ZNOTES.

ORG

UPDATED TO 2023-2025 SYLLABUS

EDEXCEL IGCSE
BUSINESS
SUMMARIZED NOTES ON THE THEORY SYLLABUS
Prepared for S.B. Mithun for personal use only.
EDEXCEL IGCSE BUSINESS

1. Private enterprise:
1. Business Activity & a. Owned by individuals or groups of individuals
b. They are private sector businesses.
Influences on Business c. Main aim is to make profits.
d. Examples: Sole traders.
2. Public enterprise:
1.1. What is Business Activity? a. Owned and controlled by the central or local
government b. They are public sector businesses
Involves the production, distribution, and exchange of goods c. Main aim is to provide goods and services that
and services to satisfy needs and wants. private sectors may be incapable of providing (i.e.
serving unprofitable regions)
Key Vocabulary d. Examples: Free education, free health care
Business: organization that produces goods and 3. Social enterprise
services. a. Nonprofit making organizations
Services: non-physical products such as food delivery b. Main aim is to meet social or environmental goals
and banking services. rather than maximizing profit.
c. May still generate revenue, but primary focus is on
Goods: physical products that can be seen and felt such
as clothes. social and environmental well-being.
Needs: basic goods that are essential for human d. Examples: Clubs, Charity organizations.
survival.
Wants: desires for goods and services which are infinite. 1.2. Business Stakeholders
Scarcity: resources with limited availability.
A stakeholder is an individual or group who have interest in
Purpose of Business Activity the operation and running of a business.
Owners
The main purpose of a business is to provide goods and
services and satisfy the needs and wants of consumers To make sure that they get financial returns (i.e. profits
with availability of resources while making a profit. or dividends) on their investments as they’re taking risk
Business activity uses the scarce resources of our planet of starting a business venture.
to produce goods and services that allow us all to enjoy a
Customers
much higher standard of living than would otherwise be
possible if we were fully self-sufficient. However, To make sure they get the best quality products for
different business exists for different reasons: reasonable prices → customer satisfaction.

Employees

To make sure they have good working conditions

To demand for higher, fair wages or salaries if the
business is making profit
Job securities and opportunities for promotion and
advancement

Managers

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EDEXCEL IGCSE BUSINESS

In order to lead teams such as marketing, finance, Objectives: goals or targets assigned by a business.
human resource and production Profits satisficing: making sufficient profits to satisfy
Solving problems the needs of the owner.
Settling disputes and motivating workers Revenues: money generated from sale of goods and
Make key decisions (Because often owners give services.
managers the responsibilities to take key decisions in Large businesses: Business that employs more than 250
large corporations) people.
Demanding for higher salaries if the business is Small businesses: Business that employs less than 50
performing well. people.
Profit maximization: making as much profit at a given
Financiers period of time.
Dividends: shares of profit paid to shareholders in a
They lend money to the business in times of difficulties
and when businesses first star trading. business.
They may have an interest in the business in order to
make sure that the business is able to make the
Importance of clear objectives
repayments in the future with interest amount. Objectives help business owners to assess their
Suppliers weaknesses and take steps to overcome them and
achieve their objectives easily.
They may want to know whether the business is able to Employees need something to work towards and if they
make timely payments for the goods supplied. had objectives then everyone in the organization may
Also to make sure that the consumers make regular have the common goal and can achieve it easily.
orders Owners need motivation in order to keep the business
running. If not they may allow the business to drift.
Local community
Employment opportunities and increased pay if business
Financial Objectives
performs well. All businesses that set clear objectives could make them
Expects contribution to community development and either financial or non-financial.
responsible behavior of business. The businesses in the private sector have the main objective
Government as to make profits but there are other financial objectives to
consider such as:
Employment in order to lower the unemployment level in
an economy.
Taxes from businesses and employees.
Regulates business activities and sets policies.

1.3. Business Objectives

Key Vocabulary

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EDEXCEL IGCSE BUSINESS

Survival - One of the main objective of many small Social objectives - Social objectives are designed to
businesses is survival in the first few years of their improve the well-being of humans. Most public service
trading. They may be operating in a competitive business such as government owned businesses aim to
environment in which they may threatened by trading provide public services. However, these services may not
conditions such as, competition. be of high quality as they may be produced at lower
Revenue - Some of the business owners may want their costs.
businesses to grow significantly in order to enjoy the Challenge - Some people may love to take challenges
benefits of growth in revenues. Examples: economies of and may try starting a business. As starting is very
scale, etc. Many stakeholders may want the business challenging. Even after facing many failures and finally
that they have stake on, to grow as they may enjoy becoming successful, they may want to take more
benefits such as employment opportunities, tax challenges and risks as they become more motivated by
revenues etc. this.
Increase market share - All businesses may want to Independence and control - Some people may want to
build a higher market share. This is because when they be independent and do their work as they wish. They
have a higher market share they will be able to charge may not want other people to interfere in their work and
higher prices, increase their reputation and win over be instructed. They may want to take control of their own
their competitors all of which will help them increase futures and achieve their objectives.
their revenues and hence, increase their profits. They will Personal satisfaction - Some people may want to work
be able to dominate the market. for themselves as they may find it uncomfortable to work
Financial security - Most business may not want to for others such as, an employer. This may bring
make huge amount of profits but may make profits that satisfaction for them. There are other people who want
may be sufficient for the owner. One reason is because to develop their interests and hobbies into business.
the owners may not want to take risk of expanding their
business as they have to go through many lengthy legal Why might objectives change as business
procedures which are time-consuming and cost a lot. evolves?
Non - financial objectives As businesses operate in a competitive environment their
objectives may change frequently depending on the
Some businesses may have non-financial objectives which environment and external factors example, changes in
may depend on the nature of the business and the owner. consumer spending patterns.
Examples are: Reasons could be:

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EDEXCEL IGCSE BUSINESS

Market conditions - Market conditions can change from Labor: people employed in a business used in
time to time. For example, new entrants can enter into production
the market and offer better quality products for cheaper Unincorporated: business in which there is no legal
which may result in businesses losing their market share. difference between the owner and the business.
If the business wants to keep their products competitive Cooperative: organization in which all the people
then they may have to lower their prices below the cost working own equal share of it
or so on. Consumer cooperative: cooperatives that’s owned by
Legislation - Legislations imposed by governments may consumers
influence the objectives of the business. For example, Worker cooperative: cooperatives that are owned by
more businesses are becoming environmentally friendly workers
which is because of the emerging legislation for Incorporated: business that has separate legal identity
protecting environment. from that of the owner’s.
Internal reasons - Businesses may change their Unlimited liability: owner of the business is personally
objectives due to other reasons such as changes in the liable for all business debts
form of business. For example, if they change from sole Limited partnership: this is where some partners
trader to private limited company they may have to contribute to the business and enjoy the benefits but
increase their production. doesn’t take active role in running of the partnership
Technology - Technology is evolving in the last 30 years business.
and more businesses have to operate efficiently in this Limited liability: business owner is only liable for the
modern world. Businesses can purchase more original amount invested
machineries and produce more. This way business have
to change their objectives as to increase their production Entrepreneurs are the owners of the business who had
as to enjoy lower costs. invested money in the business and are responsible for
Performance - Business may face times of great bringing up all the 3 factors of production together and
profitability followed by times of difficulties. Businesses producing the products more effectively.
have to change their objectives according to their Key roles of entrepreneurs
performance. For example, at times of profitability
1. They are innovators. They bring out a lot of business
business can set objectives such as, expansion or ideas and try to make the products using their
increase in revenues. However, at times of difficulties business ideas and earn money out of it.
businesses can set objectives such as, survival. 2. Entrepreneurs are responsible for bringing together
Objectives may evolve according to the business the 3 factors of production (i.e. land, labor, capital)
performance.
and organizing them.
3. Key decision makers. They make different types of
1.4. Sole Traders, Partnerships, Social decision
Enterprises & Franchises 4. Risk takers. They risk their money although they
know that if the business wasn’t successful they will
have to lose their money. However, if the business is
Key Vocabulary
successful they will earn profits.

