1.1.
1 The purpose and nature of business activity
1.2.1 Business activity in terms of primary, secondary and tertiary sectors
1.2.2 Classify business enterprises between private sector and public sector in a
mixed economy
1.3.1 Enterprise and entrepreneurship: Characteristics of successful entrepreneurs
Who is an Entrepreneur?
Entrepreneur: Organize, operates and takes risk of a
new business venture
Benefits Disadvantages
• Independence • Risk
• Famous • Capital
• Profitable, higher income • Lack of knowledge and experience
• Use personal interests • Opportunity cost
• Hard work
Characteristics needed to be a successful entrepreneur
• Hardworking
• Risk taker
• Creative – long – new idea -
• optimistic
• self-confident
• innovative
• independent
• effective communicator
Business Plan
• Document – business objectives, details about operations, finance and owner
• Description of business
• Products and services
• The market
• Business location and how products will reach customers
• organization structure and management
• Financial information
• Strategy
WHY GOVERNMENT SUPPORT BUSINESS
STARTUP
HOW GOVERNMENT SUPPORT BUSINESS
STARTUP
WHY / WHO MEASURE BUSINESS SIZE?
HOW TO MEASURE BUSINESS SIZE
Limitations
• Number of people employed
– production methods which employ very few people but produce high output level
– automated factories - capital-intensive firms
– a company with high output levels could employ fewer people
• Value of output
– very expensive computers each year.
– might give higher output figures than a firm selling cheaper products but employing more workers
• Value of sales
– misleading to use this measure when comparing the size of businesses that sell very different products
• Value of capital employed
– Might employing many workers may use labour-intensive methods of production. These give low output
levels and use little capital equipment.
WHY OWNERS WANT BUSINESS TO GROW
Growth
One business integrate into External Internal Expands existing operation
another one. Take over or merger growth growth Paid – profits if existing business
Business coming
together integration
Agreement - both Merger Company buys -
Takeover
firms together Controlling owner
Unrelated market
Horizontal Vertical Conglomerate
Same stage @ different level
Backward Supplier
Forward Customer
Identify the form of business growth which is used in each of these situations.
In each of the cases, explain the likely reason(s) for the expansion.
a A garage agrees to merge with another garage.
b A bicycle retailer expands by buying a bicycle shop in another town.
c A fruit juice business buys a fruit farm.
d A business making electrical goods agrees to join with a business with retail shops specialising in electrical goods.
e A mining company takes over a company supplying mining equipment.
f A construction company buys a holiday company.
Nestlé is the largest food and confectionery manufacturer in the world. The company made the decision
to take over Hsu Fu Chi International (based in Guandong, China). This Chinese company makes sweets
and snacks. The takeover cost US$1.7 billion. It will now be easier for Nestlé to sell its products in China.
There should also be cost savings from the takeover. Some consumers are worried that there might be
less choice of sweets and snacks than before the takeover. Also, perhaps Nestlé might increase prices as
there will be less competition in the sweet and snack market.
a Is this takeover an example of horizontal or vertical integration? Explain your answer.
b Explain two possible reasons why Nestlé took over the Hsu Fu Chi company.
c Do you think consumers in China will benefit from this takeover? Explain your answer.
Identify problems related to growth and how
to overcome
• Difficult to control: small units - decentralization
• Poor communication: IT
• Expansion costs: retained profit
• Difficult to integrate: different style of management –
communicate to workforce – understand reason for
change
Why some business remain small
• Type of industry: repair – cleaning – plumbers – catering
• Market size: total number of customers is small – rural area –
luxury car – expensive cloth
• Owners objective: owners preference – keeping control of
small business – avoid stress
Causes of business failure
• Management skills: location, lack of experience, family
business
• Changes in business environment: new technology, competitor,
economic change
• Liquidity problems: shortage of cash, cash flow problem
• Over expansion: finance
The ARC business produces and sells cosmetics. These are sold in supermarkets. It uses
modern capital equipment, allowing division of labour so employees can specialise. Several
employees have left ARC recently. The Bella perfume, ARC's best-selling product, sells for $7 a
bottle. Each bottle contains materials that ARC buys in for $2. ARC’S managers want to
increase added value. The Marketing Manager thinks a price increase is the best way to do this.
(E)Do you agree with the marketing manager that the best way to increase added value for a
product is to increase price? Justify your answer [6] K – 2; AN: 2; E:2
Added value is the difference between the selling price and the cost of
bought- in materials. (K) A price increase would raise the added value of
the product. If sales and other costs stayed the same, the business's profit
would increase [AN]. However, the consumers might buy less of the product
than before. If sales fall profits could decrease too.
A better idea might be to reduce costs of bought-in materials. For example,
the business could use a plastic component instead of a glass one. Lower
material costs will also increase added value [K] but consumers might
think the quality has fallen and buy fewer of the products than before.[An]
However, I think that this is better than raising prices as the business may
have many competitors. If the business raises prices then demand will fall
[Ev] but it might not fall if the business reduces costs, making this the
better option [Ev]
The ARC business produces and sells cosmetics. These are sold in supermarkets. It uses modern capital
equipment, allowing division of labour so employees can specialise. Several employees have left ARC recently.
The Bella perfume, ARC's best-selling product, sells for $7 a bottle. Each bottle contains materials that ARC
buys in for $2. ARC’S managers want to increase added value. The Marketing Manager thinks a price increase is
the best way to do this.
(d) Explain one advantage and one disadvantage to ARC of division of Labour. [6] K: 2; AP: 2; AN:2
Advantage: Employee specialize in task / Faster
production[K]
Explanation: Employee can concentrate one task at a
time like filling perfumes / employees will be quicker in
filling perfumes or mixing chemicals[AP]. It leads to
increase in productivity [AN].
Disadvantage: Employees can become bored [K]
Explanation: bored task leads to low motivation [AN].
This might be the reason for high employee turnover
