-win because you don't have to fund the costs of reaching the potential
customers and the other company expands its value and product offering to its current distribution
base without having to fund the research and development costs of a new product. A contract would
be signed detailing the aspects of the agreement.
STRATEGIC ALLIANCE
A strategic alliance is generally an arrangement whereby a separate entity is not created.
Participants engage in joint activities but do not create an entity that would carry on trade or
business on its own. The strategic alliance partners may provide resources such as products,
distribution channels, manufacturing capabilities, capital equipment, knowledge, expertise, or
intellectual property. Each party in the alliance maintains autonomy.
PARTNERSHIP
A partnership is a legal agreement between two parties wherein both the parties agree to
share profits and losses of a common business with no anticipated end date61.
MARKETING ALLIANCE
A marketing alliance is an agreement involving two or more companies to share cost and
resources to promote each of the companies within the group. The target markets of the companies
within the alliance usually share similar characteristics. The alliance can be a formal or an informal
agreement.
COLLABORATION
A collaboration is when two or more businesses come together to share resources to create
greater efficiencies such as the sharing of employees, equipment, shipping cost, rent, products and
etc. Collaborations are generally for specific time periods and resources.
ACQUISITION
An acquisition or takeover is the purchase of one business or company by another company
or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership
equity of the acquired entity. Consolidation occurs when two companies combine together to form a
new enterprise altogether, and neither of the previous companies survives independently.
Acquisitions are divided into "private" and "public" acquisitions, depending on whether the
acquiree or merging company (also termed a target) is or is not listed on a public stock market. An
additional dimension or categorization consists of whether an acquisition is friendly or hostile.

61

http://partnersindemand.com
67

Achieving acquisition success has proven to be very difficult, while various studies have
shown that 50% of acquisitions were unsuccessful62. The acquisition process is very complex, with
many dimensions influencing its outcome.
Whether a purchase is perceived as being a "friendly" one or a "hostile" depends
significantly on how the proposed acquisition is communicated to and perceived by the target
company's board of directors, employees and shareholders. It is normal for M&A deal
communications to take place in a so-called "confidentiality bubble" wherein the flow of
information is restricted pursuant to confidentiality agreements63. In the case of a friendly
transaction, the companies cooperate in negotiations; in the case of a hostile deal, the board and/or
management of the target is unwilling to be bought or the target's board has no prior knowledge of
the offer. Hostile acquisitions can, and often do, ultimately become "friendly", as the acquiror
secures endorsement of the transaction from the board of the acquiree company. This usually
requires an improvement in the terms of the offer and/or through negotiation.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes,
however, a smaller firm will acquire management control of a larger and/or longer-established
company and retain the name of the latter for the post-acquisition combined entity. This is known as
a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that
enables a private company to be publicly listed in a relatively short time frame. A reverse merger
occurs when a privately held company (often one that has strong prospects and is eager to raise
financing) buys a publicly listed shell company, usually one with no business and limited assets64.
There are also a variety of structures used in securing control over the assets of a company,
which have different tax and regulatory implications:
The buyer buys the shares, and therefore control, of the target company being purchased.
Ownership control of the company in turn conveys effective control over the assets of the company,
but since the company is acquired intact as a going concern, this form of transaction carries with it
all of the liabilities accrued by that business over its past and all of the risks that company faces in
its commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the selloff is paid back to its shareholders by dividend or through liquidation. This type of transaction
leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often
structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out
the assets and liabilities that it does not. This can be particularly important where foreseeable
liabilities may include future, unquantified damage awards such as those that could arise from
litigation over defective products, employee benefits or terminations, or environmental damage. A
disadvantage of this structure is the tax that many jurisdictions, particularly outside the United
States, impose on transfers of the individual assets, whereas stock transactions can frequently be
structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the
buyer and to the seller's shareholders.
The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation
where one company splits into two, generating a second company which may or may not become
separately listed on a stock exchange.

62

Investment banking explained pp.223,224

Harwood, 2005
64 Reverse Merger in the Glossary of mergers-acquisitions.org
63

68

As per knowledge-based views, firms can generate greater values through the retention of
knowledge-based resources which they generate and integrate. Extracting technological benefits
during and after acquisition is ever challenging issue because of organizational differences. Based
on the content analysis of seven interviews authors concluded five following components for their
grounded model of acquisition:
x
Proper documentation and changing implicit knowledge makes it difficult to share
information during acquisition.
x
For acquired firm symbolic and cultural independence which is the base of
technology and capabilities are more important than administrative independence.
x
Detailed knowledge exchange and integrations are difficult when the acquired firm is
large and high performing.
x
Management of executives from acquired firm is critical in terms of promotions and
pay incentives to utilize their talent and value their expertise.
x
Transfer of technologies and capabilities are most difficult task to manage because of
complications of acquisition implementation. The risk of losing implicit knowledge is always
associated with the fast pace acquisition.
DISCUSSION POINT:

READ TE FOOLOWING excerpt from Mergers, Acquisitions, and Other Restructuring

Activities on Factors that Affect Corporate Governance and present a case study of an acquisition.

69

APPLIED THEORY:

8B1-A Company/Product/Service Presentation

Coca Cola Cherry65
Coca-Cola Cherry, originally introduced (and still known in some countries) as Cherry Coke, is
a cherry-flavored version of Coca-Cola. It is produced and distributed by The Coca-Cola Company and its
bottlers in the United States and some international markets.
History
Long before its official introduction in 1985, many diners and drugstore soda fountains dispensed an
unofficial version of Cherry Coke by adding cherry-flavored syrup to the Coca-Cola mix; this drink is called cherry
cola.
Coca-Cola tested Cherry Coke on an audience at the 1982 World's Fair. After the introduction of Cherry
Coke and the failure of New Coke the drink then entered mainstream production in 1985. Cherry Coke, which by
2007 had been renamed Coca-Cola Cherry in the U.S. and some other countries, was the third variation of CocaCola at that time the others being classic Coke and Diet Coke and the first flavored Coke.[3] It was released
concurrently with the far less popular New Coke, and gained significant market share when that product was
discontinued in 1992. Diet Cherry Coke was introduced in 1986, and renamed "Diet Coke Cherry" in 2005. A
second low-calorie version, Coca-Cola Cherry Zero (based on Coca-Cola Zero), was added in 2007. The CocaCola Company would later introduce other flavored Coke variants, beginning with Vanilla Coke in May 2002, later
followed by lime, raspberry, lemon, Black Cherry Vanilla and orange variants. Many of these are currently only
sold in overseas markets or are microdispensed through Coca-Cola'sFreestyle vending machines.
International distribution
Coca-Cola Cherry has been offered in a number of different countries. Currently, in addition to the U.S.,
the drink is available in China, the United Kingdom, Ireland, Finland, Germany, France, Hungary, theCzech
Republic, the Netherlands, Slovakia, Croatia, South Africa, South Korea, Bulgaria, and Peru. It is also available
in Japan and Poland, but is still known as Cherry Coke in those countries. It is available in Ireland through British
pharmaceutical chains such as Boots and Superdrug. Cherry Coke is also available in Belgium but only in cans of
250 ml. In New Zealand Coca-Cola Cherry can be found in some supermarkets. In the past the product has been
offered
in Argentina, Brazil, Chile, CostaRica, Canada, Colombia, Denmark, Latvia, Russia, Spain, Ukraine, Australia, Ne
w Zealand, and the Philippines. The Australian version was released between 2003 and 2004 and was a different
mix to the US version. It is no longer bottled in these countries, although the U.S. product is imported by some
Canadian convenience stores near the Canada-U.S. border, as well as by IGA, Costco and specialty retailers in
Australia. In Sweden it is available at different grocery stores. The grocery stores source import from the United
States and the self-produced Coca Cola Cherry from Coca Cola enterprises Sweden. In Norway, Cherry Coke is
available at Reitan Group stores.

65

70

http://en.wikipedia.org/wiki/Coca-Cola_Cherry

Since January 2011, Coca-Cola Cherry is also available in Switzerland distributed by Coop. Since July
2013 Coca-Cola Cherry is available in Croatia, Romania and Spain.
Packaging and marketing
Packaging for Coca-Cola Cherry differs greatly from country to country. In most areas, the current can and
bottle label designs are based on the standard Coca-Cola label in a pink or purple hue, often with images of
cherries.
On February 7, 2007, Coca-Cola launched a new campaign for the Coca-Cola Cherry brand in the U.S.,
resulting in a significant redesign of the product's label. Jay-Z was chosen to be the spokesman and played a part in
designing the new can graphics. A new diet version, Coca-Cola Cherry Zero, was also introduced, although the
original Diet Coke Cherry will remain available in 12-packs. These designs remained in place until early 2011,
when a cleaner design (closer to the label designs used overseas) was introduced.

8B2-A Company Profile66

LUXOTTICA - COMPANY PROFILE
Founded in 1961 by Leonardo Del Vecchio, always involved in protecting eyes and optimising the look of
men and women everywhere, the Luxottica Group is now a vertically integrated organization, producing and
distributing prescription frames and sunglasses of high technical quality and style.
The constant attention paid to research and development, technological innovation, the adaptation to
market evolutions in respect of people and the environment, have led Luxottica through worldwide expansion.
Production
The Group's products are designed and manufactured at its six manufacturing plants in Italy, two whollyowned plants in China, one plant in Brazil and one plant in the United States devoted to the production of sports
eyewear.
Trademarks
Luxottica products are outstanding in terms of design and high quality and are known all round the world
thanks to a strong and well balanced brand portfolio. House brands include Ray-Ban, one of the worlds best
known sun brands, Oakley, Vogue, Persol, Oliver Peoples, Alain Mikli, Arnette, while its license brands include
Bvlgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Paul Smith, Prada, Stella
McCartney, Tiffany, Tory Burch, Versace and, since 2013, Armani
Wholesale distribution
The Groups wholesale distribution network, covering 130 countries across five continents, has 20
distribution centres and over 40 commercial subsidiaries providing direct operations in key markets. The Group is
currently seeking to penetrate emerging markets and is exploring new channels of distribution such as department
stores, airports and railway stations.
Retail network

66

http://www.luxottica.com/en/about-us/company-profile
71

Direct wholesale operations are complemented by an extensive retail network for prescription and sun
segments.
Luxottica Group is a leader in the prescription business in North America with its LensCrafters and Pearle
Vision retail brands, in Asia-Pacific with OPSM and Laubman & Pank, in China with LensCrafters and in Latin
America with GMO.
In the retail sun business, the Group operates over 2,700 retail locations in North America, Latin America,
Asia-Pacific, South Africa, Europe and the Middle East, mainly through the Sunglass Hut brand.
In addition, in the US Luxottica is one of the largest Managed Vision Care operators through EyeMed, and
the second biggest lens finisher, having a network of five central laboratories and over 900 on-site labs at
LensCrafters stores.
Oakley
The Oakley brand provides a powerful wholesale and retail presence in the sports channel through a chain
of flagship "O" stores. In these stores, the Group offers a variety of Oakley-branded products, like clothes,
footwear, backpacks and other accessories, in addition to the Oakley sunglass styles. Oakley-branded products
include mens and womens apparel, footwear and accessories designed for surf, winter sports, golf, motorcycling,
cycling and other athletic lifestyles.

8B3 The Organisation Chart of a Company67

Thai Airways International Public Company Limited is the national carrier of the Kingdom of Thailand. It
operates domestic, regional and intercontinental flights radiating from its home base in Bangkok to key destinations
around the world and within Thailand.
To get a better idea of THAI Companys hierarchical structure, view our organization chart

67

72

http://www.thaiairways.com/about-thai/company-profile/en/organization-chart.htm

CHAPTER 9
LICENSING AND FRANCHISING
LICENSING
Choose the best answer:
n. franchise

(a) casualty; misadventure; mishap; failure

(b) license to market a company's goods or services; business which has been granted a license
(c) mark; symbol; indication; hint; trace; notice; advertisement
(d) limit to which money may be withdrawn from the bank on credit
The verb license or grant license means to give permission. The noun license (American
English) or licence (British English, Indian English ,Canadian English, Australian English, New
Zealand English, South African English) refers to that permission as well as to the document
recording that permission.
A license may be granted by a party ("licensor") to another party ("licensee") as an element
of an agreement between those parties. A shorthand definition of a license is "an authorization (by
the licensor) to use the licensed material (by the licensee)."
In particular, a license may be issued by authorities, to allow an activity that would
otherwise be forbidden. It may require paying a fee and/or proving a capability. The requirement
may also serve to keep the authorities informed on a type of activity, and to give them the
opportunity to set conditions and limitations.
Intellectual property
A licensor may grant a license under intellectual property laws to authorize a use (such as
copying software or using a (patented) invention) to a licensee, sparing the licensee from a claim of
infringement brought by the licensor.68 A license under intellectual property commonly has several
components beyond the grant itself, including a term, territory, renewal provisions, and other
limitations deemed vital to the licensor.
Term: many licenses are valid for a particular length of time. This protects the licensor
should the value of the license increase, or market conditions change. It also preserves
enforceability by ensuring that no license extends beyond the term of the agreement.
Territory: a license may stipulate what territory the rights pertain to. For example, a license
with a territory limited to "North America" (Mexico/United States/Canada) would not permit a
licensee any protection from actions for use in Japan.

68

Intellectual Property Licensing: Forms and Analysis, by Richard Raysman, Edward A.

Pisacreta and Kenneth A. Adler. Law Journal Press, 1999-2008.
73

A shorthand definition of license is "a promise by the licensor not to sue the licensee." That
means without a license any use or exploitation of intellectual property by a third party would
amount to copying or infringement. Such copying would be improper and could, by using the legal
system, be stopped if the intellectual property owner wanted to do so.69
It is undeniable that intellectual property licensing plays a major role in today's business and
economy. Business practices such as franchising, technology transfer, publication and character
merchandising entirely depend on the licensing of intellectual property. Licensing has been
recognized as an independent branch of law. It is born out of the interplay of the doctrine of
contract and the principles of intellectual property.
Mass licensing of software
Mass distributed software is used by individuals on personal computers under license from
the developer of that software. Such license is typically included in a more extensive end-user
license agreement (EULA) entered into upon the installation of that software on a computer.
Typically, a license is associated with a unique code, that when approved grants the end user access
to the software in question.
Under a typical end-user license agreement, the user may install the software on a limited
number of computers.
The enforceability of end-user license agreements is sometimes questioned.
Trademark and brand licensing
A licensor may grant permission to a licensee to distribute products under a trademark. With
such a license, the licensee may use the trademark without fear of a claim of trademark
infringement by the licensor. The assignment of a license often depends on specific contractual
terms. The most common terms are, that a license is only applicable for a particular geographic
region, just for a certain period of time or barely for a stage in the value chain. Moreover there are
different types of fees within the trademark and brand licensing. The first form demands a fee
independent of sales and profits, the second type of license fee is dependent on the productivity of
the licensee.
Artwork and character licensing
A licensor may grant a permission to a licensee to copy and distribute copyrighted works
such as "art" (e.g., Thomas Kinkade's painting "Dawn in Los Gatos") and characters (e.g., Mickey
Mouse). With such license, a licensee need not fear a claim of copyright infringement brought by
the copyright owner.
Artistic license is, however, not related to the aforementioned license. It is a euphemism that
denotes approaches in art works where dramatic effect is achieved at the expense of factual
accuracy

69

Licensing Intellectual Property: Law & Management, by Raman Mittal. Satyam Law
International, New Delhi, India, 2011
74

