business activity – chapter 1.docx

Business Activity Section 1

Consumer Products

Goods Services

Mp3 PlayerHealth Care

MagazineBanking

CrispsAir Travel

HandbagEducation

Computer GameGarden Design

Producer Products

Goods Services

Delivery VanMarket Research

Office FurnitureInsurance

ToolsSoftware Design

Sugar Cane Industrial Cleaning

TractorPrinting

Many goods and services provided in the public sector are free they are paid for by public taxes.

Key Terms

BusinessAn organization, which produces goods and services.

Consumer Goods Goods and services sold to ordinary people (Consumers) rather than Businesses

EntrepreneursPeople who take risks and set up Businesses.

GoodsPhysical products like a mobile phone, packet of crisps or a pair of shoes.

NeedsBasic requirements for human survival.

Private Sector Business organizations owned by individuals or groups of individuals

Producer GoodsGoods and services produced by one business for another.

Public SectorBusiness organizations owned by central or local government.

Scarce ResourcesThe amount of resources available is limited.

ServicesNon-Physical products like banking, car washing and waste disposal.

StakeholderAn individual or group with an interest in the operation of a business.

WantsPeoples desires for goods and services.

Business Objectives Chapter 2

Private Sector Objectives

Survival

Can be the most important objective because when a business starts trading it may be vulnerable. The owners could be inexperienced and lack resources. Therefor they can set an objective to survive the first 12 months. The survival may become difficult if trading conditions become hard such as when the recession hit in 2009/10.

Profit

Most business aim to make a profit because the owners want a financial return. Some business try to maximize profits this means they make as much profit as they possibly can. For example business with shareholders try to maximize profits because the shareholders put pressure on the business to pay out large dividends to them which come form the profits.

Growth And Wealth Creation

Some owners want their business to grow because larger businesses enjoy a number of benefits for example Lower costsLarger Market Share Higher Public ProfileMore Wealth For Owners

The growth of the business will also benefit other people such as the employers this is because their jobs will be more secure.

Increase Market Share

If Business can win over customers over from competitors then they may be able to dominate the market with a larger market share if they do this they may be able to charge higher prices.

Image, Reputation and social reasonabilitys

If a business has a bad image then they can loose customers. So in recent years many large businesses have been trying to improve there image and develop a good reputation they are doing this by taking into account the need of others the customers the local community and the employees.

Mission Statements

Some business writes mission statements when setting objectives this describes the purpose of the business. Mission statements are often directed at stakeholders such as customers, employees and shareholders they:

Help a business to focus

Provide a plan for the future

Make clear to all stakeholders why the business is trying to achieve

Public sector Objectives

Special Needs Provisions

Response Time By Emergency Services

Reducing Crime Rates

Reducing Waste in Landfills

Increasing Higher Education

Smart Objectives

Specific Stating clearly what is trying to be achievedMeasurable Capable of numeric measurement Achievable Attainable by the people involvedRealistic Able to be achieved given the resources availableTime Specific State a time in which they should be achieved

Relationship between business and objective

Several business objectives are closely related to each other. For example a business that aims to grow could make profit in the future. This is because a larger firm will enjoy more revenue and this is likely to result in more profit.Finally a business may have more than one objective

Key Terms

Mission Statement A brief summary of a firms aims and objective

ObjectivesThe goals or targets set by a business.

Profit MaximizationMaking as much profit as possible in a given time period.

Sole Traders, Partnerships and Franchises - Chapter 3

Entrepreneurs

EntrepreneursPeople who set up business are called entrepreneurs. They are innovators because they try to make money out of a business idea. Some ideas may come from a gap in the market or market research.

Unincorporated and incorporated businessUnincorporated These are businesses where there is no legal difference between the owner and the business. Everything is carried out in the name of the owner. These tend to be smaller and owned by 1 or a small group of people.Incorporated Is a business is one which has a separate legal identify from thats of its owners. It can be sued, taken over or liquidated they are often called limited and the owners are shareholders.

