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Changes that take place due to informational technology:
- Changes in production structure (the world is now in paradigm shift from the industrial age to the information age);
- Changes in investment structure (investment is made more in the area of information and communications that promotes productivity and expedites decision-making process);
- Changes in employment structure (employment in information and knowledge-intensive service sector is increasing with automation and investment in information technology);
- Development of goods and technology, procurement, production, sales, distribution, and post-sale services;
- Modification of production system from mass production under economy of scale into production on demand.
Advantages that businesses enjoy after having introduced computers:
- Collaboration
- Communication Capabilities
- Centralization
- Productivity
- Bottom-line Impact
E-commerce - is the use of electronic communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals.
E-business - is the transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy.
B2B e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. The B2B market has two primary components: e-infrastructure and e-markets.
Cloud computing is IT-as-a-Service. Instead of building your own IT infrastructure to host databases or software, a third party hosts them in its large server farms. Your company has access to its data and software over the internet (which in most IT diagrams is shown as a cloud).
Key benefits of cloud computing:
- Cheap: your IT provider will host services for multiple companies; sharing complex infrastructure is cost-efficient and you pay only for what you actually use.
- Quick: The most basic cloud services work for more complex software and database solutions, cloud computing allows you to skip the hardware procurement and capital expenditure phase - it's perfect for start-ups.
- Up-to-date: Most providers constantly update their software offering, adding new features as they become available.
- Scaleable: If your business is growing fast or has seasonal spikes, you can go large quickly because cloud systems are built to cope with sharp increases in workload.
- Mobile: Cloud services are designed to be used from a distance, so if you have a mobile workforce, your staff will have access to most of your systems on the go.
Three primary processes are enhanced in e-business:
1. Production processes, which include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes;
2. Customer-focused processes, which include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support;
3. Internal management processes, which include employee services, training, internal information-sharing, video-conferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity.
4. VENTURE CAPITAL
Venture Capital - ("risk capital" or ‘unsecured risk financing’ or ‘development capital’) is a source of financing for new businesses.
Venture capital’s risks:
- management risk (inability of management teams to work together);
- market risk (product may fail in the market.);
- product risk (product may not be commercially viable);
- operation risk (operations may not be cost effective resulting in increased cost decreased gross margins).
Venture Capitalist is a wealthy investor who provides capital (more than $ 1 million) to start up ventures or supports small companies that wish to expand expecting higher returns for the additional risks taken.
Venture capital firms are small teams with technology backgrounds (scientists, researchers) or those with business training or deep industry experience raising capital from institutional investors(pension funds and insurance companies).
Required documents for attracting venture capital:
- Business Summary. It is a brief statement covering the main points that includes a discussion of management, profits, strategic position, and exit plan.
- Business Plan. A detailed document that outlines what you are going to do and how you are going to do it; the management team (including full resumes; business strategy); marketing plan (sales projections, distribution, market, and competition; financials) and a competitive analysis.
- Due Diligence. The due diligence review aims to support or contradict the venture capital firm's own initial impressions of the business plan formed during the initial stage.
- Marketing Material. Any document that directly or indirectly relates to the sales of your product or service.
Angel investor (private investor) is an individual who provides a one-time injection of seed money or ongoing support to the entrepreneurs to get their business off the ground.
Angel investors can provide the basic capital for a new business in return for:
- Capital in exchange for equity shares;
- Stock options;
- Assistance of associates.
Advantages of business angels:
- flexible business agreements;
- angels can bring forth vast knowledge and experience to a new company;
- angels do not require high monthly fees;
- their community involvement;
- angels are located everywhere, practically all industries.
Disadvantages of business angels:
- can be deceptive;
- can be costly;
- active company involvement can lead to problems;
- do not have national recognition.
The development of a product can be divided into four periods: seed, start-up, grow-up, and maturity.