Academia
A license is an academic degree. Originally, in order to teach at a university, one needed this
degree which, according to its title, gave the bearer a license to teach. The name survived despite
the fact that nowadays a doctorate is typically needed in order to teach at a university. A person
who holds a license is called a licentiate.
In Sweden, Finland, and in some other European university systems, a license or 'Licentiate'
is a postgraduate degree between the master's degree and the doctorate. The Licentiate is a popular
choice in those countries where a full doctoral degree would take five or more years to achieve.
In some other major countries, such as France, or Belgium or Poland a license is achieved
before the master's degree (it takes 3 years of studies to become licentiate and 2 additional years to
become Master) in France, while in Belgium the license takes 4 years while the master itself takes 2
more years. In Switzerland, a license is a 4-year degree then there is a DEA degree which is
equivalent to the Master's degree. In Portugal, before the Bologna process, students would become
licentiates after 5 years of studies (4 years in particular cases like Marketing, Management, etc.; and
6 years for Medicine). However, since the adoption of the Bologna Process engineering degrees in
Portugal were changed from a 5 year license to a 3 year license followed by 2 years for the MSc:
Not having the MSc doesn't confer accreditation by the Ordem dos Engenheiros)

FRANCHISING
Franchising is the practice of using another firm's successful business model. The word
'franchise' is of Anglo-French derivation - from franc - meaning free, and is used both as a noun and
as a (transitive) verb.70 For the franchisor, the franchise is an alternative to building 'chain stores' to
distribute goods that avoids the investments and liability of a chain. The franchisor's success
depends on the success of the franchisees. The franchisee is said to have a greater incentive than a
direct employee because he or she has a direct stake in the business.
Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator,
or a franchisee, to use the supplier's trademark and distribute the supplier's goods. In return, the
operator pays the supplier a fee.71
Thirty three countries, including the United States, China, and Australia, have laws that
explicitly regulate franchising, with the majority of all other countries having laws which have a
direct or indirect impact on franchising.72
The following U.S. listing tabulates the early 2010 ranking of major franchises along with
the number of sub-franchisees (or partners) from data available for 2004. As can be seen from the
names of the franchises, the USA is a leader in franchising, a position it has held since the 1930s
when it used the approach for fast-food restaurants, food inns and, slightly later, motels at the time
of the Great Depression. As of 2005, there were 909,253 established franchised businesses,

70

"franchiseOnline Etymology Dictionary

Gurnick, David (2011). Distribution Law of the United States. U.S.: Juris Publishing. pp. 35.
72
"International
Franchise
and
Distribution".
DLA
Piper.
2012.
http://www.dlapiper.com/us/services/detail.aspx?service=256 Retrieved 2012-02-02.
71

75

generating $880.9 billion of output and accounting for 8.1 percent of all private, non-farm jobs.
This amounts to 11 million jobs, and 4.4 percent of all private sector output.73
1. Subway (sandwiches and salads) | startup costs $84,300 $258,300 (22,000 partners
worldwide in 2004).
2. McDonald's | startup costs in 2010, $995,900 $1,842,700 (37,300 partners in 2010)
3. 7-Eleven Inc. (convenience stores) |startup costs in 2010 $40,500- $775,300, (28,200
partners in 2004)
4. Hampton Inns & Suites (midprice hotels) |startup costs in 2010 $3,716,000 $15,148,800
5. Great Clips (hair salons) | startup costs in 2010 $109,000 - $203,000
6. H&R Block (tax preparation and now e-filing) | startup costs $26,427 - $84,094 (11,200
partners in 2004)
7. Dunkin' Donuts | startup costs in 2010 $537,750 - $1,765,300
8. Jani-King (commercial cleaning) | startup costs $11,400 - $35,050, (11,000 partners
worldwide in 2004)
9. Servpro (insurance and disaster restoration and cleaning) | startup costs in 2010 $102,250
- $161,150
10. MiniMarkets (convenience store and gas station) | startup costs in 2010 $1,835,823 $7,615,065
Mid-sized franchises like restaurants, gasoline stations and trucking stations involve
substantial investment and require all the attention of a businessperson.
There are also large franchises like hotels, spas, hospitals, etc. which are discussed further
under technological alliances.
Two important payments are made to a franchisor: (a) a royalty for the trademark and (b)
reimbursement for the training and advisory services given to the franchisee. These two fees may be
combined in a single 'management' fee. A fee for "disclosure" is separate and is always a "front-end
fee".
A franchise usually lasts for a fixed time period (broken down into shorter periods, which
each require renewal), and serves a specific territory or geographical area surrounding its location.
One franchisee may manage several such locations. Agreements typically last from five to thirty
years, with premature cancellations or terminations of most contracts bearing serious consequences
for franchisees. A franchise is merely a temporary business investment involving renting or leasing
an opportunity, not the purchase of a business for the purpose of ownership. It is classified as a
wasting asset due to the finite term of the license.

73

"The Economic Impact of Franchised Businesses In the United States". Price Waterhouse
Coopers. 2012. http://www.franchise.org/uploadedFiles/Franchisors/Other_Content
/economic_impact_documents/EconomicImpactVolIIpart1.pdf. Retrieved 2012-02-02
76

A franchise can be exclusive, non-exclusive or 'sole and exclusive.

Although franchisor revenues and profit may be listed in a franchise disclosure document
(FDD), no laws require an estimate of franchisee profitability, which depends on how intensively
the franchisee 'works' the franchise. Therefore, franchisor fees are typically based on 'gross revenue
from sales' and not on profits realized..
Various tangibles and intangibles such as national or international advertising, training and
other support services are commonly made available by the franchisor.
Franchise brokers help franchisors find appropriate franchisees. There are also main 'master
franchisors' who obtain the rights to sub-franchise in a territory.
According to the International Franchise Association approximately 4% of all businesses in
the United States are franchisee-worked.
It should be recognized that franchising is one of the only means available to access venture
investment capital without the need to give up control of the operation of the chain and build a
distribution system for servicing it. After the brand and formula are carefully designed and properly
executed, franchisors are able to sell franchises and expand rapidly across countries and continents
using the capital and resources of their franchisees while reducing their own risk.
Franchisor rules imposed by the franchising authority are usually very strict in the USA and
most other countries need to study them carefully to protect small or start-up franchisee in their own
countries. Besides the trademark, there are proprietary service marks which may be copyrighted,
and corresponding regulations.
Obligations of the parties
Each party to a franchise has several interests to protect. The franchisor is involved in
securing protection for the trademark, controlling the business concept and securing know-how. The
franchisee is obligated to carry out the services for which the trademark has been made prominent
or famous. There is a great deal of standardization required. The place of service has to bear the
franchisor's signs, logos and trademark in a prominent place. The uniforms worn by the staff of the
franchisee have to be of a particular design and colour. The service has to be in accordance with the
pattern followed by the franchisor in the successful franchise operations. Thus, franchisees are not
in full control of the business, as they would be in retailing.
A service can be successful if equipment and supplies are purchased at a fair price from the
franchisor or sources recommended by the franchisor. A coffee brew, for example, can be readily
identified by the trademark if its raw materials come from a particular supplier. If the franchisor
requires purchase from his stores, it may come under anti-trust legislation or equivalent laws of
other countries. So too the purchase of uniforms of personnel, signs, etc., as well as the franchise
sites, if they are owned or controlled by the franchisor.
The franchisee must carefully negotiate the license. He and the franchisor must develop a
marketing or business plan. The fees must be fully disclosed and there should not be any hidden
fees. The start-up costs and working capital must be known before the license is granted. There
must be assurance that additional licensees will not crowd the "territory" if the franchise is worked
according to plan. The franchisee must be seen as an independent merchant. He must be protected

77

by the franchisor from any trademark infringement by third parties. A franchise attorney is required
to assist the franchisee during negotiations.74
Often the training period - the costs of which are in great part covered by the initial
fee - is too short in cases where it is necessary to operate complicated equipment, and the franchisee
has to learn on his own from instruction manuals. The training period must be adequate, but in lowcost franchises it may be considered expensive. Many franchisors have set up corporate universities
to train staff online. This is in addition to providing literature, sales documents and email access.
Also, franchise agreements carry no guarantees or warranties and the franchisee has
little or no recourse to legal intervention in the event of a dispute.75 Franchise contracts tend to be
unilateral contracts in favor of the franchisor, who is generally protected from lawsuits from their
franchisees because of the non-negotiable contracts that require franchisees to acknowledge, in
effect, that they are buying the franchise knowing that there is risk, and that they have not been
promised success or profits by the franchisor. Contracts are renewable at the sole option of the
franchisor. Most franchisors require franchisees to sign agreements that mandate where and under
what law any dispute would be litigated.

BIBLIOGRAPHY
- en.wikipedia.org/wiki/License
- Intellectual Property Licensing: Forms and Analysis, by Richard Raysman, Edward A.
Pisacreta and Kenneth A. Adler. Law Journal Press, 1999-2008
- Licensing Intellectual Property: Law & Management, by Raman Mittal. Satyam Law
International, New Delhi, India, 2011
- en.wikipedia.org/wiki/Franchising
- Gurnick, David (2011). Distribution Law of the United States. U.S.: Juris Publishing.
pp. 35
- http://www.entrepreneur.com/franchise500/index.html
- "The Economic Impact of Franchised Businesses In the United States". Price Waterhouse
Coopers.
2012.
http://www.franchise.org/uploadedFiles/Franchisors/Other_Content/economic_impact_documents/
EconomicImpactVolIIpart1.pdf. Retrieved 2012-02-02
- http://www.nolo.com/legal-encyclopedia/article-29512.html

74 Manual on Technology Transfer Negotiation (A reference for policy-makers and practitioners on

Technology Transfer), 1996, United Nations Industrial Development Organization, Vienna,
1990
75 http://www.nolo.com/legal-encyclopedia/article-29512.html

78

APPLIED THEORY
The unfair competition guide
Creating confusion, parasitism and the aggressive monopolization of the customers are punished by
law.
Anticompetition practices are dishonest ways used by certain economic agents to attract the
competitions clients.
By definition, unfair competition consists of any deeds or events that dont correspond with the
honest customs in the industrial and products commercialization activity (art 2, law no 11/1991 regarding
fighting the unfair competition, modified and added by law no 298/7/6/2001). So, this definition leaves us an
opened view over the facts of unfair competition. Articles 4 and 5 of law no 11/1991 define the main deeds
of unfair competition of penal and contraventional nature, but this list cant cover all the possibilities. As the
World Intellectual Property Organizations experts say, there will always be possibilities for new unfair
competition deeds since there are no limits in inventivity in this domain. Any attempt to embrace all the
present and future possibilities of unfair competition in one definition failed until the present.
Free riding
The so called parasitism, a very spread concept in the occidental world, also known as free riding,
means that a market agent lives as a parasite, taking advantages from the work, efforts and reputation of
others. In some countries, these deeds were recognized in legislative ways as unfair competition. In
Romania, the law regarding the unfair competition doesnt specify any penal or contraventional punishment.
It only remains the civil responsibility. But this means a law suit, began by the injured part, which means a
delay in taking measures against the unfair competition.
These deeds can be found in different ways such as imitating methods of publicity, types of
promoting, abusive mention of well known companies. Some try to take the good reputation of well known
companies and transfer it to their own products. Those who do such deeds, use expressions like: this type,
this kind, similar to the product X, style, taste, after the recipe or other similar expressions. In
other words, they try to take the advantages given by the guarantees of quality of well known companies.
Some special laws were issued recently regarding the food label and the use of such terms which is
prohibited (106/7.02.2002). Other restrictions originated in the idea of repressing the manifestation of unfair
competition which could lower the number of clients of the consecrated mark.
Taking clients
A very frequent unfair competition is putting a domain name on a distinctive sign already used and
known, creating confusion. After several law suit regarding domains, which were won by the complainers,
these kind of unfair competition turned towards the internet. Recently, Google is in law suits with several
companies because it sold key words which were the names of famous marks.
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The affair Imaje versus Wolke is another case that got in the law books. The Wolke Company, which
sold ink for the Imaje printers, registered the domain www.imaje-unk.com and redirected the clients to
www.wolk-ink.de. The judges stated the possibility of confusion for the consumers who could attribute the
same origin to the ink as to the printers.
Other way was the one used by France Telecom. SFR Company, the owner of SFR mark and
www.sfr.fr, ascertained that the American company W3 System Inc asked for www.sfr.com with
connections from the site of France Telecom, SFRs competition. In this way the taking of a companies
clients is well shown, even if there was an interpose company.
Confusion regarding distinctive signs
This means imitating emblems, wrap or any other insignia characteristic to a company. Except the
offence of adulteration of marks, punished by art 83 of law 84/1996, regarding marks and geographic
indications, these deeds can make the object of unfair competition if they identical or similar marks are used
and they create confusion.
Regarding commercial competition, confusion means a deed of unfair competition which contains a
dissimulation of an activity under the distinctive signs of the competition. As the art 5, lit a of law no
11/1991 regarding the fighting of unfair competition, it is an offence and it is punishable with 6 month to 2
years in jail or a fine from 25 000 000 lei to 50 000 000 lei the use of a firm, mark, geographical indication, a
drawing or an industrial model, of an emblem or wrap which could cause confusion with the ones used
legally by other merchant. The confusion can be also caused by the partial imitation if it touches
characteristic elements. As such, the French law considered that the mark La vache serieuse produces
confusion with the well known mark La vache qui rit, because it makes you think they have the same
origin. Also in France, a big scandal was regarding France Telecom and Communication Media Services,
regarding the marks Page Soleil and Page Jaunes. The law said that Page Soliel of Communication
Media Services could cause confusion with the well known Page Jeunes as the sun makes you think about
the color yellow.
The law punishes the deeds that can produce confusion, so we can see an unfair competition act
even before it was produces. It only has to be a chance of creating confusion. Even though the risk of
confusion refers to the average consumer, with medium attention, level of education and intelligence, if the
produce is targeted on a certain category of costumers, the risk of confusion is estimated in accordance with
them.

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CHAPTER 10
TYPES OF CONTRACTS
A contract is an agreements between two entities, creating an enforceable obligation to
do, or to refrain from doing, a particular thing.
The purpose of a contract is to establish the agreement that the parties have made and to fix
their rights and duties in accordance with that agreement. The courts must enforce a valid contract
as it is made, unless there are grounds that bar its enforcement.
As a general rule, contracts by competent persons, equitably made, are valid and enforceable.
Parties to a contract are bound by the terms to which they have agreed, usually even if the contract
appears to be improvident or a bad bargain, as long as it did not result from Fraud, duress, or Undue
Influence.
The most important feature of a contract is that one party makes an offer for an arrangement
that another accepts. This can be called a concurrence of wills or consensus ad idem (meeting of
the minds) of two or more parties.
Consideration is something of value given by a promissor to a promisee in exchange for
something of value given by a promisee to a promissor. Typically, the thing of value is a payment,
although it may be an act, or forbearance to act, when one is privileged to do so, such as an adult
refraining from smoking. Consideration consists of a legal detriment and a bargain. A legal
detriment is a promise to do something or refrain from doing something that you have the legal
right to do, or voluntarily doing or refraining from doing something, in the context of an agreement.
A bargain is something the promisor (the party making promise or offer) wants, usually being one
of the legal detriments. The legal detriment and bargain principles come together in consideration
and create an exchange relationship, where both parties agree to exchange something that the other
wishes to have.
Consideration must be sufficient, but courts will not weigh the adequacy of consideration.
For instance, agreeing to sell a car for a penny may constitute a binding contract.All that must be
shown is that the seller actually wanted the penny. This is known as the peppercorn rule.
Otherwise, the penny would constitute nominal consideration, which is insufficient. Parties may do
this for tax purposes, attempting to disguise gift transactions as contracts.
Transfer of money is typically recognized as an example of sufficient consideration, but in
some cases it will not suffice, for example, when one party agrees to make partial payment of a debt
in exchange for being released from the full amount.

Sale of Goods: What is Sale of Goods Contract?

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price.

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x Goods: Every kind of moveable property other than actionable claims and money,
includes stock and shares, growing crops, grass, and things attached to or forming part of the land,
which are agreed to be severed before sale or under the contract of sale.
x

Buyer: This means a person who buys or agrees to buy goods.

Price: This means the money consideration for the sale of goods.