Sole Trader Features

A sole trader or sole proprietor is the simplest business organization. It has one owner but can employ many people. Sole traders may be involved in a wide range of business activity. In the primary sector they may be farmers or fishermen. In the secondary sector they may be small builders or manufactures. However, most sole traders are found in the Tertiary sector. Many are retailers running small shops. Others may be office services such as web design, tutoring, hairdressing, taxi driving, and so on.

Setting up as a sole trader is simple because there are no legal requirements. However all sole traders have Unlimited liability which means that if the business fails a sole trader could loose more money than was originally invested.

Advantages Disadvantages

All the profit kept by the owner.Have unlimited liability.

They are independent the owner has complete controlMay struggle to raise finance to risky for lenders

It is simple to set up with no legal requirements. Long hours and very hard work

Flexibility for example can adapt to change quicklyUsually too small to exploit economies of scale.

May qualify for government help.No continuity the business dies with the owner.

Features of a Partnership

A partnership is a when a group of 2 to 20 people jointly own a business and share responsibility. They also share the profits.Partnerships are often found in professions such as accountants, doctors, and solicitors.There are no legal requirements of a partnership but you may draw a deed of partnership.This is a legal document, which states partners rights in the event of a dispute It states:

How much capital each partner will contribute

How profit (and losses) will be shared amongst the partners

The procedure for ending the partnership

How much control each partner has Rules for taking on new partners


Easy to set up and run no legal formalities.Partners have unlimited liability

Partners can specialize in their area of expertise.Profits has to be shared

The burden of running a business is shared Partners may disagree and fall out

More capital can be raised with more ownersAny partners decision is legally binding on all.

Financial information is not published Partnerships still tend to be small.

Limited Partnerships

This is when some partners provide capital but dont take any part in the management of the company.They will also only have limited liability and therefore will only lose the amount of money they put into the company they can also be called a sleeping partner. However with a limited partnership there must always be at least 1 partner with unlimited liabilityIn 2000 the law changed so you now have to complete a number of legal requirements for a limited liability partnership.

Features Of Franchise

You can buy a franchise. This may suit someone who doesnt have their own business idea. Owners of a franchise are called franchisors they have developed a successful business, and are allowing others the franchisers to trade under their name. Franchisees pay fees to the franchisors.

What does the franchisor offer the franchisee?

A license to trade under the recognized brand name.

A start up package including help, active and essential equipment.

Training in how to run the business and operate the system used by the franchise.

Material, equipment and support services that are needed to run the business

Marketing support, which is organized on behalf of all franchisees.

In return these services the franchise has to pay certain fees.

A start up fees a lump sum.

An ongoing fee (Usually based on sales).

Contribution to marketing costs.

Franchisors may make a profit on some of the materials, equipments and merchandise supplied to franchisees.

Key Terms

Deed of PartnershipA binding legal document, which states the formal rights of partners.

Franchise Where business (the franchisor) allows another operator (the franchisee) to trade under their name.

Incorporated Business Where the business has a separate legal identify from that of its owner.

Limited Liability Where a business owner is only liable for the original of money invested into the business.

Limited Liability PartnershipA partnership where all partners has limited liability.

Limited PartnershipA partnership where some partners contributes capital and enjoy a share of the profit but do not take part in the running of the business.

PartnershipA business owned by between 2 and 20 people.

Sole trader or Sole Proprietor A business owned by a single person.

Unincorporated businessThose businesses where there is no legal difference between the owner and the business.

Unlimited liabilityWhere the owner of a business is personally liable for all business debts.

Advantages To The FranchiseeDisadvantages To The Franchisee

Less risk a tried and tested idea is usedProfit is shared with the franchisor

Back-up support is given Strict contacts have to be signed.

Set-up costs are predicable Lack of independence strict operating rules apply

National market may be organized

Can be an expensive way to start a business

Advantages To The FranchisorDisadvantages To The Franchisor

Fast Method of growthPotential profit is shared with franchisors

Cheaper method of growthPoor franchisees may damage

Franchisees take some of the risk Franchisees may get merchandise from elsewhere

Franchisees more motivated than employeesCost of support for franchisees may be high.

