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Business Igcse Program

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Published in: Business Studies
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Unit 1

Ahmed E / Dubai

10 years of teaching experience

Qualification: MBA

Teaches: Communicative English, Language, Special Education, Business Studies, Economics, Presentation Skills, Marketing: Communications, Marketing: Strategy, Arabic, English, Sociology, Business, Marketing, IGCSE/AS/AL, IB Exam Preparation, Social Studies

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  1. Test U Produce Plan Idea C_ Section 1 erstanding business activity (((LogoType ALL PPT.com Free P owetpoinl
  2. Chapter 1 Business activity: Objectives: Needs, wants, scarcity & opportunity cost. The importance of specialisation to businesses & consumers. The purpose of business activity. Added value. How a business adds value. idea
  3. Business activity: the process of producing goods & services to satisfy consumer demand. Need: a good or service which is essential for living. Want: a good or service which people would like, but is not essential for living. Economic problem: unlimited wants can't be met because there are limited factors of production. This creates scarcity. Scarcity: there are not enough goods & services to meet the wants of population. Opportunity cost: the benefit that could have been gained from an alternative use of the same resource. idea
  4. Factors of production: the resources needed to produce goods & services — land, labour, capital & enterprise. Land: all natural resources such as minerals, oil, fields & forests. Labour: is the number of people available to work. Capital: is machinery, equipment & finance needed for production of goods & services. Enterprise: the risk taking of starting up businesses. idea
  5. There are different types of goods & services. They are as follows: 1. Consumer goods: products which are sold to the final consumer. They can be seen & touched like computers, food and so on. 2. Consumer services: non-tangible products such as insurance services, transport and so on. 3. Capital goods: physical goods, such as machinery and delivery vehicles, used by other businesses to help produce other goods & services. Durable consumer goods can be used over & over again unlike non-durable consumer goods they can only be used once. idea
  6. Adding value: added value is the difference between the selling price and the cost of bought in materials. Added value = selling price — cost of materials. Any business must add value to it's product, otherwise the business can't pay it's expenses therefore a business may run at a loss. To increase the added value a business may increase it's selling price or decrease its cost of materials but its always recommended to work on the cost because; increasing the price may cause customers to shift their custom habits to another business, unless the business has a distinguished brand. idea
  7. Specialisation: people & businesses concentrate on what they are best at. Division of labour: production is divided into separate tasks and each employee/machine does just one of those tasks. Advantages: 1. High efficiency (low waste). 2. High quality. Disadvantages: 1. Boredom. 2. No flexibility, if a worker is absent/machine is broke then the production may stop.
  8. Branding: includes having a distinguishable business name which attracts a lot of customers. • Businesses that provide excellent and personalised service quality have a better chance of attracting customers and also they have a good chance of charging high prices. Products with more features and more functions are more likely to be charged with higher prices. People nowadays are more ready to pay for goods or services that save their time, e.g. ready meals. idea
  9. Exam-style questions: Company X is a manufacturer of pottery products, such as plates & bowls, which are mainly sold to hotels & restaurants. The company employs 50 workers. Each employee receives a good wage and this helps them to meet their needs. Production is broken down into nine processes. Employees specialise in just one process. The marketing manager of company X has been asked by the directors to look at ways of adding value to the company's products. a Identify two factors of production b Define 'needs'. c Outline how company X benefits from specialisation. d Explain two stages of company X's production process. e Suggest two ways the marketing manager might increase company X's added value. Justify your answer. [2] [2] [4] [6] [6] idea
  10. CHAPTER 2: Classification of businesses: Objectives: • Primary, secondary and tertiary sector business activity. The changing importance of the classification of business activity by sector for developing and developed countries. How business enterprises are classified in the private sector and the public sector. idea
  11. Classification of businesses: According to activity businesses are classified into: 1. Primary sector: deals with natural resources & raw materials extraction, e.g. farming & mining. 2. Secondary sector: deals with manufacturing, e.g. car manufacturing & appliances. 3. Tertiary sector: deals with providing services, e.g. banking & insurance. Sectors are interrelated & interdependent. The relative importance of each sector depends on the number of people employed in the sector, and its contribution to the total output. idea
  12. Private sector: where businesses are owned by individuals. Public sector: where businesses are owned by the government. Market economy: an economy where all businesses are owned by the private sector, and the government has very less intervention in the economy. Planned/command economy: an economy where the government has total control, and there's no private ownership. Mixed economy: has both a private sector and a public (state) sector. Industrialisation: moving from reliance on primary sector to reliance on secondary sector. Deindustrialisation: moving from reliance on secondary sector to reliance on tertiary sector. Privatisation: selling state-owned business to private sector. Nationalisation: selling or confiscating a private business by the government. idea
  13. The relative importance of economic sectors: Can be measured by two ways: 1. Percentage of the country's total number of workers employed in each sector. 2. Value of output of goods & services made by each sector. Changes in sector importance: • Industrialisation: : moving from reliance on primary sector to reliance on secondary sector. Deindustrialisation: : moving from reliance on secondary sector to to reliance on tertiary sector. idea
  14. Some business activities in the public sector: Health. Education. Defence. Public transport. Water supply. Electricity supply. idea
