Buzza

Jo and Demi Straus established Buzza, a partnership, in 1999. Buzza manufactures women’s
fashion accessories, such as handbags and scarves. Jo, a gifted designer, directs the design team.
Demi, a business graduate, organized the business by function. She manages most of those
functions.

In 2012, they converted Buzza to a private limited company to help obtain finance for the
business’s expansion. Jo and Demi retained 60 % ownership between them.

Because of the brand’s reputation, Buzza can recruit creative graduates from design universities.
Graduates receive 12-month contracts, which are renewed only if Buzza accepts their designs.
Buzza tells graduates that, generally, only half of all contracts are renewed. The average age in
the design team is 26. Labour turnover in the design team is much higher than in similar
exclusive brands.

Wealthy consumers interested in the latest fashions find Buzza a highly desirable and exclusive
brand. Only approved retail outlets sell Buzza products. New collections are produced four times
a year. At the end of each season, retailers return unsold products to Buzza. Last year, these
unsold products were valued at $15 million. At present, Buzza sends returned products to an
incinerator plant to be destroyed. A recent television documentary revealed that Buzza
incinerates perfectly good products, which led to damaging social media comments.

In response to the negative publicity, Jo and Demi are considering two options:

Option 1: Sell surplus products at greatly reduced prices on its website.

Option 2: Break down returned products to recover raw materials for re-use in future products.
This process of breaking down returned products will be time consuming and costly.

a. State three of Buzza’s main business functions.[2]

Business functions include the marketing, operations, finance and HR.

Factors of production / Business Inputs (LLCE) include land, labor, capital and enterprise.

b. How do we measure the business size?

 1. Number of employees only in labor-intensive industries
2. Capital employed: money invested by the owners in all the assets owned by the
company
3. Total revenues of sales: quantity sold * price per unit
4. Number of the owners, branches
5. Market share = (Sales of a company / Total sales of all the companies) * 100

b. Explain one advantage and one disadvantage to Buzza of operating as a partnership.

[4]

Partnership is a private sector business owned by (2-20) partners; only the partners with
unlimited liability can take decisions. Sleeping agents cannot take decisions because they have
limited liability

Partnership would be beneficial because risk of losses will be spread; all partners contribute to
the financial capital of the business (would be bigger than the sole traders); workload will be
divided between unlimited liability partners.

Partnership would be problematic because there is risk of disagreement. Less likely to continue.

Joint-Stock Companies :
1. Private Limited Comapanies: limited company where shareholders are protected; share
holders are family members or friends. (maximum number of shareholders 2-50)

2. Public Limited Companies: company sells shares publicly through the sock market.

Evaluate the decision of converting Buzza from partnership to Private Limited company.

Introductory:

 Define the main terms

 Explain TWO relevant CUEGIS concepts: change and strategy. “the conversion
decision from partnership to private limited company reflects two concepts: change
because Jo and Demi decided to change the legal form from partnership to private
limited company. Also, mangers decided to change the strategy to collect more
financial capital”
 This conversion strategy would be beneficial due to increase in financial capital,
continuity, shareholders are protected. On the othrer hand, this change would be
harmful for the company because this change would be time consuming, limited
amount of financial capital.
 Elaborate on each one of the advantages and disadvantages

Explain one advantage and one disadvantage of the high labour turnover of designers at Buzza.

[4]

N: Nature of the company

D: Decisions that the managers are considering
E: Existing problems of the company
A: Aims
F: Finance

Business growth: (Change, strategy):

1. Internal – organic
2. External (M.A.T)
a. Merger
b. Acquisition
c. Takeover