Text 1   Company Organization

By incorporation, there is formed a corporate person which is separate from the servants who work for it or the shareholders who are members of it, whether it be a small family company, the shareholders of which actively participate in decision making and day-to-day administration, or a large industrial concern, wherein ownership (by the shareholders) and management (by the board of directors) may be largely divorced from each other. The organic structure of this corporate person and the constitutional relationship between the company’s different organs are determined by the decisions of the members recorded in the articles of association and resolutions of meetings. In this fashion they determine how decisions are to be effected and how acts of the organs take effect as acts of the company itself.

The primary organ is the general meeting of the shareholders. It provides the forum in which all members are entitled to participate and vote. It will devolve powers of management to another organ, the board of directors, but retaining the ultimate say in general policy and decision-making, albeit decision-making in general meeting may be manipulated by the board.

The relationship between the general meeting and the board is not entirely clear. In theory, the ultimate decision-making power lies in the general meeting. It can override the wishes of the directors and take away from them the powers devolved to them. In practice, it tends to follow the lead suggested by the directors.

 

Text 2                    `   The Board of Directors

The board of directors of a limited company is primarily responsible for determining the objectives and policies of a business. It’s the directors who determine the direction the business is going to take. They will need to ensure that the necessary funds are available and will appoint key staff to whom they will delegate the authority to run the business on a day-to-day basis. They will need to design an effective organization structure so that there is both a chain of command linking one level of management with another and an effective communication network so that instructions can be passed downwards and information passed upwards.

The directors are appointed by the shareholders, normally at the company’s annual general meeting, at which the chairman of the board will be expected to account for their stewardship during the previous year. The company’s accounts will be presented to the shareholders at that time so they can judge for themselves whether or not the board has been successful.

Direction in business is like strategy in a war situation. The strategic decisions determine the areas in which the company’s resources will be employed. Above all it involves planning to ensure that the business first survives and then flourishes. Strategic decisions, made by the board of directors, are concerned with the disposition of resources. This contrast with the tactical decisions by means of which the senior executives (appointed by the directors) carry out in detail the plans conceived or approved by the board of directors. The fact that boards of directors tend to meet rather infrequently, say once a week, means that part-time directors can be elected to the board. Since they will not have departmental responsibilities within the company, they are often described as non-executive directors. Non-executive directors are not managers of the company; they are outsiders, often directors of other companies. There are arguments in favour of such directors: though they may lack a detailed knowledge of the company’s activities, they may bring expertise to the board. Some are lawyers, or experts in tax affairs, some have particular knowledge of the industry or of particular areas. Some represent influential groups of shareholders whose support is necessary if the board is going to carry out its plan, while others are directors in a number of companies and are used to interlock boards within a group of companies. For example, a holding (or patent) company may appoint a director from their board to serve on the board of a subsidiary company, with a view to keeping a watching brief on the directors’ activities.

 

 

Assignments to text 3:

1. Read the headline. Make suggestions as for kinds of meetings described.

2. Write down the questions the answers to which you’d like to find in this text.

3. Read the text and find the most essential statements. Do they contain the answers to your questions?

4. Translate the text.

5. Explain the following and suggest Russian equivalents:

· show of hands

· class meeting

Text 3                                `   Meetings

Fundamental decisions concerning the company’s activities and future are decided in general meetings of the shareholders. Usually they are confined to the single annual general meeting (A.G.M.) which must be held in each calendar year for declaring dividends, considering accounts and the reports of auditors and directors, and for electing directors and auditors. Extraordinary general meetings may be called when the need arises. Meetings of a particular class of members or creditors are called class meetings.

The power of decision as to the following generally rests in the general meeting: winding-up; changes in the memorandum and articles; payment of dividends; changes in capital structure; disposal of a substantial part of the undertaking; and the appointment, remuneration and control of directors. In addition, the general meeting can generally act where the board is unwilling or unable (e.g. because of deadlock) to exercise its powers.