Property: This refers to the general property in goods, and not merely a special

property.
x Sale: Under a contract of sale, the property in goods is transferred from a seller to the
buyer, it is called a sale.

Sale of Goods: Difference between Contract of Sale and Agreement to Sell

The contract of sale of goods is a broader term that includes sale and an agreement to sell.
The agreement to sell is defined as a legal agreement between parties regarding the transfer
of the property in the goods, that is to take place at future time period or subjected to execution of
specific conditions.
Simply put, suppose you want to sell a house and a plot that comes with it. You can enter
into an agreement to sell your property with a prospective buyer stating that in six months if the
transaction is not complete, the agreement is null and void and that you get to retain the advance
amount paid for this agreement and that you dont need to return it if the buyer is unable to pay the
rest of the amount agreed on to complete the transaction.
The Sale of Goods Contract is used as an agreement between a buyer and seller, in which
the seller states the quantity, date, and delivery of the goods. The Sale of Goods Contract provides a
template for purchases made by a business and accounts for risk of loss. The contract is used when
goods are bought or sold. This contract is customizable for your company's specific usage.
Essentials of a contract of sale of goods are given below:
1. Two parties:
The first essential is that there must be two distinct parties to a contract of sale, viz., a buyer
and a seller, as a person cannot buy his own goods. However, there may be a contract of sale
between one part-owner and another, e.g., if A and B jointly own a computer, A may sell his
ownership in the computer to B, thereby making B sole owner of the goods [Sec. 4(1)]. Similarly, a
partner may buy the goods from the firm in which he is a partner and vice-versa.
2. Transfer of property:
Property here means ownership. Transfer of property in the goods is another essential of
a contract of sale of goods. A mere transfer of possession of the goods cannot be termed as sale. To
constitute a contract of sale the seller must either transfer or agree to transfer the property in the
goods to the buyer.
3. Goods:
The subject-matter of the contract of sale must be goods. According to Section 2(7),
goods means every kind of movable property other than actionable claims and money; and
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includes stock and shares, growing crops, grass, and things attached to or forming part of the land
which are agreed to be severed before sale or under the contract of sale.
Thus every kind of movable property except actionable claim and money is regarded as goods.
Goodwill, trademarks, copyrights, patents right, water, gas, electricity, decree of a court of law, are
all regarded as goods. Shares and stock are also included in goods.
Actionable claims means claims which can be enforced by a legal action or a suit, e.g., a book
debt (i.e., a debt evidenced by an entry by the creditor in his Account Book or Bahi). A book debt is
not goods because it can only be assigned as per the Transfer of Property Act but cannot be sold.
Money means current money:
It is not regarded goods because it is the medium of exchange through which goods can be
bought. Old and rare coins, however, may be treated as goods and sold as such.
It may be mentioned that sale of immovable property is governed by the Transfer of Property Act,
1882.
4. Price:
The consideration for a contract of sale must be money consideration called the price. If
goods are sold or exchanged for other goods, the transaction is barter, governed by the Transfer of
Property Act and not a sale of goods under this Act. But if goods are sold partly for goods and
partly for money, the contract is one of sale (Aldridge vs Johnson).
5. Includes both a sale and an agreement to sell:
The term contract of sale is a generic term and includes both a sale and an agreement to
sell [as is clear from the definition of the term as per Section 4(1) given earlier)].
Sale. Where under a contract of sale the property in the goods is immediately transferred at
the time of making the contract from the seller to the buyer, the contract is called a sale [Sec.
4(3)]. It refers to an absolute sale, e.g., an outright sale on a counter in a shop.
There is immediate conveyance of the ownership and mostly of the subject-matter of the sale
as well (delivery may also be given in future). It is an executed contract.
Contract of lease
A lease is a contractual arrangement calling for the lessee (user) to pay the lessor
(owner) for use of an asset.
A lease is a legal contract, and thus enforceable by all parties under the contract law of the
applicable jurisdiction.
In the USA since it also represents a conveyance of possessory rights to real estate, it is a hybrid
sort of contract that involves qualities of a deed.

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Some specific kinds of leases may have specific clauses required by statute depending upon
the property being lease, and/or the jurisdiction in which the agreement was signed or the residence
of the parties.
Common elements of a lease include:
x Names of the parties of the agreement.
x The starting date and duration of the agreement.
x Identifies the specific object (by street address, VIN, or make/model,serial number) being
leased.
x Provides conditions for renewal or non-renewal.
x Has a specific consideration (a lump sum, or periodic payments) for granting the use of
this object.
x Has provisions for a security deposit and terms for its return.
x May have a specific list of conditions which are therein described as Default Conditions
and specific Remedies.
x May have other specific conditions placed upon the parties such as
x need to provide insurance for loss
x restrictive use
x which party is responsible for maintenance
All kinds of personal property (e.g.: cars, furniture) or real property (raw land, apartments,
single family homes, and business property (including wholesale and retail)) may be leased. As a
result of the lease, the owner (lessor) grants the use of the stated property to the lessee.

Franchise agreement

A Franchise Agreement is a legal, binding contract between a franchisor and

franchisee, enforced in the United States at the State level.
A franchise agreement contents can vary in content depending upon the franchise system, the state
jurisdiction of the franchisor, franchisee, and arbitrator.
Franchising is the practice of using another firm's successful business model The word
'franchise' is of Anglo-French derivation - from franc - meaning free, and is used both as a noun and
as a (transitive) verb.For the franchisor, the franchise is an alternative to building 'chain stores to
distribute goods that avoids the investments and liability of a chain. The franchisor's success
depends on the success of the franchisees. The franchisee is said to have a greater incentive than a
direct employee because he or she has a direct stake in the business.
Thirty three countries, including the United States, China, and Australia, have laws that explicitly
regulate franchising, with the majority of all other countries having laws which have a direct or
indirect impact on franchising
A franchise operation is a contractual relationship between the franchisor and the
franchisee in which the franchisor offers or is obliged to maintain continuing interest in the
business of the franchisee in such areas as know-how and training, wherein the franchisee
operates under a common trademark, format or procedure owned or controlled by the

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franchisor, under which the franchisee has or will make a substantial capital investment in his
business from his own resources.
The key elements of the definition include:
(1) a contractual relationship,
(2) the franchisor offers or is obliged to maintain a continuing interest in relation to the
know-how and training,
(3) the franchisee operates under a common trademark, format or procedure,
(4) owned or controlled by the franchisor, and
(5) the franchisee has or will make a substantial capital investment from his own
resources.
The licensing of intellectual property to the franchisee is a central theme of the Franchise
Agreement. The three most important areas of intellectual property in most franchise systems are trademarks,
copyright and know-how.
TRADEMARKS

In terms of the Trademarks Act, a trademark includes any sign capable of being represented
graphically including:
x A device, logo or representation
x A name or signature
x A word, words, phrase or slogan
x A letter or series of letters
x A numeral or series of numerals
x The shape and configuration of a product or part thereof
x The pattern and ornamentation appearing on a product, packaging or advertising
materials
x A color or combination of colors
x A container for goods
x Any combination of the aforementioned.
It is often said that the cornerstone of the Trademarks Act is distinctiveness. To be capable
of being registered and function as a trademark, the mark must distinguish the goods and services in
relation to which it is used from the goods or services of others.
COPYRIGHT
The next important area of intellectual property is copyright. Copyright is the right given to
the creator, author or other person who may own the copyright of certain types of works, not to
have that work copied or reproduced without authorization. Copyright exists in various types of
works including literary works such as manuals, documents, articles, promotional materials,
disclosure documents, novels and publications. Artistic works include logos, labels, menus,
advertisements and diagrams. Computer programs also enjoy copyright.
A critical point to remember is that generally the author of copyright work is also the owner
thereof, unless the work was made by an employee during the course of his employment. In this
instance, the employee will be the author, but the employer will be the owner. It is therefore
essential that copyright in all works including logos, promotional materials, company
documentation and other works which are prepared externally or outsourced, even if they have been
paid for, are competently transferred to the franchisor in writing. If this is not attended to, although
the franchisor (and the networks franchisees) will be able to use any such materials, the franchisor
will not be the owner thereof.
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KNOW-HOW
The term know-how usually refers to a wealth of technical knowledge, commercial
information and experience developed and acquired by a specialised production organisation. It is
often reduced to the form of an operating manual or reflected in similar documentation. Many of the
success features of franchises reside in the know-how, trade secrets and confidential information. It
is important to note that if know-how or trade secrets are leaked or become public knowledge, it
will no longer be possible to protect them and they may become valueless. Competent
confidentiality provisions should therefore be included in the Franchise Agreement and/or in
employment contracts.
Electronic trade contract
The object of this Law consists in defining rules to conclude contracts by using electronic
documents.
Electronic trade - entrepreneurial activities in selling goods, doing works (businesses) and
providing services when interchange of electronic documents is involved.
Electronic trade's legal regulation is based on the principles of equality of participants, free
will, freedom of contract, free conduct of entrepreneurial activities, also on the free movement of
goods, services and financial resources also on the guarantee of the court protection of rights of the
electronic trade's participants.
When contract is concluded in electronic trade, proposal (offer) of the one side and consent
(acceptance) of the other is in the form of the electronic documents.
Offer can be made (sent) by the offerer itself, by the person authorized to act (conduct
businesses) on the behalf of the offerer or information system acting automatically on behalf of the
offerer.
Electronic trade shall be (may be) conducted by legal persons or natural persons eligible to
perform entrepreneurial activities without creating legal personality.

Bibliography
www.legal-dictionary.thefreedictionary.com
www.innovation.gov.au
www.canterbury.gov.uk
https://www.acquisition.gov/far/current/html/FARTOCP16.html
www.ohio.edu/ptac/.../contract_types.pdf
www.referenceforbusiness.com

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Some Aspects of Legal Issues Business Consultants should know about

If you are thinking about setting up as an Independent Contractor there are a number of factors you
should

consider

about

how

that

would

change

the

way

in

which

you

work.

76

1. Contractual Relationship

Being an Independent Contractor, means you are entering into contractual relationships with your
clients. Essentially, you are agreeing to provide services as per a written/understood contract for an agreed
upon fee. I would always advise a written contract as it avoids misunderstandings and communication
difficulties regarding the services that you are being contracted to provide.
It is important that you fully investigate any, and all, legal obligations imposed on you by entering
into this type of contract. Be careful, as in some country's entering into long term contracts may lead to your
legal status being considered that of an employee rather than an Independent contractor.

2. Tax on Earnings

Changing your status from that of an employee has implications to your tax status. As an employee,
your employer normally calculates, withholds from your paycheque and pays your due taxes. However, you
are now personally responsible for doing this. You will need to calculate your own taxes based on your
country's tax system and organise paying same to the revenue department. In most country's, you will still be
able to make those payments monthly and I would advise doing so as nobody wants a huge tax bill at the end
of the financial year.
In some cases, expenses incurred in the course of doing business will be allowed against tax. This
can significantly reduce your tax bill so you should investigate thoroughly which expenses your country
allows against tax. These will also vary greatly depending on the type of business you set up (see 8).

3. Sales Tax / Value Added Tax

Most country's have some form of sales or value added tax. You will need to check whether the fees
you charge are subject to this kind of tax. This will vary greatly from country to country. It is important
though, as if your fees are subject to this kind of tax and you fail to charge it to your clients you may well
find yourself personally responsible for it.
It is also worth mentioning that often government departments and charities have an exempt status
when it comes to this kind of tax.

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MMcCarthy,
7
Legal
issues
every
consultant
school
consider,
http://bytes.com/topic/consulting-contracting/insights/899225-7-legal-issues-everyconsultant-should-consider
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4. Intellectual Property / Copyright

As a developer in particular, your work may entitle you to claim property rights. Laws differ greatly
on this but there are certain factors everyone should consider. Intellectual Property rights or copyright is not
a given regardless of your country's laws. Firstly, it is almost impossible to claim rights on anything that is
published on the internet. Even if you can establish rights in your own country, it is difficult to establish
them internationally.
Secondly, you need to ensure your client does not assume ownership of your work as in they feel it is
bought and paid for. If you intend to claim the rights to your work then you should make this clear in your
contract with the client. Make sure it is clearly stated that you intend to retain ownership. You should also
make clear the licensing of any such work and make sure that it complies with your country's laws. There is,
for instance many differences between licensing laws in the US and Europe.

5. Professional Insurance

In some cases, you may need to take out professional insurance. This would be to protect you in the
event that your work for the client in some way negatively impacted the client or for some reason you fail to
meet your contractual obligations to the client.

6. Setting up your Business

There are a number of different ways to set yourself up as a consultant and again these vary greatly
from country to country. However, most country's have some variation on these two basic models.
Self Employed / Sole Trader This model essentially is a self assessment one. The main drawback
with this is there is no limitation on your legal liability if, for instance, you are sued.
Limited Liability Company There are legal obligations attached to this model such as filing annual
returns to the government declaring earning, etc. However, as a director your legal liability would be
confined to company assets.

7. Business Name

Perhaps you are self employed but dont wish to trade under your own name or for some reason you
dont wish to use your company name. In this case the name you trade under is known as a business name.
You must make sure that that name is registered (usually with the companys office). This allows you to use
the name in all aspects of your business. All correspondence, materials exchanged should have your business
name to clearly state this is a business matter.

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Aspects of Corporate Crime

Enterprise crime are known as high collar crimes, in which money is usually embezzled or
otherwise illegally obtained. There are two types of criminals: enterprise criminals and traditional criminals.
Enterprise criminals represent a greater threat to society, they also are much more difficult to investigate and
are usually self-perpetuating. For example, drug cartels are criminal organizations developed with the
primary purpose of promoting and controlling drug trafficking operations. They range from loosely managed
agreements among various drug traffickers to formalized commercial enterprises The term was applied
when the largest trafficking organizations reached an agreement to coordinate the production and distribution
of cocaine.
An offshore is a company that has not activities in the country where has been incorporated so it
dont realize income in the country of origin.
The term of offshore company is ambiguous. It may refer to:
- A company which incorporated outside the jurisdiction of its primary operations regardless of
whether that jurisdiction is an offshore financial centre (sometimes known as a non-resident company)
- Any company (resident or not) incorporated in an offshore financial centre.
Offshore companies have the following benefits:
Taxation In all tax haven the easily tax regime is guaranteed by law. Tax is zero or nearly zero.
The accumulated profit is taxed in the state of residence and these states doesnt apply any tax on profits
earned or there are applying a very small tax (5%)/
Low bureaucracy Offshore companies are exempt from the obligation to keep accounts or records.
Anonymity by carrying out transactions in the name of a private company identification of
shareholders and directors are not public.
Heritage protection law guarantees the absolute right of shareholder on the entire assets of the
company.
Well developed infrastructure tax haven offers communication possibility, banking systems stable
and well developed.
Fees some jurisdictions impose much higher fees to incorporate than other jurisdictions.
White-collar crime may be defined approximately as a crime committed by a person of
respectability and high social status in the course of his occupation (Sutherland, 1949).
White-collar criminality in business is expressed most frequently in the form of misrepresentation in
financial statements of corporations, manipulation in the stock exchange, commercial bribery, bribery of
public officials directly or indirectly in order to secure favorable contracts and legislation, misrepresentation
in advertising and salesmanship, embezzlement and misapplication of funds, short weights and measures and
misgrading of commodities, tax frauds., misapplication of funds in receiverships and bankruptcies.
White-collar crime relationship with other types of crime
Blue-collar crime tends to be more obvious and thus attracts more active police attentions (e.g.
vandalism, shoplifting etc). In contrast, white-collar employees can incorporate legitimate and criminal
behavior thus making themselves less obvious when committing the crime.

