CK

Comprehensive Study Notes: Economic Concepts, Sectors, Entrepreneurship, Business Organization, Management, and Marketing (Chapters 1–5)

Chapter 1: Basic Economic Concepts

  • Wants vs Needs
    • Want: service, goods people would like to have
    • Need: service/goods essential for living
  • Factors of production
    • Land
    • Labour
    • Enterprise (Entrepreneurship) – Capital
  • Specialisation / Division of Labour
    • Production process split into different tasks; each worker specialises in their field
    • Advantages:
    • Increased efficiency
    • Ways to increase added value (without increasing raw material costs):
    • Increase selling price while keeping raw material costs the same
    • Reduce the cost of raw materials while keeping the price the same
    • Cheaper, quicker to train workers
  • Disadvantages of specialisation
    • If one worker is absent and cannot be replaced, production is slowed or stopped
  • Production and efficiency themes
    • Specialisation leads to higher efficiency and added value, but creates dependency risk

Chapter 2: The Economy - Sectors, De-industrialisation, and Economic Change

  • Economic sectors ( Primary → Secondary → Tertiary )
    • Primary: extracting natural resources (e.g., farming, fishing, mining)
    • Secondary: manufacturing and processing (e.g., car manufacturing, hairdressing services)
    • Tertiary: services (e.g., hotels, tourism, retail)
  • De-industrialisation
    • Movement away from heavy industry toward services; growth of the tertiary sector
  • Mixed economy
    • Private sector vs Public sector; government involvement
    • Private sector: decision-making for profit, private ownership
    • Public sector: government/public ownership; decision-making by the state; sometimes natural resource management and service provision
  • Industrialisation and its changing importance
    • Increase in technology and capital intensity shifts between sectors
  • Private vs Public sector in economic decision-making
    • Ownership: private individuals vs government/public authorities
    • Profit motive vs service provision and public welfare
  • Sector transitions
    • Primary → Secondary: raw material provision and processing
    • Secondary → Tertiary: production stages finish and later provide services and consumer attraction

Chapter 3: Entrepreneurship and Start-ups

  • Entrepreneur: benefits and characteristics
    • Benefits:
    • Independence
    • Potential for high income
    • Characteristics:
    • Risk-taker, hard-working, independent, creative (providing new ideas for business improvement)
    • Disadvantages:
    • High risk; must invest own money
    • Role of government support for start-ups:
    • Reduce unemployment
    • Potential growth and increased competition (more consumer choices)
    • Increase overall output and economic activity
  • How start-ups receive government support
    • Premises: provide low-cost land
    • Finance: loans at low interest rates
    • Labour: grants to train employees and boost productivity
  • Measuring business size
    • Number of people employed
    • Value of output
    • Value of capital employed
    • Value of sales
  • Business plan contents
    • Description of business
    • Business strategy
    • Business financial information
    • Products and services offered
  • Why businesses expand
    • Higher profit
    • Larger market share
    • Increased status and prestige for owner

Business Growth: Mergers and Expansion (Chapter B3)

  • Growth strategies
    • External growth: mergers and acquisitions
    • Internal growth: expanding operations, opening new shops or branches
  • Types of mergers (Horizontal, Vertical, Conglomerate)
    • Horizontal Merger: between businesses in the same industry at the same production stage
    • Vertical Merger: between businesses in the same industry but different stages of production (forward or backward)
    • Conglomerate Merger: diversification into a different industry
  • Horizontal Merger benefits & considerations
    • Reduces competition; higher market share; possible easier market control
    • Risks: integration difficulties, cultural clashes
  • Vertical Merger benefits & considerations
    • Secured supply or distribution, potential cost advantages
    • Risks: anti-trust concerns, over-dependence on supplier/customers
  • Conglomerate Merger benefits & considerations
    • Diversification of risk; synergy across industries
    • Risks: management complexity, reduced focus
  • Other expansion strategies
    • Opening new shops in different areas/countries/cities
    • Possible need for new markets, supply chains, and regulatory compliance
  • Beneficial effects of mergers
    • Enhanced business synergy; cross-industry knowledge transfer
    • Assured supply of raw materials; better distribution networks
    • Potential cost reductions via economies of scale; access to new markets
  • Risks and controls
    • Mergers can be prevented or challenged by suppliers or competitors (antitrust concerns)
    • Need for integration planning; risk of reduced efficiency if poorly executed

Chapter 7-8: Growth Problems, Keep Small, and Failure Causes

  • Problems linked to business growth
    • Harder to control larger organizations
    • Poor communication and finance shortages
    • Difficulty in integrating different management styles and processes
  • Overcoming growth challenges
    • Operate in small units where possible
    • Use the latest technology; expand slowly to ensure long-term finance viability
    • Ensure the workforce is willing to adapt and understand reasons for changes
  • Why some businesses remain small
    • Market size constraints (niche markets like luxury goods)
    • Owner objectives and preferences
    • Industry characteristics (some services require small scale)
  • Causes of business failure
    • Over-expansion; rapid growth without sufficient financing or systems
    • Lack of management skills; outdated skills
    • Changes in the business environment (competition, economic shifts)
    • Poor planning/research; lack of experience in decision making
    • Higher risk for new businesses vs established ones

