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The Size of Corporations
However, when we look at size and economic importance rather than numbers, we find that the 12 percent of all firms that are corporations receive nearly 80 percent of total sales revenue. Even in retail trade, where many small stores are operated by their proprietors, corporations do 50 percent more business than partnerships and proprietorships combined.
The biggest contrast between numbers and sales appears in transportation and public utilities. While 84 percent of the firms in this industry are sole proprietorships and partnerships, these are mostly owner-operated taxis and trucks. Corporate truck and bus lines, railroads, airlines, and telephone, gas, and power utilities sell more than 90 percent of the total output. Only in agriculture is the total volume of corporate sales relatively small. Even so, while only 1 percent of agricultural firms are incorporated, these corporations account for 14 percent of the value of agricultural product sold.
Differences in the type of business organization that predominate in different industries are in keeping with the requirements of efficient production. Sole proprietorships predominate where technology permits economic operation with no more capital than a single enterpriser can command; corporate organization is found where the scale of production requires the combined capital of many people.
Assignments to text 2:
1. Read the text and explain why it is necessary to distinguish between the size of a firm and the size of a plant. Identify the key sentences which help to understand it.
2. Read the text once more and answer if giant corporations are economical.
3. Translate the paragraph which provides an example. What statement does it support?
4. Read the first sentence of the last paragraph and formulate the point which “is increased”.
5.Write down a concluding paragraph of 2-3 sentences which would make the text completed.
Text 2 Size of Firm vs Size of Plant
In evaluating giant firms, it is necessary to distinguish carefully between the size of the firm and the size of the individual physical factories, plants, or establishments that the firm owns and operates. Efficient production requires individual plants large enough to use expensive specialized equipment and to employ specialized workers. This means that firms must be large enough to own and operate these large plants. Once the firm is operating the most economical plant, however, there is no increase in engineering efficiency when the firm grows large enough to own and operate several plants, all equally efficient.
For example, fruit can be canned in a plant costing less than $100,000 (or, for that matter, in an ordinary household kitchen). With hand labor and simple equipment, however, the cost per can is very high. A larger cannery, operating on a production-line basis with automatic cooking, canning, and conveying equipment may require an investment of $ 1 million, but the production cost per can is a fraction of what it is in the smaller plant. If the output can be sold, a $ 1 million corporation with one big plant is more economical than ten $ 100,000 corporations, each operating a small, inefficient plant. But a $ 10 million corporation, operating ten efficient plants, achieves no greater production economy than ten $ 1 million corporations operating only one plant each.
The force of this point is increased when we realize that giant corporations not only operate many plants but also usually operate plants in many different industries. Thus, an automobile company not only has many plants producing automobiles, it also has plants producing trucks, locomotives, refrigerators, air-conditioning equipment, radios, television sets, and electrical generating equipment. The world's largest "steel" company is also, among other things, one of the world's largest cement producers. A large “food processing” firm also makes electric iron and other household appliances.
Assignments to text 3:
1. Read the text and find the sentences explaining the notion and function of specialized management.
2. Translate the text and indicate advantages/disadvantages that specialized management provides for any enterprise.
3. Read the text once more and try to understand if the author stands for or against large firms.
4. Identify and read out the sentences for or against large firms.
5. Do you agree that “people with combination of ability, imagination, energy, discipline, and drive required for effective enterprise are probably our scarcest economic resource”. Give your reasons focusing on Russian realities.
Text 3 Specialized Management
If engineering efficiency and production-line economy were all that mattered, much could be said for a public policy designed to put severe limits to corporate size. But there is more to productivity than engineering. To return to the example of the fruit cannery, the assembly of raw materials requires specialized knowledge of different kinds of fruit and their canning properties, moreover, somebody must keep track of crops in different areas and know when and where to buy, and in what amounts. Somebody must keep in constant touch with many markets for canned fruit to decide how much output will be needed and where it will go. If these decisions are not properly made, the engineering efficiency of the plant can’t be more than offset by marketing losses. To can a poor quality of fruit, or a kind that few people really want, or to pack it in cans of the wrong size or of poor design, is just as wasteful of resources as operating a plant that is too small to be efficient. Careful attention to such details is the function of specialised management; but the elaborate division of labor necessary for most effective use of management ability requires a workload large enough to keep manager employed at their specialities.