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Corporate crime the relationship white-collar crime has with corporate crime is that are similar
because they both are involved within the business world. Their difference is that white-collar crime benefits
the individual involved and corporate crime benefits the company or the corporation.
State-corporate crime the negotiation or agreement between a state and a corporation will be at
relatively senior level on both sides this is almost exclusively a white-collar situation which offers the
opportunity for crime.
Economic crime comes in many forms. It may be a large corporation which overbills the
government on a contract and it may be a contractor who bribes a contracting offer. Economic crime can be
defined very simple. It is simple lying, cheating and stealing crime which is committed in the context of legal
enterprises.
Economic crime can take different forms and impact on companies in many ways, including: asset
misappropriation, bribery, cheque and credit card fraud,

corruption, cyber crime, identity theft, insurance

fraud, money laundering, procurement fraud, product counterfeiting, revenue and VAT fraud, trafficking in
human beings.
Money laundering the goal of a large number of criminal acts is to generate a profit for the
individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to
disguise their illegal origin. This process is of critical importance as it enables the criminal to enjoy these
profits without jeopardizing their source.
When a criminal activity generate substantial profits, the individual or group must involved find a
way to control the funds without attracting attention to the underlying activity or the persons involved.
Criminals do this by disguising the sources, changing the form or moving the funds to a place where they are
less likely to attract attention.

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CHAPTER 11
A PERSPECTIVE ON MARKETING
1. Basic Concepts
First of all, we shall define marketing as the process starting with planning and executing
the conception of ideas, pricing and promotion of the product or of the services and ending with
distribution of ideas, goods and services. All of this in the purpose of making exchanges that
satisfies individual and organizational goals. A basic question arises: what is an exchange? An
exchange is the process in which two or more parties voluntarily agree to provide something of
value to each other in a market, that represents individuals and organizations with the ability to
purchase the particular good or service that they desire. In a market we find organizational buyers,
individual consumers or both. The first ones are the intermediary consumers that purchase goods
and services with the purpose of producing something else that will be sold afterwards. Examples of
organizational buyers are the rental services that buy cars, fast-food shops that buy animal products,
furniture industry that buys timber and so on. The other party we find in the market are the
consumers that are individuals who buy goods and services for themselves or household. These are
also called final consumers and for them all of the above mentioned processes are made for,
because the final consumers do not produce other goods and services. We defined marketing and
how it works at the basis, but what is its purpose? Success in marketing is through the customers,
which are consumers with needs and desires. The needs are the things they require to survive as
individuals and organizations, while the desires are what customers would like to have, so that their
lives would be more pleasant and their activities easier to carry out. In a market there is at least one
seller and one buyer, but in todays world, there is a large number of sellers and an even larger
number of buyers in the average market. More buyers mean more competition. So how do sellers
try to get a better place in the heart of the customer, so that their product or service is bought and
not its rivals? Through marketing is the answer. Marketers have long cared about the quality of
their goods and services sold, because through quality is the surest path in winning the competition.
Through this interest in quality, the total quality management (TQM) was born. TQM is an
organization-wide commitment to satisfy customers by improving continuously every process
involved in delivering goods or services. This consists in improvement and anticipation of defects,
so that the correcting process is done before the customer buys and uses the goods or services
provided by the company.

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Anticipation without knowledge is nothing, so marketers serve as the link between the
organization and the customers, through identification of the correct consumer, learning their wants
and needs and communicating them how the products and services of the organization can help
them meet those needs. If the product and services have a high quality, the customers will be
satisfied and will be back for more; but if the quality is doubtful or lesser than other sellers in the
market, the customer will look for another company. To prevent the bad scenario, TQM is practiced
and its effects are felt through improved sales and profits on the long run.
As explained above, marketing is more than just sales and advertising. An enlarged
definition of marketing encompasses eight basic core functions: buying, selling, transporting,
storing, standardization & grading, risk taking and securing marketing information. A single
company is not needed to perform all of this functions, because other parties are handling some of
the functions.
The exchange functions, - buying and selling - are for ensuring that the right products are
available to meet customers needs and desires and making him aware of this. Transportation and
storing of goods represent physical distribution functions, that also include the control of
inventory levels and processing received orders. The facilitation functions like standardization and
grading help marketers know what to provide and help customers make purchase decisions or the
purchase itself. Also, the grading function ensures that the products meet the quality required
through quality control. The risk taking is found in the development and offering for sale products
that customers have not yet committed to buying.
Non-profit marketing: Marketing is not only for products and services. It is a process that
can be used in a non-profit purpose, too. The non-profit marketing can be applied to persons,
locations, ideas and organizations. Person marketing is the process of making a person public and
very known. This type of marketing is often used in election campaign and even afterwards, to
solidify ones position. Place marketing is for tourism mainly, but it is also used to create a
favorable reaction related to an area that can be for sale. When a concept needs publicity or an ideal
needs to be promoted, we have idea marketing. Related to this marketing, there are many antidrugs, anti-discrimination issues promoted. The most important non-profit marketing is the
organization marketing that is design to attract new members, volunteers, participants or attract a
favorable public opinion on the organization.
2. Evolution of the marketing concept
Production Era: Throughout the ages, since the Industrial Revolution, organizations found
more and more ways to automate the industry, leading to a mass-production of about any product.
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At the beginning of this century, organizations realized that through quantity, alone, they will not
gain the competitive advantage over their rivals, so they started focusing on quality and
improvement of the produced goods and offered services. Until the next era, organizations
operated on a sellers market and improvement was not a priority.
Sales Era: Progressively, the quantity produced exceeded the quantity demanded and a
buyers market was created. Because the population had many products and services to choose
from, to keep the competitive advantage, organizations were focusing highly on the improvement of
their products and services. This type of market kept until the 1950s.
Marketing Era: While simple sales became inefficient, well targeted products brought
more and more profit. Many organizations realized that producing goods and offering services that
they offered before are not so profitable anymore. Needs and desires have changed and the
customers wanted something else. To find out what customers want, a marketing concept has been
adopted, trying to identify the target customer and his or her specific needs and desires. This
marketing concept states that marketing departments are needed in the organization, so that through
research, advertising and the core functions of marketing, if done in the interest of the consumer,
the sales are more profitable and the resources are better spent.
Quality-driven Marketing: In the last decades that have passed, globalization became a
known concept that is applied to many organizations that spread across the globe. To achieve such a
dominant position, the organization must be quality-driven and always in touch with the customer.
Also, TQM is an important process that can be found in all international organizations, always
improving the products, so that no correction is needed. Finding ourselves in the marketing era,
organizations are working for an emphasis on the quality and customer value that is so important to
the organization welfare.
3. Competition
Depending on how competition between organizations is held, four main types can be
named and exemplified. The types are: pure competition, monopolistic competition, oligopoly and
monopoly.
Pure competition is the most advertised type of competition, for giving the idea of fairness.
In this type, in the market we can find sellers and buyers, the sellers compete on the basis or price
and quality, while buyers, evaluating the options, buy from the most profitable place. Pure
competition is more of a concept than realistic market, because it is hard to always keep the better

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prepared companies from out-smarting the others and gaining advantages. Through this advantage,
the smarter companies create oligopoly.
Monopolistic competition is when on the market are many sellers of the same product and
each seller has a small market share. Today, monopolistic competition is the most common type
found in our economy. Having many products that serve the same need or desire, the customer
cannot have a specific company from which to always buy, so the organizations loose profit through
the lack of sales. To differentiate themselves from the rest of the producers of the same type of
product, marketers work hard to create a more attractive advertise than the others. This is the type
of competition where powerful brands lead the market and create an tendency to oligopoly, but
through regulations, monopolistic competition is kept more or less constant.
Oligopoly is one of the feared types of competition, because the few sellers that produce
similar products control the market. In this market, small competitors are quickly eliminated or
bought by the larger company. A characteristic of this market is the starting price of goods and
services offered: always high. The main reason is that the companies, not having many rivals, they
can agree themselves on different aspects of the market, like resources, target consumers,
advertising and others, so that together, they lead the market and imposing what price they prefer,
without the fear of losing profit. A very recent and great example was the rising price of fuel. The
real reason or the rising price was not the near-depletion state of the petrol pumping stations, but
an oligopoly that decided that they want more profit.
Last, but not least, monopoly, the most dangerous type of economy in the face of liberty, is
the case in which a company won the oligopoly competition and eliminated its competitors, or an
organization that discovered a new niche market, never explored before, and for the moment, they
have a monopoly. Usually, monopolies never last long in a democratic nation, because the
government usually breaks the company into smaller units, to disband the company and create
competition in that market.
Companies are always in competition with their rivals, as they try to gain advantages. To
out-smart the competitors, the company must always be prepared to face the competitive forces.
Basic rivalry is the most known type of the competitive forces. It appears between two or
more companies that sell similar products and always trying to undermine the other. First of all, any
company must know who its rivals are and how dangerous to their profit they can be. If that
information is known, the company must know the strengths and weaknesses and the marketing
strategies of the rivals, so that they can act accordingly.

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Threat of new entrants is always a great problem for any company, however large or
small the company is. Though dangerous to many, new entrants are not frequent in all markets.
Each market has its own entry barrier and if not for a substantial budget, companies may not enter
markets like the car market, fuel market, weapon industry and other industries that require large
sums invested. The threat of new entrants is higher in markets where the entry barrier is cheaper.
Power of the suppliers: Without supply, there is no product, so suppliers must be kept
close and loyal, so that the prices to be low. Usually, in the resource market, suppliers have an
oligopolistic market and can represent a threat to different industries if the oligopolistic suppliers
decide to raise the price of their resources. Known between the suppliers is the idea of buying a firm
once supplied, entering that market with an already prepared firm.
Power of the buyers: The same can happen in reverse: the buyer has the power over its
supplier. In this case, buyers are fewer and suppliers are forced to set lower prices, because of their
competitors or because the buyer forces them at the threat of not buying at all. If the buyer has a
large enough sum, it can buy the supplier, relieving itself of this aspect.
4. Environmental scanning
Some organizations have a formal program for environmental scanning. For example,
employees of the American Council o Life Insurance regularly review newspapers, magazines, and
professional and technical publications, looking for information that may be relevant to future
products or strategies in the insurance industry. The scanning effort at other organizations is more
informal. Of course, a systematic approach is most likely to spot important trends. Through
environmental scanning, marketers identify ways to act promptly on new opportunities and cope
with new challenges. They learn more about their customers needs and their competitors strengths
and weaknesses. Therefore, before marketers can create a plan, they need to know about the
marketing environment.
Contents of Environmental Scanning: Environmental scanning seeks to identify trends
that offer previously untapped opportunities or can change the market for goods and services. It
answers questions such as: What does the average American family looks like? How often does this
average family eat out? What laws are likely to affect the firm's choice of packaging? Is the demand
for office space likely to increase? Are competitors likely to introduce a fax machine with more
features or superior quality?
Few organizations today can afford to limit their view of the marketing environment to the
country in which they are based. Many organizations based in the United States have customers in

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at least a few other parts of the world. In fact, about 70 percent of U.S. economic growth in recent
years has come from exports. Even organizations that market only in the United States are likely to
have foreign competitors. Thus, modern marketers need to take a global view of the marketing
environment.
Internal Forces: Note that while environmental scanning focuses on forces outside the
organization, internal forces also affect marketing efforts. For example, limited funding may
influence how marketers decide to go about promoting a product. Or a genius on the engineering
staff may enable the organization to be a leader in introducing product innovations. The influence of
internal forces on marketing decisions is addressed throughout the remaining chapters of this book.
The Economic Environment: To return to an earlier example, when marketers ask about
the expected demand for office space, they are asking about the economy. If demand is expected to
grow, business will be starting up and expanding; they will have money to operate and expect
customers to have money to buy from them. This news is favorable not only for the construction
industry; it also tells marketers serving office workers that their target market probably will be
expanding.
In general, the economic environment for marketing comprises the overall economy,
including business cycles, consumer income and spending patterns.
Business Cycles and Spending Patterns: Simply put, marketers want to know whether
their target markets will be willing and able to spend money. Spending patterns are linked to the
business cycle or the pattern in the level o business activity that moves from prosperity to recession
to recovery. However, major political upheavals such as the recent ones in Germany and the former
Soviet Union have sweeping effects on the economies of the countries involved, and thus on their
business cycles.
Prosperity: During times of prosperity, production and employment are high. Consumers
demand more goods and services, and they spend freely not only on basics but on luxuries such as
vacations, designer clothing, and entertainment. In addition, they may upgrade big-ticket items such
as housing and cars. They are also more likely to travel overseas (except in times of foreign political
unrest). Consumers in prosperous times often want the ''best'' of everything and are willing to pay
for it, so marketers introduce new products, increase their promotional efforts, and raise prices in
order to increase profits.
Inflation: a rise in the overall price level - can occur at any stage in the business cycle, but
it is typically most pronounced during periods of prosperity. During inflation, rising prices reduce

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the amount of goods and services that can be purchased with each dollar. This is a problem for
consumers and organizational buyers if their income does not keep pace with the rate of inflation. In
addition, inflation can affect marketing strategy. For example, it can make purchasing on credit
more appealing because customers will make payments in dollars worth less than they were at their
time of purchase. Also, pricing strategies must be developed with care to avoid alienating customers
with repeated price hikes to cover rising production costs.
Recession: During a recession, production deceases and unemployment generally rises;
consumers fold their wallets and snap their purses closed. Reduced production and decreased
consumer demand lead organizational buyers to reduce their consumption as well. Both types of
buyers stick to purchasing the basics and look for the best value for their dollar. In Japan,
consumers have kept their vacation travel costs down during the most recent recession by staying
close to home and visiting amusement centers such as Ananda Hanayashiki. This three-story
building contains food stalls, a game corner, a modern electronics showroom and a party hall
featuring jet coaster, merry-go-round, haunted house and sky ship. On the roof is an amusement
park where visitors can ride small vehicles. Another park, located 100 miles outside of Tokyo, recreated in miniature such landmarks as the Eiffel Tower, the Empire State Building, and the Great
Pyramids, allowing the Japanese to experience the wonders of foreign countries with minimal travel
expenses.
Marketers of private-label (store brand) and generic goods may find they have an edge by
offering brand-name quality at less than brand-name prices. Some companies even offer price
rollbacks - price decreases that echo previously lower prices for individual products. Or they
advertise that they haven't raised a price in a certain number of years. During the recession of the
early 1990s, the mail-order house Lands End advertised an attach case at the same price tag it
carried in 1985s. Resourceful and creative marketers can prosper during a recession. During the
early 1990s, nearly 11 percent of all Americans were carrying their own meals to work instead of
eating at restaurants. In response, grocery companies such as Oscar Mayer, dinner foods. Oscar
Mayer, Hillshire Farm, and Star Kist offered ready-made easy-to-carry lunch and crackers that
people can mix or eat separately. Hillshire Farm, an unit of Sara Lee Corp., launched a similar
product called Lunch n Munch which includes tuna fish and packets launched a similar product of
mayonnaise and relish.
Recovery: While the economy is in the recovery stage, progressing from recession to
prosperity, the level of production increases and unemployment decreases. Consumers and
organizational buyers have more money to spend but may still be reluctant to increase their
purchases. They recall the recent recession and are wary of another slump. Consumers may try
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harder to save and buy few items on credit. As the economy becomes stronger, buyers begin to
relax and spend more freely. The perception of economic recovery can have just as much influence
on spending patterns as the reality. During his 1992 reelection campaign, President George Bush
continually insisted in interviews that the US economy wasnt that bad (and indeed, the first set of
economic statistics after the election confirmed Bush's position that the economy was recovering).
But American consumers didnt buy it, especially in light of the weakness of the recovery.
Resources: Spending patterns are tied not only to business cycles; they may also be related
to the availability of certain resources. Resources may be in short supply because demand for a
product exceeds a manufacturer's capacity to produce it. For example, demand for Snackwell's
Devil's Food Cookie Cakes outstripped Nabisco's capacity to make the cookies, a four-hour process
that includes covering the cake center with marshmallow, chocolate icing, and a chocolate glaze.
An embargo, a war, and political economic sanctions also can cause shortages. Public pressure to
conserve resources for future needs may lead to diminished consumption even when there are
enough of those resources to meet present needs. When the supply is limited in these and other
ways, marketers may engage in de-marketing an effort to reduce demand for a product. A common
use of de-marketing is the effort by many electric utilities to provide their customers with tips on
how to save energy: insulate their home, use fans instead of air conditioners, and install more
efficient lighting. Not only do these de-marketing efforts help bring demand under control, they
may enhance the utility's public image as an organization concerned about the environment.
Consumer Income: Although business cycles reflect the overall health of the economy, the
income of individual households determines whether or not consumers can-and will-buy products.
Marketers are interested in three measures of consumer income: gross income, disposable income,
and discretionary income.
Gross Income: The total amount of money earned in one year by an individual or
household is that person's or households gross income. Current dollars means the actual dollars
the average family earned each year. In contrast, 1990 dollars measures the actual purchasing
power of family income; in technical terms, it is income adjusted for inflation. This measure has
remained rather flat over the period 1970-1990. In other words, while American households are
taking home more dollars now than 20 years ago, their purchasing power has not grown.
Besides showing trends over time, measures of gross income help marketers divide the
market into various income groups. Organizations may be interested in targeting consumers at
certain income levels. With the slogan You Know What You're Doing American Express targets

