Category: Commerce Notes PPT

What is Crisis Management?

Tragedy and accidents can never be predicted. These can shut industries down and ruin a business setup. In moments of crisis like these, management is essential for keeping the company together. Crisis management is a crucial component of a manager’s job description. Any mishap or action that threatens the name, productivity and reputation of a company or its customers is called a crisis. Crisis management is the method of handling these accidents and mishaps of the company. It is the responses taken by the enterprise to ensure the damage is minimal. Organizations can predict the different points of failure in their systems and prepare themselves for them. However, it is impossible to always avert all kinds of crises. Various tragedies in a company have different effects on its functioning and managers must deal with those particular instances effectively.

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Crisis Management and Risk Management

Both of these terms, crisis and risk management, are excessively used in different industries. A common misconception is that both of them are similar to each other. Though both of them deal with the company’s tragedies, there is a stark difference between them. Therefore the terms should never be used interchangeably.

The primary difference between these two management activities is their time of occurrences. In crisis management, the company usually does the crisis handling after tragedy has struck the enterprise. It is an after-measure taken by the firm to keep the damage to a minimum or compensate for the losses.

On the other hand, risk management is more of a prediction-based analysis. Here, the company analyses its workings and tries to understand the points of failures. Managers and personnel are assigned to study the system and develop ways to reduce the risks of a crisis taking place. With a healthy risk management plan, a firm can avoid mishaps for a long duration.

The company’s best strategy is to develop a robust risk management plan and anticipate the crisis. Doing so can create effective strategies for what should be done after the accident occurs.

Types of Crisis

There are several different types of crises that can be faced by a firm. Analyzing the different scenarios has led to some of the companies’ most frequently occurring mishaps. Few of them have been listed below:

Natural Disasters

These types of accidents come under ‘acts of God’ and occur naturally without any human intervention. Floods, earthquakes, tsunamis, storms, droughts or any other situation can affect a large geographical area and thereby jeopardize the company situated there.

From a managerial perspective, these are the hardest to predict and nullify. The crisis management teams must have a go-to guide on what to do if the company’s resources are in jeopardy due to these natural disasters. 

Confrontational Crisis

A single organization has different departments. In the case of any international business, they might even have different governments. The difference in opinions, ideologies and needs may lead to confrontations among these groups. The company must have plans to handle the scenario so that no sides are favoured and the situation is not allowed to escalate. Some of these crises include boycotts by unions, blockades, sit-ins, etc.

Technological Crisis

Technology is an integral part of every human’s life. Still, the benefits of technology can sometimes be overshadowed by the disasters technology can cause if handled negatively. Crises like malware, spyware stealing the firm’s data or data leaks can harm its growth. Managers must be fully aware of what happens in these situations and take significant steps to keep the damage minimum.

Organizational Misdeeds

Sometimes, a crisis can be caused by the wrong steps taken by a firm. The manager devising the crisis management strategy should know about all the decisions taken by the firm. They must ensure every company’s action is legally and ethically correct to avoid any mishap in the future.

Rumours

When the competition among rival companies gets serious, some participants might try to win it by spreading rumours about the other companies. This starts destroying the reputation of the firm and thereby makes it suffer losses. The crisis management strategy must gather the proper certifications and other necessary proofs to show the public how baseless the rumours are as fast as possible.

Workplace Violence

Again in any single organization, there are tons of different employees working towards a common goal. There are times when these employees’ views may not align with each other, and confrontations may lead to acts of violence.

The management must then handle the matters very sensitively; otherwise, things may further escalate, hampering its functioning.

Today, 73 years of independence later, India is inching towards becoming a 3 trillion+ economy. The nation has come a long way since those years of being ripped apart from her soul. Today we are successfully eradicating poverty at various levels and despite the economic showdown during Covid-19, India has reasons to smile. The demography shows that the majority of the Indian population comprises the youth, which means that while we are the oldest living civilization, we are also the youngest nation alive. The revolution continues to date.

However, let us turn back a few decades in time. What was the demographic condition of India like during the British Rule? 

Introduction

If we want to understand colonial India’s demographics, all we need to do is look at the census of 1881. There was tremendous inequality and apathy present in the population. The census would be performed every ten years post-1881. It was in 1921, that India began to undergo a demographic transformation of sorts. It is advised that you read this article well to get a complete understanding of the cruelties that prevailed upon the population during foreign rule through the last two-three centuries.

Demographics of British India

During 1921, India’s demographic statistics speak of the country’s deplorable situation. The cumulative or total growth in population was quite low with social development factors appearing unpromising. The literacy rate was a dismissible 16% with female literacy rates barely managing to reach 7%. Public health facilities were hardly accessible except for the elite rich. The common people barely had any access to them. 

The infant mortality rate during those times was horrible. They were as much as 5 times more than the present rate of infant mortality. This was due to lack of access to nutritious food, unlawful activities restricting farmers and so much oppression that resulted in severe conditions such as malnutrition. The life expectancy was dismal, as less as half of what we have today. 

While there is a lack of data regarding the rate of poverty in colonial India, various other factors such as famines, droughts, poor water conditions and so on tell us that people frequently died because of air and water-borne diseases. India’s population was facing extremely troubling times. 