  15. Exam-style questions: Ade's Engineering Company (AEC) makes parts for cars and trucks. These are sold to car manufacturers in many countries. The parts include metal brake components and rubber seals to fit around windows. AEC operates in Country X, which, until a few years ago, had an economy dominated by agriculture and coal mining. Over the last 20 years the relative importance of the primary sector has declined. To be successful AEC requires natural resources to make car parts and services provided by other businesses. Consumer incomes are rising rapidly in Country X. a. Define 'primary sector'. b. identify two examples of services that a business such as AEC requires. c. Outline two reasons why a business such as AEC could not be successful with out other firms providing natural resources. d. Explain two likely reasons why the relative importance of the primary sector of Country X's economy has declined. e. A government minister in Country X recently said: 'The secondary sector of industry will always be more important than the tertiar idea sector to our economy.' Do you agree with this view? Justify your answer.
  16. N/A
  17. Chapter 3: Enterprise, business growth & size: Objectives: • • The importance of enterprise to new businesses. The key characteristics to successful entrepreneurs. The importance of a business plan to entrepreneurs. How to measure & compare the size of business. How business can expand internally and by merger & takeover. Why some businesses remain small & why some businesses fail. idea
  18. Entrepreneur is a person who organises, operates & takes the risk for a new business venture. Benefits of being an entrepreneur • independence — able to choose how to use time and money • able to put own ideas into practice • may become famous and successful if the business grows • may be profitable and the income might be higher than working as an employee for another business • able to make use of personal interests and skills Disadvantages of being an entrepreneur • • • • risk — many new entrepreneurs' businesses fail, especially if there is poor planning capital — entrepreneurs have to put their own money into the business and, possibly, find other sources of capital lack of knowledge and experience in starting and operating a business opportunity cost — lost income from not being an employee of another business idea
  19. ICharacteristics of successful entrepreneurs Hard working Risk taker Creative Optimistic Self-confident Innovative Independent Reasons why important Long hours and short holidays are typical for many entrepreneurs to make their business successful Making decisions to produce goods or services that people might buy is potentially risky A new business needs new ideas — about products, services, ways of attracting customers — to make it different from existing firms Looking forward to a better future is essential — if you think only of failure, you will fail! Being self-confident is necessary to convince other people of your skills and to convince banks, other lenders and customers that your business is going to be successful Being able to put new ideas into practice in interesting and different ways is also important Entrepreneurs will often have to work on their own before they can afford to idea
  20. Effective communicator employ others. Entrepreneurs must be well-motivated and be able to work without any help Talking clearly and confidently to banks, other lenders, customers and government agencies about the new business will raise the profile of the new business idea
  21. Business plan: is a document containing the business objectives and important details about the operations, finance and the owners of the new business. There are two main objectives for making a business plan: • To reduce risks. • To obtain bank loans. Components of business plan are: The product(s). Cash flow. Business costs. Location. Resources. The market. The business strategy. The organisational structure. idea
  22. Why governments support business start-ups? • • • • To reduce unemployment. To increase competition. To increase output. To benefit society. Can grow further. idea
  23. How governments support business start-ups Business start-ups need: Governments often give support by: Business idea and help Premises Finance Labour Research Organising training for entrepreneurs that gives advice, and support sessions offered by experienced business people 'Enterprise zones', which provide low- cost premises to start-up businesses Loans for small businesses at low interest rates Grants, if businesses start up in depressed areas of high unemployment Grants to small businesses to train employees and help increase their productivity Encouraging universities to make their research facilities available to new idea business entrepreneurs
  24. Business size: Who would find it useful to compare the size of businesses? Investors — before deciding which business to put their savings into. Governments — often there are different tax rates for small and large businesses. Competitors — to compare their size and importance with other firms. Workers — to have some idea of how many people they might be working with. Banks — to see how important a loan to the business is compared to its overall size. idea
  25. Ways of measuring business size: Method of measuring Number of people employed Value of output Value of sales Capital employed limitation Doesn't consider capital-intensive firms. Doesn't consider value of sales in different seasons & also doesn't consider different types of products Doesn't consider the different types of products. May clash with other ways of measurement. idea
  26. Reasons of business expansion The possibility of higher profits for the owners. More status and prestige for the owners and managers — higher salaries are often paid to managers who control bigger businesses. Lower average costs (economies of scale). Larger share of its market. idea
  27. Business growth: Business Growth Internal Growth External Growth Mergers Takeover idea
  28. Internal growth: paid for by owners savings or retained profit, easier to control than the external growth. External growth: involves taking over another business (buying) or merging with another business, has three types: 1. Horizontal integration: when one firm merges with or takes over another one in the same industry at the same stage of production, e.g. a pharmacy with another pharmacy. 2. Vertical integration: when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward— when a business in tegrates with another business which is at a later stage of production (closer to the consumer) — or backward— when a business integrate s with another business at an earlier stage of production (closer to the raw material supplies, in the case of a manufacturing business). 3. Conglomerate integration: when one business merges with o takes over a business in a completely different industry. This is idea also known as diversification.