1.5. Types of Business

1. Sole trader - A sole trader is business that’s being
owned by a single person who takes the risk of
running the business and meets all expenditures by
themself and keeps all profits to themself if earned.

Advantages:

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EDEXCEL IGCSE BUSINESS

Owner keeps all the profits 3. Franchises - A franchise is a business which a

Simple to set up with no legal requirements franchisor owns. Franchisee is the one who trade
More flexible as they can easily adopt changes under the name of the franchisor. This type of
The owners can offer personal services as they are business structure suits someone who has the
smaller businesses money to start a business but is unable to start due
to the lack of business ideas and innovation skills.
Disadvantages: However, this is an expensive method to start a
business as the franchisee has to pay a very large
May struggle to raise finance amount of money to the franchisor in order to trade
No continuity- business dies with the owners death under their name.
Unlimited liability
Long hours and very hard work Advantages & Disadvantages to the franchisor
2. Partnerships - A partnership business is owned by 2 Advantages:
or more owners. A maximum number of 20 people
can stay in a partnership. Owners share the Faster and cheaper method of growth
responsibility of running the business while also Franchisees take some of the risks
sharing the profits/losses earned. Partners draw up a Franchisees are more motivated than employees
deed of partnership before beginning which shows
the amount of profits that each partner is entitled to Disadvantages:
receive, interests on capital, interests on drawings
and if salaries are given to specific partners for their Profits are to be shared with franchisee
huge contribution to the business. Poor franchisee can damage reputation
Costs of support may be high
Advantages: Franchisee can get merchandise from somewhere

Job of running the business is shared Advantages & Disadvantages to the franchisee
Financial information is not published
Easy to set up with no legal requirements Advantages:
More capital can be raised with more partners
contributing Less risk
Back up support is given
Disadvantages: Set up costs are predictable
National market may be organized
Partners may have conflicts and leave the business
Partnerships are still tended to be small Disadvantages:
Unlimited liability
Profits are to be shared Profits are to be shared
Strict contracts are to made with the franchisor
Limited partnerships - In a limited partnership, partners Lack of independence
have limited liabilities. There will be some partners who Expensive method to start a business
contribute financially but don’t play an active role in the
running and managing of the business, known as sleeping 4. Social enterprises - The aim is to improve the social
partners. However, one partner in this type of business may and environmental well-being rather than making
have unlimited liability and he may be given additional profits.
benefits. Types of Social enterprises:
a. Worker cooperative
b. Consumer cooperatives
c. Charities

1.6. Limited Companies &

Multinationals
Key Vocabulary

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EDEXCEL IGCSE BUSINESS

Limited companies: business organizations that have Limited liability

separate legal identity from that of the owner’s More capital can be raised
Certificate of incorporation: document that’s required Business continues even if shareholders pass away
before a new business can start trading Has more status that sole trader
Private limited company: It’s a company that’s owned
by family and close friends, they have limited liability and Disadvantages:
do not trade in the stock market
Stock market: A place where shares in a company are Financial information has to be made published
bought and sold, primarily utilized by Public limited Takes time to transfer shares
companies Cannot raise huge amounts of money as PLCs
Public limited company: Company that’s owned by Expensive and time consuming to firm
outsiders and trade in the stock market. They are very
large businesses Public limited companies
Multinational company: Large business that have their
headquarters in one country and their operation Advantages:
facilities all over the world.
Large amounts of capital can be raised
Features of Limited Companies: Can exploit Economies of scale
May be able to dominate the market
They pay corporation taxes while sole traders and Have a very high reputation
partnerships pay income taxes.
There is a legal procedure to form a limited company. To Disadvantages:
form a limited company there must be a minimum of 2
people and a maximum of unlimited. Setting up costs are expensive
The owners must submit 2 documents that is the Financial information is to be published
memorandum of association and the articles of Control is lost to outsiders
associations to the registrar of companies. If their Managers take control rather than owners
documents were accepted they will get a certificate of
incorporation which will allow them to trade as a limited Features of multinational companies
company. The owners have limited liability.
The business can raise capital by selling its shares. Each 1. Huge Assets
shareholder owns a number of shares and these owners 2. Highly influential both economically and politically.
contribute to the running of the business. Shareholders 3. Ownership and control is centered in the host
elect a group of board members headed by a chair countries
person in order control the running of the business. 4. Highly qualified and experienced managers and staffs
5. Powerful advertising capabilities
Private limited companies 6. Lower costs (Economies of scale)
7. Highly advanced technologies
Features:
Company name ends with LTD or limited 1.7. Public Corporations
Shares can only be transferred to family members or
close friends Key Vocabulary
Family owned businesses
Directors run the business instead of the shareholders Public corporation: A business or an organization that’s
owned and controlled by the government
Advantages: Privatization: It is the transfer of state-owned assets to
the private sector.
Subsidies: Government offering financial benefits for
firms in order to make them do something.

