Unit 1 Business Terms

Business

An organization that combines resources (the factors of production) to produce goods and services that satisfy the needs and wants of customers, aiming to add value.

Human Resources

The right quality and quantity of people needed to make the product or provide the service.

Physical Resources

The right quality and quantity of materials, land, or premises needed for production.

Financial Resources

The right quality and quantity of cash and capital (money) to fund the business operation.

Enterprise

The idea and the willingness to take a risk in bringing human, physical, and financial resources together (also referred to as entrepreneurship).

Goods

Tangible products created by a business (e.g., a loaf of bread, a smartphone).

Services

Intangible activities or benefits provided by a business (e.g., a haircut, parcel delivery).

Adding Value

The process of producing a good or service that is worth more to the customer than the cost of the resources used to produce it.

Capital Intensive

Production that uses a large proportion of land or machinery relative to other inputs, especially labor (e.g., an automobile factory).

Labour Intensive

Production that uses a large proportion of labor relative to land or machinery.

Primary Sector

The extraction of natural resources, such as farming, fishing, forestry, and mining.

Secondary Sector

The manufacturing or construction of finished products, such as car manufacturing, carpentry, and engineering.

Tertiary Sector

The provision of services to consumers and businesses, such as banking, advertising, catering, and cinemas.

Quaternary Sector

The knowledge-based economy focused on ICT, research & development (R&D), and management consultancy.

Sectoral Change

The shift in employment from the primary sector toward the tertiary and quaternary sectors as economies develop.

Entrepreneurship

The traits and actions of individuals who run their own business, willing and able to take calculated risks by investing in a start-up or commercial initiative.

Visionary

An entrepreneur or leader who sees market changes before they happen.

Autonomy

The independence and state of being your own boss, which serves as a key driver for starting a business.

Self-Actualization

The personal challenge and satisfaction of striving for and achieving personal greatness through entrepreneurship.

Public Sector

The portion of the economy controlled by a regional or national government, focused primarily on providing essential public goods and services (e.g., state schools, hospitals, emergency services).

Private Sector

The portion of the economy run and owned by private individuals and organizations, usually aiming to earn a profit independent of the government.

Profit

The financial surplus earned by a business, calculated using the formula

Sole Trader (Sole Proprietor)

An unincorporated, commercial for-profit business owned by a single person who receives all profits but faces unlimited liability.

Partnership

A commercial business owned by two or more individuals (typically capped at 20 partners) who share profits, responsibilities, and liability.

Silent Partner (Sleeping Partner)

A partner who provides capital to a business without taking an active role in its daily operations, typically receiving exemption from unlimited liability.

Company (Corporation)

An incorporated, commercial for-profit business owned by shareholders with limited liability, featuring a legal separation of ownership and control.

Privately Held Company (Private Limited Company)

A company whose shares are owned by private individuals (e.g., family, friends, employees) and cannot be advertised or sold on an open stock exchange.

Publicly Held Company (Public Limited Company / Joint-Stock Company)

A company whose shares can be freely bought and sold by the general public on a public stock exchange.

Initial Public Offering (IPO)

The process by which a privately held company first sells its shares to the public on a stock exchange to become a publicly held company.

Share Issue

The process of subsequently selling additional shares in a public company to raise capital.

Divorce of Ownership and Control

The legal separation in a corporation between the owners (shareholders) and the executives who manage the business daily (the CEO and board of directors).

Limited Liability

Legal protection for business owners/shareholders limiting their potential financial losses to the amount they invested in the business.

Unlimited Liability

Legal obligation where business owners are personally responsible for all business debts, potentially risking personal assets.

Unincorporated Business

A business structure where the owner and the business are legally treated as the same entity.

Incorporated Business

A business structure that exists as a separate legal entity from its owners.

Social Purpose Organizations (SPOs) / Social Enterprises

Organizations that exist primarily to address important social or environmental issues rather than solely maximizing profit.

For-Profit Social Enterprise

A revenue-generating, profit-seeking business whose main purpose is driving social or environmental goals, using surplus funds to benefit society rather than paying dividends.

Non-Governmental Organization (NGO)

A non-profit social enterprise that relies on donations and funding rather than commercial trading to pursue a social mission.

Cooperative

A for-profit social enterprise owned and managed democratically by its members (owners), operating under the rule of one member, one vote.

Vision Statement

An aspirational, long-term statement describing what a business wants to become or achieve in the future ("Where are we going?").

Mission Statement

A statement describing why a business exists right now—its core purpose, current operations, target audience, and values ("Why do we exist today?").

Growth Objective

A target focused on expanding the business's scale, such as increasing market share, revenue, employee count, or physical locations.

Profit Objective

A target focused on maximizing surplus revenue over costs or ensuring basic financial survival.

Protecting Shareholder Value

Managing business operations to maintain or increase investor returns through regular dividends and rising share prices.

Ethical Objectives

Targets that go beyond legal requirements to act in a socially and environmentally responsible manner.

Corporate Objectives

Overall SMART goals set for the entire business organization.