The Stages in Venture Capital (VC) Investing:
1. Early stage finance:
· Seed capital - the financing of the initial product development or capital provided to an entrepreneur to prove the feasibility of a project and to qualify for start up capital
· Start up capital – a capital needed to finance the product development, initial marketing and establishment of product facility
· Early/First stage capital - finance provided to companies that have completed the product development stage and require further funds to initiate commercial manufacturing and sales but may not be generating profits
· Second stage capital – capital provided for marketing and meeting the growing working capital needs of an enterprise that has commenced the production but does not have positive cash flows sufficient to take care of its growing needs.
· Later/Third stage capital – capital provided to an enterprise that has established commercial production and basic marketing set-up, typically for market expansion, acquisition, product development.
2. Later stage finance:
· Expansion/Development stage capital – is funds for new or larger factories and warehouses, production capacities, developing improved or new products, developing new markets or entering exports by enterprise with established business that has already achieved break even and has started making profits.
· Replacement finance – a substituting one shareholder for another.
· Management buy out and buy ins – acquisition financing.
· Turnarounds – funds for turning around a sick company.
· Mezzanine/Bridge finance - the pre-public offering or pre-merger/acquisition finance to a company.
Short variant of venture capital stages:
- seed
- start up
- maturiry
- bridge
5. EXCHANGE RATE
Currency exchange is a service that is able to accept currencies of different countries and provide currency for a particular country in exchange.
Currency exchange rate is how much one nation’s currency is worth in comparison to all other national currencies.
Types of exchange rates:
- spot rate – is the rate of exchange right at the moment.
- forward rate - an exchange rate that’s traded today, but actual payment is delayed until a specified future date.
Determinants of exchange rate movements:
- differentials in inflation
- differentials in interest rates
- current-account deficits (ACD)
- public debt
- terms of trade
- political stability
- economic performance.
Currency exchange regimes:
- fixed rate - a rate the government (central bank) sets and maintains as the official exchange rate
- floating (free floating and managed/dirty floating) rate is determined by the private market through supply and demand and may be termed as “self-correcting”.
- pegged exchange rate - a hybrid of fixed and floating exchange rate regimes, a country "pegs" its currency to a major currency or to a basket of currencies.
Fully fixed exchange rate is when the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.
Semi-fixed exchange rate is a rate when currency can move within a permitted range, but the exchange rate is the dominant target of economic policy-making.
Floating exchange rate system is a monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments.
Revaluation is a decrease in the exchange rate.
Devaluation is an increase in the exchange rate.
Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies.
Currency appreciationrefers to an increase in the value of that country's currency.
Free or clean floating(свободное плавание) is a situation when the value of the currency is determined solely by supply and demand in the foreign exchange market.
Managed/dirty floating regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies.
Quantitative easing is an unconventional monetary policy used by central banks to stimulate the national economy when conventional monetary policy has become ineffective. A central bank buys financial assets to inject a pre-determined quantity of money into the economy.
Forex (foreign exchange market) is the largest fast-paced and the most liquid financial market in the world.
6. SECURITIES
Security is a fungible, negotiable instrument representing financial value.
Types of securities:
- shares/stocks,
- bonds,
- derivatives.
Shares are a type of equity financing. Buying a share/stock gives its holders part of the ownership of the company and allows them to vote at a company’s Annual General Meeting and to receive a proportion of distributed profits in the form of a dividend – or to receive a part of the company’s residual value if it goes into liquidation.
Rights Issue – issuing new shares to raise more money for expansion, which are normally offered first to existing shareholders at less than their market price.
Bonus issue – capitalizing part of profit by issuing new shares.
Bonds are a type of debt financing. They are issued in order to raise funds and carry a fixed rate of interest which is called a coupon and have a defined term or maturity after which they are redeemed.
Junk bonds – risky high yield bond.
Types of government bonds:
- long-term government bonds - gilt-edged securities (GB) or treasury bonds (US)
- short-term (three month) treasury bills
Derivative is a financial instrument (an agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linked. Derivatives are tools for transferring risk..
Hedge is making an investment to reduce the risk of adverse price movements in an asset. Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold, whereas a forward contract is a non-standardized contract written by the parties themselves.
Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset.
The strike or exercise price is the price at which the sale takes place is known as.
Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets.
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