Features

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EDEXCEL IGCSE BUSINESS

State owned: Government is responsible for running Cost to the government: When public corporations face
and managing the corporation. losses, they have to be funded by taxpayers. Hence, the
Created by law: They are created by an act of general public doesn’t support this because the
Parliament. government has to forgo spending on other parts of the
Incorporation: They are incorporated businesses and economy, which could potentially decrease economic
have a separate legal identity. growth in the country.
State funded: Government invests capital in these Inefficiency: As there is no or little competition for these
organizations, which is often from the tax revenue. public corporations, they become more inefficient as a
Provides public services: Their main aim is to provide result. This increases delays in services such as train
quality service to the public at a very low price or for operations. Productivity decreases as the corporation
free. has no motivation to be efficient.
Public accountability: These organizations must Political interference: Public corporations are often
provide reports of the progress of the business and are affected by political interference. This is because when
accountable to the general public as they are the ones governments change, the policies and management of
who funded the organization through the taxes. the corporations also change.
Difficulty to control: As some corporations are
Main reasons for government owning the public extremely huge and employ millions of people, they
corporations experience diseconomies of scale. Hence, costs may rise,
and eventually, taxes are likely to increase. Also,
Avoid wasteful duplications: It would be a waste of coordination becomes much more difficult.
resources if the government privatizes these industries
because there may be competition and, therefore, many Different forms of privatizations
businesses will start to offer the same service, which
would cause congestion in the country. Contracting out: This involves the government allowing
Fill the gaps left by the private sector: The services the general public to bid for businesses that were
provided by the private sector businesses are charged at previously owned by the public sector and purchase
a higher price. So, only those who can pay are able to them.
enjoy the benefits, while the ones who are unable to pay The sale of land and properties: This is when the
are excluded. Hence, the government wants to ensure government sells land or properties that were previously
that everyone enjoys the benefits. owned by the government while also giving some
Maintain control of strategic industries: Governments discounts.
do not privatize these industries as they fear that Sale of public corporations: This is when a government
outsiders from other countries can purchase and exploit sells businesses that are owned by the government to
them and produce lower-quality services. the private sector or general public. One example of this
Save jobs: As the main aim of private-sector businesses is selling shares.
is to make higher profits, they may lower their costs by Deregulation: This involves removing restrictions and
laying off workers, which will result in a higher encouraging competition in the public sector.
unemployment rate. So, in order to protect workers, the
government does not privatize these industries. Reasons for privatizations
Serve unprofitable regions.

Disadvantages of the government owning

businesses:

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EDEXCEL IGCSE BUSINESS

To generate income: This is because when public Factors affecting the appropriateness of different
corporations are sold, the government can raise a lump kinds of ownerships
sum of money, which could be used to fund huge
government projects such as the construction of a The type of business.
bridge. Plans to use profits: If dividends are to be paid then it
To reduce inefficiencies: This is because private sector could be a limited company, or if salaries are to be paid
businesses are more efficient since they have to be in to owners it could be a partnership etc.
order to increase customer satisfaction and generate Stakeholders: For instance, employees in a private
more profits. limited company may discourage a shareholder from
As a result of deregulation: Legal barriers are removed; going public due to the concerns about the future.
therefore, more businesses are required to compete
with the public corporations.
To reduce political interference: There won’t be 1.9. Classification of Businesses
frequent changes in policies, and investments can be
freely made without government interference. Primary sector
Businesses in the primary sector are involved in the
1.8. Appropriateness of Different Kinds extraction of natural resources.
of Ownerships For instance, agriculture, fishing and forestry are primary
sector business activities. This is where the raw materials
Factors affecting the different kinds of ownership: for making the products are being extracted.

Growth: if a business wants to raise more finance then Secondary sector

they will have to change their legal status in order to
persuade financial institutions to lend money. Moreover, Businesses in this sector involves manufacturing of the
companies that want to grow significantly and exploit goods using the raw materials extracted from the
economies of scale and enjoy cost benefits and trade primary sector. The goods that are produced in the
worldwide then a large public limited company or secondary sector tends to be semi-finished or finished
multinational company would be the most appropriate. goods. They are sold on to the tertiary sector businesses.
Independence and control: If the owners want to be Examples of businesses operating in the secondary
independent and adopt changes more flexibly and enjoy sector includes: textile production, chemical industries
all profits made by the business, sole trader would be and car production.
most appropriate. When businesses admit new partners
then they become partnership businesses and each Tertiary sector
partner will have a say in the decision making.
This sector is mostly known as services sector as the
Size: Many small businesses are sole traders. Medium-
products are being sold or services are being offered.
sized businesses are private limited companies often
It includes various kinds of services for example, banking
owned by families and close friends while large
services, transport services and leisure services.
businesses employing millions of workers all over the
world can be public limited companies. Interdependence of the sectors
Need for finance: It is similar to growth in order raise
more capital business owners change their legal status. Businesses in each sector are interdependent on the other
Limited liability: If the owners of businesses are more sectors. For example, a car manufacturer is dependent on
concerned about protecting their finance then they can the vehicle seller for sales. The aluminum manufacturer is
change to limited companies as their money that is dependent on the car manufacturer for their sales as
originally invested will only be lost rather than their aluminum is used for manufacturing cars, etc.
financial possessions in case of a loss.
Changes in the sectors

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EDEXCEL IGCSE BUSINESS

Different sectors grow and decline at different times due Proximity to the market: business that produce large
to the costs, changes in demand patterns, trends and and heavy products must locate close to their consumers
tastes. as, if they locate far from their consumers then this will
In most developed economies the percentage of workers increase their transport costs and therefore, decrease
employed in the primary sector will be very less their profits. Other businesses that provides services
compared to the secondary sector. While in developing such as café or restaurants should locate their business
economies the percentage employed in the tertiary in residential areas if they wanted more sales.
sector will be significantly higher than the primary sector Proximity to labour: labour intensive businesses who
workers. require large number of workers can locate their
premises in countries where labour is cheap.
Reasons for the decline in the Proximity to materials: Businesses that purchase a
manufacturing/secondary sector in developed huge amount raw materials example, car manufacturers
countries: can locate their premises close to their suppliers to
reduce the carriage inwards costs more commonly
Advancement in technologies means that less workers known as transport costs.
are required since more machinery has replaced Proximity to competitors: some large businesses may
workers. Hence, unemployment in these sectors fall. locate closer to their competitors in order to attract the
People may prefer to spend more on the tertiary sector consumers of their rivals when there is an excess
rather than the secondary sector as they may feel that demand. However, some small businesses may operate
the demand for manufactured products have fallen away from competitors in order to earn higher profits
significantly in last few years. and increase their market share.
There are fierce competitions that are emerging from
countries which makes these developed countries feel The nature of business activities
that they cannot succeed in outcompeting these
countries. Services: business must ensure that they have proper
As the countries develop, the government spends more parking facilities and is more convenient for the
on the public services which adds up to the growth of consumers.
tertiary sector. Office based businesses: If a business employs
thousands of people it’s more preferable for them to
locate in residential areas despite the increase in costs.
1.10. Decisions on Locations Manufacturing and processing: Locations for these
businesses can vary. Different manufacturers have
Key Vocabulary different needs. Locations can vary according to the
factors such as labor, raw materials, proximity to
Brownfield sites: areas of land that were once used for showrooms and costs.
urban developments. Agriculture: these types of business may require a large
Green field sites: remote area that is on the outskirts of amount of land therefore, they may locate their
the town. businesses in areas in which huge plots of land are
Trade blocs: group of countries who are located in the available.
same region and they join together to abolish all trade
barriers. Impact of internet on locations
Factors influencing the location of the business:

