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UPDATED TO 2023-2025 SYLLABUS

CAIE IGCSE
BUSINESS
STUDIES
SUMMARIZED NOTES ON THE THEORY SYLLABUS
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CAIE IGCSE BUSINESS STUDIES

Businesses combine scarce factors of production to

produce goods or services to satisfy people’s needs and
1. Understanding Business wants.
Business Activity:
Activity Combines scarce factors
Produces goods and services
1.1. Business Activity Employs people

Needs: goods or services that are essential for survival. 1.4. Added Value
Wants: goods or services customers desire but are not
essential for survival. Added value is the difference between the cost of
Economic Problem: unlimited wants but limited resources purchasing bought-in material and the price of the
to satisfy the wants. finished goods.
Scarcity: the lack of sufficient products to fulfil the total
wants of the population. Added Value = selling price – total cost
Factors of production: resources needed to produce
For example, by transforming cotton into a T-shirt, the
goods and services; they are:
business adds value to the cotton, as the same material
Land – any natural resource used in production.
can be sold for more after the transformation.
Labour – mental and physical efforts of employees.
It is NOT the profit because added value does not include
Capital – finance, machinery and equipment needed
the expenses of producing this good (e.g. labour,
for the manufacture of goods.
electricity, machinery, etc.)
Enterprise – individual/s who manage/coordinate the
three other factors, make decisions and take risks. Advantages Disadvantages
Opportunity Cost: the next best alternative is given up by
Maybe able to make a profit if
choosing another item. Increasing the product's price
these other costs come to a
Due to scarce resources, a choice has to be made; this can lead to lower sales and,
total less than the added
leads to opportunity cost. perhaps, profit.
value
It can be used to pay other
1.2. Importance of Specialisation expenses.

Specialisation: When people and businesses focus on what

To increase added value, a business can either:
they are best at.
Increase the selling price by increasing the quality of
Division of labour is when production is split into different
goods and services to convince customers/consumers
tasks, and each worker performs one of these tasks. It’s a
Reduce the cost of materials but keep the price the same.
form of specialisation.

Advantages Disadvantages 1.5. Classification of Businesses

Workers are trained in one repetitive tasks can cause
task and specialise in this, boredom and burnout for Businesses can be classified into three sectors:
increasing productivity and employees, reducing Primary Sector: Industry extracts and uses the earth's
efficiency motivation and job efficiency natural resources to produce raw materials for other
businesses.
If a worker is not present,
Secondary Sector: The industry manufactures goods
Specialisation with division of production will be disrupted,
using the raw materials provided by the primary
labour will result in better causing a waste of time and
sector.
quality output resources, as well as less
Tertiary sector: The Industry provides services to
output and efficiency.
consumers and other industry sectors.
Specialised workers require Developing Countries: where the primary sector is the
An increase in efficiency will higher wages, and training most important, as more employees and output are
lead to economies of scale. current employees will produced than in secondary and tertiary sectors
increase costs. Developed Countries: where the output of the tertiary
Workers become more skilled sector is often higher than the other two sectors
and experienced, reducing combined.
waste of time and resources. De-industrialisation occurs when there is a decline in the
importance of the secondary sector.