Types of Private Sector Business Organisations

  • Sole Trader
    • Advantages: easy to set up; owner has complete control; profits belong to owner; simple tax arrangements
    • Disadvantages: unlimited liability; limited finance; limited skill set
  • Partnership
    • Advantages: easy/inexpensive to set up; shared responsibilities; increased finance
    • Disadvantages: unlimited liability for partners; potential conflicts; profits shared equally regardless of contribution
  • Franchising
    • A franchise uses an established brand, logos, and trading methods
    • Franchisee buys rights to operate under franchisor's system; training and ongoing support provided
    • Franchisor benefits: trained system, brand recognition, support, potential loans/insurance
    • Franchising disadvantages: high upfront cost; ongoing royalties; supplier margins may be inflated; risk of losing rights if standards are not met
  • Joint Venture
    • A medium- to long-term agreement between two or more businesses to achieve a defined outcome (e.g., entering a new market)
    • Advantages: shared expertise/resources; lower risk when entering new markets; access to local knowledge; shared costs
    • Disadvantages: profits shared; potential disagreements; changing objectives can cause conflicts; dismantling may be time-consuming

Public Sector and Public Corporations

  • Public corporation definition
    • A business in the public sector owned and controlled by the state; objectives set by government; board of directors appointed by government ministers
  • Nationalisation
    • The government buys private businesses to bring them under public ownership
  • Advantages of public corporations
    • Essential services and natural monopolies are state-controlled to ensure availability and prevent exploitation
    • Nationalisation protects jobs and ensures access to key services (e.g., water, electricity, broadcasting)
  • Disadvantages of public corporations
    • Lack of private shareholder pressure for high profits/efficiency
    • Possible subsidies create unfair competition with private firms
    • Reduced competition can lower efficiency and customer service incentives

Importance of Business Objectives

  • Purpose of objectives
    • Provide clear targets for workers and management
    • Facilitate performance comparisons against targets
  • Common objectives
    • Profit: total income (revenue) minus total costs
    • Market share:
    • Market share % =
      ext{Market share} rac{ ext{Company sales}}{ ext{Total market sales}} imes 100
    • Service to the community
    • Growth and shareholder returns
    • Social enterprise: combine social, environmental, and financial returns
  • Change in objectives
    • Objectives often evolve due to growth, profit levels, market conditions, or stakeholder pressures

Stakeholders: Internal and External

  • Stakeholder concept
    • Any person or group with a direct interest in a business's performance
  • Internal stakeholders
    • Owners, Workers, Managers
  • External stakeholders
    • Customers, Government, The community, Banks
  • Typical objectives by stakeholder group
    • Owners/Shareholders: profits, value of investment, growth
    • Workers: pay, job security, working conditions, career development
    • Managers: control, status, strategic growth; higher salaries
    • Customers: value for money, product quality, reliability
    • Government: compliance, tax, stability, public welfare
    • Community: safe products/services, environmental protection, employment
    • Banks: loan repayments and financial stability
  • Stakeholder conflicts
    • Profit vs fair treatment/wages, low prices vs environmental sustainability, growth vs short-term profitability

Motivation, Worker Needs, and Theories

  • Well-motivated workforce benefits
    • Higher output, lower turnover, better quality, easier adaptation to change
  • Maslow's hierarchy of needs
    • Physiological, Safety, Social, Esteem, Self-actualisation
    • Self-actualisation at top; needs vary; managers should identify current needs and help progression
  • Two classical motivation theories
    • Taylor (Scientific Management): motivation by money; efficiency through pay incentives; criticisms: money alone is not enough; some work is non-monetary; measuring output can be difficult
    • Herzberg: Hygiene factors prevent dissatisfaction but do not motivate; Motivators drive psychological growth and motivation
  • Financial rewards (methods and limitations)
    • Commission, Wages (time rate or piece rate), Salaries, Bonuses, Profit sharing
    • Disadvantages: time to calculate weekly pay; same pay for good and bad workers; quality risk if quantity is maximized; overtime issues; bonus dependence on overall profit
  • Fringe benefits
    • Company car, health care, education support, share options, pension, travel, etc.

Non-Financial Motivation and Job Design

  • Non-financial motivators
    • Job enrichment: add skill/ownership responsibilities to jobs
    • Job rotation: rotate tasks to reduce monotony
    • Teamworking: assign tasks to groups; clearer responsibilities
    • Training: improve skills; internal promotion opportunities; reduce accidents
  • Promotion and career development
    • Promotions can motivate and retain staff

Organizational Structure, Delegation, and Leadership

  • Organizational structure
    • Levels of management and division of responsibilities
    • Organization chart: visual representation of management hierarchy
    • Chain of command: flow of instructions from top to bottom
    • Span of control: number of subordinates per manager
  • Hierarchy and delayering
    • Delayering: removing levels of management to flatten structure
  • Delegation
    • Assigning authority to perform tasks; responsibility remains with the manager
  • Leadership styles
    • Autocratic: manager makes decisions; quick decisions; can demotivate staff
    • Democratic: decision-making involves employees; better motivation; slower decisions
    • Laissez-faire: employees decide; fosters creativity but may be impractical in strict structures
  • Advantages/disadvantages by style
    • Autocratic: fast decisions, can motivate; but little employee input
    • Democratic: better motivation, but slower and potentially indecisive
    • Laissez-faire: autonomy and creativity; risk of lack of direction and inconsistent decisions

Recruitment, Training, and Employment Relations

  • Recruitment process overview
    • Identify business need to employ someone
    • Job analysis: responsibilities and tasks
    • Job description: duties and responsibilities
    • Job specification: qualifications, experience, skills
    • Advertise vacancy
    • Applications and shortlisting
    • References
    • Interviews
  • Internal vs External recruitment
    • Internal: fills vacancies from within; familiar with business; lower induction needs; potential resentment if not managed well
    • External: brings new ideas/skills; wider pool; higher recruitment costs and longer induction
  • Induction and training
    • Induction helps new employees settle in; may be time-consuming
    • Training aims: meet business needs; reduce supervision; promote internal promotion; reduce accidents; upskill unskilled workers
  • Training methods
    • On-the-job training: learning while performing; cheaper; risk of bad habits; limited recognition outside the business
    • Off-the-job training: external trainers; multi-skilling; more expensive; more flexible for skills development
    • Induction training: welcomed and settling in; reduces early mistakes
  • Roles of HR department
    • Recruitment, selection, training, health and safety, industrial relations, redundancy and dismissal processes

Employment Changes and Workforce Reduction

  • Redundancy and dismissal
    • Dismissal: ending employment due to performance or behavior; warnings typically given; legal procedures apply
    • Redundancy: not a fault of the employee; changes in business needs; compensation may apply; voluntary redundancy possible; long service may be retained in some cases
  • Legal controls and employee rights
    • Employment contracts; health and safety; unfair dismissal protections; legal minimums

Communication in Organizations

  • Types of communication
    • Verbal (formal: meetings, interviews, presentations, lectures; informal: face-to-face, calls)
    • Written (formal: reports, letters, emails, press releases, brochures; informal: texts, instant messaging)
    • Visual (formal: presentations, displays, maps; informal: gestures, body language)
  • Direction of communication
    • Downward: managers to subordinates
    • Upward: subordinates to managers
    • Horizontal: same level, cross-departmental
  • One-way vs two-way communication
    • One-way: no immediate feedback; risk of misunderstanding
    • Two-way: feedback confirms understanding; enables discussion and engagement
  • Barriers to communication and how to reduce them
    • Sender issues: jargon, unclear messages, wrong receiver, too much detail, poor channel choice
    • Receiver issues: not listening, distrust, unwillingness to act on message
    • Medium issues: wrong channel, long chain of command causing distortion, lack of feedback, technology failures
    • Reducing barriers: use appropriate channels, request feedback, keep messages concise, ensure the right recipient gets the message, provide multiple channels when possible

Marketing and Understanding Markets

  • Role of marketing
    • Identify customer needs: what products/services, price, where/how customers want to buy
    • Satisfy needs: deliver right product at right time/place/price
    • Maintain customer loyalty: build relationships, loyalty programs
    • Build customer relationships: gain insights into behavior and preferences
    • Anticipate changes in needs: spot trends and gaps for new or improved products
  • Benefits of effective marketing
    • Increase revenue, maintain/expand market share, enter new markets, raise customer awareness
  • Understanding market changes
    • Why spending patterns change: tastes/fashions, aging populations, technology changes, income changes, economic conditions, globalization
  • Responding to changes and competition
    • Maintain customer relationships and loyalty; improve existing products; develop new products; reduce costs to offer competitive prices
  • Market concepts
    • Niche market: small, specialized segment with higher profit margins but higher average unit cost
    • Mass market: large sales volumes and broad customer base, lower per-unit costs but less differentiation
  • Market segmentation
    • Market segment: sub-group with similar needs/preferences; improves targeting and efficiency
    • Types of segmentation:
    • Age
    • Gender
    • Region
    • Lifestyle
    • Benefits: more effective marketing, higher sales, new opportunities

Miscellaneous Concepts and Connections

  • Economic significance and real-world relevance
    • Specialisation and economies of scale influence modern manufacturing and services
    • Mergers and acquisitions affect competition, supply chains, and market dynamics
    • Public vs private sector roles shape infrastructure, utilities, and public services
    • Stakeholder theory helps understand tensions between profit, social impact, and long-term viability
  • Ethical and practical implications
    • Balancing profit with social responsibilities and environmental concerns
    • Ensuring fair treatment, safe products, and responsible marketing practices
    • Managing change in organizations to minimize disruption to workers and communities