  29. Advantages of horizontal integration: 1. The merger reduces the number of competitors in the industry. 2. There are opportunities for economies of scale. 3. The combined business will have a bigger share of the total mar ket than either business before the integration. idea
  30. Advantages of forward vertical integration 1. The merger gives an assured outlet for its product. 2. The profit margin made by the retailer is absorbed by the expand ed business. 3. The retailer could be prevented from selling competing products. 4. Information about consumer needs and preferences can now be obtained directly by the manufacturer. idea
  31. Advantages of backward vertical integration: 1. 2. 3. 4. The merger gives an assured supply of important components. The profit margin of the supplier is absorbed by the expanded business. The supplier could be prevented from supplying other manufacturers. Costs of components and supplies for the manufacturer could be controlled. idea
  32. Advantages of conglomerate integration: 1. The business now has activities in more than one industry (spread the risk). 2. There might be a transfer of ideas between the different sections of the business even though they operate in different industries. idea
  33. Problems of business growth: Problem resulting from expansion Possible ways to overcome problem Larger business is difficult to control (see also Operate the business in small units — this i Diseconomies of scale, Chapter 1 9) s a form of decentralisation Larger business leads to poor communication Operate the business in smaller units (see Chapter 9) use latest IT equipment and telecommunic ations — but even Ithese can cause problems Expansion costs so much that business is sho Expand more slowly — use profits from slo rt of finance wly expanding business to pay for further growth Ensure sufficient long-term finance is avail able (see Chapter Integrating with another business is more diffi Introducing a different style of management cult than expected (for example, different man requires good communication with the work force agement styles or 'ways of doing things') — they will need to understand the reasons for the change idea
  34. Why some businesses remain small? 1. 2. 3. The type of industry the business operates in (e.g. hair dressing & car repair). The market size(e.g. luxurious cars & expensive clothing). The owners' objectives. idea
  35. Causes of business failure: 2. 3. 4. Lack of management skills due to lack of experience. Changes in the business environment. Liquidity problems or poor financial management. Over-expansion. idea
  36. Why new businesses are at greater risk of failing: Many new businesses fail due to lack of finance and other resources, poor planning and inadequate research. In addition, the owner of a new business may lack the experience and decision-making skills of managers who work for larger businesses. This means that new busin esses are nearly always more at risk of failing than existing, well- established businesses. idea
  37. Exam-style questions; Sabrina was bored with her job in a clothing factory. Her main passion was fashion and she had always been good at selling since helping her father on his market stall. She encouraged her parents and some frien ds to invest in her idea for opening a shop selling good quality wome n's clothes. Sabrina, as the entrepreneur behind the idea, was prepared to risk her own savings too. She had some exciting ideas for the shop layout and presentation of clothes. a. Define 'entrepreneur' b. Identify two benefits to Sabrina of starting her own business. c. Outline two characteristics that Sabrina seems to have that might lead to the success of her business. d. Explain two benefits to Sabrina of keeping her business small. e. 'l think I should draw up a business plan before I start,' said Sabrina to a friend. Il think it would be best if you set the business up now — you don't need a plan as the shop will be so small,' said her friend Which view do you agree with? Justify your answer. idea
  38. Chapter 4 Types of business organisations: Objectives: • The main forms of business organisation in the private & public sector. The advantages & disadvantages of each of these forms of business organisation. How appropriate each of these forms in different circumstances. Business organisations in the public sector. idea
  39. Sole trader: Definition: is a business owned by one person. Legal formalities: 1. The business name must be registered. 2. Annual accounts records must be sent to the tax office. 3. Laws, rules & regulations must be complied with. Advantages of sole trader: 1. 2. 3. 4. 5. 6. Few legal formalities. The owner is his/her own boss. Total freedom to choose holidays, working hours & whom to hire. Close contact with customers. Motivation due to getting all the profit. Complete secrecy in business matters. idea
  40. Disadvantages of sole trader: 1. 2. 3. 4. 5. 6. No one to discuss business matters with. Unlimited liability (full responsibility regarding paying back business loans). Possibly remains small due to lack of capital. No continuity and no legal identity. Can't benefit from specialisation. Can't benefit from economies of scale. Sole trader is recommended for people who: Setting up a new business. Do not need much capital. Want to have direct contact with customers. idea
  41. Partnership: Definition: when two or more people agree to jointly own a business, commonly the maximum limit of partners is 20 people. Partnership agreement: the written and legal agreement between business partners. Advantages of partnership: 1. More capital than that of sole trader. 2. Tasks & responsibilities are shared between partners. 3. Losses are shared out between partners. Disadvantages of partnership: 1. 2. 3. 4. 5. Unlimited liability. No continuity and no separate legal identity (unincorporated business). Disagreement & conflict might occur between partners. idea If one partner is inefficient or dishonest, everyone loses. Limited number of partners, limited capital.
  42. Partnership is suitable for: People who want to expand their business without facing complicated legal formalities. Professionals such as doctors and lawyers. Family members. idea
  43. Private limited companies: Incorporated businesses: are companies that have separate legal status from their owners. Shareholders: are the owners of a limited company. They buy shares which represent part ownership of a company. Features of companies: A company exists separately from the owners and will continue to exist if one of the owners dies. A company can make contracts or legal agreements. • Company accounts are kept separate from the accounts of the owners. Advantages Shares can be sold to many people. • Limited liability (responsibility). Original founders of the company are able to keep control of it as long as they do not sell too many shares to other people. disadvantages Complicated legal formalities. The articles of association (rules). The memorandum of association (company's information). Certificate of incorporation has to be issued. Restrictions on selling shares. Accounts are less secret.
  44. Public limited companies: Definition: companies with no restrictions on selling, buying or exchanging shares, able to raise capital to expand nationally or even internationally. Advantages • Limited liability. • Incorporated business. Can raise very large capital sums. No restrictions on selling, buying & exchanging of shares. High status. Disadvantages Complicated legal formalities. Difficult to control & manage. Selling shares to the public is expensive. Original owners of the business may lose control. Annual General Meeting (AGM): is a legal requirement for all companies. Shareholders may attend and vote on who they want to be on the board of directors for the coming year. Dividends: are payments made to shareholders from the profits idea (after tax) of the company. They are the return to shareholders for investing in the company.
  45. Joint venture: Definition: is when two or more businesses start a new project together sharing capital, risks & profits. Advantages Sharing of costs. Local knowledge when joint venture is already based in the cou ntry. Risks are shared. Disadvantages Profits have to be shared. Disagreements might occur. The two joint venture partners might have different ways of running a business. idea
  46. Franchising: Definition: a franchise is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchise buys the license to operate this business from the franchisor advantages disadvantages To the franchisor Source of income. Faster expansion. The management of the outlet is the responsibility of the franchisee. All products sold must be obtained from the franchisor. Poor management of one franchised outlet could lead to a bad reputation for the whole business. The franchisee keeps profits from the outlet. To the franchisee Less risk of failure. The franchisor pays for advertising. All supplies are obtained from the franchisor. Fewer decision to make. Training is provided by the franchisor. Banks are often willing to lend to franchisees due to relatively low risk Less independence. May be unable to take decisions that would suit the local area. License fee must be paid to the franchisor and possibly a percentage of the annual turnover.
  47. Business organisations in the public sector Public corporations: They are wholly owned by the state or central government. Advantages Some industries are consider ed to be so important that government ownership is thought to be essential. Reduces waste of competition. • If an important business is failing the government can step in to nationalise it. This will keep the business open and secure jobs. Very important non-profitable businesses are in the public sector such as TV & radio broadcasting. disadvantages No high profits and no efficiency. Governments subsidies can lead to inefficiency. There is no close competition to the public corporations; therefore less choice. Governments can use these businesses for political reasons. idea
  48. Exam-style questions: When Khidir lost his job with a fruit & vegetable shop that closed down he decided to open his own store. He had good contacts with suppliers. They said they would give him one month's credit before he paid for supplies. Khidir had $ 5000 in savings to invest in the shop. He thought this would be sufficient to start the business. He is an independent man — he never liked taking the manager's orders in the food shop! He wanted to operate his new business as a sole trader. a) b) c) d) e) What is meant by 'sole trader? Identify two other types of business organisation. Identify and explain two benefits to Khidir of operating his business as a sole trader. Identify and explain two drawbacks to Khidir of operating his business as a sole trader. Do you think Khidir should open new branches of his business idea by selling franchises? Justify your answer.
  49. Chapter 5 Business objectives & stakeholder objectives: Objectives: • The need for & importance of business objectives. Objectives that can be set for a business in the private sector including social enterprises. Business objectives in the public sector. Factors that influence which objectives are set. Different stakeholder groups with an interest in a business. Objectives of stakeholder groups. Potential conflict between objectives. idea
  50. Business objectives: are the aims or targets that a business work towards. Why to set them: 1. 2. 3. 4. To have clear targets. Taking decisions will be focused on. Clear & measurable objectives help unite the whole business towards the same goal. Compare the current situation with the set goals. idea
  51. Possible objectives for businesses are: 1. Survival: staying a live, it has to be the main objective in three cases: Starting up. Severe competition. 2. 3. Economic recession. profit: the total income of a business (sales revenues) less total costs. Is the main objective for most of private businesses. Returns to shareholders: increasing returns to shareholders is an objective for limited companies, it can be increased in two ways: Increasing profit. Increasing share price. idea
  52. 4. Growth: growth of the business may be measured by value of sales or output, its one of the objectives for that: To make jobs more secure if the business is larger. To increase the salaries & status of managers as the business expands. To open up new possibilities and help to spread the risks of the business by moving into new products & new markets. To obtain a higher market share from growth in sales. To benefit from economies of scale (lower the cost). idea
  53. 5. Market share: is the proportion of the total market sales achieved by one business. Market share % = company sales *100 total market sales Increased market share would give a business good publicity, also that increases its influence over supplies, moreover it increases its influence on customers. 6. Providing service to society: like in social enterprises (businesses that have social objectives as well as an aim to make a profit to reinvest back into the business). idea
  54. Why business objectives could change: In some situations a business may change its objectives: A business set up recently has survived for three years and the owner now aims to work towards higher profit. •Z A business has achieved higher market share and now has the objective for earning higher returns for shareholders. A profit-making business operates in a country facing serious economic recession so now has the short-term objective of survival. idea
  55. Stakeholder objectives: Stakeholder: any person or group with a direct interest in the performance & the activities of the business. Stakeholder group Owners (internal) Workers (internal) Managers (internal) Customers (external) objectives Share of the profit so that they can gain a rate of return on the money put into the business. Growth of the business so that the value of their investment increases. Regular payment for their work. Contract of employment. Job security. Job satisfaction. High salaries. Growth. Job security. Safe & reliable products. Value for money. Well-designed products of good quality. Reliability of service & maintenance.
  56. Objectives of public sector businesses: • • Financial: reinvesting profit. Service: e.g. health & education. Social: protect or create employment. idea
  57. Conflict of stakeholders' objectives: Managers have to compromise when they come to decide on the best objective for the business they are running. Also they need to bear in mind the different objectives of the different stakeholder groups. idea
  58. Exam-style questions: Sunita and her partner Sunil decided to start a business selling flow ers called S and S Blooms. They agreed on the business objectives they would set. There are several other flower shops in their town and there is much competition. Sunita and Sunil had very little cash to start their shop. However, five years after being set up, it is still open. Business objectives have changed. There are plans to open two or three more shops — perhaps by taking over some of their competitors. The business now employs five workers and uses several local flower growers as suppliers. a) b) c) d) e) Define 'business objective'. Identify two of S and S Blooms' stakeholder groups, other than workers and suppliers. Outline two likely business objectives for S and S Blooms when the business was first established. Explain two likely reasons why Sunita and Sunil have changed the idea business objectives of S and S Blooms. Do you think setting business objectives for S & S Blooms will make sure that the business is successful? Justify your answer.
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