1.3. Purpose of Business Activity

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CAIE IGCSE BUSINESS STUDIES

Reasons for changes in the relative importance of the Advantages Disadvantages

three sectors over time: It may become successful and Lack of knowledge and
When sources of some primary products become
very profitable if the business experience in starting and
depleted
grows operating a business
Developed economies are losing competitiveness to
Lost income from not being
newly industrialised countries. Able to make use of personal
an employee for another
Due to the rise in living standards, consumers spend interests and skills
business (Opportunity cost)
more of their income on services such as travel and
restaurants than on manufactured goods. They will have to invest their
savings as well as find other
Profits to themselves, no need
sources of finance, which is
1.6. Mixed Economy to share them with anyone
time-consuming and
expensive
Has both a private sector and a public sector.
Private Sector: Businesses NOT owned by the Income is higher than a
government will decide what and how to produce. The regular employee
main aim is to make profits.
Public Sector: Owned by the government. Government 1.8. Business Plans
will decide what and how to produce (i.e. healthcare,
education, defence, public transport). The main aim is Business Plan: a document containing the business
to provide a service to customers. objectives and essential details about operations, finance
Privatisation refers to selling a public sector business to and owners of the new business.
the private sector. Contents of business plan:-
Description of the product
Arguments against
Arguments for Privatisation Products and services
Privatisation
The market
Costs can be controlled Increased unemployment as Business location and how products will reach
because the private sector’s private sector businesses may customers
main objective is profit. want to cut costs. Organisation structure and management
Less likely to focus on social Financial information
More efficient use of capital
objective business strategy
Competition between private Business plans assist entrepreneurs because:
sector businesses will help It helps gain finance. Banks will ask for a business plan
improve product quality. before agreeing to a loan or overdraft for the business
It forces the entrepreneur to plan carefully, which
reduces the risk of the business failing.
1.7. Enterprise, Business Growth and
Size 1.9. Government Support for Start-Ups
An entrepreneur is a person who organises, operates and Governments encourage entrepreneurs to set up a
takes risk to make the business better business because start-ups:
Characteristics of Entrepreneurs: reduce unemployment
Hard-working Increase competition
Risk Takers Increase output
Creative Benefit society
Effective Communicators Further growth of the economy
Optimistic Governments may give support to entrepreneurs by:
Self-confident Business ideas & help, organising training for
Innovative entrepreneurs that gives advice, and support
Independent. sessions.
Finance, they may lend loans at low-interest rates or
Advantages and Disadvantages of being an Entrepreneur:
grants, as well as low-cost premises
Advantages Disadvantages Governments provide grants for training employees to
entrepreneurs will have to put make them more efficient and productive
Independent, able to choose
their own money into the Governments allow entrepreneurs to use research
how to use time and money
business. facilities in Universities
Able to put own ideas into many entrepreneur’s
practice businesses fail (risky) 1.10. Business Size

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Why is it beneficial to compare business size? increasing the size of its premises and hiring more labour
Investors can decide which business to invest in. if needed.
Government, different tax rates for small and large External Growth is when the business takes over or
firms. merges with another business.
Competitors, to compare size and importance with Takeover: When one business buys out the owners of
other firms. another business, which then becomes part of the
Workers, to have an idea of the number of employees ‘predator’ business.
needed. Merger: When two owners of a business agree to join
Banks, the importance of the loan compared to their businesses together
business size. There are three types of External Growth:
There are several different measurements of business Horizontal Integration: The same industry and stage of
size, and they all have limitations: production firms merge or take over.
For example, a chocolate manufacturer takes over
Measurements Limitations another chocolate manufacturer.
The number of people Capital-intensive firms Benefits:
employed in the business employ fewer people but Reduces the number of competitors in the
(accessible to calculate) produce high levels of output. industry
The value of the output of the Does not take into account Opportunities for economies of scale
business (useful for same the value of goods sold and A bigger share of the total market can be
industry Businesses) the sale of goods. achieved
Problems include diseconomies of scale and
The value of sales (useful for different businesses sell
difficulty in controlling and managing the business
retail businesses, especially if different products (expensive
Vertical Integration: when one business merges or
similar products) and cheap)
takes over another business in the same industry but
Some businesses use Labour- at different stages of production, it can be forward or
The total value of capital
intensive methods, which backwards.
employed (takes into account
require less capital, more Forward integration is when merging/takeover is
all values of capital)
workers done with the next stage of production, Ex. a
chocolate manufacturing company (secondary
Capital Employed: the total value of capital used in the sector) merging with a chocolate shop (tertiary
business sector)
No method of measuring the size is considered correct, Benefits for forward:
as each method gives different answers. Businesses The merger provides an assured outlet for
choose the method they think is the best. Therefore, its products
businesses may use more than one method. The expanded business absorbs the profit
margin made by the retailer/Manufacturer.
1.11. Business Growth Information regarding consumer needs and
preferences can be obtained directly from
There are several ways of measuring the size of the the manufacturer.
business Backward integration is when
Number of Employees merging/takeover is done with the previous
Capital Employed production stage, Ex. a chocolate
Output or sales manufacturing company takes over a cocoa
Market Share farm.
Benefits of the expansion of the business: Benefits for Backward:
The possibility of higher profits for the owner. Merger gives an assured supply of
More status and prestige for owners and managers. essential components
Lower average costs. The expanding business absorbs the
A larger share of its market portion of total market profit margin of suppliers.
sales it makes is greater. A supplier could be prevented from
supplying to other manufacturers.
Ways of Business Growth Costs of components and supplies are
controlled.
Businesses can either grow by: Conglomerate Merger: a firm merging/taking over
Internal Growth another firm in a different industry. (also known as
External Growth ‘diversification’)
Internal Growth is when the business expands its existing For example, a chocolate manufacturer is merging
operations by purchasing additional equipment, with a photography company.