A company large enough to operate only one plant of the most economical size is often too small to specialize its management effectively. Full-time staffs devoted exclusively to production, marketing, purchasing, personnel, finance, and accounting can be kept busy only as adjuncts to a large productive operation that is spread over many plants.
Even more important is the great advantage of providing as wide a field as possible for the skill, imagination, and initiative of enterprisers. Steady rise in productivity and improvement of quality are the results of conscious human effort. Somebody must perceive the advantages of each specific change in a method of production, decide to adopt it, and be able to put the decision into effect. People with combination of ability, imagination, energy, discipline, and drive required for effective enterprise are probably our scarcest economic resource. It takes a large firm to give full employment to the talents of such people.
Assignments to text 4:
1. Read the text and enumerate all reasons for large firms.
2. Write down these reasons into your notebook.
3. Look through the previous three texts and identify the facts for or against large firms. Write down the sentences into your notebook.
4. Write a concluding paragraph with your judgement on the importance of a corporation taking advantage of the sentences that you’ve written down.
Text 4 Other Reasons For Large Firms
Beyond productive efficiency and enterprise, however, there are other reasons why firms grow large. The larger a firm becomes, the easier it is to grow still larger by trading on its reputation. Reputation is especially important when prospective buyers are unable to experiment. For example, a firm offering standardised nation-wide service seldom does a better job in any given place than the best local firms, but many travellers prefer to patronize filling stations, stores, motels, or restaurants with familiar names and reliable reputations, rather than risk disappointment by an unknown firm.
It is easier for an established firm with a good reputation to bring out a new product than it is for a new and unknown firm, even when the new product is completely unrelated to the old ones. Some large firms grow merely because it is easier for customers to get service for products that are widely used and familiar to mechanics and maintenance men. Another special advantage of size is that a large firm can employ nationwide advertising in radio, television and other media at costs that would be impossible for a firm with a small local market.
A large successful firm is also in an advantageous position when raising capital for still further expansion. An established firm enjoys the advantage that many people prefer to buy new securities in a company whose reputation and performance are well known, rather than to invest in a new and untried venture. Also, borrowing money is facilitated when bankers and other lenders already know the company.
Assignments to text 5:
1. Look through the text and say what alternative means of organizing a business are discussed.
2. Read the text and find the topic sentences for each paragraph.
3. Scan for sentences which would help to give definitions to alternative means of organizing a business.
4. Give definitions of all types of businesses.
5. What are the main advantages of the types of business discussed in the text?
6. Explain the following:
· synergy
· reduction in the interactive “size” of the world economy
· customized relationship
· stakeholder vs. shareholder
· identity theft
· typical alignment
Text 5 Alternative Means of Organizing a Business
In organizing an emerging business the typical alignment is either to have a sole proprietorship, a partnership (limited or general), or possibly a corporation. Recently though, with the reduction in the interactive “size” of the world economy and the increasing speed of transactions it is apparent that there may be adaptations of the three basic organizational structures that would fit entrepreneurs better. Two organizational formats that are talked about slightly in text books are the joint venture and the consortium/cooperative.
In a recent article in Business Week magazine, Dallas based Dresser Industries joined together as joint venture partners with Komatsu Ltd. of Japan to build construction equipment and engineering facilities in the United States, Latin America, and Canada. This joint venture was to merge their manufacturing, engineering, and finance operations to reduce cost, yet retain distinct product lines that would be sold through their existing dealership networks.
The joint venture allows for a customized relationship for a specified duration with each principal member having explicit rights and responsibilities. It also includes the means to dissolve the joint venture. The power of the joint venture lies in the synergy which two or more companies bring to bear on specific detailed activities which both are involved. For instance, in Normal, Illinois, the Diamond Star motors Corporation is a joint venture between Mitsubishi of Japan and Chrysler Corporation of America. They cooperatively planned, designed, and laid out an automobile plant in this Midwest community that can produce up to 250 000 cars a year, while hiring fewer than 3,000 employees. The technology, engineering, and management style have lead to the production of remarkably high quality of automobiles that have received many automobile awards. Unfortunately, due to Chrysler’s poor financial health, Chrysler is seeking Mitsubishi’s purchase of more of the joint venture’s financial responsibilities to create some cash flow for Chrysler Corporation. Although this may appear to be negative news, it’s one of the strengths or the joint venture style of organization. It provides flexibility for partners to move in and out to varying degrees.