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EDEXCEL IGCSE BUSINESS
Technology has improved and this has been an advantage In today’s world, firms and people are behaving as though
for many businesses all around the world. Internet has there is just one market. People are free to live in any
made it easier for purchasing and selling products. country of their choice, firms can borrow money from any
Availability of internet means that buyers and sellers can countries and people can work at different places and
communicate without the need of a market or face to face products could be manufactured at the most cost effective
communications. Sellers can sell their products worldwide country considering the costs of raw materials and labor.
without any need for a premise. Buyers have more choices
as they can gain access to almost all shops around the Features
world. However, the need for greater quality network with
high speed computer will and has increased. But the costs Goods and services can be traded freely between
have fallen significantly as the cost of premises have totally countries as trade barriers are being avoided as more
decreased. This method is called e-commerce. countries are moving into trade blocs and the world
trade organization is encouraging countries to remove all
Legal controls trade barriers.
People are free to live and work in any country they
Government may intervene and try to influence decision of choose. This has increased the expatriates in many
the location of businesses. There are many reasons for this: countries.
There are high level of interdependence between
1. To avoid congestions through extra developments. nations. This means the events in one country are likely
2. Minimizing impact on local communities. Example: to affect the events in other countries.
noise pollution, air pollution etc. Capital can flow freely between nations. This means
3. To encourage manufacturers and other businesses to firms and people can save their savings in other
locate in areas of high unemployment. countries bank accounts.
4. Offering financial incentives for businesses to locate There is a free exchange of technology and intellectual
on specific areas for development of those areas. property rights that is the knowledge and creative idea of
5. To attract more foreign direct investments. people that have commercial values.
Trade blocs Reasons for globalization:
Many businesses try to avoid trade barriers such as tariffs Development in technology has helped to boost
that is tax that is imposed on imports to make it expensive globalization. Modern devices allow businesses to
and quotas that is the physical restriction of the supply of transfer data from one corner of the world to other with
imports. In order to avoid this they locate their premises no cost within a fraction of seconds through emails.
inside a trade bloc, which is an area where trade barriers are International transport levels has improved in recent
abolished. Hence, this makes it easier for business to import years. The costs of flying from one country to another
raw materials and reduces the costs of production and has reduced and number of destinations has increased.
hence, increase profits. There has been a huge amount of deregulation. This has
helped many domestic industries to become more
1.11. Globalisation competitive and improve their international
competitiveness and remove trade barriers and enjoy
Key Vocabulary free trade. Increase in tourism has led more people to try
goods and services produced by other countries and
Globalization: growing integration of the world’s enjoy the better quality.
economies. Many firms decided to sell abroad as to increase their
Saturated market: to offer so much of a product for global market share or if their market is saturated.
sale that there is more than people want to buy.
Hostile takeovers: takeovers that the company being Intersection between globalization and the
taken over doesn’t want or agree. government:
What is globalisation?

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EDEXCEL IGCSE BUSINESS

Countries cannot trade if international borders are kept

close. 1.12. Importance and Growth Of
International trade can be restricted if government put Multinational Companies
up trade barriers.
People can be free to live and work only if borders are MNCs take up around 66% of the global exports and 10% of
open. the world’s GDP. There are many reasons for multinational
Firms can’t develop their businesses overseas if planning companies to emerge. Some include:
permission was denied.
1. Economies of scale: As multinationals produce a
Advantages of globalization to businesses huge quantity of products they purchase raw
materials in bulks. This allows the suppliers to reduce
Access to larger markets: this means that businesses the cost of a single unit and therefore, the average
can sell their products to wider consumer base and costs falls. Hence, this allows MNC’s to produce more
therefore increase their revenues and earn higher profits products.
while increasing their global market shares. 2. Marketing: As MNCs make huge profits they invest
Lower costs: This means that businesses are able to more on advertising their products. This increases
choose the most cost effective location in terms labor, the consumer awareness of their product and
raw materials and premises. increases their brand loyalty. Hence, they become
India and China have become popular among businesses more successful in their home country and then
for offering lower wage cost due to the higher globally.
unemployment rates. 3. Technical and financial superiority: As MNCs are
Access to labour: globalization has allowed businesses huge businesses they enjoy superiority that is the
to employ skilled and highly qualified workers from all quality of being better, more skillful and having more
around the world. power. This is because they employ the most
Reduced taxation: as globalization has boosted qualified workers, advanced technology and also
business can locate their operations in other developing have resources to diversify and take risks. They have
countries and locate their headquarters in countries more power politically and economically.
where taxes are lower hence, less costs.
Benefits to a business of becoming a MNC:
Disadvantages of globalization to businesses:
Competition: as trading globally has increased
significantly in the last few years this has resulted in
more business in the global market. Therefore, the
competition has increased widely which means that
business trading in the global market will have a reduced
profit margin.
International takeovers: Globalization makes it easier
for businesses in one country to take over the business
in other countries. Companies are more vulnerable to
these take overs and some smaller companies
experiences a hostile takeover which is an aggressive
act.
External costs: globalization has resulted in many
negative impacts on the environment such as air and
water pollution for the local community.

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Larger consumer base: this means that MNCs can sell Increase in income and employment: when MNCs
their products to many consumers globally and increase come into the country they require labor for their new
their global sales and market share. This will help them operations. Hence, they may recruit new workers from
to increase their profit margins and have competitive the host country and these workers will be given training
edge over their competitors. and wages will be quite high.
Lower costs: As MNCs can gain access to the economies Increase in exports: as MNCs are global giants they will
of scale this will result in their costs of production falling. export more and this will add up to the host country’s
Transport costs are also likely to fall if they locate near exports and therefore, improve the current account
factories and suppliers. They can borrow money at lower balance.
rates as they are huge and can easily persuade financial Transfer of technology: MNCs provide technical help
institutions. and training to their suppliers and also help them to
Higher profile: as MNCs emerge their reputation purchase the most updated machineries.
increases this is because their products become more Improvement in human capital: MNCs provide training
recognizable worldwide. Hence, their global revenues for people in less developed countries and the
increases which also increase their profits. government may spend more on education and training
Avoiding trade barriers: this is a potential benefit to the in order to attract MNCs.
MNCs as they set up their operations all over the world. Increase in tax revenues: this is because the profits
Hence, this will reduce the costs and increase their earned by MNCs are taxed by the host country’s
revenues. government and therefore, the government earns higher
Lower taxes: MNCs can set up their operations and tax revenues and therefore, they can spend these
headquarters in countries where their taxes are lower. revenues on the economy which will increase their
This will reduce their costs and increase their profit economic growth.
margins.
Drawbacks of MNCs:
Benefits of MNCs to the host country
Exploitation of labour: as MNCs employ labors from the
host countries they offer poor working conditions and
lower pay because the people are ready to work at any
conditions due to the lack of employment opportunities.
Environmental damage: as MNCs are more involved in
the extraction of resources from the ground and
releasing polluting gases from factories and sending out
waste materials to the rivers and lakes this results in
water, air and noise pollution.
Repatriation of profits: this is where a MNC returns the
profits made in the host country to their home country
which is usually a developed country.