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its Optima Card to high-income consumers who can enjoy the attractive interest rate available to
those who ring up and then pay up big balances.
Disposable Income: As every taxpayer knows, gross income overstates what we can buy.
Before we spend a penny, the government takes its cut. Disposable income is the money an
individual or household has left after paying taxes. This is the money spent on rent or mortgage,
groceries, clothing, and any other essentials or luxuries. Obviously, tax rates directly affect
disposable income: lower taxes mean more disposable income.
When some expenses rise or fall, people shift the way they spend their remaining
disposable income. For example, as energys prices rise, people must spend more of their
disposable income on gasoline, heating fuel, electricity, and so forth. This leaves less income for
other expenses. Consumers may try to minimize the effect of the higher energy prices by purchasing
automobiles that get good gas mileage and other energy-efficient products, from light bulb to
windows.
Discretionary Income: The money consumers have left to spend after paying taxes and
living expenses is called discretionary income. According to the U.S. Census Bureau, 26 million
households in the United States have some discretionary income, whereas 57 million do not. The
distinction between disposable and discretionary income is somewhat arbitrary because what one
person views as a luxury may be a necessity to another. The translation from needs to desires comes
into play here: a consumer may need transportation, but the marketer must convince the consumer
that he or she wants a car and a certain make and model at that. But in general, discretionary income
pays for vacations, hobbies, entertainment, designer clothing, jewelry, television and music, home
decorations and furnishings, gifts, and the like. In other words, discretionary income pays for all the
extras.
Possible Questions in an Environment Scan
Economic environment - What stage of the business cycle are we in? What industries with
major printing needs are doing well in the current economic climate?
Political and legal environment - What zoning laws affect our ability to open shops in
areas of potentially high growth? Are our advertising claims legal and ethical?
Social environment - Are buyers willing to go out of their way to choose a printing shop
that promotes environmentally friendly choices such as the use of recycled paper and double-sided
copies?

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Institutional environment - What firms are available to deliver completed jobs to

customers? Can anyone offer same-day service for an attractive price?
Technological environment - What developments are likely to affect printing and desktop
publishing?
Competitive environment What businesses offer printing services within a five-mile
radius? What is their rate schedule? Which potential customers handle their own printing needs?
5. Social Responsibility in Marketing
Who is a business responsible to? Whose needs must it meet? Many economists maintain
that the primary responsibility of a business is to earn profits for its owners. The marketing concept
adds that a business should do this by meeting the needs of its customers. The prevailing view is
that the organization's responsibilities should extend even further to include social responsibility an organization's acceptance that it is accountable to society for its actions. Thus, a business is
responsible to share-holders, customers, employees, others in its marketing channel, society as a
whole and the earth's environment.
One marketer with this perspective is Sidney T. Bowers, founder and president of United
Energy of Wisconsin which installs, upgrades, and maintains lighting product, to make facilities
lighting energy efficient. While he readily observes that he is in business to make money, Bowers is
pleased to be selling technological innovations that benefit the environment. Furthermore, he makes
a point of hiring and training employees from the inner city where unemployment, especially
among African-Americans is staggering. Similarly, management of Swissair has accepted that
concern for the environment is a corporate duty, so the company is seeking to grow without
increasing the amount of pollution its operations create. To put a lid on air pollution, Swissair is not
only working with aircraft manufacturers to reduce emissions, but provides employees with
incentives to use public transportation rather than drive to work.
Why be Socially Responsible?
Proponents of social responsibility typically argue that this stance is to the organization's
best interests in the long run. Potential customers will be in the best position to buy if the
organization looks after their welfare as individuals and community members. And in these times of
stiff competition, potential customers who have trouble choosing from among competing products
may buy from the company they most respect.

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Many businesspeople agree with this view. For example, Telephone Express, a regional
long-distance carrier based in Colorado Springs, allows its employees to volunteer at United Way
organizations on company time. According to Mary Beazley, one of the company's founders, this
raises the companys profile in the area and builds employee morale.
Another company that sees benefits from social responsibility is Gardeners' Supply, a mailorder company based in Burlington, Vermont. Gardeners' Supply started a program to compost yard
Waste in the Burlington area. The compost is used to fertilize a garden that grows produce for the
cafeteria of a local medical center. In addition, many of the company's employees participate in a
company-sponsored community garden. Will Raap, president of Gardeners' Supply, believes these
products strengthen his employees' knowledge of customers' needs and ways to meet those needs.
Responsibility To The Community
Taking a socially responsible posture with regard to the community is not always easy.
Consider the case of Infinity Broadcasting Company, which employs the controversial talk show
host Howard Stern. The Federal Communications Commission fined Infinity $600,000 after Stern
engaged in a number of offensive jokes and activities on the air. But advertisers pay Infinity more
than 3,000 per minute during Stern/s show. Thus, the fine was more than paid for by advertising
revenues. lf Infinity's only responsibility is to make a profit, then it should leave Stern alone and
continue to pay the fines. But if the FCC and consumer advocacy groups judge that Stern's behavior
is detrimental to listeners, should Infinity require Stern to tone down his crude humor? To be
socially responsible, Infinity must consider not only its customers (advertisers) but also the listening
community.
Social responsibility to the community can take two forms: ceasing negative activity, such
as pollution, or taking a positive action, such as starting an education program that benefits the
community. An example of the first approach, in the eyes of many, would be firing Howard Stern.
Positive action may consist of con5umer education, partnerships with schools or teachers'
organizations, environmental programs or funding for special projects.
McDonald's Corporation sponsors Ronald McDonald houses, homes located near hospitals
that provide housing at little or no cost to families of children who are hospitalized.
Community Relations Projects undertaken out of social responsibility not only benefit the
community, they also enhance community relations, reinforcing a positive image of the
organization. Anheuser-Busch Inc. , has a Consumer Awareness & Education program through
which it teaches students the consequences of drinking and driving. Other companies underwrite

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public service announcements designed to educate the public about a number o issues including
unsafe behavior (such as drug abuse), illnesses (such as AIDS), and the importance of staying in
school.
Cause-Related Marketing
Some organizations undertake cause-related marketing (CRM), a formal version of
marketing on behalf of the community. With CRM, charitable donations are tied directly to the
sales of a specific product. Virgin Atlantic Airways, which declared itself the green airline,
promised to plant a tree in California for every passenger who flew the airline from Los Angeles to
London in 1990. Starbucks, a coffee retailer, supports the global relief agency CARE. Some of the
funds Starbucks donates come from sales of a sampler pack of four packages coffee. From the
$18.95 price, the company sets aside $2.00 for CARE.
CRM is popular among marketers because it sets up a win-win situation. The product or
service is promoted, and profits and sales are increased. Customers are satisfied, members of the
community benefit from the donations made, and community relations are enhanced.
Global Social Responsibility
Being a responsible member of the community can be more complex for an organization
that operates in more than one country. The organization needs to know what the community
expects or wants and must find a way to meet those expectations. In Honduras, for example,
thousands of Miskito Indians work as lobster divers. They live in wretched conditions and typically
work without safety equipment or training, but they earn a lot of money by local standards.
Red Lobster USA, a restaurant chain that buys Honduran lobster, has tried to be socially
responsible by financially supporting a conservation program that includes diver training and by
specifying that all lobsters it buys be caught in traps, rather than by divers. However, the production
manager at a packing plant on the Honduran island of Roatan told reporters that the plant sells Red
Lobster both diver and trap-caught lobsters. Further complicating the situation is the concern among
Miskitos that such well-meaning efforts to protect them could curtail their livelihood. In the words
of diver Melvin Zelaya, There is no other way for us to make the money to live.
In spite of the difficulties, the increasing global presence of U.S. companies is leading them
to make more of their contributions in other countries. Alcoa worked with local officials in southern
Brazil to build a sewage plant. IBM donated computer expertise and equipment to the National
Parks Foundation of Costa Rica to develop strategies to preserve rain forests.

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6. Conclusion
Marketing is relatively new ideology/ science/ methodology (depending on the purpose and
application of it) that received a great boost in the last decade. Explained above are the many
aspects of Marketing as any of the three purposes/applications of it and are things that must be
known by the economic agents (from corporations and firms to local entrepreneurs) that work in our
todays economy. Otherwise, because of the ever-evolving mentality of the consumer and client, the
more and more difficult market competition, economic agents and the slowly decaying planet,
economic agents will not survive. Therefore, marketing is a very important component in what
concerns the survival of any business on the market.

ASPECTS OF..
SOCIAL PSYCOLOGY by ROBERT FREDMAN
The Payoff: Maximizing Profits and Minimizing Losses

Because each person in a bargaining situation will be motivated to maximize his or her
profits-a basic assumption underlying bargaining research the range of the profits permitted
typically has an important effect on how the bargainers interact with one another. There are
basically two kinds of situations with respect to payoffs: zero-sum, in which a gain to one person is
a loss to the other , and variable sum , in which both parties may benefit (or lose) from a bargain
that is struck. In an example of a zero-sum situation, when the car seller raises his price by $100, he
gains that money (+100), while the buyer loses it (-100). The term zero-sum comes from the fact
that the two figures, when added together, always equal zero (in our example, +$100+(-$100)=0).
In an example of a variable sum situation, two people might agree to buy and share textbooks
jointly for a semester; in this bargain , each person gains. Similarly, arms negotiation pacts that are
effective tend to operate as variable-sum situations; as Paul Warnke pointed out, successful arms
reduction agreements are made when both sides feel they have gained something by coming to an
agreement.
It is assumed that typical bargaining situations have a range of possible agreement values
which are preferable to no settlement. Thus, in the example of a car buyer and seller , there is a
range, known as the settlement range , along which buyer and seller potentially can agree. At some
point in the range, the buyer will be more pleased than the seller with the outcome; at other points
,the opposite will hold. The point beyond which a party is not prepared to move is known as the
resistance point , which is the worst deal to which the bargainer is willing to agree. People
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involved in negotiations also have a sense of what they expect to end up with; this point is known as
the target point.
Learning what an opponents resistance and target points are can have a crucial effect upon
the success of a negotiation from the point of view of individual possessing the information . For
example, if the car dealer knows that the potential buyer is willing to spend as much as $1200, he is
unlikely to be very forthcoming in terms of reducing the price beyond his initial price of $1500. On
the other hand , if the potential buyer knows that the salesperson is willing to go as low as $600 (the
sellers resistance point), he is unlikely to accept a price much higher than that.
Because information regarding an opponents point resistance point is so crucial, both
parties in a negotiation are apt to try to infer them from the opponent, using the opponents initial
offer and later concessions to determine the true resistance point. At the same time, the opponent is
attempting both to hide his or her own resistance point and to try to infer the partners point. And
bargaining situations hold even more complications than these; monetary outcome is just one
dimension upon which negotiation rests. Bargainers may also be concerned with presenting
themselves well, with concluding a negotiation within a given time period (e.g., the buyer needs a
car to get to work the next day), and with a host of other factors. Nonetheless, focusing upon the
numeric payoffs of two parties has led to a well-substantiated, fairly consistent set of findings
regarding bargaining, and a number of generalizations about effective bargaining strategies can be
made.
The Initial Offer: Make It Extreme
In most cases, the strategy of making an extreme initial offer appears to pay off well in the
end , compared with situations in which more moderate offers are made initially (Hamner&Yukl,
1977; Yulk,1974). The reason for this seems to be that the initial offer is used by the opponent as an
indication of the offerers resistance and target points which , due to the extremity of the offer ,
may be perceived as being more extreme than is actually the case. In turn, this may modify the
opponents target point in a direction more favorable to the person who made the initial offer.
Another reason high initial demands are apt to better final settlements is that the later
demands made by an individual are apt to be perceived as being relatively generous- at least in
terms of the extremity of the initial offer. Moreover, an extreme initial offer allows an individual to
make more concessions during later negotiations. Because the norm of reciprocity (which we
discussed in Chapter 7 in terms of helping behavior) suggests that opponents may try to reciprocate
concessions, it is bargaining (Cialdini, Vincent, Lewis, Catalan, Wheeler, & Darby, 1975).

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In a field demonstration of the importance of initial extremity in bargaining, Cialdini,

Bickman, and Cacioppo (1979) visited a Chevrolet dealer to ask the price of a Monte Carlo.In one
condition , they first asked the price of another car and then rejected it, saying the price was too
high. But in another condition, they did not first strike a tougher stance; instead, they simply asked
the price of the Monte Carlo initially. In this weaker condition, the prices they were quoted were
some $200 higher on an average than the prices quoted when they had appeared more aggressive
initially.
On the other hand, an extreme initial offer does not always affect the eventual outcome of
the bargaining (Benton, Kelly,&Liebling, 1972).When bargainers are aware through direct
knowledge of, or are highly confident of their influence on the resistance and target points of their
opponent, an opponents extreme initial offer will have little or no effect on the eventual outcome of
the negotiations. Indeed, there might well be a boomerang effect, in which the opponent responds
with a very extreme bargaining line, leading ultimately to a lack of settlement or a breakdown in
negotiations. Moreover, extreme offers, if they are too extreme , may be taken as a sign that the
bargainer is not negotiating seriously, again preventing any sort of settlement from being
negotiated.

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CHAPTER 12

Guide to Basic Business Letters

What is a Business Letter?