The other organization format is the cooperative or consortium based organizational pattern. In this form of organization, several companies come together to work on projects of common interest and to support these projects with their expertise and their power base. An excellent example of this is the Airbus consortium of government agencies in Europe which includes France, Germany, Britain, and Spain. Once thought of as a little plane manufacturing and marketing concern that holds 30 percent market share in the airline industry. This is still far behind the 53 percent held by Boeing, but orders are soaring and it has made tremendous strides in acquiring major contracts by worldwide airline companies. It is currently seeking major orders from United, American, or Delta Airlines.
Although they have been receiving significant notoriety of their successes, the politics of operating and managing consortium based activities is troublesome. Each firm has a variety of stakeholders with varying objectives that need to be accomplished. This hinders the path of least resistance in the market place; and hence, many times the politics or interrelationships of consortiums or cooperatives may cause its collapse.
In this era of pace change, consortiums/ cooperatives and joint ventures are means of taking advantage of new market niches that are developing or to redefine and reinvent products to better serve current customers.
Discussion:
These are some helpful word-combinations in addition to the glossary that you should translate, memorize, and use while discussing the questions:
to operate a plant, to do business, to be in keeping with requirements, to resolve problems, to take advantage of (smth.), to exceed a size, to evaluate firms, to use equipment, to employ specialized workers, to achieve production economy, to put limits, to keep track of (smth.), to keep in (constant) touch, to waste resources, to specialize management, to put (the decision) into effect, to bring out a new product, to get service, to employ advertising, to raise capital, to enjoy advantage.
1. Prove economic importance of big corporations.
2. Do you agree with the author's reasons for large firms?
3. Explain the notion of specialized management providing illustrative examples.
4. What is your final judgement about the importance of the corporation? Aren’t small-scale businesses equally important?
5. Do you agree with the following statements?
“Today the large organization is lord and master, and most of its employees have been desensitized much as were the medieval peasants who never knew they were serfs. Ralph Nader
“If small business goes, big business doesn’t have any future except to become the economic arm of a totalitarian state.” P.D.Reed
“America can no more survive and grow without big business that it can survive without small business. Every fact of our economic and industrial life proves that the two are independent. You cannot strengthen one by weakening the other, and you cannot add to the stature of a dwarf by cutting off the leg of a giant… The American industrial machine is a unit, just like an automobile. It’s made of big parts and little parts, and each of which does its particular job and all of which are intricately fitted together. You may think that it would be fun to sort them all into neat piles according to size to please the statisticians. You could even pass a law declaring that all the parts must be the same size, and the theorists, no doubt, would be delighted. But when you get through your automobile won’t run and neither will American industry”. Benjamin Fairless
UNIT IX REVIEW
Ex. 1: Vocabulary fills-in. In the following sentences supply the correct verb or noun from the box below.
Differ continue equip bankrupt difference continuity equipment bankruptcy own decide satisfy owner ownership decision satisfaction
1. The sole proprietor can _____ for himself if he wants to set up a new business.
2. The _____ can keep all of the profits of the business.
3. The proprietor made a _____ to purchase some new _______.
4. The sole proprietorship, partnership, and corporation ______ in the manner in which they raise capital.
5. If the owner makes the wrong decision, it may _____ the business.
6. The proprietor doesn’t wish to _____ his enterprise, because he has been unsuccessful and he doesn’t get any ______ from his efforts.
7. It takes capital to purchase inventory and ______ the workship with the necessary tools.
8. We try to_____ the customers so that they will _____ to shop here.
Ex. 2 Building your business vocabulary is very important. The new business terms are printed below, along with definitions. Please match each with its proper definition.
a) sole proprietorship b) unlimited liability c)partnership d) partnership agreement e) corporation f) shareholders (or stockholders) g) corporate charter.
1) A contract between the incorporators and the state that authorizes the formation of the corporation.
2) An association of two or more persons to carry on as co-owners of a business for profit.
3) An oral or written contract between the owners of a partnership that identifies the business and states the partners' respective rights and duties.