Chapter 4 Limited Liability Companies

Limited companies are incorporated. They have a separated legal identity form their owners. They can own their own assets; form contracts employ people sue and are sued.

If a limited company had debts the owner can only lose the money they originally invested. They cannot be forced to use their own money to pay debts.

Capital is raised by the sale of shares each stakeholder as so many shares. They are the joint owners of the company. They are entitled to vote on important matters such as who should run the company. They also get money form the profits. The more shares they own the more control of the company they can have.

They are run by director selected by the shareholders. The board of directors headed by a chairperson, who is accountable to shareholders. They run the company as the shareholders requested. If they dont perform well they can be voted out at a (Annual General Meeting).

Where sole traders partnerships pay income tax Companys pay corporation tax. To form a limited company it is necessary to follow a legal procedure.

Forming a limited company

Some important documents must be sent to the register of companies Before a limited company can be formed. The two most Important ones are the Memorandum Of Association and The Article Of Association. The Memorandum of Association sets out the company's name, where the registered office of the limited company is situated and what it will do. Ourready made companiessimply carry on business as general commercial companies - fully compliant withCompanies Houseregulations. Other clauses to be included depend on the type of company being incorporated - Companies Limited are able to tailor the memorandum of association to your individual requirements.The Articles of Association set out the rules for the running of the company's internal affairs. Every limited company must register Articles of Association.A limited company must have a minimum of 2 members but there is no upper limit.If the documents are accepted the company will get a certificate of incorporation. This allows it to trade as a limited company. The shareholders have a legal right to attend the AGM meeting and must be told of the date and venue in writing.

Private Limited Company

Most private limited companies tend to be small or medium sized. However a small minority are large some features are:

Their business name ends in Limited or Ltd.

Shares can only be transferred privately. All the shareholder must agree and cant be advertised for sale. Shares in private limited companies cannot be traded on the stock market.

They are often family business owned by family members or close friends.

The directors of these firms tend to be shareholders and are involved in the running of the business.


Shareholders have limited liability Financial information has to be made public

More capital can be raised Cost money and takes time to set up

Control cannot be lost to outsidersProfits are shared between more members

Has more status example more than a sole traderCannot raise huge amounts of money like PLCS.

Public Limited Companies

These tend to be larger than private limited companies as they can be bought and sold by the public on the stock exchange. Any person or organisation can buy shares in PLCS.Going public may be expensive because:

The company needs lawyers to ensure the prospectus is legally correct.

The prospectus has to be printed and circulated.

A bank may be paid to process share applications.

The company must insure against the possibility of some shares remaining unsold. Therefore, a fee is paid to an underwriter who must buy any unsold shares.

There are advertising and administrative expenses.

The PLC must have a minimum of 50,000 share capital.

Advantages of Public Ltd CompaniesDisadvantages of Public Ltd Companies

Large amounts of capital can be raised. Setting up cost can be very expensive

Shareholders have limited liability. Outside can take control by buying shares

PLCs can exploit economics of scale.More financial information has to be made public

May be able to dominate the market.May be more remote from customers

Share can be bought and sold very easily.More regulatory control due to company acts

May have a very high profile in the media.Mangers may take control rather than owners

Joint Ventures

A joint venture is when two or more companies share the cost responsibility and profits of a business venture. Most joint ventures involve two firm and cost and profits are shared equally.

Advantages Of A Joint Venture

They allow companies to enjoy some advantages of mergers higher turnover (profit) without losing their identity.

Each business can focus on the aspects of the venture they want to.

Takeovers are expensive they often can incur heavy legal and administration costs.

Mergers and takeovers are unfriendly while joint ventures are often friendly. In joint venture the companies commit their funds and share responsibility this could help improve success of the venture.

Competition may be eliminated. If companies co-operate in joint venture they are less likely to compete with each other

There Are Also Disadvantages

Some joint ventures do not work out. There may be control struggles. For example who should have the final say in a 50:50 venture?