Demographic Characteristics of British India

The demographic conditions of people living in India colonized by the British can be put forth in the following manner – 

1. Literacy Rate – Placed at 16% for the general population and just a dismal 7% for the female population, India’s literacy rate then was probably the lowest if we compare the 74% that we stand at today.

2. Standard of Living – At that time, people had to work hard to procure basic necessities like food, clothing and shelter. Hence they did not have anything left for looking at other areas of life. India was also affected by severe famines and droughts where a large number of people succumbed. The most horrific one was in West Bengal in 1943. The British Government practically did nothing for the well-being of the people. Anything that they ever introduced was to serve their own selfish petty interests. They destroyed the nation in every form – economically, mentally and uprooted her entire educational ecosystem. 

3. Birth and Death Rates – While birth rate is defined as the number of children per thousand people in a year and death rate is defined as the number of people dying per thousand people in a year. British India had high rates for both these categories. 

4. Bad Death Facilities – Due to lack of access to public health facilities, mortality rates were naturally high. Famines, droughts, air and water-borne diseases added to the increasing troubles.

5. Infant Mortality – Infant mortality is defined as the number of children successfully attaining the age of one year per thousand live births in a year. High infant mortality rates during British India can be attributed to high levels of poverty, malnutrition, fatal natural calamities and insufficient public health facilities. 218 out of 1000 was the infant mortality rate at that point.

6. Life Expectancy – The life expectancy rate is defined as the standard life duration for a person. Today the life expectancy rate is increasing due to technological advances. However, due to the living conditions in those times, the life expectancy rate was a disappointing 32 years. India had been reduced to being a mere feeder economy. It was one of the darkest invasions in the history of this civilization. 

Often the products that you buy from your neighbourhood super-mart or purchase on online shopping sites involve a long chain of distribution from many sources. Delivering goods to the final destination, say the supermarket in your area ,requires several channels, involving dealers and distributors. This long chain is called a supply chain, and it comprises a number of intermediaries, between the manufacturer and the customer. 

Though there are a number of differences between dealer and distributor, the difference can be expressed in terms of the number of goods each of them have on hand.

 

Who is a Distributor?

A distributor is a person, entity or selling agent who works independently to sell the products of a manufacturer, and is bound by a financial contract. They act as the middleman in the entire supply chain process and are directly connected with the manufacturer.

To explain further, it is essential to understand the process of distribution first.

 

What is Distribution?

A particular company, brand or manufacturer’s products and services are made available for purchase to customers through various means. These could be online e-commerce sites, telemarketers, multiple retailers or a real storefront, like the supermarket mentioned above.

The entire process involves many individuals and agents, who ultimately ensure that the product is successfully delivered to or purchased by a customer. A distributor makes sure all goods are supplied to the whole market.

He or she acts as an agent who has direct contact with the manufacturer or brand entities. Finally, they purchase these products from the manufacturers and sell them to various other buyers which include retailers and other parties in the supply chain.

It is useful to know that a distributor is usually appointed to work by the manufacturing companies themselves. This is part of the marketing strategy, which also authorises these middlemen to act on their behalf in specified geographical areas. Products and services are usually bought in bulk, and a distributor then sells them to other businesses and retailers.

Along with selling the commodities, a distributor is legally bound to offer a number of services like repair and replacements, technical support and after-sales services.

Depending on the power of the distributor, and the brand involved, a distributor may be entitled to sell only one brand of a product in an exclusive territory, or may have many brands to sell in larger areas.

Another type of distributor is the contract distributor who buys products from a manufacturer, combines them with other products, thus increasing the total value and then resells them. Therefore a contract distributor is different from wholesale distributors in the sense that, wholesale distributors only purchase products, while contract distributors combine them with other products from different producers.

 

Who is a Dealer?

A dealer is an individual who actively purchases goods from manufacturers and then sells them off as part of their account or stock. To put it simply, a dealer is someone who deals with the trade of a particular item or commodity. He or she indulges in commercial trading for themselves, as a part of their business. 

For example, when you go to the nearest electronics shop to check out the latest smartwatches, you’ll know you are talking to a dealer.

Another definition of a dealer is the middleman between the consumer and the distributor is the dealer. They too, like distributors, are authorised to sell these commodities in their particular area.

What makes a dealer different from other middlemen is that a dealer can always attract customers loyal to other dealers or from a different area. For example, if you decide to visit the pizza chain outlet five blocks away, instead of the one in your neighbourhood, you know the dealer has successfully attracted you.

A dealer can sell products and items of the rival, competing brands, out of which some will have more customers, and some, a weaker customer base. He or she makes a profit out of selling these at a higher price than what he purchased for.

 

Dealer vs Distributor

While both a dealer and a distributor forms an essential part of the supply chain, there are several significant differences between the two that can be summed up in the following points.

• A dealer pacts with specific types of products while a distributor is an individual who supplies certain types of products to the market.

• A dealer connects distributors with potential customers while a distributor creates the link between the dealer and the manufacturer.