The meeting has as chairman, a person elected by the members, generally the managing director or another director. A member may move any resolution on the subject matter indicated in the notice. Members may speak to the motion, after which a vote is taken. A show of hands (on which proxies cannot vote), with one vote per person voting, may decide the issue. But a poll can be demanded by a specified number of shareholders or by the chairman, exercising his power to give effect to the true sense of the meeting. On a poll, each share generally carries one vote, but a member is not obliged to cast all his votes or to cast all those he does use the same way; hence, a nominee shareholder can give effect to the wishes of different beneficial owners.

 

 

Assignments to the text 4:

1. Read the text and find answers to the following questions:

· What is the most common view to levels of management?

· Are there any differences in responsibilities of the managers?

2. After second reading write down all the words and word combinations describing activities and responsibilities of managers.

3. Translate the text.

4. Think if responsibilities and functions of managers differ from those of entrepreneurs.

5. Assess your potential for being a manager.

 

Text 4                             Levels of Management

Managers can be differentiated according to their level in the organization. Although large organizations typically have a number of levels of management, the most common view considers three basic levels: top, middle and first-line managers.

Top managers. Top managers make up relatively small group of executives who control the organization. Titles found in this group include president, vice president, and chief executive officer (CEO).

Top managers establish the organization’s goals, overall strategy, and operating policies. They also officially represent the organization to the external environment by meeting with government officials, executives of other organization, and so forth. The job of a top manager is likely to be complex and varied. Top managers make decisions about such activities as acquiring other companies, investing in research and development (R& D), entering or abandoning various markets, and building new points and office facilities. They often work long hours and spend much of their time in meetings and on the telephone.

Middle managers. Middle management is probably the largest group of managers in most organizations. Common middle-management titles include plant manager, operations manager, and division head. Thus, the general manager of a Ford assembly plant in Detroit is a middle manager.

Middle managers are primarily responsible for implementing the policies and plans developed by top management and for supervising and coordinating the activities of lower-level managers. Plant managers, for example, handle inventory management, quality control, equipment failures, and minor union problems. They also coordinate the work of supervisors within the plant. In recent years, many organizations have thinned the ranks of middle managers since 1982, and Du Pont has made cuts of 15 percent. Still, middle managers are necessary to bridge the upper and lower levels of organization and to implement the strategies developed at the top. They can also be a significant source of information and productivity when given the autonomy to make decisions affecting their operating units.

First-line managers. First-line managers supervise and coordinate the activities of operating employees. Common titles for first-line managers are foreman, supervisor, and office manager. These are often the first positions held by employees who enter management from the ranks of operating personnel. In contrast to top and middle managers, first line managers typically spend a large proportion of their time supervising the work of subordinates.

Assignments to text 5:

1. Read the headline. What areas of management do you know?

2. Read the text and say what functional areas of management are described.

3. Are these areas typical for all kinds of companies?

4. What is the most important area of management to your mind? Does your answer depend on a company’s profile?

Text 5                     Areas of Management

Managers at different levels may work in various areas within an organization. At any given firm, there may be marketing, financial, operations, human resource, administrative, and other kinds of managers at all three levels.

Marketing manager. Marketing managers are those whose primary duties are related to the marketing function – getting whatever the organization produces (be it Ford automobiles, Newsweek magazines, or Associated Press news reports) into the hands of consumers and clients. Key areas of concern are product development, promotion, and distribution. Given the importance of marketing for virtually all organizations, the development of managers in this area can be critical. John Akers, CEO of IBM, spent much of his career as a marketing manager.

Operations managers. Operations managers are primarily concerned with establishing the systems that create an organization’s products and services. Typical responsibilities include production control, inventory control, quality control, plant layout, and site selection. James Olson, CEO of AT& T spent much of his career as an operations manager.

Human Resource Managers. Human resource managers are concerned with hiring, maintaining, and discharging employees. They are typically involved in human resource planning, employee recruitment and selection, training and development, designing compensation and benefit systems, formulating performance appraisal systems, and discharging low-performing and problem employees. Until the last several years, human resource managers were not considered to be particularly important in many organizations. Top managers now recognize their value, however, in part because of increased awareness of contributions of human resources and in part because of the complex legal environment of human resource management. Consequently, although no large companies have CEOs from the ranks of human resource executives, these activities are now making great strides up the organizational ladder.