1.13. International Trade & Exchange

Rates
Key Vocabulary

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Exports: goods and services sold overseas Changes in exports: exports decreases as now they
Imports: goods and services bought from overseas become more expensive for US.
Visible trade: goods Changes in imports: imports increases as they become
Invisible trade: services cheaper as prices are lowered
Balance of trade: difference between the visible exports Impact on current accounts: current account balance
and visible imports worsens.
Exchange rate: value of a currency in terms of another
currency International competitiveness and exchange rates
Appreciate: rise in the value of a currency in terms of When exchange rates rises then business that export will
another currency have to suffer losses while businesses that imports raw
Depreciate: fall in the value of a currency in terms of materials will benefit a lot as the costs may fall. While
another currency
when exchange rates fall exporters will benefit while
International trade - The exchange of capital, goods, and importers may have increased costs.
services across international borders or territories. It creates If there was a sustained period of depreciation in an
a lot of benefits which includes, competition, consumer economy this means exporters will have increased
choices and cheaper products. revenues and the country’s unemployment level may fall
International trade allows: along tax revenues may increase. However, choices will
be restricted as imports are expensive hence, standard
Countries to obtain goods that cannot be produced of living decreases therefore, economic growth rates
domestically or cheaply. reduces.
Countries to sell off the excess of commodities. If the exchange rates were continuously changing this
will result in business unable to predict the future costs
Visible trade - Trade in physical goods while invisible trade and profits which causes an uncertainty. Budgeting
is the trade in services. The balance of trade is visible becomes more difficult for businesses.
imports – visible exports.
Exchange rates - Different countries have different
currencies. So, in order to exchange a currency with another 1.14. Government Objectives & Policies
we will have to calculate the value of the currency in terms
of another currency. Key Vocabulary
Fall in exchange rates (Depreciation)
E.g., when the exchange rate falls from 1 Euro = 1.50 Dollars Barriers to entry: restrictions which means its difficult
for new firms to enter the market.
to 1 Dollar = 1.20 Euro
Mergers: 2 or more businesses joining together to form
Change in exports: exports become cheaper in UK as the one large business
prices fall and demand increases. Dumping: where businesses sells goods in another
Change in imports: imports become more expensive country below the costs.
because the prices increases. Trade barriers: measures designed to restrict the trade.
Impact on current accounts: current account balance Quotas: physical limits on the quantity of imports
improves. allowed into the country.
Subsidies: financial support given to a domestic
Rise in exchange rates (Appreciation) producer to help compete with an overseas firm.
E.g., when the exchange rate rises from 1 Euro = 1.50 Dollars Tariffs: a tax that makes the imports more expensive.
to 1 Dollar = 1.20 Euro Administrative barriers: use of strict health and safety
regulations to make the imports more awkward.
Interests: prices of borrowed money and the reward to
savers.

Government spending and taxation

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The government of many countries spends a huge Infrastructure provision: as the government spends
amount of money on the public services. For instance: money on the infrastructure such as: building schools
education, healthcare and infrastructure. The higher the and motorways the private construction companies may
spending level the more the businesses benefit. This is get projects which may help in increasing their revenues
because incomes of people increases and therefore, they and profits.
may have more disposable income and would purchase Legislation: without the government intervention the
more products, hence, the profits rises. businesses may not meet the needs of the stakeholders.
Governments earn a huge amount of revenue from taxes One of the roles of the government is to provide a legal
and these taxes are of 2 types. One is the direct taxes framework in which business can operate and ensure
that are levied on the income or profits of individuals or that vulnerable groups are protected. Some of the
businesses. Example: income tax and corporation tax. consumer laws in UK are sale of goods act and the food
While the other tax is the indirect tax which means the safety act.
taxes that are levied on the producers of products but Competition policy: government tries to promote
are indirectly passed on to consumers through higher competition by encouraging the growth of small firms:
prices. An example is VAT. this can be done by providing subsidies or grants and
Governments can use fiscal policy that is the making making them more competitive and able to compete
changes to the taxation and government spending in with the larger firms.
order to stimulate the aggregate demand in an economy. Lowering the barriers to entry: so that more firms will
For example: when the taxes are lower people have find it easier to enter into the market and therefore,
more incomes hence, they may purchase more which consumer choices increase while prices reduces.
will increase the profits for businesses. Introducing anti-competitive legislation: these laws
are designed to restrict the formation of monopolies or
Constraints on public spending mergers which may exploit the consumers by increasing
the prices.
In the recent year’s government have decided to reduce the Environmental legislation: business activities may have
amount they spend on the public. These have had great negative impacts on the environment for example: air
impacts on businesses: pollution caused burning of coal and water pollution
caused by sending of waste materials to rivers and lakes.
As many employees will be dismissed in order for public
The approach used by the government is to impose strict
sector organizations to cope up with the increase in
laws with huge penalties which are big enough for
costs, this will result in businesses losing out as workers
business to be encouraged to cause less pollution.
may lose their income hence, profits for businesses Trade policy: the governments of many countries find
reduce. international trade to be a disadvantage and due to this
Private sector businesses (construction companies) that
they impose trade barriers to protect the domestic
carry out government infrastructure work will lose their
industries which are known to be as protectionism.
business if the government cancel the projects such as
building schools or so on. Reasons why governments use protectionism
How can government affect business activity? 1. To protect the jobs of citizens working domestic
industries
2. To avoid inflow of harmful products and protect
infant businesses.

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There are 4 types of protectionism the government can Urbanization: process of constructing more building on
use: tariffs, quotas, subsidies and administrative barriers. villages.
Another approach in which government can influence is Capital intensive: using more machineries than labor
businesses is through forming a trade bloc in which Market orientated: when a business concentrates more
businesses will be able to sell and buy product with no on its consumers rather than products
forms of trade barriers which will reduce their costs. Sustainable development: idea of that people must
Some of the benefits of trade blocs are: satisfy their basic needs for survival and improve their
1. Access to wider markets living standards ensuring that they don’t compromise the
2. Lower costs due to economies of scale quality of life for future generations.
3. Protection from large MNCs from outside the Pressure groups: groups or organizations that try to
blocs influence the opinions of ordinary people and persuade
the government to take actions
Effects of interest rates on businesses and
consumers spending The nature of external factors

Monetary policy is the use of interest rates and money There can be many impacts on businesses when external
supply to stimulate the aggregate demand in an economy. factors occur. However, businesses have no control over
Higher interest rates means more expensive to borrow these factors and therefore, they may have positive or
money and more worthy to save money. Lower interest negative consequences.
rates mean cheaper to borrow money and less worthy to
save money. Social factors
Effects on businesses: when interest rates are higher, Increased consumer awareness: nowadays, as
the costs of borrowing will increase which will result in technology has been advancing consumers are having
consumers having less disposable income and therefore, many choices and make their purchases over the
they may purchase less which will decrease the profits internet. This has allowed many business to publish their
for businesses. Furthermore, as interest rates rises costs information online and set up e-commerce businesses.
may increase if the business has borrowed money and Businesses are becoming more market orientated.
this will increase their costs of production and therefore, Changing demand patterns: as the lifestyles of people
lower their profits. Moreover, as interest rates increases changes according to the modern era this results in
consumers will save more as to gain the reward and changes in goods that they want. For example, more
purchase which will again is a loss for the business. consumers want the most advanced products that
Effects on consumer spending: savers will be hit if doesn’t require any human action such as: automated
interest rates are lower and therefore, may save less. As cars.
more consumers depend on the interest or reward that Increased numbers of woman at work: woman have
they get from savings now they will have to borrow now changed their roles from childcare to work. This has
more. Additionally, demand for goods and services may resulted in an increase in the supply of labor. More part
fall as interest rates increases as more consumers time workers: as the number of people taking part time
purchase using the borrowed money. However, when works have increased more income is required by these
interest is higher it becomes expensive to borrow and people this has resulted in an increase in goods and
therefore, may not borrow and purchase lower quality services purchased. This also has increased the flexibility
products which will decrease the living standards. for businesses.
Urbanization: as in many developing nations more
1.15. External Factors people have moved from rural areas to towns and cities
which has increased labor supply and profits of many
businesses.
Key Vocabulary
Technology