Tactical / Operational Objectives

Short-term, concrete targets (weeks to a year) set by middle management to achieve broader strategic objectives.

Corporate Social Responsibility (CSR)

Voluntary actions taken by a business beyond its statutory obligations to create a positive impact on society, employees, and the environment.

Greenwashing

Exaggerating or fabricating environmental or ethical credentials for marketing purposes without making genuine operational changes.

Economies of Scale

Cost-saving advantages that firms gain as they expand production scale, such as bulk-buying discounts.

Stakeholder

An individual, group, or organization with a vested interest in the activities and performance of a business because they affect it or are affected by it.

Vested Interest

A personal, financial, or ethical stake in what a business does, with something to gain or lose (e.g., money, jobs, quality of life, reputation, or the environment).

Internal Stakeholders

Members of the business organization, including employees, managers, directors, and shareholders (owners).

External Stakeholders

Individuals or groups outside the organization that are affected by its decisions and actions, such as customers, suppliers, government, local community, competitors, pressure groups, financiers, and labor unions.

Stakeholder Conflict

A situation occurring when the interests of different stakeholder groups are incompatible, meaning satisfying one group’s demands reduces benefits for another.

Pressure Group

An external organization or association formed to campaign for and influence business, government, or public action regarding a specific cause (e.g., environmental protection or human rights).

Labour Union

An organization that represents member workers to negotiate better pay, working conditions, and job security with employers.

Mendelow’s Matrix

An analytical tool used to map and categorize stakeholders based on their relative level of power and interest in a business decision.

Average Cost (AC)

The cost per unit of output produced, calculated using the formula: total cost/Quantity produced

Economies of Scale

The cost-saving benefits (falling average costs of production) that a business enjoys as it expands the scale of its operations.

Diseconomies of Scale

Rising average costs of production that occur when a business grows beyond its ability to operate efficiently.

Optimal Output Level

The specific level of production output where a firm achieves its lowest average cost and maximizes profit potential.

Internal Economies of Scale

Reductions in average cost generated by the growth of the individual firm itself, including financial, marketing, managerial, technical, purchasing, risk-bearing, and specialization benefits.

External Economies of Scale

Reductions in average cost experienced by a firm because the entire industry or regional cluster expands, independent of the individual firm's actions.

Internal Diseconomies of Scale

Increases in average cost resulting from internal inefficiencies within a growing firm, such as communication breakdowns, coordination issues, and excessive bureaucracy.

External Diseconomies of Scale

Increases in average cost caused by external factors outside the organization that raise costs for all firms in an industry (e.g., traffic congestion, rising rents, labor shortages).

Internal Growth (Organic Growth)

Business expansion achieved using the firm’s own resources (e.g., retained profits, bank loans, issuing new shares/IPOs) without forming a partnership with another organization.

External Growth (Inorganic Growth)

Business expansion that relies on collaborating with or acquiring another partner organization (e.g., mergers, acquisitions, takeovers, joint ventures, strategic alliances, franchising).

Merger / Acquisition (M&A)

An external growth strategy where two or more businesses combine operations to form a single company, usually by mutual agreement.

Horizontal M&A

A merger or acquisition between businesses operating in the same industry and at the same stage of production.

Vertical M&A

A merger or acquisition between businesses operating in the same industry but at different stages of the production chain.

Conglomerate M&A

A merger or acquisition between businesses operating in completely unrelated industries.

Takeover

An external growth method where one business (the predator) purchases a controlling stake (more than 50% of voting shares) in another business (the target), which can be friendly or hostile.

Joint Venture

An external growth arrangement where two or more independent businesses create a separate, jointly owned new company, sharing startup costs, risks, profits, and control.

Strategic Alliance

An agreement between two or more firms to cooperate on a project or share resources without creating a new separate legal entity.

Franchising

A business arrangement where a franchisor sells a franchisee the legal right to trade under its established brand name, using its business model, products, and support systems in exchange for an upfront fee and ongoing royalties.

Franchisor

The parent company that sells the rights to its brand and business system to an independent operator.

Franchisee

An independent entrepreneur who pays for the right to open and operate a business branch using the franchisor’s brand name and procedures.

Synergy

The concept where the combined performance and value of two merged companies is greater than the sum of their individual parts ($1 + $1 = $3).

Multinational Company (MNC)

A business entity or enterprise that operates, produces goods, or provides services in two or more countries.

Host Country

A nation in which a foreign multinational company establishes operations, branches, or production plants.

Home Country

The country where a multinational company has its original headquarters or primary base of incorporation.

Foreign Direct Investment (FDI)

Financial investments made by a business entity located in one country into business operations situated in another country.

Skills Transfer

The two-way exchange of technical knowledge, operational practices, and managerial expertise between a foreign multinational company and local workers in a host country.

Repatriation of Profits

The process where a multinational company transfers profits earned in a foreign host country back to its headquarters in its home country.

Brain Drain

The loss of highly skilled, educated, and qualified workers who leave their domestic host country to pursue career opportunities with multinational companies abroad.

Unique Selling Point (USP)

A distinctive feature or special benefit that differentiates a product or brand from its competitors in the market.