 

 

Assignments to text 6:

1. Read the text and scan for different kinds of managers described in the text. Write them down into your notebook.

2. After the second reading concentrate on the sentences characterizing activities of the managers mentioned. Add to the list that you’ve done for Text 3.

3. Explain what “specialized manager” means?

4. Read and translate the last paragraphs of the text. Do you share this opinion? Give your reasons.

 

Text 6                           Kinds of Managers

Administrative, or general, managers are not associated with any particular management speciality. Probably the best example of an administrative management position is that of a hospital or clinic administrator. Administrative managers tend to be generalists; they have some basic familiarity with all functional areas of management rather than specialized training in any one area.

Many organizations have specialized management positions in addition to those already described. Public relations managers, for example, deal with the public and media for firms such as Philip Morris and Dow Chemical to protect and enhance the image of the organization. Research and development (R& D) managers coordinate the activities of scientists and engineers working on scientific projects in organizations such as Monsanto, NASA, and Merck. Internal consultants are used in organizations such as the Prudential Insurance Company to provide specialized expert advice to operating managers. Many areas of international management are coordinated by specialized managers in organizations like Eli Lilly and Rockwell International.

The number, nature, and importance of these specialized managers vary tremendously from one organization to another. As contemporary organizations continue to grow in complexity and size, the number and importance of such managers are also likely to increase.

 

Assignments to text 7:

1. Read the text and make an outline of it.

2. After the second reading explain the following:

· formal organization vs. informal organization

· line authority vs. staff authority

3. Write down the names of departments of a typical company.

4. Translate the text.

Text 7                        Company Structure

Company structure can be easily represented graphically in a chart. It is commonly known as an organization chart. The organization chart shows the chain of command which is the line along which authority flows from the president to the employees at the bottom of the organization chart.

It indicates the title of each managerial position and, by means of connecting lines, shows who is accountable to whom and who is in charge of each department.

The organizational chart is a graphic representation of the formal organization being not capable to reflect the informal organization. The informal organization is the informal contacts, communications, and ways of doing things that employees develop. People communicate, and all organizations are networks of communication. Communication is the process of influencing the behavior of others by sharing ideas, information, or feeling with them. Written memos, reports, procedures, and oral communication flow through the firm. Informal communication is communication that does not follow the formal organization chart. It is especially important whenever a firm needs to make a fast decision.

There are two basic types of authority in organization: line authority and staff authority. Line authority is the authority to issue orders to subordinates down the chain of command. Managers in charge of such crucial activities as sales and production have line authority.

When a business grows in size and becomes more complex there is need for specialists. In such a case administrators may organize staff departments and add staff specialists to do specific work. These people are usually busy with services, they are not tied in with a company product. The activities of the staff departments include accounting, personnel, credit and advertising. Managers with only staff authority generally cannot issue such orders. Staff authority is the authority only to assist and advise line managers. There are several exceptions to the rule that only line managers can issue orders.

 

Assignments to text 8:

1. Read the text which is in fact presentation of a typical foreign company.

2. Write down all the words and word combinations which would help to describe the structure of any company.

 

Text 8

If you look at the picture you will see the organizational structure of a company «Rossomon», which might appear typical for most western companies.

We see that the Managing Director is responsible for running the company and is accountable to the Board. He is assisted by four executive departments. These are Human Resources which is responsible for personnel, training and management development; then there is the Finance Department which takes care of corporate finance and accounting; next we have the Management Services Department the head of which is in charge of rationalization throughout the company; and finally there is the R & D Department – research and development – which works closely with the five regions on new product development.

So this brings us on to the regions. Directly under the Managing Director, there are five Regional Managers. Each of them is responsible for the day-to-day management of a territory – these are geographically split into North, South, East, West and Central Regions.

Now then, the five regions are supported by two sections – Marketing and Technical Services. They are organized on a matrix basis with section leaders accountable to the Regional Managers. They work closely with the regions on the marketing and technical side.