A business letter is written in formal language. The letter is written for official
correspondence between two organizations and organizations and customers, clients,
etc. The style of the business letter depends on the relationship that is shared between
the two parties. A business letter is used for various purposes like offering a business
deal to other organization, accepting an offer, denying an offer, new schemes for
customer, extending the contract with a client.
A business letter should be short and to the point. The content used in the letter should
be clear and it should suffice the objective of writing the letter. The letter has to give
out the main message to be conveyed right in the beginning. The letter should not
have any typographical and grammatical error.
Types of Business Letter
Business letter is an old form of official correspondence. A business letter is written
by an individual to an organization or an organization to another organization.
Business letters are written for various purposes. One writes a letter to enquire
information, apply for a job, acknowledge someone's work, and appreciate one's job
done, etc.
As the motive of writing the letter is different, the style of the letter changes and you
get different types of business letters. The various types of business letters are used by
different people to serve their purpose of sending the message across.
Let's take look at the most common types of business letters:
Acknowledgement Letter : This type of letter is written when you want to

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TO CUT A LONG STORY SHORT, here are some essentials of a good business letters:
Business letters are different from other kinds of letters or academic writings. Below I have listed a
few key points in writing a business letter. These characteristics are further looked into towards the end of
the paper, while examining business writing.
Letters should be brief. We should not mix up brevity with rudeness. A letter that is too short can be
offensive. Even the shortest messages can be converted into polite responses that express your desires. You
should always consider how the sentence might be shortened in order to express a stronger, more effective
message. However, if something is worth saying or explaining, brevity can be neglected.
Letters should aim to economize the time and thought of the reader.
Avoid ambiguity! Misunderstandings are the worst things that can occur during a business letter.
You can ruin a good partnership or a good transaction due to bad wording. If a sentence can be interpreted in
more than one way, it probably will be. Better not take that chance and simply explain everything clearly.
Use of effective openings: you should start your letter with the purpose or the topic of it. If you gain
your readers interest from the first sentence, they are bound to pay attention to your letter. In order to gain
the interest of your reader, you should set expectations according to the message. Prepare your reader to
follow your arguments regarding the topic. Another effective way would be to suggest that their own
interests are affected. This process of gaining the attention of the reader from the first sentence is most
important on first correspondences. Continuing a correspondence is of little difficulty.
Always use a conversational tone, in order to void monotony or losing the interest of your reader.
Double-check gender and spelling of names. Such mistakes can be very insulting in some cases. And
while some people might tolerate such mistakes, others might take them as lack of respect and might change
their opinion of you.
Use polite modals (would in favor of will). Courtesy is always a positive thing in business letters.
Always refer to yourself as "I". This gives the letter a more personal tone and creates a certain
relation between you and your reader. In other words, it might create the impression that you are directly in
front of him, talking to him rather than writing to him. Don't use "we" unless it is clear exactly who the
pronoun refers to.
Use of forceful sentences and paragraphs: our sentences should be compactly built. Shortening a
sentence does not automatically make it compact. The difference is that a compact sentence keeps the
readers attention at full stretch till the close, while a short sentence just lacks some information. On the
other hand, a loose sentence just halts abruptly in meaning, but still drags its length along a little further with
additional information, not necessarily related to the initial point of the sentence.
Ways through which we can create forceful sentences:
x
x
x

Any afterthoughts separated by a semicolon should be inserted and closely allied with a
sentence before it.
The purpose of a forceful sentence should be to reveal its meaning gradually, maintaining
the expectancy to the end of the sentence.
Proper use of punctuation is also important. A comma instead of a full stop can exert the
reader by making him attempt to connect certain pieces of information that are not
necessarily connected in any way.

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x
x

Proper connections between phrases also play an important role. If done incorrectly, this
might just confuse your reader, which might make him reread the whole phrase, a
completely inefficient process.
Parenthesis should be avoided. Usually in business letters, only the strictest information is
given. Taking this into consideration, we shouldnt add information that is not vital to the
topic at hand, unless it is meant to clarify a situation or to avoid ambiguity.

Creating forceful paragraphs:

Use forceful sentences that refer to only one topic, meaning that the whole paragraph should express
unity. Our paragraphs should deal with particular things, not general things. In this way we can avoid
ambiguity and we will also maintain our readers interest. If the paragraphs in our letter dont have any
connection to one another, they should form two (or more) separate letters and be presented as enclosures.
For example, if we present an offer, any additional information regarding prices, addresses, transportation or
anything that might require a more careful analysis on our readers behalf should be enclosed in a separate
letter.

Writing for a business audience is usually quite different than writing in the humanities,
social sciences, or other academic disciplines. Business writing strives to be crisp and succinct
rather than evocative or creative; it stresses specificity and accuracy. This distinction does not make
business writing superior or inferior to other styles. Rather, it reflects the unique purpose and
considerations involved when writing in a business context.
When you write a business document, you must assume that your audience has limited time
in which to read it and is likely to skim. Your readers have an interest in what you say as long as it
affects their working world. They want to know the "bottom line": the point you are making about a
situation or problem and how they should respond.
Business writing varies from the conversational style often found in email messages to the
more formal, legalistic style found in contracts. A style between these two extremes is appropriate
for the majority of memos, emails, and letters. Writing that is too formal can alienate readers, and
an attempt to be overly casual may come across as insincere or unprofessional. In business writing,
as in all writing, you must know your audience.
In most cases, the business letter will be the first impression that you make on someone.
Though business writing has become less formal over time, you should still take great care that your
letter's content is clear and that you have proofread it carefully.
Pronouns and active versus passive voice: Personal pronouns (like I, we, and you) are
important in letters and memos. In such documents, it is perfectly appropriate to refer to yourself
as I and to the reader as you. Be careful, however, when you use the pronoun we in a business letter
that is written on company stationery, since it commits your company to what you have written.
When stating your opinion, use I; when presenting company policy, use we.
The best writers strive to achieve a style that is so clear that their messages cannot be
misunderstood. One way to achieve a clear style is to minimize your use of the passive voice.
Although the passive voice is sometimes necessary, often it not only makes your writing dull but
also can be ambiguous or overly impersonal. Here's an example of the same point stated in passive
voice and in the active voice:
PASSIVE: The net benefits of subsidiary divestiture were grossly overestimated.
[Who did the overestimating?]

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ACTIVE: The Global Finance Team grossly overestimated the net benefits of subsidiary
divestiture.

The second version is clearer and thus preferable.

Of course, there are exceptions to every rule. What if you are the head of the Global Finance
Team? You may want to get your message across without calling excessive attention to the fact that
the error was your team's fault. The passive voice allows you to gloss over an unflattering point
but you should use it sparingly.
Writing a Business Letter
Salutation
First and foremost, we have to make sure that we spell the recipient's name correctly. We
should also confirm the gender and proper title. Under less formal circumstances, or after a long
period of correspondence it may be acceptable to address a person by his or her first name. When
we don't know the name of a person and cannot find this information out you may write, "To Whom
It May Concern". Here are some common ways through which we can address the recipient:
x
x
x
x
x
x
x
x
x
x

Dear Mr Powell,
Dear Ms Mackenzie,
Dear Frederick Hanson:
Dear Editor-in-Chief:
Dear Valued Customer
Dear Sir or Madam:
Dear Madam
Dear Sir,
Dear Sirs
Gentlemen:

First paragraph
In most types of business letter that continue a correspondence it is common to use a
friendly greeting in the first sentence of the letter. Here are some examples:
x
x
x
x
x

I hope you are enjoying a fine summer.

Thank you for your kind letter of January 5th.
I came across an ad for your company in The Star today.
It was a pleasure meeting you at the conference this month.
I appreciate your patience in waiting for a response.

As I mentioned before, the continuation of a correspondence is easier simply due to this fact.
By starting with a friendly greeting, we can create a certain trust or interest automatically, making it
easier to create a transition between the greeting and the actual problem at hand. In any case, with
or without this short opening, we should state the main point of our letter in one or two sentences:
x
x
x

I'm writing to enquire about...

I'm interested in the job opening posted on your company website.
We'd like to invite you to a members only lunch on April 5th.

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Second and third paragraphs

We should use a few short paragraphs to go into greater detail about our main point. If one
paragraph is all we need, we shouldnt write an extra paragraph just to make our letter look longer.
If we have to include sensitive material, such as rejecting an offer or informing an employee of a
layoff period, we should embed this sentence in the second paragraph rather than opening with it.
Here are some common ways to express unpleasant facts:
x
x
x

We regret to inform you...

It is with great sadness that we...
After careful consideration we have decided...

Final paragraph
Our last paragraph should include requests, reminders, and notes on enclosures. If necessary,
our contact information should also be in this paragraph, but as I mentioned earlier, unless this is
strictly necessary, we can enclose any information of such sorts in an additional letter. Here are
some common phrases used when closing a business letter:
x
x
x
x
x
x
x
x
x

I look forward to...

Please respond at your earliest convenience.
I should also remind you that the next board meeting is on February 5th.
For further details...
If you require more information...
Thank you for taking this into consideration.
I appreciate any feedback you may have.
Enclosed you will find...
Feel free to contact me by phone or email.

Closing
Here are some common ways to close a letter. If we did not use a comma or colon in our
salutation, we should leave out the comma after the closing phrase:
x
x
x
x
x
x
x
x
x

Yours truly,
Yours sincerely,
Sincerely,
Sincerely yours
Thank you,
Best wishes
All the best,
Best of luck
Warm regards,
Main parts and layout of a business letter
Two main types of layouts:

Block form all lines, including the first line of a paragraph are perfectly aligned. Double spacing
marks a new paragraph
Indented form five spaces to the right for the first paragraph

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The modern trend is to use only the block form. Companies that still use the indented form might be
considered outdated or old fashioned.
1. Heading printed at the top, mostly centered. Contains the name of the company, followed by
abbreviations such as Ltd or Plc. For US companies, Inc (incorporated) is used instead of Ltd. The heading
also contains the address, the telephone and the email of the company. British companies are obliged by law
to include the name of the chairman and of all directors.
2. Date its located at the right side of the letter, about 4-6 spaces below the heading. British
companies usually use the form 16th November 2011, while US companies use either November 16th 2011 or
November 16 2011.
3. Reference line located on the left side, above or on the same level as the date. Contains the
initials of the person signing the letter and of the one typing/editing it.
4. The inside/receivers address placed on the left side, 4-6 spaces below the date. Contains the
recipients name, under this form: Title First Name Surname. Example: Mr. John Smith. For women, the
correct title, if shes married is Mrs. If shes unmarried its Miss. If its not specified, we can use the title Ms.
Under this part we also insert the name of the company in the inside address. If this name contains personal
names, it will be preceded by Messes. Either way, the company name will be followed by the correct title of
Ltd or Plc. Above the company name, we enter the position in the company of the person that we are writing
to, or the department. On the next line, we enter the house number and the name of the street. The third line
is the city or town, followed by the postal district. Fourth line the name of the state (USA) or the county.
Final line is the name of the country. We might also add an Attention line. Example: For the attention of
Mr. Paul Jones. When we dont know the address, we can write the name of the person we want to contact
and the name of the company that can direct the letter to him, preceded by c/o, meaning care of.
5. The salutation placed 3 spaces below the address. The standard salutation is Dear Sir for men
and Dear Madam for women. If we address a company, we simply say Dear Sirs/ Gentlemen (US). We can
also use a more personal salutation such as Dear [Full name & title]. The comma after the salutation is
optional.
6. Subject line two or three words about the purpose of the letter, or a reference to previous
correspondence. This is usually underlined and can be placed either between the salutation and the first
paragraph or on top of the letter.
7. The body can consist of several paragraphs with the same convention, double spacing marking
a new paragraph, although more recent works mention that single spacing marks a new paragraph.
8. Complementary close placed on the right side. Should be according to the salutation. If we
opened with Dear Sir/Sirs or something similar, we close with Yours faithfully. If the salutation was less
formal, for example Dear Mr. Brown, we close with Yours sincerely. US business letters tend to close with
Yours truly.
9. Signature immediately below the close. Should also contain the position in the company of the
one that wrote the letter.
10.
Enclosures are indicated on the left hand bottom side of the letter.

Types of business letters

Business letters are used in all sorts of situations, be it regarding correspondence between
two companies or between the employees of one company, etc. Either way, they all have a certain
format and a certain goal that needs to be maintained. Below, we have listed but a few types of
business letters, some more formal than others.
Letter of Complaint
x A letter of complaint will almost certainly result in an official response if you approach it
from a businesslike perspective. Make the complaint brief, to the point and polite. Politeness pays
off regardless of the extent of anger you are actually feeling while composing this type of business
letter.

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Resume Cover Letter/Cover Letter

x
A cover letter that accompanies a resume should revel in its brevity. You should
take as little time and as few words as possible to accomplish one task: persuading the reader to
anticipate reading your resume. Mention the title of the job for which you are applying, as well or
one or two of your strongest selling points. A regular cover letter can accompany any sent item,
while mentioning the person to whom it is being sent and the reason for its being sent.
Letter of Recommendation
x A recommendation letter allows you to use a few well-chosen words to the effect of
letting someone else know how highly you value a third party. Resist the temptation to go
overboard; approach your recommendation in a straightforward manner that still allows you to get
the point across.

Letter of Resignation
x An official letter of resignation is a business letter that should be fair and tactful. Be wary
of burning any bridges that you may need to cross again in the future. Offer a valid reason for your
resignation and avoid self-praise.

Job Applicant Not Hired

x In some cases you may be required to write a business letter that informs a job applicant
that he was not chosen for an open position. Offer an opening note of thanks for his time,
compliment him on his experience or education and explain that he was just not what the company
is looking for at the present time.

Declining Dinner Invitation

x Declining a dinner invitation is a topic for a business letter that, if not done tactfully, may
result in a social disadvantage. Extend your appreciation for the invitation and mention that you
already have an engagement for that date. Do not go into detail about what the engagement is.

Reception of Gift
x It is very polite to return a formal business response letting someone know that you have
received her gift. Extend a personalized thanks to let her know that you are exactly aware of the
contents of the gift. If possible, it is a good idea to include a sentiment suggesting that you have put
the gift to use.

Notification of Error
x When sending a business letter that lets the receiving party know that an error has been
corrected, it is good business sense to include a copy of the error in question if there is paperwork
evidence of it. Make the offer of additional copies of material involved in the error if necessary.

Thanks for Job Recommendation

x A letter of thanks for a party that helped you get a job should be professional and
courteous. Above all else, avoid the temptation to go overboard in offering your thanks. Be aware
that your skills also helped you land the job and it was likely not handed to you as a result of the
third party.

Information Request
x A business letter that requests information should make the request specific and perfectly
understandable. It is also a good idea to state the reason for the information request. Extend advance
appreciation for the expected cooperation of the recipient.

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Information Response Letter

x An information response letter is written in response to a request. Its purpose is to answer
questions or provide requested information. It also may promote the business's products or services.

Letter of Intent
x A letter of intent spells out in detail the circumstances under which an agreement between
the writer and the reader would be made. It is not a contract; it merely states the intent to enter an
agreement.

Sales Letter
x Written to persuade the recipient to buy a product or service, sales letters are usually a
part of a direct-mail marketing campaign and often are accompanied by packets, brochures,
illustrations and/or catalogs.

Customer Claim Response Letter

x In a customer claim response letter, the writer attempts to rectify the complaint spelled
out in the customer's claim letter. It should regain the recipient's confidence in the business and
promote it.

Order Request Letter

x An order request is a letter in which a purchase is authorized. It lists the items being
ordered vertically and typically includes the quantity, order number, description and unit price of
each item.

Application Letters And Cover Letters

Many people believe that application letters and cover letters are essentially the same. They
are in fact, different. The letter of application is a sales letter in which you market your skills,
abilities, and knowledge. A cover letter, on the other hand, is primarily a document of transmittal. It
identifies an item being sent, the person to whom it is being sent, and the reason for its being sent,
and provides a permanent record of the transmittal for both the writer and the reader.
Application Letters
When writing an application letter, remember that you probably have competition. Your
audience is a professional who screens and hires job applicantssomeone who may look through
dozens or even hundreds of other applications on the day she receives yours. The immediate
objective of your application letter and accompanying resume is to attract this person's attention.
Your ultimate goal is to obtain an interview.
As you write your application letter, be sure you complete three tasks: catch the reader's
attention favorably, convince the reader that you are a qualified candidate for the job, and request an
interview.
Application letter checklist:
x Identify the job by title and let the recipient know how you heard about it.
x Summarize your qualifications for the job, specifically your work experience, activities that show
your leadership skills, and your educational background.
x Refer the reader to your enclosed resume.
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x Ask for an interview, stating where you can be reached and when you will be available. If your
prospective employer is located in another city and you plan to visit the area, mention the dates for
your trip.
x If you are applying for a specific job, include any information pertinent to the position that is not
included in your resume.

To save your reader time and to call attention to your strengths as a candidate, state your
objective directly at the beginning of the letter.
Example: I am seeking a position as a manager in your Data Center. In such a management
position, I can use my master's degree in information systems and my experience as a programmer/analyst
to address business challenges in data processing.

If you have been referred to a company by one of its employees, a career counselor, a
professor, or someone else, mention that before stating your job objective.
Example: During the recent ARRGH convention in Washington, D.C., one of your sales
representatives, Dusty Brown, informed me of a possible opening for a manager in your Data Center. My
extensive background in programming and my master's degree in information systems make me highly
qualified for the position.