• A dealer buys goods to sell them off as part of their regular business, from his or her own stock. Contrary to this, a distributor simply purchases products from the manufacturers and sells them to dealers or retailers.

• A dealer can sell off a variety of products as part of their commerce, while distributors usually strictly deal with a single category of products.

• Dealers are faced with stiff competition. This is hardly the case for distributors.

While the above points clearly explain the underlying differences between dealers and distributors, the following table can help you to further understand them.

 

If you are curious to know more about dealers, distributors and the entire supply chain process, sign up for ’s live online classes and demo tutorials to gain an extra edge. With fun quizzes and live student interactions learning is made easy with the app. Have your doubts solved instantly by our live doubt counsellors and get exam ready with our range of superior study material, all available in PDF form.

 

Can the Distributors and the Dealers be Authorised?

To answer the question properly you need to understand what kind of jobs are carried out by the distributors and dealers. The distributors purchase items from the manufacturers and sell them to the dealers or the retailers. The dealers purchase the products through the help of the distributors and then sell them on their own. Dealers can also be authorised distributors if they purchase items from a company and the manufacturers of the company have sold their products through the dealers. The authorised dealers ensure to maintain the quality of the products.

How to Start a Dealership Company?

In order to start a company, the dealers must decide the type of products they want to purchase and sell to the customers. They should contact the distributors and suppliers who are reliable. The dealers must set up a suitable workplace and invest to build and grow their network properly. The dealers must be careful while designing the purchase policy and they should also analyse every time how their performance and dealership business is going. It is very important for the dealers to maintain a good relationship with the customers and to make them trust their products and services. Over the course of time, their dealership business will grow.

As we all are aware that businessmen prepare their accounts on the basis of the going concern concept assuming that their business will continue for an indefinite period of time. Therefore, in order to ascertain the net profit of a business each year, businessmen not only consider current contingencies but also future contingencies. In reality, provision and reserve are the terms that are actually related to the future needs for which part of the current earnings has to be set aside. But there are few points of differences between provision and reserves which we will learn through this article.

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What Does The Term Provision Mean In Accounting?

Provision is an amount that is put away from the profit earned by the company to cover expected losses or expenses even though the specific amount might be unknown.  A provision is considered as a form of saving, rather, it is identified as an upcoming liability. 

Sometimes IFRS calls the provision a reserve, however, both the terms are not interchangeable. The provision aims to cover business  liabilities that might occur in the near future whereas reserve is a part of business profit that is put away to enhance the financial position  of a company through expansion or growth. 

Needs For Provision In Business

• Depreciation, renewal, or reduction in the asset value. 

• A disputed claim

• Redemption of Liability

• Writing off bad debts/doubtful debts

• Contingent Liabilities

• A known liability, for which amount cannot be determined with accuracy.

• Specific loss on payment of taxes or realization of an asset

General Rules In Creation of Provision

• Provision is created by debiting a profit and loss account.

• Provision is created to meet liability that is known or for any specific contingencies. For example, provision for doubtful debts, provision for depreciation, etc.

• A provision is created to meet the known liability or contingencies.

• It is not available for distribution as a dividend among the shareholders.

• A provision is set for a definite amount, and hence, a definite amount is set aside every year to meet the known contingencies.

• A provision is generally represented on the liability side of the balance sheet.

What Does The Term Reserve Means In Accounting?

Reserves are also known as retained earnings. Retained earnings are defined as a part of the business profit that has been set aside to strengthen the financial position of a business. Reserves are often used to repay debts, purchase fixed assets, fund expansion, or payment of bonuses or dividends. In accounting, the different types of reserves have several purposes and come from distinct income streams, but two of the most common types of reserves are capital reserves and revenue reserves.

Types of Reserves

The two most common types of reserves are:

1.Revenue Reserves: Revenue reserves arise from a company’s net profit earned through normal, daily operations. The revenue reserves are generally employed by business for small or short-term purposes, business expansion, contingencies which are liabilities that could potentially occur. Revenue reserves are further categorized as:

• General Reserve: General reserved by its name implies that is not laid aside for any specific purpose. It can be used to meet any future contingencies or unknown liability. It is not mandatory to create a general reserve. These reserves are created only when the company earns sufficient profit. The object of this reserve is to strengthen the financial position of the business. It is recorded on the debit side of the profit and loss appropriation account.  

• Specific Reserves: As the name suggests, specific reserves are set aside for a specific purpose. It is utilized for only that purpose for which it is created and not for the other purpose. Whether a business earns profit or losses, it is obligatory for it to create reserves for specific purposes. It is shown on the debit side of the P&L account. 

2. Capital Reserves: A capital reserve is usually created out of a profit which is capital in nature such as capital gains, premium on issue of shares or debentures, profit prior to incorporation, profit on revaluation of asset or liabilities, etc. It should not be used to distribute a dividend among the shareholders. Instead, it is used to strengthen the financial position of the business, or to write off the capital loss or losses of abnormal nature.

Difference Between Provision And Reserve: Tabular Representation

Conclusion

In short, a reserve is an appropriation of profit or accumulated profit to strengthen the financial position of a business whereas provision is an amount that is kept aside to meet the expected loss/expense.