2. Types of business organization

In this unit we will talk about the factors that make a company successful, compare different styles of running a company, and discuss the type of company you would most like to work for.

Discussion:

Which department – production, finance, accounting, marketing, sales, human resources, etc. – of an organization is the most interesting to work in, to your mind?

What reasons can you think of why some departments get into conflict with each other?

Is it better to have one immediate boss or to work for more than one manager?

Do you prefer to work alone or in a team?

Is it more motivating to be responsible to someone for your work, or responsible for people who report to you?

Vocabulary build-up

Match the following types of business organization to their description:

1. partnership

2. joint venture

3. franchise

4. subsidiary

5. multinational corporation

6. licensing agreement

7. public limited company

8. private limited company

9. holding

10. sole trader

• associations of two or more people sharing the risks and the profits in agreed proportions.

• a private individual who runs a one-man business. He/she takes all the profits but also all the risks.

• the type of business that cannot offer its shares to the general public. Nor can shares be transferred between members without the consent of the other shareholders.

• parent company which owns more than half the share capital of another company

• a company that is owned or controlled by another larger company

• a large company in Britain which has shares that the public can buy and sell and which must have a minimum nominal share capital of £50,000.

• an agreement by which a franchisor gives another person or company the right to sell goods or services using the franchisor’s name in return for a royalty.

• under this agreement one firm allows another to exploit its intellectual property (e.g. patent) in return for a royalty.

• two or more companies do something together and each party contributes assets and shares risks.

• A firm which owns or controls production or services outside the country in which it is based.

Read the text about different types of companies and discuss the questions below.

Types of companies

There are many different types of companies. Most large corporations are public limited or joint-stock companies, which means that shareholders who wish to invest in the company can buy and sell parts of the company on the stock exchange. Many are multinationals with subsidiaries and assets in various different countries and they generally engage in mergers and acquisitions with other companies in order to expand. However, the large corporation is increasingly under threat from the growing number of dotcoms set up by entrepreneurs.

Multinationals are the most visible of companies. Their local subsidiaries give them sometimes global reach, even if their corporate culture depends largely on their country of origin. But the tissue of most national economies is made up of much smaller organisations. Many countries owe much of their prosperity to SMEs with tens or hundreds of employees, rather than the tens of thousands employed by large corporations.

Small businesses with just a few employees are also important. Many governments hope that the small businesses of today will become the multinationals of tomorrow, but many owners of small companies choose to work that way because they find it more congenial and do not want to expand.

There are of course the sole traders. In the professional world, these freelancers are often people who have left (or been forced to leave) large organisations and who have set up on their own, taking the expertise they have gained with them.

But in every case the principle is the same: to survive - the money coming in has to be more than the money going out. Companies with shareholders are looking for more than survival - they want return on investment. Shares in the company rise and fall in relation to how investors see the future profitability of the company; they demand shareholder value in the way the company is run to maximise profitability for investors, in terms of increased dividends and a rising share price. Publicly quoted companies, with their shares listed or quoted on a stock exchange, come under a lot of scrutiny in this area.

Some large companies (often family-owned or dominated) are private: they choose not to have their shares openly bought and sold, perhaps because they do not want this scrutiny. But they may have trouble raising the capital they need to grow and develop.

Formulas for success are the subject of thousands of business courses and business books. Of course, what works for one person may not work for others. However, profitability is one of the keys to success.

Questions for discussion:

1. Which of the following types of companies would you prefer to work for? What are the advantages and disadvantages of working for each one?

• a trendy new high-tech corporation

• a large multinational corporation

• a small or medium-sized family business

2. Below is the list of developments that threaten the survival of the traditional company. What are the positive or negative impacts on companies of each one?

• expansion of e-business

• developments in technology

• growth in the power of consumer groups

• financial scandals

• transfer of money and jobs to cheaper countries

• weakening trade unions

3. Would you prefer to be a freelance worker or employed with a fixed salary? What are the pluses and minuses of each situation?

4. Which do you think is better for an international company - strong central control of international operations or decentralized decision-making? Does it depend on the business the company is in?