In subsequent paragraphs, expand on the qualifications you mentioned in your opening. Add
any appropriate details, highlighting experience listed on your resume that is especially pertinent to
the job you are seeking. Close with a request for an interview. Proofread your letter carefully.
Below is an example of an application letter:

6123 Farrington Road

Apt. B11
Chapel Hill, NC 27514
January 11, 2005
Taylor, Inc.
694 Rockstar Lane
Durham, NC 27708
Dear Human Resources Director:
I just read an article in the News and Observer about Taylor's new computer center just north of
Durham. I would like to apply for a position as an entry-level programmer at the center.
I understand that Taylor produces both in-house and customer documentation. My technical writing
skills, as described in the enclosed resume, are well suited to your company. I am a recent graduate
of DeVry Institute of Technology in Atlanta with an Associate's Degree in Computer Science. In
addition to having taken a broad range of courses, I served as a computer consultant at the college's
computer center where I helped train users to work with new systems.

114

I will be happy to meet with you at your convenience and discuss how my education and experience
match your needs. You can reach me at my home address, at (919) 233-1552, or at
krock@devry.alumni.edu.

Sincerely,
Raymond Krock
Cover Letters
As mentioned previously, application letters and cover letters are not the same. A cover
letter identifies an item being sent, the person to whom it is being sent, and the reason for its being
sent. A cover letter provides a permanent record of the transmittal for both the writer and the reader.
In a cover letter, keep your remarks brief. Your opening should explain what you are
sending and why. In an optional second paragraph, you might include a summary of the information
you are sending. A letter accompanying a proposal, for example, might point out sections in the
proposal that might be of particular interest to the reader. The letter could then go on to present a
key point or two explaining why the writer's firm is the best one for the job. The closing paragraph
should contain acknowledgements, offer additional assistance, or express the hope that the material
will fulfill its purpose. Below is an example of a cover letter.

Company Logo and Contact Information

January 11, 2005
Brian Eno, Chief Engineer
Carolina Chemical Products
3434 Pond View Lane
Durham, NC 27708
Dear Mr. Eno:
Enclosed is the final report on our installment of pollution control equipment at Eastern Chemical
Company, which we send with Eastern's Permission. Please call me collect (ext. 1206) or email me
at the address below if I can answer any questions.

Sincerely,
Nora Cassidy
Technical Services Manager
ncassidy@company.com

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Bibliography:
Business letters in English W. J. Weston
Alexander Hollings - Written Communication in Business English
http://writingcenter.unc.edu/resources/handouts-demos/specific-writing-assignments/businessletters

116

http://www.ehow.com/facts_5101793_kinds-business-letters.html
http://www.englishclub.com/business-english/business-letters-write.htm
http://www.4hb.com/letters/index.html

CHAPTER 13
ENGLISH VOCABULARY EXERCISES
1-Recent trends in market research
Fill each of the blanks in the following text. Use one word only in each space.
In the past, marketing and advertising decisions were often based on an analysis of socio-economic
categories. These are categories

which the population is divided. The categories include

much money people have and their likely tastes. Nowadays, other
sophisticated techniques are used. These are segmenting techniques
assess consumers' psychological make-up and not their social

try to

. The old technique

using socio-economic categories

not account for the fact that some people

very expensive cars, while, at the

time, wear very cheap watches. Modern

marketers recognize
Marketers also

, nowadays, there is often no overall consumer type.

to take into account demographic patterns,

as the

breakdown of the two-parent family and the reduction or growth in certain age
Many companies keep a database of customers
particular brands. Use of and attitude
about

the customer is thinking than the socio-

. After all, certain

economic backgrounds.

have shown an attachment

certain products tell a company more
category to which s/he

are bought by people from a wide range of social and

2-The language of advertising

Language has a powerful influence over people and their behaviour. This is especially true in the
fields of marketing and advertising. The choice of language to convey specific messages with the
intention of influencing people is vitally important.
Visual content and design in advertising have a very great impact on the consumer, but it is
language that helps people to identify a product and remember it.
The English language is known for its extensive vocabulary. Where many other languages have
only one or two words which carry a particular meaning, English may have five or six.
Moreover, the meanings of these five or six words may differ very slightly and in a very subtle way.
It is important to understand the connotation of a word. Connotation is the feeling or ideas that are
suggested by a word, rather than the actual meaning of the word. Armchair, for example, suggests
117

comfort, whereas chair arouses no particular feelings.

The target audience, of course, also puts its own meaning into certain words. Different people
sometimes interpret language in different ways.
Both the mass media, when reporting news items, and marketing and advertising personnel have to
consider the emotive power of the words they use. First, they make a decision about what to
communicate and what to withhold.
One way in which advertisers adapt language to their own use is to take compound words and use
them as adjectives. These compounds often later become widely used in normal situations.
Examples of these compounds which have become part of the English language are: top-quality,
economy-size, chocolate-flavoured, feather-light and longer-lasting.
The language of advertising is, of course, normally very positive and emphasizes why one product
stands out in comparison with another. Advertising language may not always be "correct" language
in the normal sense. For example, comparatives are often used when no real comparison is made.
An advertisement for a detergent may say "It gets clothes whiter", but whiter than what?
A study of vocabulary used in advertising listed the most common adjectives and verbs in order of
frequency. They are:

118

Adjectives

Verbs

1.

new

1.

make

2.

good/better/best

2.

get

3.

free

3.

give

4.

fresh

4.

have

5.

delicious

5.

see

6.

full

6.

buy

7.

sure

7.

come

8.

clean

8.

go

9.

wonderful

9.

know

10.

special

10.

keep

11.

crisp

11.

look

12.

fine

12.

need

13.

big

13.

love

14.

great

14.

use

15.

real

15.

feel

16.

easy

16.

like

17.

bright

17.

choose

18.

extra

18.

take

19.

safe

19.

start

20.

rich

20.

taste

Good and new were over twice as popular as any other adjective.

Exercise
1. Find a word in the text which means an especially strong or powerful influence or effect.

2. Find

word

in

the

text

which

means

delicate,

not

easy

to

notice.

3. Can you think of any products which could be described as economy-sized?

4. Can you think of any other compound adjectives that could be used in advertising?

5. Look at number 11 on the list of adjectives. What kind of products could be described as
crisp?

119

3-Word partnerships
Some words are frequently used with a key business word.
Look at these "marketing" word partnerships:

MARKET

niche

segmentation

share

leader

penetration

research

buyers'

target

closed

open

MARKET

Market penetration is the extent to which a company gains a share of the market.
A buyer's market is a market in which the supply of goods is plentiful. Buyers can,
therefore, influence sellers to compete with one another in forcing down prices.
Which of the other word partnerships will fill the gaps in the following sentences?
1.

is the division of the market based on geography, social class and

consumer behaviour.

120

2.

is a small part of a specialised market.

3. A

is a country or area which a monopolist has declared to be out of

bounds to all producers except himself.

4.

is the proportion of the total demand for a product supplied by a

particular manufacturer.

5.

An

is a country or area in which, by agreement, several

manufacturers are free to compete with each other in selling their products.

4- Outdoor advertising

Fill each of the blanks in the following text. Use one word only in each space.
The oldest medium for advertising is outdoor advertising, which can be on hoardings,
underground stations etc. This form of

for a certain price. The owners of

advertising in terms of how many people it can

outdoor advertising

in Britain are now in big business. It is

specialist companies, owned by advertising agencies, who

owners have bought up some

longer
all the selling. Some

the specialist companies themselves. The market is now

segmented. Some companies deal

with smaller sites, at bus stops, etc.
Originally, outdoor advertising was
many

is much cheaper than television

very large poster sites, while others are involved

by the drink and tobacco industries. Nowadays,

industries use this form of advertising. Researchers give

breakdown of the type, age, sex and income of

who pass certain sites daily.

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5-Word partnerships
Some words are frequently used with a key business word.
Look at the words below which can be use with the word "sales", for example: sales
potential, sales strategy, sales team.

team

campaign

strategy

forecast

SALES

potential

launch

figures

target

Some of these "word partnerships" can be used to fill the gaps in the sentences below.
Please fill in the gaps. Then make some sentences of your own to help you to remember
the partnerships.
1. The company is planning to launch an important sales
product.
2. The sales
profit.
3.

The sales

to promote their latest

for the last quarter were very encouraging and we made a substantial

consists of the sales director, his assistant and ten sales representatives.

4. At the moment, we are conducting market research to find out the product's sales
in Germany.
5.

The sales director is confident of achieving the sales

set last January.

Word pairs
A lot of business words are frequently used in combination with another word. It is useful to learn
such combinations.

122

Can you match the words in column A with the words in column B?
A

1. Profit

??

2. Advertising

??

3. Market

??

4. Product

??

5. Head

??

6. Subsidiary

??

6-Easily confused words

The following pairs of words are often confused.
Choose the correct words to put into the blanks in the sentences.

economic/economical

announcements/advertisements
journey/voyage

sensible/sensitive
1. The
2. My car's very

affect/effect

by train takes about three hours.

, it doesn't use much petrol.

3. Do you think the higher price will

the sale of the product very much?

4. If you want to buy a second-hand car, why don't you look at the

in the

123

newspaper?
5. It's

to have an umbrella with you when you are in Britain.

7-Big Spenders are back

Lower living costs and higher wages mean more disposable income this Christmas. Read about a
large edge-of-town shopping centre in the northeast of England.
Fill each of the blanks in the following text. Use one word only in each space.
A shopping weekend in Gateshead, in the north east of England, is not everyone's idea of a holiday
but Scandinavians are arriving in large numbers to visit the town's MetroCentre, Europe's biggest
to Christmas, the centre expects about 20,000 shoppers

shopping mall. In the run

Norway, Iceland and the Netherlands.

Special deals

being sold abroad, promising "a complete

The centre, just south of Newcastle,

350 outlets, parking for 12,000 cars, a railway

, a bus station and a coach park. The MetroCentre is

area which has a

the heart of a retail

turnover than Oxford Street in London.

the edge-of-town development first opened ten years

it would take shoppers
the mall has brought shoppers

, many feared that

Newcastle city centre and hit businesses there.

some shops have closed since the MetroCentre opened,

draws

experience".

have found that

Newcastle from up to 40 miles away. The city now

more than 40 million shoppers a year, spending 1.36bn between them.

The region's retailing success is partly due to high levels of disposable income. Living costs,
particularly the cost of housing, are much lower than in most other parts of the UK.

124

8-Vague language
Vague language is not totally accurate or clear. Although some people think this is "bad" English,
all native English speakers use vague language when they are unable or unwilling to give accurate
information, or they think it is either unnecessary or socially inappropriate to do so. A good
example of vague language is rounding up numbers when telling the time. Twenty-six minutes past
two becomes:
It's about half past two.
It's almost half past two.
It's half two-ish.
It's nearly half past two.
Often, speakers use vague language not because they do not have accurate information, but because
they feel it is more polite to make a less definite statement. That is wrong becomes:
"I'm not sure that's completely correct."
As short definite statements sometimes sound too assertive to native English speakers, they often
add extra vague language to a sentence. This extra language has no extra meaning, it is just a social
softener.
The use of vague language differs from language to language and is an important cultural
consideration when doing business in a foreign language. Native English speakers, for example,
can find Germans direct because German uses little vague language. On the other hand, for
Germans, native English speakers can sound indecisive, inaccurate and lacking authority. In both
cases they are reacting to characteristics of the language, not their business partner. Here are some
more examples of vague language commonly used by native speakers of English.
List completers
Sometimes a speaker might start a list of some kind and then cannot remember the rest of the list or
does not think the other items are important enough to mention. In these cases, list completers are
ideal:
"I typed some letters, reports and other things like that."
"You have to ask a doctor or a lawyer or someone like that."
List completers are very common and use words such as things and stuff. Here are some more list
completers:
and stuff like that
and things / stuff
or something like that
or stuff like that
or what / where / whoever

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Placeholders
Placeholders are for when a speaker does not know or cannot remember the name of something or
someone.
"I need a thingummy for the slide projector."
"I gave it to whatsisname in the accounts department."
Grammatically these simply replace the name of the person or object that the speaker cannot
remember and never change their form. Other place holders include:
whatsername (for a woman)
whatsit
thingy
thingummyjig
Quantities
Vague language is very common with numbers when expressing quantity, frequency or the time.
Low numbers are often substituted by phrases such as a couple of / a few, whereas larger numbers
are rounded up with about / around or replaced with lots of / loads of.
"Should we say around three or four o'clock?
"It cost around 20 pounds or so."
"It's about a million."
"The computer caused loads / lots of problems."
With vague language, a couple does not necessarily mean two, it could mean up to three or even
four. When people do not want to give accurate numbers they can use the following:
"There were about 30 odd / or so people at the meeting."
"He's not that old. I'd say he's about 30-ish."
"There were a lot of / lots of / loads of problems."
"I've been to Prague a couple of / a few times."
"I think we need about / around 30 (or so)."

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9-Project Planning Vocabulary

For any project to be successful, it needs to be well planned. The diagram shows the
important factors when planning a project. Use the diagram to help you complete the
sentences below.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Our

is to increase productivity by 5%.

The project will be a

with a Russian company.

One
factor is the exchange rate. If the dollar falls then the project will be
more expensive.
We will have 10 people on the project with a total of 1000
six months.
Our

over the next

objective is to reduce costs by 3% within two months.

One possible problem is a lack of

language barrier.

between the companies due to the

The project finished on time, but unfortunately it went

We needed some new hardware, so we drew up a
We want to improve our
costs.

budget.
.

, so that means more productivity and lower

We didn't have the right people so we had to

two IT experts.

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EXERCISE 10
Choose the most appropriate answer:
The development of its marketing strategy is critical for a business, because
without one, its efforts to draw customers are going to be ......... and ineffectual.

(a) hackneyed
(b) haphazard
(c) hazardous
(d) heedless

The focus of its strategy needs to be on ensuring that its products or services .........
customer needs better than do its competitors', as well as on the development of
long-term, profitable customer associations.

(a) confront
(b) face
(c) meet
(d) solve
The business should identify whole new markets to target: ......... to a successful
marketing strategy is understanding one's customers and their needs.

(a) adjacent
(b) central
(c) peripheral
(d) tangent

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One key to successful marketing is the undertanding that both existing and
potential customers will ......... into specific segments or groups identified by their
needs.

(a) drop
(b) fall
(c) plunge
(d) veer

The focus of a company's strategy ought to be to identify such groups with their
needs and then ......... them more successfully than its competition.

(a) address
(b) affront
(c) assist
(d) attack

In this way, the business is able to create a marketing strategy which ......... the
most of its strengths and then matches them with the needs of the customers it
plans to target.

(a) builds
(b) finds
(c) makes
(d) sees

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If, for instance, a specific customer segment wants quality first and ........., then
marketing efforts aimed at them needs to direct their attention to the business's
high quality service.

(a) finally
(b) foremost
(c) most
(d) last

For maximum efficiency, the business should limit its activities to the methods that
it thinks will work best, and thus avoid ......... its marketing budget too thinly.

(a) sharing
(b) spending
(c) splurging
(d) spreading

Often forgotten is the necessity to monitor and evaluate the effectiveness of the
marketing strategy; this control helps the company check how it is performing in
practice and also helps to ......... its future strategy.

(a) inform
(b) ingrain
(c) install
(d) invest

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One simple ......... is to inquire of each new customer as to how they found out
about the company.