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CAIE IGCSE BUSINESS STUDIES

Benefits: Businesses usually have:

Activity in more than one industry will diversify Limited liability: the liability of shareholders in a
and spread the risk taken by the business. company is limited to only the amount they invested
Transferring ideas to different sections can Less risk, as the owner is only risking the capital they
help the business. invested, as well as any legal charges effect only the
business and not the owner directly
Disadvantages Caused by Business Growth
1.14. Sole Trader
Control and management get harder with expansion (can
be prevented by carefully planning expansions and
It is a business owned and controlled by one person- the
adjusting management style and hierarchy).
owner, who is the sole proprietor. It is a form of an
Larger businesses lead to poor communication (stronger
unincorporated business.
and more efficient communication channels can prevent
it). Advantages Disadvantages
Expansion costs are high and can result in a shortage of
Few legal regulations (Easy to Decisions can be hard to
finance for businesses (A financial plan must be prepared
set up) make
in anticipation of expansion; it can include short/long-term
loans to compensate for financial loss). No separate legal identity,
Complete control
Integrating with another business can cause conflicts and unlimited liability
difficulties, such as business culture and style of May not be able to raise funds
Flexible working time
management. (Compromises will have to be made, or a to expand business
new style of management can be applied altogether, Ability to respond quickly to
which can help reduce conflicts) the needs and wants of May have to work long hours
customers
Why Small Businesses Remain Small? Difficult to compete with large
All profit goes to the owner
firms
The size of their market is small
Access to capital is limited Complete secrecy in Business May not have the proper skills
Personal Choice of the owner matters to run a business
The size and cost of technology
1.15. Partnerships
1.12. Why Businesses Fail
Partnerships: A form of business in which two or more
Lack of Management Skills – from lack of experience, poor people agree to own a business jointly. It can be set up by
choice of managers (family business), bad decisions can creating a partnership deal. It’s a form of unincorporated
occur business.
Failure to plan for change – businesses must adapt to an Deal of partnership: The written and legal agreement
ever-changing business environment. It would be best if between business partners. It is not essential but is
risks were taken. recommended
Over-Expansion – (diseconomies of scale) Contents of Partnership Agreement:
Poor financial management and liquidity issues Amount of capital invested by all partners
Competition with other businesses – intense competition Tasks to be done by each partner
in the market can make it hard for new businesses to set The way profits are shared out
up, as already established businesses can drive newly How long partnership will last
established businesses out of the market with their low, Arrangements for absence, retirement and how
competitive prices. partners could be let known

Advantages Disadvantages
1.13. Legal Identity Easy to set up a deed of
Unlimited liability
partnership
Unincorporated Business: A business that does not
possess a separate legal identity from its owner. These Greater access to funds Share the profit
Businesses usually have: Business ceases to exist if
shared decision-making
Unlimited liability: the owner can be held responsible one partner leaves
for the business's debts. shared management and Decisions binding on all
Greater risk, as owner is putting his personal workload partners
possessions and living at risk. Difficult to raise finance
Incorporated Business: Business with a separate legal
identity. Private/Public limited companies. These

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CAIE IGCSE BUSINESS STUDIES

and brand.
1.16. Private Limited Company (LTD)
Advantages to franchisor Disadvantage to franchisor
Private Limited Company: Business owned by
shareholders but cannot sell shares to the public (can only Franchisee buys the licence,
Bad reputation if one branch
sell to family and friends). which means another source
has poor management
Shareholders: Owners of a limited company who buy of finance
shares represent part-ownership of the company. The franchisee keeps some
Expansion is faster
profit
Advantages Disadvantages Training, some aspects of
Management is the
Raise capital from the sale of Cannot sell shares to the administration, and
responsibility of the
shares public advertising are paid by the
franchisee
Limited liability for franchisor
Legal formalities
shareholders Percentage of sale revenue is
Accounts are available for the given to the franchisor every
Separate legal identity
public to see year
Continuity Not easy to transfer shares
Advantages to franchisee Disadvantages to franchisee
Articles of Association: Contains the rules for managing Chances of business failure
Less independence
the company. are reduced
Memorandum of Association: Contains vital information The franchisor pays for Unable to make decisions that
about the company and the directors. advertising would suit the local area

These also apply to a public limited company. The franchisor has the power
Fewer decisions to make with to withdraw the agreement
an independent business and can prevent the use of
1.17. Public Limited Company (PLC) the premises

