Business Studies - IGCSE

Needs

We cannot live without these.

Wants

They benefit us but are not necessary to live.

Scarcity

Lack of sufficient resources.

Needs (example)

Water, food, housing.

Wants (example)

Soft drinks, chocolate, furniture.

Opportunity Cost

The next best alternative.

Factors of Production

Resources needed to produce goods and services.

Factors of Production (List)

Land.

Labour.

Capital.

Enterprise.

Land

All natural resources.

Land (examples)

Coal, oil, gas.

Labour

The number of people hired.

Capital

Finance and machinery.

Entrepreneur

Someone who organises, operates and takes risks in a new business venture.

Enterprise

Skill/risk-taking ability of entrepreneurs.

Added Value

The difference between selling price and cost of materials.

How to Add Value

Increase selling price and reduce cost of materials.

Justification of Added Value

The product must be more desirable.

Sectors of Production

The three stages a product passes through before reaching the consumer.

Primary Sector

Extracts, uses and sells raw materials.

Secondary Sector

Manufactures goods using raw materials.

Tertiary Sector

Sells products and provides services to consumers.

Primary Sector (example)

Woodcutter

Secondary Sector (example)

Furniture maker

Tertiary Sector (example)

Retailer

Chain of Production

A product passes through the primary, secondary and tertiary sectors.

Specialisation

When a business concentrates on a particular industry or part of that industry.

Specialisation (example)

Ford only makes cars.

Division of Labour

Production is divided into different tasks and each worker performers specific tasks.

Division of Labour (example)

Ford worker that fits headlights.

Difference between Specialisation and DoL

Specialisation is usually on a company-wide level.

DoL deals with specific tasks.

Mixed Economy

Has both a private and public sector.

Public Sector

Businesses owned by the government.

Private Sector

Businesses owned by private individuals.

Public Sector (objective)

To provide needs to the people of a country.

Private Sector (objective)

To sell goods/services for profit.

Privatisation

Governments sell public sector firms to private individuals.

Nationalisation

Governments take control of privately run businesses.

Entrepreneur (benefits)

Independence, put ideas into practice, higher income.

Entrepreneur (disadvantages)

Risk, loss of capital, lack of knowledge, opportunity cost.

Characteristics of Successful Entrepreneurs

Creative, optimistic, independent, innovative.

Why do Governments Support Entrepreneurs?

Reduces unemployment, increases competition, increases output, benefits society, business may grow.

Business Plan

Business objectives, operations, finance and ownership information.

How a Business Plan Assists Entrepreneurs

Easier loans, easy planning.

Measuring Business Size

Number of employees, value of output, value of sales, value of capital employed.

Number of Employees (MBS disadvantages)

Some firms are capital-intensive.

Value of Output (MBS disadvantages)

Some firms produce more expensive goods than others.

Value of Sales (MBS disadvantages)

Some firms sell items in bulk.

Value of Capital Employed (MBS disadvantages)

Some firms are labour-intensive.

How to Measure Business Size Effectively

Use all four methods of MBS.

Business Growth (advantages)

Higher profits, greater status/prestige, lower average costs, larger share of its market.

Internal Growth

Business expands existing operations.

External Growth

Business takes over or merges with another.

Integration

A merger or takeover.

Merger

Two businesses agree to join together.

Takeover/Acquisition

One firm buys out another.

Predator

Firm that buys out another.

Horizontal Integration

Integration in the same industry at the same stage of production.

Vertical Integration

Integration in the same industry but different stages of production.

BVI ( <-- )

Vertical integration moving to an earlier stage of production.

FVI ( --> )

Integration moving closer to the consumer.

Diversification / Conglomerate Integration

Firm integrates with a business in a different industry.

Business Growth (problems)

Diseconomies of Scale

Economies of Scale

Purchasing economies, Marketing economies, Financial Economies, Managerial Economies, Technical Economies

Purchasing Economies (EoS)

Discounts for buying in bulk.

Marketing Economies (EoS)

Advertising rates are easier to afford.

Financial Economies (EoS)

Easier to take out a loan as it is more likely to be paid back.

Managerial Economies (EoS)

Larger businesses can afford more specialised workers/managers.

Technical Economies (EoS)

More expensive equipment/methods of production are available which will lower the overall average costs (long-term).

Diseconomies of Scale

Poor communication, Low morale, Slow decision making

Poor Communication (DoS)

It is more difficult to organise communication in a large business.

Low Morale (DoS)

Low efficiency created by a large gap between bosses and workers causing a drop in morale.

Slow Decision Making (DoS)

Lack of effective communication as well as more opinions mean more time will be spent arguing or waiting for messages to get around.

Why Business Fail

Poor management, Failure to plan for change, Poor financial management, Over-expansion, Risks of new business start-ups.

Poor Management (WBF)

Bad decisions made due to lack of experience.

Failure to Plan for Change (WBF)

New technology, new competitors and economic changes can damage an unprepared business.

Poor Financial Management (WBF)

Lack of liquidity means that people cannot be paid and will leave the business.

Over-Expansion

Rapid expansion leads to a breakdown of organisation and financial management.

Risks of New Business Start-Ups

New businesses often have little finance and resources. Therefore, new business always carry a high risk of failure.

Business Objectives

Aims or targets that a business works towards.

Business Objectives (why?)

Target to work towards, focus for decisions, business unity, measure of success.

Target to Work Towards (BO)

Clear targets help to motivate workers to a set goal.

Focus for Decisions (BO)

Decisions that do not take into account the objectives can be discounted.

Business Unity (BO)

Workers are united to work towards the objectives. Better teamwork.

Measure of Success (BO)

If the business fails to meet its objectives, then it has failed (and vice versa).

Business Objectives (which?)

Survival, Profit, Returns to shareholders, Growth of business, Market share, Service to community.

Survival (BO)

When a business starts up they will want to focus on remaining open over profits.

Profit (BO)

Profits are focused on after survival to pay returns and provide finance for future investments.

Returns to Shareholders (BO)

Shareholders are paid to keep them from selling shares. This is done by increasing profits and increasing share prices.

Growth (BO)

Increase in business size. Leads to securer jobs, higher salaries/status, new possibilities, spread risk, higher market share, economies of scale.

Market Share (BO)

Company sales as a percentage of total market sales. Good publicity, increased influence over suppliers, increased influence over customers.

Service to Community (BO)

Social : Provide jobs and support.

Environmental : Protects environment.

Financial : To make money to re-invest into other work.

(These businesses are still in the private sector.)

Business Objectives (why change?)

1) Survival is no longer an issue.

2) Happy with market share.

3) Recession can make survival important again.

Stakeholder

Anyone with a direct interest in the performance and activities of a business.

Internal Stakeholders

Stakeholders that work within the business.

Internal Stakeholders (examples)

Owners, Workers, Managers.

Owners (StH role)

Put capital into/finance the business.

Take a share of profits.

They may lose invested money.

They take risks.

Owners (StH objectives)

High profits = High returns.

Growth of business means higher return on investment.

Workers (StH role)

Employees.

They follow instructions and may be trained.

May be employed full- or part-time. (permanent or temporary basis)

May be made redundant if not required.

Workers (StH objectives)

Regular payment (set out in contract of employment).

Job security (especially with satisfactory/motivating jobs).

Managers (StH role)

Employees that control other employees.

Make important decisions that may help the business expand.

If their decisions are poor, the business could fail.