Disagreements may occur about the management of the joint venture, as there could be disputes on which direction should be taken.

The profit from venture is split between the investors this reduces profit potential.

Multinational Companies - Chapter 5

Globalisation

A lot of companys are global which means they expect to sell their products around the world.

Products are traded freely around the world through international waters.

In areas like the EU people can move freely and live where they wish.

There are high levels of independence which means is there is a financial crisis in one country it will effect other.

Capital can flow freely between different countries. Which means one country can have savings in another.

Multinational play a huge part in the growth of the world economy they make up 10%.

Why have Multinational been created?

Economics of Scale this means they can enjoy lower cost because of there size because they sell to the global market they produce more and cost are then lower for example they pay less for labour and they put pressure on supplier to lower costs.

Marketing effective marketing can make a business and multinational companies off rely on this to develop a successful brand.

Key terms

1. Globalization the growing integration of the worlds economies2. Multinational the large business with operations overseas3. Repatriation of profit where a multinational returns the profit made to the country where it is basedAdvantages and disadvantages of multinationals

AdvantagesDisadvantages

Creates new jobs for the local communitiesExploitation (E.G paying low wages, employing child labour)

Brings new technologies to developing countriesLittle money is put into the host nation

Increase in tax revenue to the host governmentTaxes paid are often low

Increase in enterprise development in developing countriesPossible environmental damage

Revision Notes for Chapter 6

Factors affecting the choice of organization

Growth: Many businesses starts small, and eventually expand in size.

Finance: Sole traders can only raise limited amount of finance, so owners often change to a partnership or a private limited. Additionally, owners of a private limited company may convert to a public limited company to raise even more finance.

Control: Some owners like to have full control over their business, so they prefer to stay as sole traders.

Limited liability: Owners may change to a private limited company because they will have limited liability. This means that they cannot be forced to use personal wealth to pay business debts.

Other factors

Type of business activitiesThe way in which profits will be usedStakeholders

Objectives and The Type of Organisation

Small sole traders may be happy to make a modest profit enough for a comfortable lifestyle. And May not want the responsibility associated with the other objectives such as growth. This is called Profit Satisfying.

Family business and medium sized limited companies are often reluctant to go public in fear of losing control to bigger companies.

For most multinational there only objective is to grow to get bigger.


Key terms

Capital-intensive production Where production relies more on the use of machineries and plants than human laboursDivision of labour Specialization in tasks or skills by an individualEntrepreneur An individual who organizes other factors of productionFactors of production The resources used to produce goods and servicesFixed capital Man-made resources, for example machineries and toolsLabour The people used in productionLabour intensive production Where production relies more on the use of human labours than machineries and plantsProduction The transformation of resources into goods and servicesSpecialization The production of a limited range of goods

Factors of production:

Land: Businesses need a plot of land to locate its operations. This might include factories, offices and car parks.

Capital: Capital refers to the artificial resources created in the business. There are two types:Working capital stocks of raw materials, which will be used up during productionFixed capital man-made resources such as machineries and tools

Labour: This refers to the workforce in the economy, such as managers.

Enterprise: Entrepreneurs are business owners. They are responsible for organizing other factors of production.

The changing relationships between enterprise capital and labour.

Over time the resources used by business change for example the rapid advance in technology have resulted in more capital-intensive production.


Keywords:

De-industrialization The decline in in manufacturingPrimary industry Production involving extraction of raw materials from the EarthSecondary industry Production involving the conversion of raw materials into finished or semi-finished goodsTertiary industry The provision of services in the economy

Activities in the primary sector:

Agriculture Fishing Mining ForestryActivities in the secondary sector:

Construction Manufacturing ProcessingActivities in the tertiary sector:

Professional services Transport Household services Leisure services Financial services Commercial servicesIndependence

Each of the three sectors is independent. They rely on each other for example in the primary sector wheat farmer relays on a baker in the secondary sector for his sales.