4) A legally chartered organization that is a separate and legal entity apart from its owners.
5) A business owned by one person.
6) The owners of a corporation.
7) The concept that the business owner is responsible for
claims against the firm that goes beyond the value of the
owner's ownership in the firm.
Ex. 3 Building your business vocabulary is very important. The business terms are given below, along with definitions. Please, match each with its proper definition.
accounting bond entrepreneur loss policy profit venture creditor capital bankrupt production service stock
1. Any of the equal parts that the ownership of a corporation is divided into.
2. Money or property and equipment used for production.
3. A person who starts, manages, and takes the risks of running a business.
4. The amount by which income exceeds costs.
5. One to whom the business owes money.
6. Unable to pay one’s debts and legally freed from the responsibility of paying them.
7. Business activity related to providing help, repair or assistance as opposed to selling or producing.
8. A principle, method or rule which determines how an organization is operated.
9. A system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.
10. The amount by which the cost and expenses exceed the income.
11. An interest-bearing certificate of public or private indebtedness.
12. The action of making goods for human wants
13. Total output.
Assignment to text 1:
1. Complete the text using the words in the box:
losses financial corporations partnership premises creditors issue liability registered shares sole trader capital prospectus files bankruptcy
Text 1 Types of Business
The simplest form of business is the individual proprietorship or- (1)………….: for example, a shop (US = store) or a taxi owned by a single person. If several individuals wish to go into business together they can form a (2)………..; partners generally contribute equal capital, have equal authority in management, and share profits or (3)………... In many countries, lawyers, doctors and accountants are not allowed to form companies, but only partnerships with unlimited (4) ……….. for debts - which should make them act responsibly.
But a partnership is not a legal entity separate from its owners; like sole traders, partners have unlimited liability: in the case of (5) ……….., a partner with a personal fortune can lose it all.
Consequently, the majority of businesses are limited companies (US = (6) ………..), in which investors are only liable for the amount of capital they have invested. If a limited company goes bankrupt, its assets are sold (liquidated) to pay the debts; if the assets do not cover the debts, they remain unpaid (i.e. (7) ……….. do not get their money back.)
In Britain, most smaller enterprises are private limited companies which cannot offer (8)………..to the public; their owners can only raise capital from friends or from banks and other venture capital institutions. A successful, growing British business can apply to the Stock Exchange to become a public limited company; if accepted, it can publish a (9) ……….. and offer its shares for sale on the open stock market. In America, there is no legal distinction between private and public limited corporations, but the equivalent of a public limited company is one (10) ……….. by the Securities and Exchange Commission.
Founding a Company
Founders of companies have to write a Memorandum of Association (in the US, a Certificate of Incorporation), which states the company's name, purpose, registered office or premises and authorised share (11) ………..
(12) ……….. (always with an У at the end) - is the technical term for the place in which a company does its business: an office, a shop, a workshop, a factory, a warehouse, etc. Authorised share capital means the maximum amount of a particular type of share the company can (13) ………..
Founders also write Articles of Association (US = Bylaws), which set out the rights and duties of directors and different classes of shareholders. Companies' memoranda arid articles of association, and annual (14) ……….. statements are sent to the registrar of companies, where they may be inspected by the public. (A company that (15) ……….. its financial statements late is almost certainly in trouble.) In Britain, founders can buy a ready-made "off-the-shelf company from an agent, that is, a company formed and held specifically for later resale; the buyer then changes the name, memorandum, and so on.
Assignment to text 2:
1. Read the following text and then decide whether the statements following are TRUE or FALSE.
· A company can only be floated once.
· Banks underwrite share issues when they want to buy the shares.
· It is easier for a company to be quoted on an unlisted securities market than on a major stock exchange.
· Unlisted companies do not publish annual reports.
· The market price of a share is never the same as its nominal value.
· On the London Stock Exchange it is possible to make a profit.
· without ever paying anyone any money.
· If a company issues new shares, it has to offer them to existing shareholders at a reduced price.
· A scrip issue can be an alternative to paying a dividend.
· American corporations with large amounts of cash can spend it by buying their own shares.
· Companies do not have to sell their shares at their nominal value.