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As technology has been evolving in last few decades this has These factors can influence businesses that are operating in
resulted in huge impacts on businesses which is considered stable, democratic counties. However, in unstable countries
to be more efficient, beneficial and saves more time. although the government is corrupt there are many
pressure groups that monitor the business and ensure that
In the primary sector: the use of pesticides by the the country benefits. Some examples include:
farmers have helped the crops to grow faster and safely.
In the secondary sector: the use of robots have helped In 2015, some felt that Greece might leave the EU. This
to increase the productivity of labors and save more time could have disrupted financial markets and created a
although machineries are expensive. great deal of uncertainty in the Eurozone.
In the tertiary sector: banks have used ATM machines A new government may be elected which is very pro-
to make it easier for consumers to withdraw money and business. This might encourage more people to become
other transactions without the need of coming into entrepreneurs. It might also mean that more foreign
banks. More businesses become capital intensive as investment can be attracted.
machineries have been replaced labors and this
decreases the costs of labor. 1.16. Measuring Success in Business
Businesses usually welcome technological developments as
Capital employed: amount of money that is being invested
the benefits outweigh the drawbacks:
in the starting of the business usually or in the middle.
It saves time For any business, it is unlikely that the owners will not want
Reduces the costs as employment in labor reduces to know whether their business is successful. In order to
Productivity increases measure the success of businesses there are 7 ways which
Development in social media has improved the have their advantages and drawbacks.
communications and reduce the costs of advertising.

Environment
Global warming: most business factories emits carbon
dioxide gas which is a greenhouse gas which can
contribute to global warming. Also as the economy
develops this results in more cars and airplanes to
different destinations which again increases global
warming.
Habitat destruction: some of the businesses build
factories and other operations in habitats of many
animals. Such as forests. This results in deforestation
which means that many trees are being cut down. This is
habitat for many animals such as birds.
Resource depletion: as oil, coal and gas are non-
renewable resources they are running out and can’t be
replaced.
Sustainable development: this means that people
should satisfy their needs and increase their living
standards. If they don’t then this will result in reduction
in the quality of life.
Businesses can reduce the environmental issues by
using environmentally friendly products and reduce
the greenhouse gas emissions.

Political

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EDEXCEL IGCSE BUSINESS
Some businesses underestimate the importance of cash.
1.17. Reasons for Business Failure This may eventually result in businesses to fail. As some
businesses start without cash which is previously said to be
as undercapitalization. They may not have money for long
and may finally borrow money which may increase their
costs and force them to increase their prices for the
products hence, results in lower market share.

3. Not competitive
1. New entrants: it may be very challenging for
new entrants to enter into an established
market. This is because the rivals may use
destroyer pricing and bring out superior
products or their products may not match the
needs and wants of the consumers. Hence,
they may eventually fail.
2. Ineffective costs control: when the costs
increases the profits may decrease. Some the
reasons for the costs to be higher than the
profit are that they may be too small to exploit
the economies of scale, they may be using
wasteful resources, paying too much for
unwanted resources and due to external
factors.
3. Ineffective marketing: some businesses fail
because of many reasons. Some of them are
because of launching products that don’t
satisfy the needs of consumers or using
inappropriate marketing strategies or
inappropriate pricing strategies or investing
heavily on unwanted marketing campaigns.
4. Lack of business skills: most small
businesses fail because their owners or
managers are having less skills or experience
to run a businesses in a competitive
environment. As they are the decision makers
their work depends on their ability to make a
decision and if their decision fails then the
business fails.
5. Poor leadership: many companies employ
managers. They must ensure that the
managers that are being employed are skillful,
motivational and have a good knowledge of
that field.
4. Failure to innovate

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As technology evolves many businesses fail to innovate as
they may fear the increased costs of research and Questionnaires: most common form of primary
development. They may not be updated with the latest research. They may include opened and closed
technology and consumers may want their life styles to be questions, simple questions, be short and may not
easier, faster and automated. If consumers needs are not include leading questions. They can be used in different
met this may result in lower profits as revenues may fall. If ways such as postal surveys, telephone interviews,
the businesses are unable to keep up with the latest personal interviews, online surveys.
technology then they may eventually fail. Focus groups or consumer panels: detailed
information can be collected using this cost-effective
method. The people must represent the whole
2. Marketing population. They may not be reliable as consumers’
fashion and trends changes all the time.
Observations: this is where market researchers observe
2.1. Market Research the behaviors of consumers using CCTV cameras and see
how much time they spend on watching the products
Key Vocabulary and so on. However, many questions go unanswered.
Test Marketing: this is a market research technique that
Market research: this is the gathering of data related to is used before a national launch. The product is sold in
the consumption of goods and services related to the small restricted area and then the feedbacks are used to
market and analyzing them and using for Marketing modify the product. They may be free at times.
purposes.
Untapped: it is market that is available but yet to be Advantages of primary research
exploited. Original and accurate information
Focus groups: number of people are invited to a
discussion attended by groups of Market researchers. Not used by competitors.
Consumer panels: groups of consumers who are asked
Drawbacks of primary research
for feedbacks about products over a period of time.
Expensive
Purpose of Market research Time consuming
Methods of secondary research include business
To identify and understand consumer needs: it is websites, internal data, competitors, media and
important that businesses always meet the expectations commercial and government publications
of their consumers. Market research will help businesses
to do this by gathering information and predicting Advantages of secondary research
consumers’ needs and wants.
To identify gaps in the market: by finding the Cheaper
unsaturated places in the market, the business can Less time consuming
innovate new products that their rivals have not yet Easier method
touched. This will help them gain a competitive edge in
the market. Drawbacks of secondary research
To reduce risk: before any business begin to trade it is Inaccurate information
important that they carry out market research. This is Out of date
because they may get to know the market, consumers
and rivals. Hence, this can prevent the likelihood of Qualitative and quantitative data
business failures.
To inform business decisions: information that are Qualitative data is the intentions, attitudes and beliefs of
collected by carrying out market research can be used to consumers. It is written down in words and recorded in
influence the decision making in a business. video clips. Quantitative information are those expressed in
numbers. They need less interpretation and examples
Methods of primary research include: statistics or market shares.