Changes In Sectors

The number of people employed in each sector does not stay the same. Different sectors grow and decline over time. Over the last 60 years the tertiary sector has started to expand at the expense of manufacturing.

Manufacturing has declined in developed countries while service grow.

People prefer to spend more of their income on services than on manufactured goods. There has also been a decline on more traditional goods.

There is also a lot of completion especially in countries like china Brazil and India.

As the public sector grows in developing countries so does the tertiary sector as the pubic sector mostly consists of services.

Machines are also replacing people which is why employment in manufacturing is declining.


Keywords

Assisted areas areas designated by the UK or EU as having economic problemsBrownfield sites areas of land which was once used for urban developmentGreenfield sites areas of land where businesses developed for the first timeRegional policy measures used by the government to attract businesses

Factors affecting location of businesses

Cost of land: Businesses that requires large plants, factories and stores, will want to locate in areas where land is cheap.

Low business rate (A tax paid to the local authorities)

Land has been marked specially for business development.

Transport: Locating in areas of good transports make it easier for businesses to distribute goods.

Cost and availability of labour: Businesses needing large numbers of human labour may want to locate in areas where labour is cheap and wide range of skilled labour is available.

Proximity to the market: Some businesses locate close to customers so to keep transport cost down.

The Government also try to influence location to

Avoid congestion where there is already a lot of traffic. Encourage firm to build when there is mass unemployment. To attract foreign business to the country.

The government also have a regional policy to help run down areas they provide opportunities for businesses.

A push factor is a feature of a particular area which either makes it less attractive to a business or forces it to consider relocating somewhere else. There are few advantages to a business either locating or remaining thereA pull factor attracts a business to a particular area or convinces them to remain there

Business location and the changing environment

More Home Based BusinessMore business are choosing to be based at home this cuts their costs and reduces buying of property for business purposes

The Internet More people are choosing to shop online rather than in store therefore there are now more opportunities and business can serve nationwide and operate in premise away from customers.

LegislationGovernments are providing more legislation toward protecting the environment

Changes in Factor Costs The cost of raw materials and labours does not remain constant businesses are attracted to location where these resources are the cheapest.

New Markets More companies are locating to china they have the largest population .

International Location

Avoiding Trade BarriersSome countries put up tariffs and quota this protects domestic business from foreign competition. Multinational business get around these rules by locating in the country.

Financial IncentivesSome governments off incentives to companys who locate in there country mostly they offter cash.

Cost of LabourMultinational companies locate plants in place where there are often low labour costs such as china.

Proximity To Markets Or Suppliers Multinational companies also locate near their market as long distance can cost in transportation.

Political StabilitySome countries are avoided because of the political troubles.

Language BarrierLanguage can be an important factor in location for a company most Chinese companies are form Chinese people living outside china.


Keywords:

1. Economic growth an increase in income, output and expenditure over a period of time2. Fiscal policy managing the economy by making changes to taxation3. Inflation a rise in the general price level4. Interest the price in borrowed money5. Monetary policy managing the economy by making changes to interest rates and the money supply6. Monopoly where one large business dominates the whole market7. Unemployment where people are out of work and cannot find a jobHow does the government influence business activities?

Consumer protection Employee protection at work Environmental protection Competition policy Protectionism Economic and regional policyEconomic growth cycle:

Boom: This is the peak of the cycle. Incomes will be rising, demand will be rising, unemployment falls as jobs were created, wages will be rising as well. However, prices may be rising as well. Recession: This is at the bottom of the cycle. National income falls, unemployment will rise as jobs were lost, demand starts to fall, business bankruptcies will rise, and prices fall.


Keywords

Anti-competitive practices practices that aims to restrict competitionBarriers to entry obstacles which make it difficult for new firms to enter the market

Consumer issues covered by legislations

The information given about products Trading and age restrictions Prices Customer payment methods The safety of products Consumer rights The quality of products The way products are promotedCompetition Policy

The government promotes competition policy this helps to prevent anti-competition practices.They do this:

Encourage the growth of small firms

Lower barriers to entry if there are barriers to entry

Introduce anti-competition legislation

The government also passed a employment legislation this protects peoples right to work so companys dont exploit their workers

The government have also brought in environmental legislation because some business activity and have serious effects on the environment such as: they do this because there is growing concern about global warming.