Text 2 Stocks and Shares
The act of issuing shares (GB) or stocks (US) - i.e. offering them for sale to the public - for the first time, is known as floating a company or making a flotation. Companies generally use a bank to underwrite the issue. In return for a fee, the bank guarantees to purchase the security issue at an agreed price on a certain day, although it hopes to sell it to the public. Newer and smaller companies trade on "over-the-counter" markets, such as the Unlisted Securities Market in London. Successful companies can apply to have their shares traded on the major stock exchanges, but in order to be quoted (GB) or listed (US) there, they have to fulfil a large number of requirements. One of these is to send their shareholders independently-audited annual reports, including the year's trading results and a statement of the company's financial position.
Buying a share gives its holder part of the ownership of a company. Shares generally entitle their owners to vote at companies' General Meetings, to elect company directors, and to receive a proportion of distributed profits in the form of a dividend (or to receive part of the company's residual value if it goes into bankruptcy). Shareholders can sell their shares at any time on the secondary market, but the market price of a share - the price quoted at any given time on the stock exchange, which reflects how well or badly the company is doing - may differ radically from its nominal face, or par value.
At the London Stock Exchange, share transactions do not have to be settled until the account day or settlement day at the end of a two-week accounting period. This allows speculators to buy shares hoping to resell them at a higher price before they actually pay for them, or to sell shares, hoping to buy them back at a lower price.
If a company wishes to raise more money for expansion it can issue new shares. These are frequently offered to existing shareholders at less than their market price: this is known as a rights issue. Companies may also turn part of their profit into capital by issuing new shares to shareholders instead of paying dividends. This is known as a bonus issue or scrip issue or capitalisation issue in Britain, and as a stock dividend or stock split in the US. American corporations are also permitted to reduce the amount of their capital by buying back their own shares, which are then known as treasury stock; in Britain this is generally not allowed, in order to protect companies' creditors. If a company sells shares at above their par value, this amount is recorded in financial statements as share premium (GB) or paid-in surplus (US).
The Financial Times-Stock Exchange (FT-SE) 100 Share Index (known as the "Footsie") records the average value of the 100 leading British shares, and is updated every minute during trading. The most important US index is the Dow Jones Industrial Average.
Assignment to text 3:
1. Match the responses in part B with the questions in part A.
Text 3 Bonds
A
1. So what exactly are bonds?
2. And how do they work?
3. So you have to keep them for a long time?
4. Why should that happen?
5. Oh, I see. Is that what they mean by below par?
6. But the bond's interest rate doesn't change?
7. How's that?
8. And people talk about AAA and AAB bonds, and things like that.
9. And what about gilts?
10. Not Treasury Bilk?
11. And James Bond?
B
a. Because of changes in interest rates. For example, no-one will pay the full price for a 6% bond if new bonds are paying 10%.
b. Exactly. And the opposite, a bond whose market value is higher than its face value, is above par.
c. I knew you'd finish by saying that!
d. No, not at all. Bonds are very liquid. They can be sold on the secondary market until they mature. But of course, the price might have changed.
e. No, not unless it's a floating rate bond. The coupon, the amount of interest a bond pays, remains the same. But the yield will change.
f. No, those are short-term (three-month) instruments which the government sells to and buys from the commercial banks, to regulate the money supply.
g. That's the name they use in Britain for long-term government bonds - gilts or gilt-edged securities. In the States they call them Treasury Bonds.
h. They're securities issued by companies, governments and financial institutions when they need to borrow money.
i. Well, a bond's yield is its coupon payment expressed as a percentage of its price on the secondary market, so the yield changes if you buy or sell above or below par.
j. Well, they usually pay a fixed rate of interest and are repaid after a fixed period, known as their maturity, for example five, seven, or ten years.
k. Yes. Bond-issuing companies are given an investment grade by private ratings companies such as Standard & Poors, according to their financial situation and performance.
Assignment to text 4:
1. Read the title. What do you expect to read in this text?
2. Read and translate the subtitle.
3. Read the text and divide it into parts (logically). Justify your division.
4. Mark all pros and cons of any off-the-shelf company.
5. Translate the text. Ensure that you haven’t missed any information.
6. The author writes: “I would think twice before becoming a General Director of a company that is being sold to a new owner”. Explain, why.
7. Is the situation described similar to American realities that you have come to know from the previous units?
Text 4 Starting Your Own Business in Russia: