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Edexcel IGCSE Business Theory

The document provides a comprehensive overview of the Edexcel IGCSE Business syllabus, detailing various types of enterprises including private, public, and social enterprises, along with their objectives and stakeholders. It discusses the importance of business activities, objectives, and the roles of entrepreneurs, as well as the different business structures such as sole traders, partnerships, and limited companies. Additionally, it highlights the significance of clear objectives and how they may evolve based on market conditions and business performance.

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Edexcel IGCSE Business Theory

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ZNOTES.

ORG

UPDATED TO 2023-2025 SYLLABUS

EDEXCEL IGCSE
BUSINESS
SUMMARIZED NOTES ON THE THEORY SYLLABUS
Prepared for fidelis 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

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

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:

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:

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

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

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:

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

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:

Copyright © 2025 ZNotes Education & Foundation. All Rights Reserved. This document is
WWW.ZNOTES.ORG authorised for personal use only by fidelis at Baitul Hikma Integrated International School on
25/03/25.
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?

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.

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

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

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.

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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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 Ineffective communication can result in;
development. They may not be updated with the latest
technology and consumers may want their life styles to be Costs increase as the business could face financial
easier, faster and automated. If consumers needs are not penalties for missed deadlines, technological breakdown,
met this may result in lower profits as revenues may fall. If etc.
the businesses are unable to keep up with the latest Mistakes occur, such as defective goods being produced
technology then they may eventually fail. and incorrect orders being taken due to
misunderstandings.
Decision making slowing down if the information passed
2. People in Business takes a long time to reach the recipient; this could lead to
missed opportunities.
Labour productivity and motivation decline as employees
2.1. Importance of Communication may get frustrated easily due to miscommunication,
which could lead to higher absenteeism and a higher
turnover.

2.2. Communication Methods

Face-to-Face Communication
Spoken information is sent and received by people who
can see each other. Examples are an interview of a job
candidate, induction training sessions, presentations for
investors/reporters, a manager assigning a task to a
subordinate, etc.
Advantages include encouraging cooperation, saving
time, and allowing immediate feedback and new ideas to
be brought about.
Disadvantages include the message not being recorded,
negative body language can create a barrier, people not
listening - short spans of attention, irrelevant
information may be conveyed, and there is a limit to the
number of people the message can reach.

Electronic Communication

Quick, easy, and very flexible method to pass on Memorandums are short, hand-written notes used for
information globally and to a large audience. communication within the business. They are brief and
A limitation is that technology is necessary, and technical very flexible and used as reminders, to pass on
issues - signal-receiving problems may occur. instructions, etc.
Social media such as Twitter and Instagram can be used Noticeboards are used to pass information to a large
to communicate with customers and gather primary data audience and are very cheap. A limitation is that they can
to learn about the views of customers. Information can become untidy, sometimes overlooked, and prone to
be sent quickly and gathered from a target audience or public abuse.
various demographic groups. Letters pass information to employees, customers,
The Internet can display information about a business’s suppliers, shareholders, and other stakeholders.
services and goods through a website. Other examples Information can be expressed clearly so the receiver can
include customers who can buy goods with credit cards understand it well, and the letter can also be kept as a
through shopping sites and submit queries online, record. A limitation is that writing a letter is time-
whereas the business can advertise jobs externally and consuming, and employees may have poor writing skills.
internally. Forms, such as routine forms, are used to pass
Email can be used to pass information through text or information about day-to-day affairs to gain employee
images. However, a limitation is that emails may get feedback. Claim forms are used for expenses, whereas
overlooked as many people tend to get so many emails order forms are used for ordering and delivering
that they ignore some or are not motivated to reply. products. Application forms are used for recruitment
Other forms of electronic communication include selection and loans.
electronic noticeboards, public address systems (PA), Reports are used to pass information formally, whether
intranet, mobile phones, videoconferencing, and a report is short or very complex, statistical, and detailed.
teleconferencing. They tend to be precise and well-structured. A limitation
is that writing a report is time-consuming to research
Written Communication and write.
The advantages of written communication are that it
can be formal, concrete evidence can be referred to
when needed, and lots of information can easily be
shared.

2.3. Barriers to Communication

Communication is only effective if the receiver understands
the message sent. Things that get in the way
of good communication are called communication barriers.
Examples include:

Lack of clarity - If a message is unclear, it may be Training staff helps them improve verbal
misunderstood or ignored. communication skills, e.g., over the telephone.
Technological breakdown - A lot of business When recruiting, a business should ensure the
communication is done electronically. If technology is candidates they hire have good communication skills by
faulty, communication may become unclear or checking the quality of the person’s written
break down. job application and speaking skills during the interview.
Poor communication skills - some people may have A company can use standardized written
poor communication skills. templates that can be easily stored on the system and
Jargon - Sometimes, people use jargon when used for sending newsletters, emails, etc.
communicating. Jargon is vocabulary used and A business can shorten the management levels
understood by people in a specific group. involved so there is a shorter chain of command; thus,
Distractions - Communications may break down if there information can get around more quickly.
are distractions in the communication process. Social events for staff allow colleagues to
Business culture - Some businesses may develop a build work relationships and improve communication.
culture of poor communication.
A long chain of command - If there are too many layers 2.4. Recruitment & Selection
of management in the organization, the chain of
command will be longer. Key Vocabulary
Using the wrong medium - The different methods by
which messages can be sent are called communication Recruitment: this is the process of employing people
media. However, an important message may be missed if due to reasons such as expansion.
the sender uses an inappropriate medium. Job description: document that shows the
Different countries, languages, and cultures - In responsibilities and tasks of the employee after being
multinational companies, people may work in countries employed.
where languages and cultures vary. Such differences may Person specification: personal profile of the type of
make communication more challenging. person required to do the job.
Internal recruitment: recruiting people from inside the
Problems of Ineffective Communication business.
External recruitment: recruiting people from outside
This can lead to multiple expensive problems, such as the business.
more staff absences and frustrated employees,
leading to lower productivity. Types of Employment:
Lack of motivation, poor customer service, work-
related injuries, lower profits, and higher legal expenses
are other issues that could occur.

Ways to Remove Barriers to Communication

Full time employment: this is where a business recruits Documents for recruitment process
and expects an employee to work all days in a week
except for the holidays. 1. Job description: it states the job titles, tasks, duties
Part time employment: this is when a business allows and responsibilities for the job. It clearly shows what
an employee to work only at times when the business in is expected from an employee. It could also be used
need of them. This gives them more flexibility. in appraisal that is when judging the quality of the
Job share: this is where 2 part time employees share the new employee who is employed.
job and the salary of a single full time employee. The 2. Person specification: details of qualifications,
employees must make sure that they interact effectively referees and experience may be included which is
and work as a team. expected from an employer. They can be used to
Casual employment: this is when a business employs screen applicants while finding the best candidate for
people who have to work on a call. Which means that the interviews. The things that are essential and
employees must be ready at any time. desirable can also be shown.
Seasonal employment: this is where employees are 3. Application forms: while employees apply for the
being recruited at certain times of the year for example, job they are required to fill an application form which
at summer times the demand for ice-cream increases will help businesses gather enough data and the
therefore, people employed in the production of ice same data from every applicant which will make
cream will get their jobs. comparisons to be much easier.
Temporary employment: this is when employees are 4. Curriculum Vitae: it is a personal document that is
employed in order to cover the absence of full time submitted by the job seeker which includes the years
employees who have taken leave due to specific reasons: of experience, referees and other personal
paternity or maternity leave. information. This allows the job seeker to express his
personality.
Recruitment stages
Internal and external recruitment
1. Identify the type and the number of people required
2. Prepare the job description and person specification Internal recruitment is recruiting employees or replacing
3. Advertise using appropriate media positions to fill vacant positions using the employees who
4. Evaluate applicants and select a shortlist for interview are already existing in the business.
Advantages:
Shortlisting: after receiving the application forms the
personal manager must ensure to choose the right Cheaper as it saves advertising costs
people for the final interview. This is easier with the use No need for induction training as the employees are
of application forms as comparisons can be made and familiar with the policies.
the experience and skills will be considered when going Staffs are motivated if they know that there is a
through the CV. promotion.
Interviewing: After the final shortlist the applicants are
called for interview in which the business can analyze Disadvantages:
and assess the candidates’ performance in terms of
verbal communication and body language. They can also No fresh ideas generated
clarify the information that is given in the CV. They can Motivation may suffer if the person who worked to get
the promotion didn’t get it.
also asses the confidence of the candidate. This will also
help businesses to ask challenging questions to the External recruitment is recruiting people from outside the
candidates and see their answer and how they may deal business.
with the problems. Advantages:

Fresh ideas generated

Larger pool of potential employees Induction training is
to be given which
increases the time
More talented

1. Gender - One of the most common form of

2.5. Legal Controls Over Employment discrimination is gender discrimination. Businesses
must ensure that the advertisements, references in
Key Vocabulary work titles, promotions and wages for staff must not
be based on gender. For example, the business who
Discrimination: choosing one person instead of another
is advertising for a police officer must ensure that
based on their characteristics. they don’t specify the gender such as: policemen.
Minimum wage: minimum amount per hour that all 2. Race and religion - Businesses have to make sure
employers are supposed to pay to the workers or that they don’t discriminate employees based on
employees. their color, race or religion. Some examples are:
Businesses must ensure that they do not discriminate one businesses have no rights to prevent women and
another employee based on their race, religion or gender. men from wearing religious such Burka or turbans.
However, if the person is much more skilled and And workers must receive good training to encourage
experienced than the other the business choosing this equality at work.
person is ethical. 3. Disability act - Unemployment rate for the disabled
people are comparatively higher than the
Legislation that governments have imposed in unemployment rate for abled bodies. Business
order to protect the rights of all employees: should ensure that they do not discriminate
employees based on their disability but should
classify people according to their skills. They should
make facilities for employees to use the wheel chairs
such as ramps for wheels and give them holidays for
weekly check-ups.
4. Sexual preference - Businesses should make sure
that they do not discriminate any employee based on
their sexual preference and this is also illegal.
However, many countries have different laws. This
will also result in dissatisfaction of workers due to
harassment and bullying in work place.
5. Age - An employee of the same skills with more
experience and qualifications but older to another
employee must get the same pay as the younger
employees. However, most businesses discriminate
employees in terms of age. For example, business
cannot refuse to offer promotion to an elderly person

Minimum wage laws

Minimum wage legislation is set by the government. And this
is the minimum amount of money an employee is entitled to
receive. An employer will face a huge penalty if they didn’t
pay.
Reasons for minimum wage laws

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It is unlikely that an employee will go through their life
To benefit the disadvantaged workers such as women. without proper training. Training increases the knowledge of
When minimum wage laws are being imposed this may the employees while also increases the productivity and
increase the salaries or wages of all disadvantaged competitiveness. Hence, businesses gain more revenues.
workers hence, they have increased incomes. This will Also it ensures that employees know how to do their jobs
result in their living standards to be improved hence, and be safe.
economic growth will increase.
To reduce poverty: minimum wage laws increase the 1. Induction training: this is given to new employees
income of the low income earners. Hence, poverty will who have recently joined the business this helps
reduce and many people will move out of poverty. employees be familiar with the working practices.
To help business: the profits of business may increase as 2. On the job training: these types of trainings takes
productivity increase as a result of increased motivation place at the workplace and they may be given for
due to increased wages. different purposes such as: introduction of
technology, new working practices etc.
Effects of minimum wage laws on businesses It can take place in three ways:
When minimum wage laws are being imposed this will 1. Shadowing: new employees will be instructed
increase the costs of production and therefore, they may to learn from another worker by looking at
eventually have to increase the prices. how he or she does the work.
Advantages to business of minimum wage laws 2. Mentoring: this is where the worker will be
People will be motivated hence, lower absenteeism and given the tasks to work but can ask questions
therefore, increased productivity. and learn more from the mentor.
Low wage earners will have increased income hence, 3. Job rotation: this is where employees are
given opportunities to work in different
their disposable income may increase and therefore,
disposable income may increase and therefore, more departments or different jobs in order to
purchases and hence, profits rises. improve the flexibility and make the workers
As the wages of employees increases they may do one work more interesting.
job instead of 2 or more jobs. Therefore, they may be Advantages:
more committed to their work.
Cheaper method
2.6. Training Can be easy to organize
Output is being produced at the same time with others
Key Vocabulary Disadvantages:
Training: it means to increase the skills and knowledge Mistakes may affect the output
of the workers to enable them to do their work Could be dangerous for a surgeon
effectively. May be stressful for workers for working with others
Induction training: training that’s given to a fresh
employee. 3. Off the job training: this is where training takes
On the job training: training that’s given in the place away from the workplace.
workplace by another employee.
Advantages:
Off the job training: training that’s given by a specialist
in another premise. Outputs are not affected if mistakes are made
Customers and others are not put at risk
Importance of training Training could take place outside the work place if
required
Disadvantages:

Expensive method
It takes time to organize
No output produced as no contribution to work

Training in healthy and safety 2.7. Importance Of Motivation in the

As many of the jobs that people have some dangerous Workplace
problems, the government has imposed many health and
safety regulations to protect the employees. For example, Key Vocabulary
businesses should prepare a written statement of their
general policy of health and safety and must give it to the Hygiene factors: things at work that result in
employees. Employees should learn how to use health and dissatisfaction.
safety equipment and machinery properly too. Motivators: things at work that result in satisfaction.
Advantages of training Job enrichment: making a job more interesting and
challenging
Keeps the workers up-to-date: training will help Maslow’s hierarchy of needs: order of people’s needs
businesses ensure that their workforce is well aware of starting with basic human needs.
the latest technology that has arrived and how to use
this and be more competitive. Why is employee motivation important in
Improving labour flexibility: this will help businesses business?
cover the absenteeism of one employee by replacing
with another. Easier to attract employees: if the employees are
Improving the job satisfaction and motivation: as highly motivated and the working environment is
employees become more familiar after the training they pleasant there are high chances that a business might
are more satisfied and motivated with their job. Hence, attract the best possible employee from the rivals.
productivity rises. Hence, new ideas and secrets can be shared therefore,
New jobs in the business: as the business expands business is likely to get a competitive edge.
there will be more new jobs and therefore, more training Easier to retain employees: when the motivation
is required. increases this may result in lower absenteeism and
Training for promotion: as staffs are promoted due to employees may begin to love the job they do. This will
vacancies they may require more training to do their new help to increase the employee satisfaction and therefore,
jobs and can learn more skills and knowledge. help to reduce the staff turnover.
Higher labour productivity: when there is a well-
Disadvantages of training
motivated workforce, businesses will be more productive
Costs of training: training is expensive as the specialists as the labor productivity is likely to increase significantly.
who come to train will be paid and other equipment that This is because employees may be willing to show
are required is also expensive. gratitude to the business for keeping them motivated
Loss of output: some new workers who join the and therefore, may work harder to increase the profits
business learn by doing the work so if mistakes occur for the business. The business will have increased
this will damage the business reputation and increase reputation.
the wasteful resources.
Learn by doing: as employees learn the job by doing 3 main theories have developed on how to keep
them there may be distractions in the work place due to employees motivated:
the sound this may affect the quality of the training.
Employees leaving: when employees are well trained
and if they decide to leave the business and move to the
rivals this may be waste of money in training hence, the
rivals have an advantage.

1. Herzberg-two-factor theory: Fredrick Herzberg has Remuneration: money that is paid to the employees for
introduced 2 factors known to be as motivators and their work.
hygiene factors. Examples of motivators: achieving Time rate: payment system based on the amount of
aims, recognition etc. While for hygiene factors time employees spend on work.
examples include: pay, working conditions etc. He Salary: pay to non-manual workers expressed as yearly
gave more emphasis on job satisfaction and job figure but paid monthly.
enrichment. He said that workers are only motivated Piece rate systems: payment system in which
if they get more targets to achieve and win more employees receive an amount of money for the number
promotions. of units produced.
2. Maslow’s hierarchy of needs: Abraham Maslow Performance related pay: a payment system or non-
recognized the importance of business to satisfy manual workers where increase in pay is given if targets
some of the needs and he put them into a pyramid are met.
which starts from the bottom.
1. Physiological needs: they are the basic needs Businesses can use different types of methods of
of survival and humans cannot live without motivation. They are usually classified into 2 categories:
them. Examples: food and water. Businesses Financial
must ensure that they provide these else they
Non-Financial
should give enough money for the employees
to satisfy these needs. Financial methods (Remuneration)
2. Safety and security: businesses should make
sure that their employees are well protected
and are familiar with the business procedures.
3. Social needs: the working environment must
be open enough for the employees to interact
with each other make new friendships and
relationships which would increase the
motivation to work.
4. Esteem needs: employees want appreciation
and awards for their hard work.
5. Self-actualization: employees may want
taking their carrier to another level and
therefore, they may need more challenges in
their work and want to be creative.
3. Taylor’s theory of scientific management: Fredrick
Taylor suggested that workers are highly motivated
with money as they can only do things if they had
enough cash in their pockets. He also said that
workers should use specialist tools, receive proper
training and so on. As soon as they have established
the best way to carry out tasks then Taylor said that
the employees must be given a fair day’s pay for a
fair day’s work.

2.8. Methods of Motivation at Work

Key Vocabulary

Time rate: this method of pay is related to the time that Job rotation: This is a method of motivating employees.
the employees spend at work. Workers may be paid for This involves the business allowing employees to take up
the extra hours that they work and this is called overtime different responsibilities and tasks and work in different
pay. However, the non- manual workers who are paid departments. There will be frequent changes in the jobs.
with salaries will not get overtime payment even if they Employees may feel it to be interesting rather than doing
spend extra- hours at work. the same job repeatedly. Also, business will benefit from
Piece rate system: this is a payment system which is the flexibility because if one employee is absent the
completely related to the number of pieces produced. other can take over the job of the absentee. Hence, there
This could increase the productivity of workers as if they is no delay in production. However, the training costs
produce more pieces they may be able to get a higher may rise.
pay. However, workers may use shortcuts and therefore, Job enrichment: This involves businesses giving
quality of work will be poor. Workers may do the work challenging work to their employees which may include
faster hence, mistakes can occur. problem solving, decision making and more interesting
Performance related pay: this is a payment system that tasks. This will help employees build up their career and
is used to reward non-manual workers whose output is showcase their talents. They are allowed to use their
immeasurable. Their pay is related to their performance. minds creatively and may also be awarded with
They may be given a target and if they achieve it they promotions. However, employees may be forced to take
may be awarded with bonuses or commissions. This on extra-responsibility hence, may be disappointed.
system also helps in appraisal system to evaluate the Autonomy/empowerment: This is when a business
staff performance. gives the employees to take decisions by themselves on
Bonus payments: bonus is paid in addition to the basic their work issues. This will help the employees to take
salary because the targets are met. The main advantage control over their own work and have set goals for the
of this system is that they are paid only if targets are future. They may feel valued and motivated. Hence,
met. That means they are paid when money is earned. businesses may be having higher labor productivity.
They motivate workers to work harder and meet targets Costs will lower as businesses now have the opportunity
faster. to reduce the number of supervisors and managers as
Commissions: it is awarded to reaching certain targets workers are now having control of their own work.
but only for sales staffs. A sales person may have a very
low salary but increased with huge commissions for Reasons for using non-financial methods of motivations
reaching targets. This can be a method which Fredrick Some people are not motivated by money
Taylor may approve to motivate workers. Some workers give more importance to non-financial
Promotions: as most of the employees want to build up
methods
an illustrious career at work they may want to get As more workers work in teams individual financial
promoted. Businesses must ensure that there are clear rewards are inappropriate
chances for promotion. If there is a promotion
employees may be motivated to work harder and
therefore, productivity increases. Also after getting 2.9. Organization Structure &
promoted the increase in pay may also be a motivation. Employees
As per Herzberg’s theory, this is a motivator.
Fringe benefits: they are the perks that are given above Key Vocabulary
the normal wage or salary.

Non-financial methods

Organizational charts: diagram that shows the different 1. Chain of command: route through which orders are
job roles in a business and how they relate to each other. passed down in the hierarchy. Information can pass
Span of control: number of people a person is directly from the top to bottom and from bottom to top. If
responsible in a business. the chain of command is too long messages are lost
Centralized: type of organization where the decisions or changes might not be accepted.
made come from the top level management to the 2. Span of control: number of people a person is
workers in the lower level along a chain of command. directly responsible for. If the san of control is wider
Decentralized: type of organization system where the communication will be less friendly and more
decision making comes from the bottom level workers to formal. If the span of control is narrower
the top along a chain of command. communication will be more friendly and informal.

An organizational chart shows: Flat structures

How the business is split into functions or departments. Advantages: communication is better, management costs
Who has the responsibility and to whom are people are lower and control is friendlier and less formal.
accountable to Disadvantages: less chances for promotion

The roles of employees and their job titles Tall structures

Employees’ roles and responsibilities Advantages: there is a clear route for promotion
Disadvantages: communication through the whole
Directors: they are appointed by the owners or structure can be poor because there is a long chain of
shareholders and they are led by a chairperson who is command, management costs are higher and control is
accountable to the owner. They have authority over the more formal and less friendly.
managers.
Managers: some of the functions carried out by the Delegation
managers are problem solving, decision making and so
on. They are expected to use the limited resources that This is where a manager transfers his or her work to a
the business owns effectively. They are entirely subordinate due to travelling or overload of work. This may
responsible for the running of the business. They are motivate the employees and make them feel valued.
accountable to the directors and have authority over the Although the manager has responsibilities for the work the
supervisors. time may be saved. However, some of the employees may
Supervisors: they monitor and ensure that all work is think this to be as an extra load of work and therefore, may
done on time with the best quality. They have authority be displeased.
over the operatives and general workers while they are
accountable to the managers. Centralized Structures
Operatives: they are the skilled workers and work in the
production department. They carry out functions such as Advantages:
operating machineries etc. they are accountable to the
supervisors and are having authority over general Coordination and control becomes easier
workers. Senior manager has complete control over resources
General staff: general staffs are unskilled workers with Senior managers are experienced and trained in decision
lower wages and can perform variety of tasks and can making.
also be promoted. Examples: accounting clerks. Disadvantages:
Professional staff: they are skilled and highly trained.
Procedures may be needed to make the decision making
Features of organizational structures much easier.
Employees are demotivated as they have no authority
Less creativity and fewer ideas

Decentralized Structures
Advantages

Workers have autonomy and are better motivated Work force planning: this involves calculating the
Speeds up decision making number and type of employees required.
Workers have opportunity to share their ideas Recruitment and selection: providing application
forms, interviewing and selection is done for new
Disadvantages candidates.
Senior managers may lose control of resources Training: organizing induction and other training.
Health and safety: business must ensure that all their
Some employees may not have ability to make
decisions staff is well protected with required equipment and must
Some employees may not welcome extra responsibility impose legislations.
Staff welfare: this department is responsible for
maintaining the environment and ensuring that it fits all
2.10. Departmental Functions employees with a pleasant working environment.
Employment issues: The human resource department
Key Vocabulary is responsible for drawing up contracts of employment
which may show the number of hours to be worked and
Market orientated: where a business focusses on the many more.
needs of consumers when developing products. Industrial relations: The HR department is responsible
Human resource: deals with issues related to for maintaining healthy relation with trade unions and
employees. employees.
Finance department: deals with the issues related to Disciplinary and grievance procedures: The HR
money and suppliers. department is responsible to make the working
Production department: deals with the issues related environment pleasant by imposing rules for disciplinary
to producing the product. conduct.
Marketing department: deals with issues related to the Dismissal: sometimes the HR department will have to
sales of the product. dismiss employees for their poor conduct or make
Contracts of employment: a written agreement employees redundant due to increased labor cost.
between an employer or employee in which each has Redundancy: when employees are made redundant
certain obligations. there is a strict procedure the HR department must
make sure all goes as the regulations.
Human resource department
Finance department
This department deals with all decision based on employees.
Some of the functions carried out by this department: This department is mostly involved in transactions relating
to money. Some of the activities carried out by this
department are:

Recording transactions: transactions that goes in and Market research: businesses must collect and analyze
out of the business will be recorded and these the information that is gathered and use this to make
information may be used to produce reports and son on. decisions based on the product and improve the product
Cash flow forecasting and budgets: as the finance as per the customers’ needs and wants.
department is responsible for controlling and dealing Product planning: this involves deciding which product
with the money of the business these reports may assist to be marketed.
them. Pricing: the business should ensure that they charge the
Accounts: the finance department is responsible for right price after gathering details about the costs,
ensuring that all accounts are being prepared. This competitor and the nature of the product.
information will be taken into account while preparing Sales promotions: people employed in these areas have
financial statements. to ensure that they have an effective marketing
Wages and salaries: this department is responsible to technique.
ensure that all salaries and wages goes on time to all Advertising: This involves purchasing advertising space
employees. from the media and using the best adverts to attract the
Credit control: This involves ensuring that all debts are customers. They must ensure that the company website
paid on time and all customers pay on time. is more attractive.
Customer service: Most of the businesses focus on the
Marketing department quality of the customer service that they provide. This is
because they may want to get the most loyal consumers
who may even purchase the products when the prices
increases.
Public relations: this is the communication between the
company and general public and also links to the
advertising and is more about building up the image of
the business.
Packaging: this involves wrapping the product with the
best design to attract the consumers and differentiate
from the rivals products.
Distribution: they must ensure that products are
available at the right place at the right time. They must
also ensure that delivery services are on time if they
have.

Production department
This department is involved in making goods and services.
Some of the activities carried out are:

Design: the production department is responsible for Short term needs: when the business begins to trade
designing the product and changing the look and so on. they may have revenues which could be used to cover
Purchasing: they are also involved in purchasing raw the expenditures, however, it may not be enough at
materials and other things that are required for the times and this is when the business has to borrow
production of the product. money.
Stock control: this involves controlling and calculating Long term needs: in order for the business to begin
the inventory and resources while providing enough trading or continue trading they may need funds. These
information about the inventory. It would send signals to may be funded by the owner’s capital that is invested or
the purchasing department about the stock level. by some financial institutions. This money will be kept in
Maintenance: there is a team of workers who will be the business for a long time or permanently.
cleaning and maintaining the machineries. Startup capital: in order for a business to start they may
Research and development: the production have a lot of expenditures such as purchase of non-
department is fully responsible for innovating new current assets that are one off and so on.
products by investing more on R&D. Expansion: when a business wants to expand then they
may need money. One of the reason why most of the

3. Business Finance businesses want to expand is that to meet the large

orders.

3.1. Sources of Finance Internal source of finance

1. Personal saving: as a business is to begin there is a
Key Vocabulary: need for finance. Some of the finance may be funded
by the owners and some by other financial
Short term finance: money borrowed for one year or
institutions.
less.
2. Retained profits: once businesses have established
Long term finance: money borrowed for more than one
they may generate a huge amount of profit and a
year.
small amount of profit could be kept by the business
Capital: finance provided by the owners to a business.
without returning it to the owners. This amount can
Internal finance: finance generated by the business
be used for future expansions or emergency funding.
from its own means.
This is the cheapest source of finance as it has no any
Retained profits: profit held by the business without
extra charge such as interests.
returning to the owners and which may be used in the
future. 3. Selling off assets: when a business develops they
may have a lot of unwanted non-current assets that
External finance: finance obtained from outside the
may worth a lot. They can sell these assets to fund
business
expansions
The need for finance
External sources of finance
Long term - remain in the business for more than a year
or short term - which will last in the business for less
than a year. They are needed by businesses for various
reasons such as:
Some businesses have seasonal trade and they may
need finance at off season to fund all expenditures.
A firm may be short of money because a customer has
delayed the payments.

Sources of short-term external sources of finance:

1. Bank overdrafts: this means the business is allowed 1. Loan capital: bank loans can be used to fund short
to spend more money than it has in its account. or long-term needs. They loan must be paid in
However, there is a limit set by the bank. There may regular installments with the interest. The main
be interest charges. The bank has all the rights to call advantage is that businesses will know how much to
the business and ask for the money immediately at pay every month
any time and they may do this when they feel the 2. Unsecured bank loans: this is when banks lend
business is facing a loss. loans to business with no any form of security or
2. Trade payables: business can purchase raw guarantee. Banks often avoid this and prefer secured
materials from their suppliers on credit. That is the bank loans. The interest rates are very high for these
payment can be paid at a later date usually within 30 loans comparative to secured loans.
to 90 days. The business can delay the payments to 3. Mortgages: this is a long term loan in which the
their suppliers in order to fund some important business or the borrower must use a land or a
things. property as a security. Interests are lower for these
3. Credit cards: they are very flexible and easy source types of loans.
of finance. The accounts should be settled within 56 4. Debentures: this is a long term security yielding a
days to avoid any interest charges. And if the fixed rate of interest issued by a company and
payment is delayed even after 56 days interest secured against assets. They must be repaid at a set
charges will be very high. date usually when the debenture matures. Public
limited companies usually use this form of loans.
Sources of external long-term sources of finance: 5. Hire purchase: this is when the business borrow the
tools that may be required instead of purchasing
them. The business may have to make a down
payment.
6. Share capital: this is a common method of raising
finance for limited companies by selling their shares
to people. The business can also use a right issue
which may give the existing shareholders the right to
purchase more shares. However, the shareholders
may expect dividend payments and the costs of
administration is much higher
7. Venture capital: they are specialist investors who
provide money for business purposes, often to new
businesses. They may be entitled to a share of profit.
They invest in companies that have a higher growth
potential.
8. Crowd funding: this is where a large number of
people invest in a business venture using an online
platform. The main advantage of this is that there is
no interest payments. The lenders may be a large
number of people who together may represent the
crowd therefore, a large amount of money may be
raised. However, if the business fails the crowd will
be disappointed.

3.2. Cash Flow Forecasting

Key Vocabulary

Cash flow: flow of money into and out of a business. Identifying any cash shortages: business can in
Insolvent: inability to meet debts. advance identify the cash shortages and make
Cash flow forecast: it is a prediction of all receipts and arrangements to raise funds.
payments over a period of time for the future. Supporting applications for funding: If the cash flow
Closing cash balance: amount of cash that a business balances are positive then financial institutions are more
expects to have at the end of each month. willing to lend money.
Cash inflows: Money that is coming into the business. Help when planning the business: It helps to clarify the
Cash outflows: money that is going out of business. aims and to make improvements to the business.
Examples: tax, other expenses Monitoring the cash flow: Business can compare the
Net cash flow: difference between cash inflow and predictions and the actual ones and find the weakness
outflow. and try out different steps to increase the cash inflow.

The importance of cash 3.3. Costs

Cash is the most easiest to be changed into money. When a
business has a very high amount of cash then it is
Key Vocabulary
considered to be successful, else it’s considered to be Costs: expenses that must while running the business
struggling to survive.
Fixed cost: the costs that remain constant
Why is cash needed?
Variable cost: the costs that vary with the level of output
To pay suppliers and other costs: as the raw materials Total cost: the total of the fixed cost with the variable
are purchased from the supplier, they may be expecting costs
cash in return. If the business fails to pay them adequate Total revenue: money generated from the sale of
amount of cash then this will result in a damage to the outputs
healthy relationship with the suppliers and they may
refuse to supply.
To prevent business failure: businesses must ensure
that they have enough cash to pay their outstanding
debts. And if they are unable to pay (insolvent) then this
will result in the business shutting down. They should
continually monitor their cash flow and keep up-to-date
records of financial transactions.

The between cash and profit difference

Sometimes the value of cash and profit may be different at
the end of the trading period. Some of the reasons are:

As some goods are sold on credit, there may be some

consumers who have not paid the money at the end of
the trade period and therefore, cash is less than the
profit.
Sometimes owners put more cash into the business
therefore, cash is greater than profit.
Purchase of non-current assets may reduce the cash.

Why is cash flow forecast important?

1. Fixed costs Break-even point is where the total costs and total
a. Fixed costs do not vary with the level of output. revenues intersects.
They don’t increase when output increases neither do Fixed costs are always horizontal in the graph
they decrease when the output decreases. However, At any level of output below the break-even point the
they are to be met even if no output is produced. business makes a loss.
b. They form a straight horizontal line in a graph. At any level of output above the break-even point the
Examples: rent, wages, etc. business makes a profit.
2. Variable costs Margin of Safety =
a. Variable costs are the costs that vary with the level Current output – Break even output
of output. When output increases they increase and
the vice versa. Examples: raw materials, packaging. Effects of changes in price and costs on the break-even
b. Total variable costs = chart
Variable cost per unit ∗ number of units If the price is higher, the TR line will be steeper and the
3. Total costs Break-even point will shift to the left.
a. This is the addition of the Variable and fixed costs. If the price is lower, the TR will be flatter and the break-
b. Total cost = Fixed cost + even point will shift to the right.
Total Variable costs If the FC is higher, then the TC will move upwards with
4. Average costs the steepness unchanged and the break- even point will
a. This is the average cost of producing one single shift to the right.
unit. If FC is lower, TC will move downward with the steepness
Total cost
b. Average costs = total quantity produced

unchanged and break-even point will shift to the left.

5. Total revenue If VC is higher, TC will be steeper and the break-even
a. The amount of money the firm receives after point will shift to the right.
selling its outputs If VC is lower, TC will be flatter and the break-even point
b. Total revenues = Price ∗ Quantity will shift to the left.

Limitations of Break-even chart

3.4. Break-Even Analysis
The TC and TR are shown as straight lines. This is
Key Vocabulary because the costs may lower when the suppliers offer
discounts on large orders. And therefore, the TC may fall.
Break-even point: it is the level of output where the It is assumed that all goods are sold. However, there are
total revenues is equal to the total costs. Neither a profit unsold stocks at the end of the trading period.
nor a loss is made. The accuracy of the break-even chart depends on the
Break even chart: the graph that shows the total costs accuracy of the details that is given and the quality of the
and total revenues. data that is used to construct the chart.
Margin of safety: amount of output available to be sold
above the break-even point where the business makes a
profit.
3.5. Statement of Comprehensive
Break-even point = Selling price –Fixed costs
Variable cost per unit

Income
What does the Break-even chart show? Key Vocabulary
Income statement: financial document that shows a
firm’s expenses and income for a particular trading
period.
Profit: money that is left over after the costs are
deducted.
Retained profit: profit that is held in the business and
not returned to the owner.
Normal profit: minimum profit a business needs to
make to retain the interest of owners.

Purpose of an income statement Investment decisions: a business can analyze the

income statement and see if they are having enough
Income statements are used by businesses to calculate profits to invest in new projects. They can also see into
profits for a particular trading year. There are 2 types of the previous year’s income statement and compare the
profits: Gross profit which is calculated before deducting the performance.
overheads, and operating profit which is calculated after the Basis for future forecasts: After a deep look at the
deductions of overheads and other costs. income statements of the previous years the business
can find a trend in the profits. If they are decreasing they
Features of income statement can necessary steps to increase the profits and expect
more for the future.
Revenues: money the business receives from selling Making comparisons: the operating profit in the income
goods and services. statement can be compared with the profits of the rivals
Costs of sales: costs of producing the products such as: and measures can be taken to increase the profits if
purchase of raw materials. rivals were outcompeting.
Gross profit: Revenues – costs of sales Cost Analysis: businesses can also evaluate the increase
Administrative expenses: general overheads or or decrease in costs. For example, if the costs of raw
expenses of the business. materials has increased then they can find new suppliers
Other Operating expenses: any expense that is not with lower prices.
included in the administrative expenses are included
here The nature and importance of profit
Selling expenses: the expenses that are directly related
to the selling of its products. Profit is the key element that encourages many people to
Operating profit: the administrative costs and other start businesses. If there were no profits earned, business
overheads are subtracted from the gross profit to get the owners may fail to continue. All business owners need a
operating profit. normal profit to retain their interest in the running of the
Finance costs: interests paid on loans. business. Many people will invest their money in more
Profit for the year: costs of finance is subtracted from profitable industries to increase their profits. They are also
the operating profit to get the profit for the year. prominent as a measure of success as they can be
Profit for the year after tax: the amount of money that compared with the profits of rivals.
is left over after all expenses have been deducted as well
as the taxes. 3.6. Statement of Financial Position
How might the income statement be used in Key Vocabulary
decision making?

Statement of financial position: it is a summary of the 1. Non-current assets: they are the assets that last for
business assets and liabilities at a period of time. more than a year in the business.
Assets: resources used or owned by the business. 2. Current assets: they are the assets that may be
Liabilities: debts of business that provides funds. changed into cash easily and they include: inventory
Capital: Finance provided by the owners of the business of raw materials, Trade receivables and cash in hand.
Non-current assets: the assets that last in the business 3. Current liabilities: they are the debts to be paid
for more than a year. within a year. Examples include: trade payables, bank
Current assets: assets that last in the business for less overdrafts and taxes.
than a year and will be turned into cash easily. 4. Net current assets: They are the current asset
Liquidity: how easily an asset is converted into cash. minus the current liabilities. This shows the working
Current liabilities: the liabilities that are to be paid capital. If a business is short of working capital it
within a year. could have cash flow problems.
Non-current liabilities: the liabilities that are to be paid 5. Non-current liabilities: money owed where
even after 1 year. repayments is not due for more than a year.
Net assets: the value of all assets deducted by all Examples: Borrowing loans for more than one year,
liabilities. mortgage payments.
Goodwill: the value that a company has because it has 6. Net assets: this is the value of assets deducted by
good relationship with its customers and suppliers. the value of liabilities.
Working capital: the value of the liquid resources that 7. Shareholder’s equity: the money that the owners
can be used to meet the running costs have contributed to the business.
8. Retained profit is the amount of money that is held
Purposes of Statement of financial position back without returning to the owner. Other reserves
is any other amount that is owing to the owner.
The main purpose of a statement of financial position is that 9. Capital employed: the money that owners have
it helps a business find the value of their net assets and invested in the business.
analyze are they able to continue in the future. If not they
will have to find ways to increase their net assets. Interpreting the statement of financial position
Features of a Statement of Financial position The information provided by the statement of financial
position can be used to evaluate the position of the
business. It provides a guide to the value of a business.
However, the value will be estimated as for assets its
generally hard to provide a value. Also, some businesses
may have assets that are non-physical such as good will.

3.7. Ratio Analysis

Key Vocabulary

Ratio analysis: mathematical approach to investigating 3. Return on capital employed

accounts by comparing 2 related figures. operating profit
Gross profit margin: it is the gross profit that is a. capital employed
∗ 100

expressed as a percentage of turnover. b. The advantage of this ratio is that it links profit to the size
Operating profit margin: operating profit expressed as of the business.
a percentage of turnover. c. Capital employed = Non-current Liabilities +
Current ratio: it assesses the firm’s liquidity by dividing Capital and reserves
the current assets by the current liabilities.
Acid test ratio: similar to current ratio but excludes Using ratios to make comparisons
inventory from current assets.
Return on capital employed: profit of a business as a Ratios can be used to analyze the performance of the
percentage of capital employed. business. They can help businesses to improve their
performance by working on their weaknesses. They can be
Ratio analysis can be done in 2 ways: used to make comparisons between 2 or more businesses in
the same industry. This will also help them to find their
1. Liquidity ratios: this measures how easily a business market share in comparison to other businesses.
is able to pay its short term debts.
2. Profitability ratios: it measures the performance of
a business.
3.8. The Use of Financial Documents
Profitability ratios Key Vocabulary
Quantitative information: the information that are
1. Gross profit ratio = Gross profit
Revenues ∗ 100

expressed in numbers.
Operating profit
2. Operating profit margin = Revenue
∗ 100

Auditing: this is a financial procedure that checks the

Profit per item
3. Mark-up = costs per item ∗ 100. It is calculated by

accuracy of the company’s financial statements.

businesses to set a price. This is because it
guarantees that all costs of production are covered The use of financial documents to assess the
and a profit is generated. performance of the business
Liquidity ratios Reasons for different stakeholders having a look and
analyzing the financial statements:
This measures how easily the business can convert its assets
into cash. 1. Managers and employees: Managers may need for
making comparisons and also to demand for higher
current assets
1. Current ratios = current liabilities : salaries if business is becoming profitable. Employees
may need while negotiating for wages and ensuring
a. The norm for current ratio is from 1.5 to 2.0
that they have job security.
b. If a business has less than 1.5 then it is unable to pay its 2. Owners and shareholders: owners may need to see
short term debts. if their business is profitable or is it worth investing
c. If a business has more than 2.0 then it has lots of money
more? Shareholders may need because to see
tied up unproductively.
whether they can get higher dividend payments.
2. Acid test ratio: 3. External stakeholders: Banks may need to look at
the financial statement s of the business before
a. This is the most severe test of liquidity which involves the granting a loan to see if there are any unpaid debts
deduction of inventory which may take some time to convert or will the business be able to repay them back.
into cash. Suppliers may want to see if businesses are able to
b. Current Assets – Inventory
Current liabilities
pay for the goods or to see the credit worthiness of
c. If the business has a lower acid test ratio, the business the business before allowing to trade on credit.
may be unable to pay the suppliers. Hence, the suppliers
may refuse to supply. Use of financial documents to inform business
decisions

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Financial documents consist of quantitative information
which is very helpful in decision making. Market research: this is the gathering of data related to
the consumption of goods and services related to the
1. Funding decisions: Businesses can look into th market and analyzing them and using for Marketing
financial statements to see if they have enough of purposes.
cash to fund the expenses of the following year. Untapped: it is market that is available but yet to be
2. Reducing costs: businesses can use the income exploited.
statement to see if the costs are rising. They can take Focus groups: number of people are invited to a
measure to reduce the costs. Also, they can use the discussion attended by groups of Market researchers.
ratio analysis to see the profitability of the business. Consumer panels: groups of consumers who are asked
3. Increasing the profitability: businesses can try for feedbacks about products over a period of time.
ways using the financial documents to increase their
profitability. For example, if the gross profit margin is Purpose of Market research
lower they can increase the selling price, etc.
4. Investment decisions: Businesses can look into To identify and understand consumer needs: it is
these documents to see if they have enough cash to important that businesses always meet the expectations
invest in expansion of the business. However, these of their consumers. Market research will help businesses
information alone cannot help managers take risky to do this by gathering information and predicting
decisions. consumers’ needs and wants.
To identify gaps in the market: by finding the
Other uses of financial documents unsaturated places in the market, the business can
innovate new products that their rivals have not yet
1. Government: governments may use these touched. This will help them gain a competitive edge in
information to monitor the progress of the economy the market.
and the success of economic policies. To reduce risk: before any business begin to trade it is
2. Competitors: they may use the information when important that they carry out market research. This is
comparing their figures with the rivals to evaluate because they may get to know the market, consumers
their level of success. and rivals. Hence, this can prevent the likelihood of
3. The media: they may use to produce reports on business failures.
business and commerce. To inform business decisions: information that are
4. Tax authorities: they may require the financial collected by carrying out market research can be used to
documents of business when deciding how much tax influence the decision making in a business.
to charge.
5. Auditors: They may need the financial documents Methods of primary research
while checking the accuracy of the accounts and
ensuring a true and a fair view of the business is
given to the shareholders.
6. Registrar of companies: it is a must that when
companies register they have to submit a copy of
their financial statements every year.

4. Marketing
4.1. Market Research
Key Vocabulary

Questionnaires: most common form of primary 1. Broad reach - Can reach millions of people
research. They may include opened and closed 2. Ability to target - it allows specific groups to target
questions, simple questions, be short and may not 3. Free or low cost - It may be free for businesses and
include leading questions. They can be used in different paid options may be cheaper
ways such as postal surveys, telephone interviews,
personal interviews, online surveys. Importance of the reliability of market research
Focus groups or consumer panels: detailed data
information can be collected using this cost-effective
method. The people must represent the whole The information collected should be reliable for businesses
population. They may not be reliable as consumers’ to use and see a positive effect. If the information was
fashion and trends changes all the time. unreliable then this will result in failures. The reliability of
Observations: this is where market researchers observe information collected depends on the number of people and
the behaviors of consumers using CCTV cameras and see whether they represent everyone. Businesses should
how much time they spend on watching the products appreciate that human behaviors are unpredictable as
and so on. However, many questions go unanswered. trends and tastes changes overtime. If the quality or
Test Marketing: this is a market research technique that reliability of the information is poor then the decision taken
is used before a national launch. The product is sold in based on this information will not be effective.
small restricted area and then the feedbacks are used to
modify the product. They may be free at times. 4.2. The Importance of Marketing
Advantages of primary research
Original and accurate information Key Vocabulary
Not used by competitors. Market: set of arrangements that allows buyers and
sellers to communicate and trade in goods and services.
Drawbacks of primary research Marketing: identifying customers’ needs and satisfying
them profitably.
Expensive Product orientated: where a business focusses on the
Time consuming design of the product rather than the consumers.
Methods of secondary research include business Market orientated: this is where a business focusses on
websites, internal data, competitors, media and
the consumers rather than the product.
commercial and government publications Market share: it is the proportion of sales in a market
Advantages of secondary research that a business enjoys.
Mass market: large market in which branded products
Cheaper are marketed.
Less time consuming Niche market: small market within a large market or
Easier method industry.

Drawbacks of secondary research Importance of Marketing

Inaccurate information Marketing is not just about selling products however, it is
Out of date about identifying the needs and wants of consumers,
charging the right price, and so on.
Qualitative and quantitative data
Qualitative data is the intentions, attitudes and beliefs of
consumers. It is written down in words and recorded in
video clips. Quantitative information are those expressed in
numbers. They need less interpretation and examples
include: statistics or market shares.

Role of social media in collection of market

research data

4.3. Market Segmentation 4.4. Product

Key Vocabulary Key Vocabulary
Market segment: this is a part of a whole market where a These are the elements of a firm’s marketing that are
particular customer group has the same characteristics. designed to meet the needs of consumers. They are:

How do businesses use market segmentation to Product

target consumers? Price
Place
Some businesses: Promotion

concentrate on producing one product for a particular Product development

segment.
produce a large number of products and target several Products are needed to be produced in order for a business
segments. to trade. However, sometimes businesses may produce
aim their products at all consumers. products while trading. These may be because the existing
product is getting out of date or to build up a competitive
Methods of market segmentation edge in the market.
In order to produce a product there are few stages:
Location segmentation: people living in different
countries have different needs depending on their 1. Generating ideas: these may come from various
climates. For example: hot countries may prefer cotton sources such as: owners or research and
clothes. Also in different regions have different needs development centers.
and so on. 2. Analysis: after the ideas are being generated
Lifestyle segmentation: this is when businesses classify businesses are required to analyze the ideas and
their consumers according to their lifestyles. For filter them, choosing the best, marketable, profitable
example, television broadcasters may target sports and legal idea.
channels at sports lovers. 3. Development: this is where experiments and
simulations may be carried out and the product is
Demographic segmentation: this is where businesses produced as expected.
divide their consumers in terms of gender, age, status, 4. Test marketing: this is when the product is being
religion and race. tested in a market and sample is taken to be as a
representative of the whole market.
Age: teenagers may want the trending clothes with the 5. Commercialization and launch: this is where the
latest fashions while adults may want decent clothes. business modifies the product finally and launches it
Income: High income earners may want luxurious cars nationally.
while low income earners may want any type of
transport vehicle to travel. Packaging
Social class: this is when businesses target consumers
based on their employment status. Consumers link the quality of the product through the
Ethnic origin: Different ethnic groups are having neatness and beauty of the packaging.
different needs based on their cultures. It helps businesses to display their brand name and
increase their image and reputation.
Benefits of market segmentation It helps consumers differentiate it from the rivals.

Can increase the revenues when the products are Product life cycle
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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A Boston matrix may be used to analyze a product
Development: there is no sale. This is where the product marketed by a business while categorizing it according to the
is being made, tested and analyzed. Lump amount of market share and market growth.
money is spent on research and development and the The Boston matrix puts the products into 4 categories:
costs are high.
Introduction: product is being introduced with huge 1. Stars: valuable products for a business while having
parties/promotions. Pricing strategies are implemented a high market share and growth.
and costs still remain high while there is a slight increase 2. Cash cows: mature products with high market share
in the revenues. but low market growth while generating a steady
Growth: if the product is successful the revenues starts income.
to increase significantly. Line is steeper in the graph and 3. Question marks: potential products with lower
costs are beginning to be recovered. At the end of this market share but higher market growth.
phase revenues starts to fall as competitors are 4. Dogs: declining products with low market share and
emerging with their own products of the same type. growth.
Maturity: revenues begin to fall and the costs are fully
recovered. Cash flow is improved and business is making
a profit. More rivals and therefore, some businesses are
forced out or their promotion techniques changes. Some
businesses use extension strategies to lengthen the
lifecycle.
Decline: this is where the product is out of date or not
trending due to changes in tastes and fashions or
advancement of new technologies. Some businesses
bring out new products to replace the declining
products.

Extension strategies
These are the methods that are used to lengthen the life of a 4.5. Price
product. Some methods are:
Key Vocabulary
Changing the appearance of the product.
Encouraging more frequent use of the product. Cost plus pricing: adding a percentage to the cost of the
Finding new markets for the products. product to get the price.
Advantages of using extension strategies Mark-up: percentage that is added to the cost that
makes a profit for the business while setting the price.
Brand image is improved. Penetration pricing: starting with a lower price and
Costs of developing new brands are saved. eventually increasing the price when the product is
Competitors may find it difficult to enter the market. established in the market.
Competition based pricing: strategies based on the
Disadvantages of using extension strategies prices charged by rivals.
Predatory pricing: setting a lower price until the rivals
They are expensive.
drive off the market. Skimming: setting a higher price
They may damage the brand image if extended product
initially and then lowering the price when rivals begin to
is a failure.
enter the market.
Loss leaders: products sold below the costs to bring
Managing and reviewing the product portfolio
more consumers.
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.

Importance of Price 1. Cost plus pricing - This strategy involves adding a

percentage of the costs known to be as a mark-up to
Price is one of the key elements of the marketing mix. the price. One of the key advantage of this pricing
Consumers want better quality products for reasonable strategy is that it ensures that a profit is made for
price. Some of the factors affecting the price are marketing every product that is sold. However, the price may be
mix, objectives, taxes and competitions. higher than the market price.
There are different types of pricing strategies: 2. Penetration pricing - This is when the business
initially starts with a lower price to draw in
consumers and then increase the price when there
are more loyal consumers and product is established
in the market.
3. Competition based pricing - This is a pricing
strategy that is based on the prices charged by the
rivals. The main advantage of this strategy is that a
price war is likely to be avoided. Sometimes
businesses may use predatory pricing to drive out
the rivals from the market and to reduce the
competition in the market.
4. Skimming - This is when a business initially starts
with a higher price and then eventually lower the
prices when the competition increases. One of the
key advantage of this strategy is that the profit
margins are higher and the costs are recovered as
soon as possible.
5. Promotional pricing - This involves lowering the
price of the product for a short period of time in
order to draw in 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.

4.6. Place
Key Vocabulary

Distribution channel: route taken by a product from Locations where retailers are available is more
the producer to the customer. convenient to the consumers rather than the location in
Wholesalers: person or business that buy goods from which the manufacturers are available in.
manufacture and sell them in smaller quantities to Also, retailers may add value to the products by
retailers. providing extra services such as: delivery services which
Retailers: business that buy goods from manufacturers will not be provided by the manufacturer.
and wholesalers and sell them in smaller quantities to There are different types of retailers such as:
consumers. 1. Independents: they are sole traders such as:
E-commerce: use of electronic systems to sell goods and greengroceries, jeweler etc. and are found in
services. malls and high streets.
Direct selling: where business sell their products directly 2. Supermarkets: Large stores, cheaper products,
to consumers. includes ranges of products and provides free
Agent: intermediary that brings together the buyers and parking facilities.
sellers. 3. Department stores: large stores split into
departments and provides good quality products
Distribution channels with better customer services.
4. Multiples/chain stores: They may be many
This is a route through which the product travels from the stores in different locations with the same
producer to the consumer. Some businesses sell their own products and may be controlled by a central
products directly to their consumers or use intermediaries office.
such as retailers and wholesalers in order to reach their 5. Hypermarkets: Large giants, with cheaper
consumers. products than in supermarkets, less customer
services and goods are not displayed attractively.
Retailing
E-commerce
Why do manufacturers sell their products to the retailers
instead of directly selling it to the consumers? The most common form of retailing in today’s world is E-
commerce. It uses electronic systems to sell and purchase
goods and services all around the world.
2 types:

Business to consumers - This is when the goods are

purchased online and delivered at home. However, the
new trend is that goods are ordered and collected from a
central hub.
Business to business - This involves businesses selling
to other businesses online. Sophisticated software can
be used to purchase the components that are required
with the help of these software which may help to find
the best cheapest supplier while carrying out all the
paper works.

Benefits to businesses of online distribution

Lower overheads as no need to rent premises

Businesses have more choices when locating operations

Drawbacks to businesses of online distribution

Businesses may have to face increased competition as Advertising: communication between a business and
this is a cheaper method of forming business. customers where messages are placed in the media to
There is a security risk as hackers may gain access to encourage the purchase of a products.
sensitive information. Public relations: attempt by a business to communicate
Site may be affected by malware and poor internet with interested parties. Sponsorship: making a financial
connections. contribution to an event in return for publicity.
Benefits to consumers of online distribution Above and below the line promotion
It is cheaper because saves travel costs. Above the line promotion involves placing the adverts using
It saves time which is valuable the media while below the line promotion involves placing
There is more choices for consumers the advert without the use of media. Examples of above the
Drawbacks to consumers of online distribution line promotion is advertising in newspapers whereas an
example of below the line promotion is press release.
Consumers cannot touch or look at the goods before Above the line promotion
purchase.
Customers may experience poor after sales services. Television: advantage is that huge audience can be
Customers without credit cards or internet may not get reached and creative adverts can have great impacts.
the service. However, very expensive.
Newspapers and magazines: advantage is that they are
Other methods of distributions relatively cheap and readers can refer back. However, no
movement or sounds.
Direct selling: this is where the business sells their Cinema: advantage is that big impact with big screens
products directly to the consumers. Wholesaling: they and sound and movement can be used. However, limited
buy from manufacturers and sell to retailers. audience.
Agents or Brokers: they link buyers and sellers. Radio: advantage is that sound can be used and cheaper
production. However, not visual.
Choosing the appropriate distribution channels Posters and billboards: advantage is that they are seen
repeatedly and good for sharp messages. However,
The nature of the product - Different products require difficult to evaluate the effectiveness.
different distribution channels. Internet: advantage is that can be targeted and
Cost - Businesses may choose the cheapest distribution updated. However, possible technical problems.
channel and also may prefer less intermediaries because
if there were more intermediaries then the product may Below the line promotion
become more expensive and therefore, lower revenues Doesn’t use any media to advertise. One of the forms of the
and market share. Websites may be used by businesses below the line promotions is:
to sell their products directly to the consumers so that
costs are lower. Sales promotions - They are the incentives to purchase
The market - Producers selling to larger markets are the product. For example, free gifts, coupons and loyalty
likely to use intermediaries. While producers selling to cards are offered by businesses to encourage people to
small markets are likely to sell directly to consumers. make purchases.
Producers selling overseas are likely to use agents to
guide them to the new market. Merchandising and Packaging
Control - Some producers may prefer to sell their
products directly to consumers as they do not want to
see their products sold in down markets as it may
damage their brand image.

4.7. Promotion
Key Vocabulary

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Most businesses arrange point of sales so that this attract
consumers easily. This is called merchandising. Some 1. Online targeted advertising: this is when
examples include, layout of the product is made more businesses could make use of their advertising
attractive and visible, posters and leaflets are used to resources more effectively. This is made possible by
advertise, and shelves are often kept well stocked to give a the use of browsing habits and other data that are
good impression in the minds of the consumers. collected using cookies.
2. Viral advertising: businesses can use this type of
Direct mailing advertising technology to increase their revenues.
This contains messages, video clips and images which
This is where businesses sends letters and leaflets about the may promote a product. These messages may
product to consumers. They may be personalized. This may encourage people to pass on to their friends and
encourage consumers to purchase the product. family and thereby, make it viral.
3. Social media: This helps businesses to target their
Direct and personal selling adverts more effectively. One of the main advantage
is that, it is relatively cheaper method and the advert
Direct selling involves a sales person calling to numbers and may reach millions of people.
encouraging the consumers to purchase a product. One 4. E-newsletter: some businesses may send electronic
advantage is that features of a product can be discussed messages to interested parties which may include
more clearly. However, people often get irritated by this. interesting statistics and industry news. They may
send messages to consumers who have already
Public relations purchased goods from them.

This is an attempt by the business to communicate with the Branding

interested parties. The main purpose is to increase the
revenues by improving the image and establishing the Branding involves giving a product a name, sign or symbol
brand. The main advantage of public relations is that it is a for the product in order to differentiate it from that of the
cheaper method of promotion. rivals. It is used to create customer loyalty and to develop an
Some approaches that are used are: image.
1. Press release: some information about the business The use of promotion strategies in different
or the product may be given to the media and this market segments
may be used to write an article for the newspaper
and this may improve the image of the business. Advertising: this may not differ much in any market
2. Press conference: some of representatives of the segments. However, in large markets, businesses may
business may speak in the media and this allows the use social media or television advertising.
press to ask for frequently asked questions and give Sponsorship: this is used in markets where images are
their feedbacks. important. This is a cheaper method of advertising.
Donations: this can be used by businesses to improve their Special offers: some business may give discounts on
image. some products in order to hook in the consumers into
the stores while hoping that some other products may
Using technology in promotion be purchased. This method may be used to clear out
stocks or generate quick cash.

5. Business Operations
5.1. Economies and Diseconomies of
Scale

Economies of scale Skilled labour: when an industry develops there may be

well-trained workers with required qualifications and
This is the financial advantages of producing something in experience, hence, training costs may be lower for
huge quantities or the fall in average costs for a business businesses.
when they produce in bulk. The two types are: Infrastructure: when an industry expands the road and
other infrastructures may suit the needs the industry.
Internal economies of scale Ancillary and commercial services: when an industry is
External economies of scale established then suppliers may be encouraged to set up
close to the industry hence, in this way the costs may fall.
What are the internal economies of scale? Cooperation: when more firms are located in the same
industry cooperation is likely to increase hence, there
They are the financial or cost benefits an individual firm may be some cost benefits, such as for sharing the costs
could enjoy as they expand. Some of them are: of Research and Development.
Purchasing economies of scale: this is when businesses
get discount for purchasing components in bulk. Diseconomies of scale
Therefore, average costs fall.
This is when a firm expands beyond a certain limit it
Marketing economies of scale: for instance, it would be experiences a rise the total average cost and this is called
senseless for a small business to purchase a machinery diseconomies of scale. Some of them are:
that may be used once a month.
Technical economies of scale: larger operations are Bureaucracy: when businesses grow too fast and too
more efficient as they may include specialized much the decision making process slows down. This is
equipment and machineries which may save time and because there are number of departments and lots of
money. paper work.
Financial economies of scale: as businesses grow they Labour relations: the relationship between the
can easily convince financial institutions to lend money employees and the higher management reduces. Hence,
as they may be able to support their repayments using motivations suffers and therefor, productivity falls.
their previous successful year’s financial statements. Control and coordination: controlling a firm with
Managerial economies of scale: larger companies can thousands of employees, millions of units and many
employ specialized managers for each department so departments is difficult. There is a need for more
they can get fresh ideas which may help to increase the supervision.
revenues of the business.
Risk-taking economies of scale: larger businesses may Other limitations to growth
have wider product ranges selling into varieties of
market and therefore, if one product fails they can Lack of finance: some businesses may want to grow but
depend on the other. may not have the required amount of money that is
needed to grow. Purchasing machineries, equipment and
External economies of scale other things are expensive.
Nature of market: some businesses by nature cannot
The cost benefits that all firms in an industry enjoys as the grow.
industry as a whole expands. Lack of managerial skills: some businesses may not
have proper owners who know hpw to run a business
effectively and grow. Hence they may be prevented from
growth.
Lack of motivation: some business owners may not
want to grow because they may not want to take the
extra responsibility of running a huge organization.

5.2. Production and Productivity Productivity

This is the rate at which goods are produced especially in
Key Vocabulary relation to the work, time and money spent.
Production: transformation of resources into a final Labour productivity is the amount of output produced by
product. the workforce at a given period of time. Whereas capital
Productivity: rate at which goods are produced, and the productivity is the amount of units or output produced
by the machineries in the production process over a
amount produced, especially in relation to the work, time
period of time.
and money needed to produce them. Total output
Labour productivity: output per worker in a given time Labour productivity = number of workers

Total output
period. Lead time: time it takes to prepare or deliver Capital productivity = capital employed

something.
Methods to improve labour productivity
There are different types of production:
Businesses can use motivation schemes that are financial or
Job production non-financial to motivate their workers hence, employees
are more willing to work and therefore, productivity
This is when a business produces one product from start to increases.
finish before moving onto the next. All factors must be
employed for producing a single unit of output at a time. Methods to improve capital productivity
This is used when orders are small and each item is
different. The advantage of this method is that the products Downsizing: process of laying of staff for reducing the
may meet the customer expectations. However, the lead capacity. The advantage of downsizing is that there is
times may be longer. less costs and profits are increased as profitable parts
don’t subsidize the unprofitable ones.
Batch production Relocation: businesses often relocate their workplace in
order to improve the efficiency and productivity. They
The method that involves completing one operation at a can take advantage of the cheaper resources such as
time on all units before performing the next. This is suitable labor.
when the demand is higher and all units are to be Outsourcing: contraction out of work that may be
standardized. The advantage is that the unit costs are also otherwise done by the organization to other business.
likely to be lower and the production is flexible with large This means that work that can be currently done by the
orders. However, work may be boring for workers because business can be done by other business who can do it at
of specialization therefore, motivation suffers. lower costs.
Lean production: the productivity of business can be
Flow production improved by reducing the usage of resources.
It is a large scale of production for standard products where Impacts of business on productivity
the products move from one operation to the next in a
conveyor belt. Some of the features of this method of
production are: large quantities are produced and standard
products are produced. The main advantage of this type of
production, unit costs are lower and productivity is
increased. However, the set-up costs are higher.

Labour and Capital – intensive production

Labour intensive production is when a business use more of
laboor than machineries. Whereas capital intensive
production is when a business use more machineries than
labor in their production process. They may use this when
machinery is relatively cheaper than labour.

Financial impact: the costs may be lower and the profits High ordering and administration costs
may increase. However, some of the measures that are Vulnerable to a break in supply
used to improve the productivity may cost money, such Hard to cope up with changes in demand
as investing in new technology.
Competitiveness: as productivity increases businesses Kaizen
may have a competitive edge in the market. Hence, they
can enjoy huge profits, higher market share and more Kaizen is a Japanese word that refers to continuous
loyal consumers. improvements as everything in this world can be improved.
Workforce: there are positive and negative impacts for Workers are always encouraged to come up with fresh ideas
this. When motivational schemes are introduced workers to improve the quality of the product and the efficiency at
are more willing to work as their bonuses may have the workplace. When kaizen is adopted in western countries
increased and work may be more interesting. However, they are needed to be trained as this may be unfamiliar for
when new technology is introduced workers may be laid the people in the west.
off and this may create an adverse impact in the minds Advantages
of the existing workers.
Continuous improvements
Customers: the benefits of improvements in productivity
for customers are better quality products, lower prices Makes people aware of their mistakes
as unit costs are reduced and better products with More loyal consumers
increased facilities and tastes. Disadvantages

5.3. Lean Production Expensive

More cooperation is required
Key Vocabulary Proper quality procedure is required

The 5s of good house keeping;

Lean production: approach to production aimed at
reducing the quantity of resources used. Sort: Getting rid of the clutter in the workplace.
Just in time: Production technique that is highly Set in order: Organizing the workplace.
responsive to customer orders and uses very little stock Shine: ensuring that the workplace and equipment are
holding. well cleaned.
Standardize: The practices must be identified by
The main aim of lean production is to use fewer resources in everyone and adopted in their daily work hours.
production as it uses less of everything. It raises the Sustain: everyone should adopt the system to lock the
productivity and reduces costs and cuts the lead time. It also other 4s on a permanent basis.
reduces waste and improves the productivity.
Some of the principles of lean production are: Some of the practices and principles that Kaizen is
surrounded with are:
Just-in-time production
This is a production technique that is highly responsive to
customer orders and uses a very little stock holding.
Suppliers may have to deliver the goods several times a day.
Advantages
Cash flow is improved
Space is released
Fewer suppliers

Disadvantages

Standardization: this means that all activities of a Computer aided design (CAD): use of the computers to
business should be carried out according to the design products
established formulae. Quality can be assured while Computer numerically controlled machines (CNCs):
ensuring that customer needs are met machines that carry out the instructions fed by the
Team working: this involves dividing the workforce into computers
smaller groups expecting that workers may develop a Computer aided manufacturing (CAM): where
team spirit, flexibility may improve, labor relations and computers link and control the design and production of
communications may also improve. goods in manufacturing
Empowerment: this is when businesses give their Computer integrated manufacturing (CIM): use of
employees more authority over their own work. computers to control the entire production process
Suggestion schemes: this is when the employees are
given the rights to suggest ideas in order to improve the The impact of new technology in the primary
productivity or reduce the costs. sector
Quality circles: these are small groups of workers who
get together to discuss the work-related problems and Advantages
try solving them. Hence, the employees get the
opportunity to improve their job. Increase in productivity
Multi-skilling: this is when workers are trained in Lower costs
different departments and different jobs to help improve Improved health and safety procedures
the flexibility of the business in case of an emergency. Increased nutritional values for products

Disadvantages
The advantages of lean production
Increase in installation costs
Financial benefits: costs are lower as less resources are More pollution from new machineries
used. Therefore, more profits for owners and cheaper
funds are available for the future. The impact of new technology in the secondary
Improved competitiveness: when the costs are lower sector
the prices of the products can be lowered hence, higher
market share and revenues.
Robots
Positive environmental effects: when businesses use
the resources efficiently this will reduce the negative They are divided into 3 categories:
impacts in the environment. Hence, their image will
increase as they become more environmentally friendly. Material handling robots: used in transport of
Improved customer service: lean production results in inventory or components from one place to other inside
shorter lead times. a factory.
Processing operations robots: performs specific task
5.4. Technology in Production and specialized to do the task with the fitted tools.
Assembly line robots: they do a single task or are used
Key Vocabulary in inspection of the products in an assembly line.