Pollution There are different types of pollution there is water pollution, noise pollution there is also air pollution this can be caused by the transportation companys use to transport the good their business produces.

Destruction of wildlife while business are developing they try to expand sometimes onto land which had yet to be developed therefore they can destroy wildlifes homes and areas of nautual beauty.

Traffic while many business are based in cities there worker commute to and from work which can result in traffic congestion and accidents on our roads.

Resources waste some businesses claim other businesses use unnecessary packaging therefore is wasting the worlds resources.

Examples of UK legislations to protect consumers:

Sale of Goods Act 1979 Food Safety Act 1990 Trade Descriptions Act 1968 The Fair Trading Act 1973 The Competition Act 1998

Chapter 12 - International trade

International trade in a huge benefit to the world and has many advantages but there are reasons why countries trade with each other.

They obtain good that cant be produced domestically

To obtain goods that can be bought more cheaply from overseas

To improve consumer choice

To sell off surplus commodities

Advantages of International Trade Disadvantages of International Trade

Consumers benefit from choice and lower prices It can be difficult to develop in countrys which are already experienced in the industry and creating cheap exports.

Efficient firms benefit as sales increase as well as profits Overspecialisation can make the economy to dependant on imports and vulnerable if its demand for exports fails.

The economy can specialise in what its best at.

Visible and invisible trade

Visible trade means physical goods for example India sells textiles leather good and jewellery overseas theses are visible exports. They also buy oil and chemicals from other countries and these are visible imports. The difference between total visible exports and imports is called the visible balance or the balance of trade figure 12.2 shows that in 2008 - 2009 India imported more goods than it exported

Invisible Trade

This involves trade in services. For example the money India get from tourists in recorded as an invisible export. India pays foreign carriers to transport goods to other countries. Payments for this service are recorded as invisible imports.

Protectionism

Despite the benefits of international trade countries sometimes believe that it in their interest to restrict trade. For example government may try to protect their domestic producers from overseas competition.

They use

Tariffs this restricts imports by making it more expensive to do so this is done by a special tax the government puts on imports.

Quotas this I a physical limit on the amount of imports that comes into the country.

Subsidies this I financial help from the government to the domestic producers

Administrative barriers some countries control imports by bringing strict regulation and specification to the goods

Depreciating exchange rates the government may be able to control the imports and exports if they allow the exchange rate to fall. This may be call a devaluation. This then means that the exports from the country are cheaper but imports are more expensive


Keywords

Business ethics ideas, in business, about what is right or wrong

Pressure groups groups of people without political power who influence decision making in politics, society and businesses

Sustainable development the idea that people should satisfy their basic needs and enjoy improved living standards

External factors influencing business decisions

The Economy: The state of the economy will influence the decisions made by businesses. This includes local, national and worldwide.

Changes in Society: Businesses have to adapt to any changes that occurred in the society, for example more consumer awareness, changing demand patterns, more women at work, Part time workers etc.

Business Ethics: This is about making the right decisions, for example avoid buying from suppliers who employed child labour; make more use of recycled materials, and etc.


Keywords

Social audit the collection of information and reporting on the impact the business has on the society and the environment

Ways of measuring success

Profit: Many private firms aim to make a profit. A rise in profit should signal improvements. If there is no competition it is easier to make higher profit but it is more impressive to make higher profit in a competitive market. The profit a business makes is also determined by size for example a large multinational company will

Size: Many businesses aim to grow, so the increase on size should signal success.

Consumer satisfaction: Many business look on how consumers needs and wants are being satisfied. If it has more loyal customers, it means that the business is doing well.

Targets: Many owners set up targets for the business when the business was first launched. An achievement of those targets should signal success.

business activity – chapter 1.docx

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