Role of social media in collection of market

research data

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1. Broad reach - Can reach millions of people

2. Ability to target - it allows specific groups to target 2.3. Market Segmentation
3. Free or low cost - It may be free for businesses and
paid options may be cheaper Key Vocabulary

Importance of the reliability of market research Market segment: this is a part of a whole market where a
particular customer group has the same characteristics.
data
The information collected should be reliable for businesses
How do businesses use market segmentation to
to use and see a positive effect. If the information was target consumers?
unreliable then this will result in failures. The reliability of
Some businesses:
information collected depends on the number of people and
whether they represent everyone. Businesses should concentrate on producing one product for a particular
appreciate that human behaviors are unpredictable as segment.
trends and tastes changes overtime. If the quality or produce a large number of products and target several
reliability of the information is poor then the decision taken segments.
based on this information will not be effective. aim their products at all consumers.

2.2. The Importance of Marketing Methods of market segmentation

Key Vocabulary Location segmentation: people living in different

countries have different needs depending on their
Market: set of arrangements that allows buyers and climates. For example: hot countries may prefer cotton
sellers to communicate and trade in goods and services. clothes. Also in different regions have different needs
Marketing: identifying customers’ needs and satisfying and so on.
them profitably. Lifestyle segmentation: this is when businesses classify
Product orientated: where a business focusses on the their consumers according to their lifestyles. For
design of the product rather than the consumers. example, television broadcasters may target sports
Market orientated: this is where a business focusses on channels at sports lovers.
the consumers rather than the product.
Market share: it is the proportion of sales in a market Demographic segmentation: this is where businesses
that a business enjoys. divide their consumers in terms of gender, age, status,
Mass market: large market in which branded products religion and race.
are marketed. Age: teenagers may want the trending clothes with the
Niche market: small market within a large market or latest fashions while adults may want decent clothes.
industry. Income: High income earners may want luxurious cars
while low income earners may want any type of
Importance of Marketing transport vehicle to travel.
Social class: this is when businesses target consumers
Marketing is not just about selling products however, it is based on their employment status.
about identifying the needs and wants of consumers, Ethnic origin: Different ethnic groups are having
charging the right price, and so on. different needs based on their cultures.

Benefits of market segmentation

Can increase the revenues when the products are
targeted at the right group.
More loyal consumers as their needs are met.
Can avoid wasteful promotional resources by targeting
the right group.
Businesses can target a wider range of goods to
different customer groups.

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Development: there is no sale. This is where the product

2.4. Product is being made, tested and analyzed. Lump amount of
money is spent on research and development and the
Key Vocabulary costs are high.
Introduction: product is being introduced with huge
These are the elements of a firm’s marketing that are
parties/promotions. Pricing strategies are implemented
designed to meet the needs of consumers. They are: and costs still remain high while there is a slight increase
Product in the revenues.
Price Growth: if the product is successful the revenues starts
Place to increase significantly. Line is steeper in the graph and
Promotion costs are beginning to be recovered. At the end of this
phase revenues starts to fall as competitors are
Product development emerging with their own products of the same type.
Maturity: revenues begin to fall and the costs are fully
Products are needed to be produced in order for a business recovered. Cash flow is improved and business is making
to trade. However, sometimes businesses may produce a profit. More rivals and therefore, some businesses are
products while trading. These may be because the existing forced out or their promotion techniques changes. Some
product is getting out of date or to build up a competitive businesses use extension strategies to lengthen the
edge in the market. lifecycle.
In order to produce a product there are few stages: Decline: this is where the product is out of date or not
trending due to changes in tastes and fashions or
1. Generating ideas: these may come from various advancement of new technologies. Some businesses
sources such as: owners or research and bring out new products to replace the declining
development centers. products.
2. Analysis: after the ideas are being generated
businesses are required to analyze the ideas and Extension strategies
filter them, choosing the best, marketable, profitable
and legal idea. These are the methods that are used to lengthen the life of a
3. Development: this is where experiments and product. Some methods are:
simulations may be carried out and the product is
produced as expected. Changing the appearance of the product.
4. Test marketing: this is when the product is being Encouraging more frequent use of the product.
tested in a market and sample is taken to be as a Finding new markets for the products.
representative of the whole market. Advantages of using extension strategies
5. Commercialization and launch: this is where the
business modifies the product finally and launches it Brand image is improved.
nationally. Costs of developing new brands are saved.
Competitors may find it difficult to enter the market.
Packaging
Disadvantages of using extension strategies
Consumers link the quality of the product through the
neatness and beauty of the packaging. They are expensive.
It helps businesses to display their brand name and They may damage the brand image if extended product
increase their image and reputation. is a failure.
It helps consumers differentiate it from the rivals.
Managing and reviewing the product portfolio
Product life cycle
Product portfolio is a range of product a business is
currently marketing. A business has to manage the product
by constantly reviewing each product and making changes
whenever necessary.

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A Boston matrix may be used to analyze a product
marketed by a business while categorizing it according to the Importance of Price
market share and market growth.
The Boston matrix puts the products into 4 categories: Price is one of the key elements of the marketing mix.
Consumers want better quality products for reasonable
1. Stars: valuable products for a business while having price. Some of the factors affecting the price are marketing
a high market share and growth. mix, objectives, taxes and competitions.
2. Cash cows: mature products with high market share There are different types of pricing strategies:
but low market growth while generating a steady
income.
3. Question marks: potential products with lower
market share but higher market growth.
4. Dogs: declining products with low market share and
growth.

2.5. Price
Key Vocabulary
Cost plus pricing: adding a percentage to the cost of the
product to get the price.
Mark-up: percentage that is added to the cost that
makes a profit for the business while setting the price.
Penetration pricing: starting with a lower price and
eventually increasing the price when the product is
established in the market.
Competition based pricing: strategies based on the
prices charged by rivals.
Predatory pricing: setting a lower price until the rivals
drive off the market. Skimming: setting a higher price
initially and then lowering the price when rivals begin to
enter the market.
Loss leaders: products sold below the costs to bring
more consumers.

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1. Cost plus pricing - This strategy involves adding a Distribution channel: route taken by a product from
percentage of the costs known to be as a mark-up to the producer to the customer.
the price. One of the key advantage of this pricing Wholesalers: person or business that buy goods from
strategy is that it ensures that a profit is made for manufacture and sell them in smaller quantities to
every product that is sold. However, the price may be retailers.
higher than the market price. Retailers: business that buy goods from manufacturers
2. Penetration pricing - This is when the business and wholesalers and sell them in smaller quantities to
initially starts with a lower price to draw in consumers.
consumers and then increase the price when there E-commerce: use of electronic systems to sell goods and
are more loyal consumers and product is established services.
in the market. Direct selling: where business sell their products directly
3. Competition based pricing - This is a pricing to consumers.
strategy that is based on the prices charged by the Agent: intermediary that brings together the buyers and
rivals. The main advantage of this strategy is that a sellers.
price war is likely to be avoided. Sometimes
businesses may use predatory pricing to drive out Distribution channels
the rivals from the market and to reduce the
competition in the market. This is a route through which the product travels from the
4. Skimming - This is when a business initially starts producer to the consumer. Some businesses sell their own
with a higher price and then eventually lower the products directly to their consumers or use intermediaries
prices when the competition increases. One of the such as retailers and wholesalers in order to reach their
key advantage of this strategy is that the profit consumers.
margins are higher and the costs are recovered as
soon as possible. Retailing
5. Promotional pricing - This involves lowering the
price of the product for a short period of time in Why do manufacturers sell their products to the retailers
order to draw in consumers. instead of directly selling it to the consumers?
They can take place in various forms:
1. Discounts and sales: this involves the
business cutting down the price for a short
period of time and revenues increases as
goods are sold below the standard price.
2. Psychological pricing: this involves setting
the price slightly below a round number.
Example: £99.99. This attracts the consumer
easily and they may think this is much
cheaper than £100 and may eventually end up
purchasing the product.