Now in addition to the parent company, the Rossomon has three subsidiaries, namely Rossomon France, Germany and Japan. The subsidiaries report to the Export Sales Department, which in turn is accountable to the Board. This is a brief overview of a typical company structure.

 

Assignment to text 9:

1. Read the text and choose the best headline out of the following:

· Concentration of control

· Mechanism of control

· Management control

Give reasons for your choice, suggest your own headline.

2. Read the text once more and find information on the issues suggested as headlines.

3. Find answers to the following questions:

· How are company decisions taken?

· How do minority shareholders participate in making decisions?

· What is a management-controlled corporation?

4. Translate the part explaining the use of proxies.

 

Text 9

Absolute control over a corporation is guaranteed by ownership of one more than half the voting shares. If the capital of the company is

$10 million, represented by 100, 000 shares of common stock, absolute control requires ownership of 50, 001 shares, an investment of $5, 000, 100. If, however, half the firm's capital is provided by bonds and preferred stock, neither of which is entitled to vote, absolute control can be exercised by ownership of only 25, 001 shares of common stock, requiring an investment of only $2, 500, 100.

The shareholder, depending on the size of his shareholding, is generally able to participate to some extent in company decisions by voting at meetings but he must bow to the will of the majority if that goes against him. His rights depend in part on articles of association which may be altered.

At root, company decisions are taken by the members, meeting together and deciding by a majority vote, however large that majority may have to be for a particular issue. The members may and generally do, devolve the power of decision to the board of directors, in which case they may positively have to take it back again before they can exercise it themselves. Again, however, it is the members deciding by majority weather their power is to be devolved or reclaimed. Generally speaking, this practice makes sense.

In fact corporate control is often exercised by people without a majority control. When ownership of common stock is widely dispersed over thousands of people, each holding only a few shares, their participation in running the company is limited to sending in proxy votes to be cast on their behalf by representatives of the controlling management group. In such a case, a concentration minority block of shares can exercise control.

As a matter of fact, the common stock of many modern corporations, including some of the very largest ones, is so widely dispersed that no individual stockholder or group holds more than a small fraction of the total number of shares. This leaves effective control in the hands of the management itself, for no individual stockholder has either enough votes to affect the outcome of a stockholders’ meeting or enough information about the operations of the firm to make an intelligent decision. Since the existing board of directors prepares the agenda for the stockholders’ meetings, it has exclusive power to decide what policy issues are to be voted on. It also nominates the slate of new directors to be elected to the board and hence is a self-selected, self-perpetuating body.

Of course, the stockholders must vote on the policy matters and must elect the new directors, but this is accomplished by the use of proxies. The management has the power to mail material (at company expense) to each stockholder, explaining its position on the matters to be voted on and urging the election of its nominated slate of officers. The stockholder's participation is limited to filling out and mailing back the proxy to be voted by the management on his " behalf". In a very real sense, management control represents the ultimate in " leverage", for it permits control of a vast empire of capital and the economic, social, and political power that goes with it, by a group with practically no investment at all. The stockholders of a management-controlled corporation are relegated to a position as outsiders, more like creditors of the firm than like owners in the old-fashioned sense of the word.

Discussion

These are some useful word combinations in addition to the glossary that you should translate, memorize, and use while discussing the questions:

to make a sound judgment, to follow procedure, to exercise control, to cast votes on one’s behalf, to effect the outcome, to make an intelligent decision, to elect directors, to mail material, to record in articles of association, to take effect, to provide a forum, to be entitled, to devolve powers to, to retain an ultimate say, to override wishes, to follow the lead, to give effect, to issue orders, to enter/abandon markets, to thin the ranks, to bridge levels of organization, to supervise the work, to hire/maintain/discharge employees, to design compensation and benefits system, to formulate performance appraisal systems, to have basic familiarity with smth, to provide specialized expert advice.

Overall strategy, operating policy, external environment, inventory management, significant source, primary duties, a show of hands, low-performing worker.

 

1. Explain the mechanism of control concentration in a big company.

2. Compare positions of the stockholders and the board of directors? What are their relations if there are any?

3. Speak about the board of directors and its functions. What traits of character must directors possess to manage a corporation? Use the word-lists from your notebooks.