Public Limited Company: Businesses owned and The franchisor provides

controlled by the shareholders, but they sell to the public, training for staff and
and their shares are tradeable on the stock exchange. management
Banks are often willing to lend
Advantages Disadvantages to franchisees due to the low
Can sell shares to the public Legal Formalities risk.
Rapid expansion
Disclosure of accounts and
possible/specialist managers
other information 1.19. Joint Venture
appointed
Divorce between ownership Joint Venture: is when two or more businesses join
Limited liability
and control together to create a new business
Continuity Expensive to ‘go public‘
Advantages Disadvantages

Annual General Meeting (AGM): A yearly meeting where Profits have to be shared if
Sharing of costs
shareholders may attend to vote for a Board of Directors the project is successful
for the upcoming year. Knowledge and experience
Conflict in decision-making
Dividends: Payments made to shareholders from the can be shared
profit of a company. They are the return for investing in Different methods of running
Risks shared
the company. a business can create conflict

1.18. Franchise 1.20. Public Corporations

Franchise: An agreement of a business based upon an Public Corporations: a business in the public sector owned
existing brand/business and controlled by the state of government (By appointing
Franchisee: the company that received permission to a board of directors and setting objectives).
conduct business using the company’s name and brand.
Have to pay an original fee to the franchisor and a Advantages Disadvantages
percentage of its profit for the privilege
The Franchisor: the company that allows another
company to conduct business using the company’s name

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CAIE IGCSE BUSINESS STUDIES

Advantages Disadvantages After achieving a high market share, it aims to “return

Government ownership may to shareholders”.
be essential to some The profit objective is not as A profit-making business hit with a crisis now has the
countries' industries, such as short-term objective of survival.
powerful or important as in
water supply and electricity private-sector industries. Changes in consumer tastes and spending patterns
Technological changes
generation.
New Sources of Competition
Inefficiency because
Ensure consumers are not
managers rely too much on
taken advantage of 1.22. Social Objectives
the government
It can be unfair to the private
Reduce wasteful competitors sector if subsidies are
Objectives of Social Enterprise
provided to the public sector.
Social Enterprise: an enterprise with social objectives and
Can help stabilize failing aims to make a profit to reinvest in the business. It has
Lack of close competition can
businesses to create job three objectives:
decrease many activities
opportunities Social: to provide jobs and support for disadvantaged
It can be used for political groups
reasons, preventing the Environmental: to protect the environment.
Important public services business from opportunities Financial: to make a profit to reinvest in the enterprise
like other profit-making and expand its social work.
businesses.
Objectives of Public Sector Businesses
1.21. Business Objectives Financial: Meet profit targets set by the government -
either reinvested or funded back to the government.
Business Objectives are aims or targets a business works Service: meet quality targets the government sets and
towards
provide services to the public.
Businesses need objectives to help them be successful.
Social: protect or create employment in certain areas.
However, they don’t guarantee success.
Benefits of having business objectives:
A clear target to work towards, thus improving 1.23. Stakeholder Objectives
Motivation.
It can help in decision-making. Stakeholder: any person or group with a direct interest in
It helps unite the whole business towards the same the performance and activities of a business
There are two types of stakeholder groups:
goal.
Internal Stakeholders work/own the company (owners,
It can be used to compare how the business performs
through objectives. managers, workers)
Private sector business objectives: External Stakeholders are outside the business
Business Survival - Adjust to business environment, (consumers, government, banks,
change price of products if necessary suppliers, Wider community, Pressure groups, and
Generating profit (total income of business revenue competitors)
subtracted by total cost)– pay a return to owners or Each stakeholder group has different objectives for the
provide finance to invest further in business performance of the business
Returns to shareholders - discourage shareholders Internal Stakeholder (Owners, managers and employees)
from selling their shares. This can be done by objectives are payments or profits; they want business
increasing profit or increasing the share price growth, so the value of investment increases, or they get
Growth of business – increase salaries, economies of higher status/power
scale. This is only achieved if customers are satisfied Customers' objectives are reliable products, value for
with the product money, good quality, good design and good service
Government objectives include money from taxes,
Market Share (the total percentage of total market
employing more people, increasing the country’s output
sales held by one brand or business) - gives good
publicity and more influence over suppliers and The bank’s objectives are to make a profit out of loans and
customers. the payback of interest.
Company Sales Since different stakeholders have different objectives, it
Calculation = 100 × Total market Share may cause conflict, to try to please all the stakeholders
​

Why business objectives can change:

For example, customers want cheap products, but
It will work towards profit after being set up and
workers want higher salaries.
stable.

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CAIE IGCSE BUSINESS STUDIES

Therefore, managers must compromise to decide which

objectives are best for the company.

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CAIE IGCSE
Business Studies

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