2.6. Place
Key Vocabulary

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Locations where retailers are available is more Businesses may have to face increased competition as
convenient to the consumers rather than the location in this is a cheaper method of forming business.
which the manufacturers are available in. There is a security risk as hackers may gain access to
Also, retailers may add value to the products by sensitive information.
providing extra services such as: delivery services which Site may be affected by malware and poor internet
will not be provided by the manufacturer. connections.
There are different types of retailers such as:
1. Independents: they are sole traders such as: Benefits to consumers of online distribution
greengroceries, jeweler etc. and are found in It is cheaper because saves travel costs.
malls and high streets. It saves time which is valuable
2. Supermarkets: Large stores, cheaper products, There is more choices for consumers
includes ranges of products and provides free
parking facilities. Drawbacks to consumers of online distribution
3. Department stores: large stores split into
departments and provides good quality products Consumers cannot touch or look at the goods before
with better customer services. purchase.
4. Multiples/chain stores: They may be many Customers may experience poor after sales services.
stores in different locations with the same Customers without credit cards or internet may not get
products and may be controlled by a central the service.
office.
Other methods of distributions
5. Hypermarkets: Large giants, with cheaper
products than in supermarkets, less customer Direct selling: this is where the business sells their
services and goods are not displayed attractively. products directly to the consumers. Wholesaling: they
buy from manufacturers and sell to retailers.
E-commerce Agents or Brokers: they link buyers and sellers.
The most common form of retailing in today’s world is E- Choosing the appropriate distribution channels
commerce. It uses electronic systems to sell and purchase
goods and services all around the world. The nature of the product - Different products require
2 types: different distribution channels.
Business to consumers - This is when the goods are Cost - Businesses may choose the cheapest distribution
channel and also may prefer less intermediaries because
purchased online and delivered at home. However, the
new trend is that goods are ordered and collected from a if there were more intermediaries then the product may
central hub. become more expensive and therefore, lower revenues
Business to business - This involves businesses selling and market share. Websites may be used by businesses
to other businesses online. Sophisticated software can to sell their products directly to the consumers so that
costs are lower.
be used to purchase the components that are required
with the help of these software which may help to find The market - Producers selling to larger markets are
the best cheapest supplier while carrying out all the likely to use intermediaries. While producers selling to
paper works. small markets are likely to sell directly to consumers.
Producers selling overseas are likely to use agents to
Benefits to businesses of online distribution guide them to the new market.
Control - Some producers may prefer to sell their
Lower overheads as no need to rent premises products directly to consumers as they do not want to
Businesses have more choices when locating operations see their products sold in down markets as it may
damage their brand image.
Drawbacks to businesses of online distribution

2.7. Promotion
Key Vocabulary

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Most businesses arrange point of sales so that this attract
Advertising: communication between a business and consumers easily. This is called merchandising. Some
customers where messages are placed in the media to examples include, layout of the product is made more
encourage the purchase of a products. attractive and visible, posters and leaflets are used to
Public relations: attempt by a business to communicate advertise, and shelves are often kept well stocked to give a
with interested parties. Sponsorship: making a financial good impression in the minds of the consumers.
contribution to an event in return for publicity.
Direct mailing
Above and below the line promotion
This is where businesses sends letters and leaflets about the
Above the line promotion involves placing the adverts using product to consumers. They may be personalized. This may
the media while below the line promotion involves placing encourage consumers to purchase the product.
the advert without the use of media. Examples of above the
line promotion is advertising in newspapers whereas an Direct and personal selling
example of below the line promotion is press release.
Above the line promotion Direct selling involves a sales person calling to numbers and
encouraging the consumers to purchase a product. One
Television: advantage is that huge audience can be advantage is that features of a product can be discussed
reached and creative adverts can have great impacts. more clearly. However, people often get irritated by this.
However, very expensive.
Newspapers and magazines: advantage is that they are Public relations
relatively cheap and readers can refer back. However, no
movement or sounds. This is an attempt by the business to communicate with the
Cinema: advantage is that big impact with big screens interested parties. The main purpose is to increase the
and sound and movement can be used. However, limited revenues by improving the image and establishing the
audience. brand. The main advantage of public relations is that it is a
Radio: advantage is that sound can be used and cheaper cheaper method of promotion.
production. However, not visual. Some approaches that are used are:
Posters and billboards: advantage is that they are seen
repeatedly and good for sharp messages. However, 1. Press release: some information about the business
difficult to evaluate the effectiveness. or the product may be given to the media and this
Internet: advantage is that can be targeted and may be used to write an article for the newspaper
updated. However, possible technical problems. and this may improve the image of the business.
2. Press conference: some of representatives of the
Below the line promotion business may speak in the media and this allows the
Doesn’t use any media to advertise. One of the forms of the press to ask for frequently asked questions and give
below the line promotions is: their feedbacks.
Sales promotions - They are the incentives to purchase Donations: this can be used by businesses to improve their
the product. For example, free gifts, coupons and loyalty image.
cards are offered by businesses to encourage people to
make purchases. Using technology in promotion
Merchandising and Packaging

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EDEXCEL IGCSE BUSINESS

1. Online targeted advertising: this is when

businesses could make use of their advertising
resources more effectively. This is made possible by
the use of browsing habits and other data that are
collected using cookies.
2. Viral advertising: businesses can use this type of
advertising technology to increase their revenues.
This contains messages, video clips and images which
may promote a product. These messages may
encourage people to pass on to their friends and
family and thereby, make it viral.
3. Social media: This helps businesses to target their
adverts more effectively. One of the main advantage
is that, it is relatively cheaper method and the advert
may reach millions of people.
4. E-newsletter: some businesses may send electronic
messages to interested parties which may include
interesting statistics and industry news. They may
send messages to consumers who have already
purchased goods from them.

Branding
Branding involves giving a product a name, sign or symbol
for the product in order to differentiate it from that of the
rivals. It is used to create customer loyalty and to develop an
image.

The use of promotion strategies in different

market segments
Advertising: this may not differ much in any market
segments. However, in large markets, businesses may
use social media or television advertising.
Sponsorship: this is used in markets where images are
important. This is a cheaper method of advertising.
Special offers: some business may give discounts on
some products in order to hook in the consumers into
the stores while hoping that some other products may
be purchased. This method may be used to clear out
stocks or generate quick cash.

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Edexcel IGCSE
Business

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