4. How are major decisions taken in a corporation?

5. Speak on how the majority rule works.

6. What is the relationship between the general meeting and the board?

7. A corporation’s board of directors is supposed to represent the interests of the shareholders. The chief executive officer (CEO) is often a member of the board, perhaps its chairperson. Futhermore, members of the CEO`s top management team are often inside directors. Is there a conflict of interest here? Explain.

8. Draw a chart of texts 4, 5 and 6 to make management system clear.

9. Draw the structure of some successful company. Describe it taking advantage of text 8 as a sample. Use the following word-combinations:

to run a company, to be accountable to smb., to be responsible for, to take care of, to work closely with, to be in charge of, to assist/ to be assisted, to support/to be supported, to work closely with.

10. Do you agree with the following statement? Suggest how to avoid disorder and malperfomance in a company.

“The only things that evolve by themselves in an organization are disorder, friction and malperformance”.                         Peter Drucker  
UNIT VIII          THE IMPORTANCE OF THE CORPORATION

 

Glossary

minority                     меньшинство, меньшая часть

mining                        горная промышленность, горное дело

to can                         консервировать

output                        выпуск, продукция, общий объем производства

to elaborate                детально разрабатывать, вырабатывать, развивать, дополнять

performance                   зд.: характеристика работы, работа

purchasing                           закупка

in terms of (numbers)          языком (цифр), с точки зрения (цифр)

 

Ex. 1 Translate the following sentences. Explain the difference in using the word “can”.

1. The engineering efficiency of the plant can be high with innovative staff.

2. Much could be said about shortage of people with the combination of ability, imagination, energy, discipline required for effective enterprise.

3. To can a poor quality of fruit, or to pack it in cans of the wrong size, or to can too much or too little can destroy the market.

4. Somebody must keep in constant touch with the many markets for canned fruit.

5. Another special advantage of size is that a large firm can employ nationwide advertising in radio, television, and other media.

 

Ex. 2 Read and translate the following sentences paying attention to use of the verb “to keep".

1. The complex organization of a modern firm makes it important to keep systematic record of the claims of different classes of people against it.

2. Somebody must keep track of crops in different areas and know when and where it will go.

3.  Division of labor necessary for most effective use of management ability requires a workload large enough to keep manager employed in their fields.

4. Full-time staffs of any efficient company can be easily kept busy in a large productive operation.

5. Somebody must keep in touch with prospective clients.

6. Differences in the type of business organisation are in keeping with the requirements of efficient production.

 

Ex. 3 Consult a dictionary, translate the sentences paying attention to the underlined word.

1. The law now enables holders of securities to act intelligently on the matters involved.

2. The stockholders must vote on the policy matters.

3. Engineering efficiency and production line economy are not all that matter s.

4. All matter may be classified as either solid, liquid or gas.

5. The principle of classification is the thing that matters.

6. Organized stock exchanges permit the transfer of the stocks of many corporations in a matter of hours.

 

Ex.4 Translate the following sentences using the model.

Model: It takes an _hour to get to my house.

Чтобы добраться до дома, мне требуется час.

1) It may take months to find the right man.

2) It takes more enterprising talent and organising skill to start a successful business than it does to keep one going after it has been set up.

3) It takes a large firm to give full employment to the talents of such people.

· Make up your own sentences using the model.

 

Assignments to text 1:

1. Read the text. Scan for figures in the text. Say why the text is rich in figures.

2. Read the text and write down the topic of each paragraph.

3. Read the text and identify the sentences and words which signal contrast or comparison.

4. What are the things that are compared or contrasted? Give a headline to every paragraph. Don’t you think that the text needs editing? Try to rearrange the sentences.

 

Text 1                 The Number of Corporations

In terms of numbers, corporations represent a small mi­nority of U.S. business firms. In fact, 80 percent of the 11 million business firms now active in the U.S. are sole proprietorships, and another 8 percent are partnerships. Proprietorships are especially numerous in the farming, retai­ling, and service industries, where there are many family-sized firms. Even in mining and manufacturing, however, there are more sole proprietorships and partnerships than corporations.

 

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.

 

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