(a) apparatus
(b) device
(c) gadget
(d) utensil

Exercise 11: Read the following test and give short definitions of the concepts presented.:
Marketing strategy
A strategy is a long-term plan to achieve certain objectives. A marketing[link] strategy is
therefore a marketing plan designed to achieve marketing objectives. For example, marketing
objective may relate to becoming the market leader by delighting customers. The strategic plan
therefore is the detailed planning involving marketing research, and then developing a marketing
mix to delight customers. Every organisation needs to have clear marketing objectives, and the
major route to achieving organisational goals will depend on strategy. It is important, therefore, to
be clear about the difference between strategy and tactics.
These terms originate from military use (military strategy before and during a military
campaign is the general policy overview of how to defeat the enemy). Developing a strategy
involves establishing clear aims and objectives around which the framework for a policy is created.
Having established its strategy, an organisation can then work out its day-to-day tools and tactics to
meet the objectives.
Marketing can thus be seen as the process of developing and implementing a strategy to plan
and coordinate ways of identifying, anticipating and satisfying consumer demands, in such a way as
to make profits. It is this strategic planning process that lies at the heart of marketing.
In 1985, the Chartered Institute of Marketing adopted the dynamic slogan:
'Marketing means Business'
Strategic discipline
Marketing is now accepted as a strategic discipline or general management function and in
this respect must care for the health of a business in the future - especially against competitive
influences. This is because it is increasingly realised that although making a profit is important, an
organisation should also develop its market share and search for brand leadership as well. So the
marketer must monitor the profitability of the business and attempt to anticipate the likely trends. At
the same time rival companies should be monitored and examined for vulnerable points.

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Successful marketers must therefore be concerned with every aspect of their business,
including future project and other areas of their industry. Successful companies plan five or ten
years and more in advance and often know as much about their competition as they know about
themselves.
Marketing is not just a series of business-related functions, but more wide-reaching than
this. It is a business philosophy designed to develop an attitude of mind which should be shared by
everyone in an organisation and is often enhanced by both frequent and open communication.
Developing such an attitude of mind reduces the likelihood of crisis and contributes to the
development of the overall future of an enterprise at both strategic and tactical levels.
At the heart of marketing lies the degree to which an organisation becomes marketingorientated. The more committed a company is to its marketing activities, the more able it will be to
pursue its corporate objectives and develop and retain customers. Every business in existence relies
upon its customers for survival, and those who best meet customer needs will always survive a
period of change.
The marketing function is therefore an essential ingredient of corporate strategy, and this
marketing focus should be communicated through marketing planning into all aspects of business
activity.
In choosing a marketing strategy a frequent distinction that is made is between
undifferentiated marketing and differentiated marketing.
Undifferentiated marketing is where a single marketing mix is offered to the total market. In
contrast differentiated market is the process of attacking the market by tailoring separate product
and marketing strategies to different segments of the market, for example, the spectacles market can
be broken down into fashion segments and functional segments, high price and low price segments,
and segments for individuals with different types of vision problems.

Exercise 13
Choose the best answer:

1. There has been a drop in sales. = Sales have _________________.

decreased
downed
increased
2. Sales have increased for three years _________________. = Sales have increased for three years
in a row.
even
straight
forward

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3. You have to market these particular attributes. = You have to market these particular
_________________.
qualifiers
qualifications
qualities
4. We shouldn't use the same old strategies. = We should __________________ using the same old
strategies.
avoid
averse
avert
5. Thanks to smart planning, we have __________________ another crisis. = Thanks to smart
planning, we have thwarted another crisis.
put forth
unveiled
averted
6. We shouldn't rule that out as an option. = We should still _________________ that an option.
reject
consider
contain
7. The figures are down from January. = The _________________ are down from January.
numbers
numerals
mathematics
8. Our company has seen 10 years of uninterrupted growth. = Our company has seen 10 years of
_________________ growth.
sporadic
steady
stagnant
9. We should market this product as being durable and dependable. = We should market this
product as being _________________ and dependable.
study
sturdy
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studious
10. We need to develop a new strategy. = We need a new _________________.
appraisal
approval
approach

Exercise 14
QUESTIONS:
1. You should change that color. = You should _________________ that color with another one.
redo
replace
revert
2. This brand is known around the world. = This brand is world-_________________.
known
famed
famous
3. Will this brand be marketed all over the world? = Will this brand have a global
_________________?
approach
scope
interest
4. This particular campaign isn't doing so well. = This particular campaign is __________________
.
struggling
streaming
stellar
5. The market is __________________ with these types of products. = The market is already full of
these types of products (There isn't any room for another one).
saturated
satisfied
happy

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6. We want to make sure that this new message doesn't __________________ what we've been
saying before. = We don't want the new message to be at variance with the previous one.
consider
contemplate
contradict
7. Give me a couple of days to ___________________ this strategy. = Give me a couple of days to
think about this strategy.
contemplate
contain
contradict
8. This type of mistake can have serious _____________________. = This type of mistake can have
serious consequences.
repercussions
reprieves
reprimands
9. This, for example, is the marketing plan from last year. = This, for _________________, is the
marketing plan from last year.
instant
instance
sure
10. We need to create a consistent brand _________________. = We need to create a corporate
image that doesn't change.
attitude
clout
platform

Exercise 15
QUESTIONS:
1. We'd like to change consumers'_________________ of our brand. = We would like to change
how consumers see our brand.
perception
review

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reevaluation
2. These types of products are becoming _________________ popular. = These types of products
are becoming more and more popular.
incredibly
increasingly
impossibly
3. Our market researchers have determined that this is an effective approach. = Our market
researchers have come to the _________________ that this is an effective approach.
conclusion
condition
coincidence
4. It's not easy to _________________ the outcome of this campaign. = It's not easy to know in
advance what the outcome of this campaign will be.
pursue
predict
prevent
5. The next step is to ________________ the results. = The next step is to measure/evaluate the
results.
gather
inquire about
gauge
6. Who is going to be the lead on this project? = Who is going to be in __________________ of this
project?
head
front
charge
7. Which approach do you recommend? = Which approach do you ___________________?
suggest
exaggerate
subdue

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8. We shouldn't _______________ the importance of these recent developments. = We shouldn't

overemphasize the importance of these recent developments.
exacerbate
exaggerate
exercise
9. He _______________ to bring up several important issues. = He didn't bring up several
important issues.
fell
folded
failed
10. A new business prospect = A _________________ customer/client
potential
potent
patented

Exercise 1 6
QUESTIONS:
1. He was _________________ a product we were not interested in. = He was trying to sell us a
product we were not interested in.
pitching
evaluating
examining
2. There are more effective ways to _________________ prospective customers to buy our
products. = There are more effective ways to convince prospective customers to buy our products.
persuade
persist
pursue
3. The results of the research _________________ me to take a different approach. = After seeing
the results of the research, I decided to (I had to) take a different approach.
promoted
promised
prompted

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4. To _________________ an idea = To make an idea fail/ To reject an idea

sell
sink
stress
5. Our customers don't like it when we ____________ things down for them. = Our customers don't
like it when we oversimplify things for them in order to make them easier to understand.
dome
do
dumb
6. Why can't he ever answer a question directly? = Why does he always talk __________________
a question?
around
about
over
7. How do you plan to _________________ this campaign? = What changes do you plan to make to
this campaign?
restructure
resolve
reorder
8. To take a _________________ view = To not be overly optimistic.
captured
callous
cautious
9. What kind of _________________ will this have on sales? = How will this affect sales?
income
impact
interest
10. National advertising will be negatively _________________. = This will have a negative effect
on national advertising.
effective

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affected
efficient

Exercise 17
QUESTIONS:
Choose the correct synonym for each of the bolded words/expressions:
1. web campaigns = _________________ campaigns
online
inline
screen
2. catering to these types of customers = _________________ these types of customers
providing services for
unwillingly servicing
overcharging
3. increased level of interaction = increased level of _________________
coercion
competition
communication
4. online video providers are getting in on the race = online video providers are
_________________
not doing too well
entering the market
running
5. the traditional 30-second TV spot = the traditional 30-second TV _________________
pause
channel
commercial
6. to engage the viewer in the online-viewing experience = to __________________ the viewer in
the online-viewing experience
involve

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invest
invoke
7. these ads are _________________ made for the online channel = these ads are expressly made
for the online channel
specifically
remotely
carefully
8. to improve ad relevance = to improve ad _________________
awareness
budgets
pertinence
9. _________________ video technology = personalized video technology
derogatory
customized
modern
10. a brand experience that a customer will remember = a _________________ brand experience
plausible
memorable
forgettable

Exercise 1 8
QUESTIONS:
(Choose the best response for each one)

1. Have you seen last month's sales ______________?

figures
figurines
figs
2. Sales are ______________ by 50% compared to this time last year.
up

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higher
high
3. We'll be looking to hire a sales ______________ soon.
rap
rope
rep
4. In much of the business world, the calendar year is divided into four ______________.
quarts
quarters
cubes
5. To write up a contract = To ______________ a contract
drought
draw
draft
6. The amount on the ______________ ( = an official bill) is higher than what we agreed on.
invoice
draft
paper
7. Our company offers a wide ______________ ( = variety) of software.
assortment
sort
assessment
8. I work for a company that does ______________ advertising.
outside
external
outdoor
9. We plan to launch a new sales ______________ to attract new customers.
company
campaign
comment
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10. Our customer ______________ is made up of mostly middle-aged white men.

basis
base
collection

Exercise 1 9

QUESTIONS:
(Choose the best response for each one)

1. The numbers for the last quarter were very ______________ ( = positive).
encouraging
discouraging
distracting
2. What do you do with market research?
You make it
You conduct it
You create it
3. I don't really see a lot of sales ______________ for this product.
potential
patent
potency
4. The percentage of sales the company has left over as profit after paying all expenses is called a
profit ______________ .
merger
margin
level
5. What percentage of your ______________ ( = potential deals) end in closed deals?
people
chances

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leads
6. If a profit margin is "not sustainable", it means that:
the company is doing well
the company doesn't need more money
the company won't be able to exist a long time if the profit margin doesn't increase
7. The most successful salespeople in a company are referred to as its "top ________________".
performers
persons
personnel
8. Tom did so well last year, he was ________________to management.
demoted
promoted
put
9. We plan to launch a new sales ________________ to attract new customers.
company
comment
campaign
10. There are several reasons for this ________________. ( = inability to understand one another/
come to an agreement)
disconnect
discomfort
display

Exercise 20
QUESTIONS:
(Choose the best response for each one)

1. We are looking to _____________________ with other players in the industry.

partnership
partner
partake
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2. This decision will not affect our _____________________. ( = profits)

bottom lane
line
bottom line
3. When potential is "realized" it is:
understood
achieved
believed
4. We've got to do an analysis on the length and cost of our sales _____________________. ( =
complete sales process from beginning to end)
cycle
circle
plan
5. In sales, "customers retained" refers to the customers that a company _____________________.
has kept
has lost
has found
6. Mr. Lin has a lot of experience, but he still doesn't meet the _____________________
requirements for this position.
compact
community
competency
7. These _____________________ programs are designed to improve sales performance.
training
train
trained
8. Sales managers are paid to _____________________ results.
produce
make
do

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9. How effective are these programs over the _____________________? ( = over a long period of
time)
future
long term
long time
10. Many sales managers use _____________________ software to improve sales performance.
plan
forecast
forecasting

Exercise 21
1.

Some marketers believe that pricing is the most important ______________ in the
marketing mix.
idea
value
item
2. A 1% increase in price could increase ______________ by up to 5%.
profiteering
profitability
money
3. Prices are often altered as a ______________ to competitive moves.
change
reaction
reference
4. In marketing, a product's ______________ refers to how potential buyers see the product.
position/positioning
p
placement
profit
5. Re-positioning involves changing the ______________ of a product.
identification
identical
identity
6. What impact will introducing this new product have on ______________ products?

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existing
new
exist
7. To tailor offerings = To ______________ offerings
create
scrap
give birth to
8. Optimal price = ______________ price
average
exceedingly high
perfect
9. What's the opposite of "long-term strategies"?
short-time strategies
short-term strategies
small-time strategies
10. Many companies use historical data to ______________ ( = set) pricing strategies.
determine
determined
determination
Exercise 22
1. For many companies, trade show marketing can be a ____________________.
bad dream
nightmare
bad scene
2. One of the things you have to consider are the ____________________ for your space.
rent fees
payment fees
rental fees
3. The trade show is tomorrow and the print shop hasn't finished printing our
____________________ yet!
sales things
sales materials

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selling materials
4. Our ____________________ production costs are low, since we're setting it up ourselves.
booth
box
boot
5. I ____________________ five trade shows last year.
attended
went
atoned
6. Stacks of business cards = ____________________ business cards
A couple of
No
Lots of
7. A trade show isn't worth your time and effort if it doesn't produce good ____________________.
leads
loads
experiences
8. One of the main reasons we're attending the trade show is to connect with
____________________.
potential partners
potential partnerships
potent partners
9. Trade shows produce about 20 ____________________ of our annual leads.
percentage
percent
average
10. Setting up a professional looking booth and presentation will help up to raise our
____________________.
opinion

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look
profile
Exercise 23
QUESTIONS:
(Choose the best response for each one)
1. We're ____________________ a new version of our most popular product this Fall.
launching
giving
throwing out
2. We _____________________ about 200 new customers as a result of last year's trade show.
engendered
generated
endangered
3. A "qualified" lead is a potential customer that has _____________________.
expressed interest in your product/service
not expressed interest in your product/service
received some kind of certification
4. A person who attends a trade show is called _____________________.
an attendant
an attendee
attentive
5. Make sure you _____________________ ( = put into categories) and prioritize all the leads that
you generated at the show last week.
category
make categories
categorize
6. How are leads _____________________ in your company?
distribute
spread
distributed

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7. Another word for trade show is _____________________.

convention
trading show
company show
8. The biggest industry trade show of the year _____________________ in Las Vegas from
October 8-10.
takes part
takes place
takes time
9. Each booth space is about 10 feet _____________________.
width
wider
wide
10. All the top companies = All the _____________________
leading players
leading plays
good players

Exercise 24

Match the definition on the left with the letter of the term on the right:
a - commercial (n.)
b - billboard
c - complimentary
d - campaign
e - readership
f - slogan
g - press release
h - features
i - publicity
j - brand awareness
1. memorable motto or phrase ->

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2. a large, square sign used to post advertisements -->

3. a statement (about a product) released to the news media -->
4. an advertisement on TV, the radio, etc. -->
5. the attempt to manage how a public sees a product -->
6. the number of people that read a particular newspaper, magazine, etc. -->
7. a plan of action (to promote a product) -->
8. a measure of how popular a brand is (how many people know it, etc.) -->
9. special characteristics, qualities -->
10. free -->

Exercise 25
Match the definition on the left with the letter of the term on the right:
a - target audience
b - pioneer (n.)
c - eye-catching
d - jingle (n.)
e - brand image
f - poster (n.)
g - misprint (n.)
h - brand management
i - generic brand
j - copy (n.)
1. a plainly labeled, unadvertised product ->
2. a person who does something, or thinks of something before anyone else -->
3. the people that a book, movie, or radio/TV program wants to reach -->
4. a large piece of paper, usually hung on walls to promote a product, event, etc. -->

150

5. an error/mistake in printing -->

6. text to be used in an advertisement -->
7. how someone sees, perceives a particular brand -->
8. the art of creating and maintaining a brand -->
9. something that grabs one's attention -->
10. a catchy tune/song used to sell a product -->

Exercise 26
QUESTIONS:
Fill in each blank with the best response

1. You should __________________________ your employees in a more respectful manner.

treat
to treat
treated
2. Employees should __________________________ in a more respectful manner.
to be treated
be treated
treated
3. PERSON 1: __________________________ you seen Bob? PERSON 2: No, I haven't.
Have
Are
Did
4. You __________________________ if you have a problem.
would have let him know

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should let him know

have let him know
5. The business environment __________________________.
is constantly changing
changes constantly
A or B
6. _________________ them until we get the proposal back from Nancy.
Don't be calling
Haven't you called
Don't call
7. The board _________________ a merger.
has just approved
just has approved
A or B
8. I __________________________ at Bank of America from 2001-2003.
have been working
was working
have worked
9. Currently, I __________________________ at Citibank.
work
am working
A or B
10. I __________________________ here for 10 years. (I still work here)
have worked
worked
was working

152