Computer Aided Design (CAD)

The design of a product before it is being manufactured can
be made easily and accurately with the use of CAD. It is also
cheaper method and faults can be detected easily. Also, by
the use of CAD the need for models are less. Hence, the
advancement of technology has mad businesses feel more
in the production of their product.

Computer numerically controlled machines

(CNC’s)

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WWW.ZNOTES.ORG authorised for personal use only by fidelis at Baitul Hikma Integrated International School on
25/03/25.
EDEXCEL IGCSE BUSINESS
These are machineries that can be programmed by the Disadvantages
computer to do several tasks such as: cutting and sewing.
They do their jobs more accurately. There are no human 1. Loss of flexibility
errors and the amount of waste is reduced. They can 2. High installation costs
measure several variables, such as dimensions, weight and 3. Technology breakdown can be expensive
temperature. 4. Reduced motivation for machine workers

Computer Aided Manufacturing (CAM) 5.5. Factors of Production

This approach is used when the design and production are Key Vocabulary
linked together and the whole process of production may
become automated. It assists several activities such as Fixed capital: stock of human made resources that are
planning, management and transportation. CAM speeds up used to help make goods and services
the production and minimizes the waste. Entrepreneur: individual who organizes the other
factors of production and risks own money in the
Computer Integrated Manufacturing business venture
This involves using computer for the whole production Factors of production
process. People may only be used for maintenance,
monitoring and supervising. These are the resources that are used to produce goods and
services. They are generally of 4 types:
Impact of new technology in the tertiary sector
Land - It is the plot of land that is required for
Advantages businesses to locate their premises. It also may include
natural resources such as iron, coal and rain water etc.
Lower labour costs in the financial services as ATM Labour - This is the amount of human workforce that is
machines are readily available and many transactions required to produce the goods and services. They may
can be carried out online. be skilled, semi-skilled or unskilled workers.
In advertising the costs have been lowered as now Capital - It is an artificial resource as it is made by labor
advertisements can be placed online on social media itself. There are 2 types of capital:
platforms where it could reach millions of people without 1. Working capital: it is the stock of raw materials
any cost. and components that will be used in the
In the leisure industry, there are less paper work and production process.
saves travel expenses as there is no need to travel to 2. Fixed capital: it refers to the offices, shops and
purchase tickets. machineries that may be used in the production
The use of IT has reduced the cost of administration and fixed capital is also used in converting the
and communication. working capital into goods and services.
E-commerce is the use of electronic systems to sell and Enterprise - Responsible for setting up and running the
purchase goods. This had reduced the cost of business.
travelling for consumers and the cost of rent of
premises for businesses. Specialization and division of labour
Overall the advancement in technology has great
Specialization is a production of limited range of goods or
impacts on the tertiary sector business such as lower
services usually in which the business is an expert in.
costs and faster, accurate and easier work. Departments specialize in different activities such as
Advantages marketing and finance. Workers will also specialize in certain
1. Tasks are easier for workers tasks and skills, this is called division of labour.
2. Improved health and safety procedures Some of the advantages of division of labour are:
3. Less waste of resources
4. Improved communications

1. Workers concentrate on the task that they do the

best. 5.6. Quality
2. Workers’ skills are improved as they regularly do the
same work. Key Vocabulary
3. Time is saved as workers don’t switch from one job to
Quality: it is the feature of a product that allows it to
another.
satisfy the needs of the consumer
Labour and capital intensive production Quality control: this is ensuring that the quality of a
product meets the specified quality standards
Labour intensive production is when a business uses more
Some of the main features that consumers look into
labour relative to machineries in their production process. while checking the quality of the product are:
Capital intensive production is where a business uses more
machineries in comparison to labour in their production 1. Durability
process. 2. Reliability
The best resource mix between labour and capital 3. Customer service
depends on the following factors: 4. Physical appearance
The type of the product: fast moving consumer goods Why is quality of a product important for a
are likely to produce in large operations using large
amounts of machinery. business?
The relative prices of the 2 factors: Most eastern
Increased competition: As competition is increasing in
countries use labour intensive production as labour is a market, better quality products are having higher
much cheaper than machineries. However, most of the demand as they serve as a competitive edge for
western countries use capital intensive production as
businesses because consumers prefer better quality
machineries are cheaper than labor in their production
products for reasonable prices.
process.
Government legislation: businesses have to follow the
legislations that are imposed by the government else
Labour intensive production they may be fined.
Advantages Faulty products are costly for businesses: Cost of
components are higher when faulty products are
Cheaper for small scale production produced.
More flexible than machineries as they can be retrained
People are more creative than machineries Quality assurance
Disadvantages They are the working methods that take into account
customers’ needs and wants when standardizing quality. It
People are difficult to manage also ensures that the quality standards are met. This is a
People need breaks and holidays method of checking quality during the production process.
People can be unreliable as they may take sudden Some of the advantages are less costs and reduces waste
holidays from work and saves time. However, implementation costs are higher.
Capital intensive production Total quality management (TQM)
Advantages Some of the main features of TQM are:
Machineries can operate 24/7
Machineries are easier to manage than labour
Machineries are more precise and accurate

Disadvantages
Huge set-up costs
May be inflexible

Quality chains: every worker in a production line will

receive and pass on the semi-finished work after
ensuring that the specified quality standards are met.
This avoids faulty products being made.
Everyone is involved: everyone is involved and TQM
starts from the top management down to the bottom.
Quality audits: statistical data is used by businesses to
reduce the variations which is the cause of many quality
problems and to make all products standardized.
Customer focused: businesses must ensure that they
respond to changes in people’s needs and expectations.
Zero defects: every product that is manufactured is free
from defects.

Advantages

Focus is on customer needs

Quality improved in all aspects of business
Improves the communication channels

Disadvantages

High training and implantation costs

Focus is on processes and not on the product
Will only work if everyone is committed

Quality and competitive advantage

Businesses that produce good quality products have a
competitive advantage in the market which could be used
by them to earn a higher market share which potentially
could increase their revenues and profits. Furthermore,
consumers are prepared to purchase products for higher
prices if the product is of high quality.

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Edexcel IGCSE Business Theory

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Edexcel IGCSE Business Theory

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ZNOTES.

UPDATED TO 2023-2025 SYLLABUS

To make sure they have good working conditions

1.3. Business Objectives

1.5. Types of Business

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

1.6. Limited Companies &

Limited companies: business organizations that have Limited liability

Disadvantages of the government owning

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

Countries cannot trade if international borders are kept

1.13. International Trade & Exchange

Government spending and taxation

2.2. Communication Methods

2.3. Barriers to Communication

Ways to Remove Barriers to Communication

Fresh ideas generated

1. Gender - One of the most common form of

Minimum wage laws

Training in healthy and safety 2.7. Importance Of Motivation in the

2.8. Methods of Motivation at Work

An organizational chart shows: Flat structures

The roles of employees and their job titles Tall structures

3. Business Finance businesses want to expand is that to meet the large

3.1. Sources of Finance Internal source of finance

Sources of short-term external sources of finance:

3.2. Cash Flow Forecasting

The importance of cash 3.3. Costs

The between cash and profit difference

As some goods are sold on credit, there may be some

Why is cash flow forecast important?

unchanged and break-even point will shift to the left.

Limitations of Break-even chart

Purpose of an income statement Investment decisions: a business can analyze the

3.7. Ratio Analysis

Ratio analysis: mathematical approach to investigating 3. Return on capital employed

Auditing: this is a financial procedure that checks the

accuracy of the company’s financial statements.

Drawbacks of secondary research Importance of Marketing

Role of social media in collection of market

4.3. Market Segmentation 4.4. Product

How do businesses use market segmentation to Product

concentrate on producing one product for a particular Product development

Importance of Price 1. Cost plus pricing - This strategy involves adding a

Business to consumers - This is when the goods are

Benefits to businesses of online distribution

Lower overheads as no need to rent premises

Drawbacks to businesses of online distribution

This is an attempt by the business to communicate with the Branding

Economies of scale Skilled labour: when an industry develops there may be

5.2. Production and Productivity Productivity

Labour and Capital – intensive production

5.3. Lean Production Expensive

The 5s of good house keeping;

Computer Aided Design (CAD)

Computer numerically controlled machines

Computer Aided Manufacturing (CAM) 5.5. Factors of Production

1. Workers concentrate on the task that they do the

Quality chains: every worker in a production line will

Focus is on customer needs

High training and implantation costs

Quality and competitive advantage

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