All Chapter Business Notes

Batch 13
International GCSE
BUSINESS
STUDIES
FOR EDEXCEL
Revision Notes
Batch 13
Batch 13
Keys
▪ Key Terms (Definition)
• Important facts
• Key Points
• Sub Titles
1. Further Explanation
2. More details
✓ Facts, Points
o Facts, Points
- Points, details, facts
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CONTENTS.....................................................Page
Chapter 1 What is Business Activity......................................................... 4
Chapter 2 Business Objectives................................................................. 8
Chapter 3 Sole Trader, Partner, Social and Franchise................................ 12
Chapter 4 Limited Companies and Multinational......................................
Chapter 5 Public Corporation....................................................................
Chapter 6 Different Forms of Ownership.................………………………………..
Chapter 7 Classification of Business………………………………………………………...
Chapter 8 Decision on Location.................................................................
Chapter 9 Globalisation.....................................................................………
Chapter 10 Importance and Growth of Multinational………………………………
Chapter 11 International Trade and Exchange Rate………………………………...
Chapter 12 Government Objectives and Policies…………………………………....
Chapter 13 External Factors......................................................................
Chapter 14 Measuring Success in Business.…………………………………………....
Chapter 15 Reasons for Business Failure……………………………….…...………….
Chapter 16 Importance of Good Communication......................................
Chapter 17 Barriers to Communication.....................................................
Chapter 18 Recruitment and Selection......................................................
Chapter 19 Legal Controls Over Employment............................................
Chapter 20 Training.....................................................................………......
Chapter 21 Importance of Motivation.......................................................
Chapter 22 Methods of Motivation...........................................................
Chapter 23 Organisation Structures and Employees..................................
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CONTENTS.....................................................Page
Chapter 24 Departmental Functions........................................................
Chapter 25 Sources of Finance................................................................
Chapter 26 Cash Flow Forecasting...........................................................
Chapter 27 Costs.....................................................................................
Chapter 28 Break-Even Analysis..............................................................
Chapter 29 Statement of Comprehensive Income...................................
Chapter 30 Statement of Financial Position.............................................
Chapter 31 Ratio Analysis........................................................................
Chapter 32 The Use of Financial Documents............................................
Chapter 33 Market Research...................................................................
Chapter 34 The Importance of Marketing................................................
Chapter 35 Market Segmentation.............................................................
Chapter 36 Product..................................................................................
Chapter 37 Price.......................................................................................
Chapter 38 Place.......................................................................................
Chapter 39 Promotion...............................................................................
Chapter 40 Economies and Diseconomies of Scale.....................................
Chapter 41 Production and Productivity....................................................
Chapter 42 Lean Production......................................................................
Chapter 43 Technology in Production.......................................................
Chapter 44 Factors of Production..............................................................
Chapter 45 Quality....................................................................................
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Chapter 1
▪ Business
A business is an organisation that provides goods and services
▪ Goods
Physical products, such as mobile phones
▪ Services
Non physical products, banking
▪ Consumer goods
Goods and services sold to customers rather than business
▪ Producer goods
Goods and services produced by one business for another
Features of Business Activity

• Business activity produces an output – goods and services
• Goods and services are consumed
• Resources are used
• Number of business functions may be carried out; production,
marketing, human resources, and final accounts
• External factors affect businesses
• Business aim to make profit
▪ Human Resources
In some business, the department that deals with employing training and
helping people.
▪ Need
A good or service which is essential for living. Basic requirements for human
survival
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▪ Want
A good and service which people would like but not essential for living.
People desire for goods and services
Purpose of Business Activity

Private enterprise: Private sector business objectives is to make profit
Social Enterprise: From private sector, non-profit making organisation such

as club and charities to raise money for good causes
Public Enterprise: Public sector organisations provide health care, education,

environmental services,.... To provide the goods and services that private
enterprise fails to provide
▪ Private Sector
Business organizations owned by individuals or group of individuals
▪ Public Sector
Business organizations owned by central or local government
• Goods and services provided by public sector are mostly free
• They are paid for through tax revenue
▪ Business Stakeholders
An individual or group with an interest in the operation of the business.
Owners Customers
Government
Employees
Business
Stakeholders
Local
community Managers
Suppliers Financiers
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1) Owners
Entrepreneur are responsible for setting up and running the business
Limited company are owned by shareholders who invest money and business
and get share of profit
2) Customers
They want good quality products at a fair price. If they don’t get it, they will
spend money elsewhere
3) Employees
They depend on business for their salary. They have other needs. They will
require training, so they can do their jobs properly. Also want good working
condition, fair pay and benefits, job security and opportunities for promotion
4) Managers
They are likely to help plan the direction of the business with its owners. Also
have to control recourses (finance, equipment, time and people)
Have to take responsibility if anything goes wrong
5) Financiers
They lend money to business. Could be bank and also individuals (family,
private investors, and venture capitalists). They have financial interest in
business.
6) Suppliers
Relation between business and their suppliers must be good because they
rely on each other. Business wants good quality resources at fair price.
Suppliers will require prompt payment
7) The Local Community

May employ a lot of people who live in the local community. If the business
does well, the local community may benefit. In contrast, business may be
criticised by local community
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8) Government
Government has an interest in all businesses. Provide employment, generate
wealth and pay taxes. Taxes are used to finance government spending.
▪ Entrepreneur
Person who takes risk and set up businesses; individual who organises the
other factors of production and risks their own money in business venture
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Chapter 2
▪ Objectives
Goals or targets set by business
▪ Executives
Managers in an organisation or company who help make important decisions
▪ Diversity
If a business, company or country diversifies, it increases the range of goods
or services it produces.
The importance of clear objectives:

Business is more likely to be successful if they set clear objectives
• Objectives help to motivate people. Employees need something to
work toward.
• Owners might not have the motivation needed to keep the business
going. Might result in business failure.
• Help to decide where to take a business and what steps are necessary
to get there.
• Easier for performance of the business
Financial Objectives
Most private sectors want money. Financial aim and objective are
1) Survival: When business starts, it may be vulnerable. Owner may lack of
experience and may be shortage of resources. Objective for new business
may be to survive at least 12 months. Also hove to survive when strong
competitor emerges.
2) Profit: Aims of businesses are to make profit. Owners want financial return.
Try to reach profit maximisation
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3) Sales: Businesses want to grow their sales. Business with large number of
sales....
• may enjoy lower cost
• have larger market share
• enjoy higher public profile
• generate more wealth for owners.
Growth of business also benefit stakeholders. Employees may benefit because jobs
are secure.
4) Increase market share: If business can win customers from competitors.

Business with larger market share may be able to influence the market, may
be able to charge higher price. Also have high profile & easier to launch
products.
5) Financial Security: Business makes profit satisficing. They don't want to take
extra responsibility of expanding business. Entrepreneur run 'lifestyle'
business.
Non-Financial Objectives
Objectives that are not connected with money
1) Social Objectives: In public sectors, social objectives are important. It’s
designed to improve human well-being. Aims are to produce public service
and will be linked to quality of service and reducing cost. Clear social or
environmental missions.
2) Personal Satisfaction: Owners set up business because they think they will
be happier & feel more satisfied in work environment. Owner is likely to
taker risk and see their idea succeed.
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3) Challenge: Some are motivated by challenges, starting a business can be

challenging. To be successful, people need to be committed, hardworking
and multi- skilled. Owners need skills in organisations, financial
management, Communication, decision making, negotiation, IT and people
management. Business become successful but still some want to set up new
challenges
4) Independent and Control: People want to be their own boss. Entrepreneurs

want to be independent and take control of their own futures. Want to make
own decisions independently.
▪ Financial Return
Monetary Return
▪ Profit Maximisation
Making as much profit as possible in given time period
▪ Shareholders
Owner of limited companies
▪ Dividends
Share of profit paid to shareholders in a company
▪ Profit Satisficing
Making enough profit to satisfy the needs of the business owners
▪ Revenue
Money from the sales of goods and services
Why might objectives change as business change (evolve)

▪ Automation
Use of computers and machines instead of people to do jobs
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▪ Economies of Scale
Financial advantages (falling average costs) of production something in very
large quantities.
Objectives are likely to change because business have to respond to events/
changes in circumstances.
• Market Conditions
Business operates in dynamic markets which means have to deal with
regular changes. When market condition change, it is necessary to set
new objectives. If trading becomes difficult, profit -seeking business may
decide to set survival.
• Technology
If technological development increases business has to adjust their
objectives. Manufacturer that introduces more automation may decide
to switch its objective to sales growth. It will lower cost.
• Performance
It's not likely to stay constant. Periods of sustained profitability may be
interrupted by less successful periods. It may have impact on business
objectives. For eg: Business has been growing sales for many years but
suddenly change to make profit. Because owner lower price of sale and
get lower profit. Therefore, the performance level causes impact.
• Legislation
New legislation has impact on objective
• Internal Reasons
'Depends on external factors. For eg: if new owner/ senior change,
objectives are also changed. Some want to maximise profits to pay higher
dividend.
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Chapter (3)
▪ Entrepreneurs
People who set up business are called entrepreneurs. They are the owners
and without them business would not exist in private sectors.
Decision
Makers Innovators
Entrepreneurs
Organisers Risk Takers
▪ Innovator
Someone who introduce changes and new ideas
▪ Labour
People employed in a business / used in production
Unincorporated And Incorporated Business

▪ Unincorporated Business
Businesses where there is no legal difference between the owner and the
business. Owned by one person or small group of people.
▪ Incorporated Business
Business that has separate, legal identity from that of its owners. They are
often called limited companies, and the owners are shareholders.
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Features of sole traders

▪ Sole Trader / Sole Propietor
Business owned by a single person
• Setting up sole trader is very simple
• No legal requirements needed
• But have unlimited liabilities
▪ Unlimited liabilities
Owner of a business is personally liable for all business debts
• If a business fails, sole trader may lose more money than was originally
invested. They can be forced to use personal wealth to pay off
business debts.
Advantages of Sole Traders Disadvantages of Sole Traders
-Owners keeps all profit -Have unlimited liability

-They’re independent (has complete -Many struggle to raise finance
control) -Independence may be too much of
-Simple to set up responsibility
-No legal requirements -Long hours and hard work
-Flexibility (adapt to change quickly) -Usually too small to exploit
-Can offer personal service because economies of scale
they are small -No continuity (business dies with
-May qualify for government help owner)
Features of Partnership
▪ Partnership
Business owned by between 2 and 20 people
• Owners will share responsibilities
• Also share profits
• No legal formalities to complete when a partnership is formed
• But deed of partnership is produced (legal document)
• how much capital each partner will contribute
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• how profits and losses will be shared among partners

• the procedure for ending the partnership
• how much control each partner has rules for taking on new partners.
Advantages of Partnership Disadvantages of Partnership
-Easy to set up and run -Have unlimited liability

-Job of running business is shared -Profit has responsibility
-Partners can specialise in their area -May disagree and fall out
-No legal requirements -Any partners decision is legally
-More capital can be raised with more binding on all
owners -Still tend to be small
-Financial information is not published
▪ Limited Partnership
Partnership where some partners contribute capital and enjoy a share of the
profit but do not take part in the running of the business
• Have limited liability
• But one partner should have unlimited liabilities
▪ Limited Liability
Business owner is only liable for the original amount of money invested in
the business.
Features of Franchises
▪ Franchise
Structure in which a business (the franchisor) allows another operator
(franchisee) to trade under heir name
What does the franchisor offer the franchisee?

• A licence to trade under the recognised brand name of franchisor
• Start-up package including help advice and essential equipment including
branding material
• Training for how to run business
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• Materials equipment and support services

• Marketing support which is all known
• Less competition
In return for these services the franchisee has to pay certain fee:
• A one-off- start-up fee
• An ongoing fee usually based on sales
• Contribution to marketing cost
• Franchisor may make profit some materials equipment and merchandise
supplied to franchisees.
Advantages to the Franchisee Disadvantages to the Franchisee
- Less risk – a tried and tested idea is - Profit is shared with franchisor
used - Strict contracts have to be signed
- Back-up support is given - lack of independence- strict rules
- Set-up cost is predictable - Can be expensive way to start
- National marketing may be organise
Advantages to Franchisor Disadvantages to Franchisor
- Fast method of growth -Poor franchisee may damage brand

- Cheaper method of growth name
- Franchise take some of the risk -Profit shared with franchisee
- Franchisee more motivated than -Franchisees may get merchandise
employees from elsewhere
- Cost of support to franchisees may
be high
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Features of Social Enterprise

▪ Social Enterprise Business
That aims to improve human and environmental well-being, charities
for example, rather than making profit
Social Enterprise have:
• clear social and environmental mission
• generate most of their income through trade or donations
• reinvest most of their profit
• majority controlled in the interests of the social mission
• are accountable and transparent
▪ Cooperative
Company, factory or organisation in which all people working there own an
equal share of it
▪ Consumer Cooperative
Cooperative that is owned by its customers
▪ Retail Cooperative
Cooperative of retail members, who often work together to assert their
purchasing power
▪ Worker Cooperative
Cooperative that is owned by its employees
▪ Charities
Organisation that give money, goods or help to people who are poor, sick or
in need
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Chapter 4
▪ Venture Capitalists
Specialist investors who provide money for business purposes, often to new
businesses
Features of Limited Companies

▪ Limited Companies
Business organizations that have a separate legal identity from that of its
owners.
▪ Limited Liabilities
Shareholders are legally responsible for the debts of a company according to
how many shares they own.
• Have limited liability. Don’t have to use any of the personal wealth to
pay off business debts
• Raise capital by selling shares. Shareholders are joint owners of
company
• Get dividend paid from profit
• Shareholders elect director to run business
• Chairperson should run company as shareholders wish
• Company must pay corporation tax on profit
• Need to follow legal procedures
Forming a Limited Company
• Some important documents must be sent to Registrar’s of Companies before
limited company can form. Two most important are:
1. Memorandum of association
2. The article of association
• If these documents are acceptable, the company will get certificate of
incorporation
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▪ Certificate of incorporation
Document needed before a new company can start doing business
Memorandum of association
Gives details about the business
• Name of the company
• Name and address of the company registered office
• Objectives of the company and the nature of its activities
• Amount of capital to be raised and the number of shares to be issued
Articles of association
This document deals with internal running of company
• Rights of shareholders depending on type of shares
• Procedures for appointing directors
• Length of time directors should serve before re-election
• Timing and frequency of company meetings
• Arrangements for auditing company accounts
▪ Private Limited Companies

Most are small and medium-sized businesses. Majority is large.
• Business name ends with Ltd....
• Shares can only be transferred privately. Shareholders must agree to the
transfer. Shares cannot trade on stock market.
• Often family business owned by family members or close friends
• Directors are shareholders and involved in running of business
Advantages of Private Limited Disadvantages of Private Limited
- Shareholders have limited liability - Financial information has to be public

- More capital can be raised - Cost money and take time to set up
- Control cannot be lost to outsiders - Profits are shared between member
- Business continue if shareholders die - Take time to transfer shares
- Has more status, eg than a sole trade - Cannot raise huge amount of money
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▪ Public Limited Companies

A limited company whose share are sold freely and traded with a minimum
share capital of £50,000 and the letter PLC after its name.
• Larger than private limited company
• Shares can be bought and sold by public on the stock exchange
• Any person or organisation can buy shares in PLC
▪ Prospectus
Document produced by a company that wants the public to buy its shares
▪ Flotation
Process of a company ' going public’
PLC
• Prospectus should be legally correct
• Has to be printed and circulated
• Bank may be paid to process share application
• Fee paid to underwriter who must buy any unsold shares
• Advertising and administrative cost
• Must have maximum of £50,000 shares
Advantages of PLC Disadvantages of PLC
- Shareholders have limited liability - Financial information has to be public

- Large capital can be invested - Set up cost can be expensive
- Can exploit economies of scale - Outsiders can take control by buying
- May be able to dominate the market shares
- Shares can be bought and sold easily - Take time to transfer shares
May have high profile in media - More remote to customers
-Regulatory control owing to Company
Acts
-Managers may take control rather
than owner
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▪ Multinational Companies
Large businesses with significant production or service operations in at least
2 different countries.
Key Features of Multinational:

• Huge assets – well resourced and can afford to take on large scale
contract or project
• Highly qualified and experienced professional executive and managers
• Powerful advertising and marketing capability
• Highly advanced and up to date technology (lower cost)
• Highly influential both economically and politically. They can even
influence government decision
• Very efficient since they can exploit economies of scale. They’re so
large, have ability to reduce cost significantly
• Ownership and control is centred in host country. Usually held in
country where the company was first established
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Chapter 5
▪ Productivity
Rate at which goods are produced, and the amount produced, especially in
relation to the work, time and money needed to produce them.
Features of Public Corporation
▪ Public corporations
Business organizations owned and controlled by the state or government
• State Owned : government owns, government appoints the people who

run the organisation. Government is responsible for corporation policies
• Created by laws : created by act of parliament. Power and duties are
specified clearly
• Incorporation : are incorporated businesses. Have separate legal identity.
• State-funded : government provide capital needed by public corporation.
Money comes mainly from tax. Assets and liabilities are belong to the
state but can borrow money and are free to reuse revenue from the sale
of any goods or services
• Provide public services : do not aim to make profit. Main objective is to
provide public services.
• Public accountability : Have to produce annual report to submit to
government. They are accountable to taxpayers because state owned are
accountable to public. If public corporation make profit they are
reinvested in business or handed to government.
▪ Portfolio
Collection (of business interests or products)
▪ Infrastructure
Basic systems and structures that a country or organisation needs in
order to work properly.
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Reasons for the public ownership of businesses

• Avoid wasteful duplication : natural monopoly exists. Infrastructure is
needed before trading can begin. It would be a waste of resources.
• Maintain control of strategic industries : to be owned by the government.
This would prevent outsiders from another country taking them over and
exploiting the nation. It is considered desirable for the government to
maintain control so that reliable supply and quality can be guaranteed.
• Save jobs : government take control of failing private sector business if it
employs very large number of people. It carry on business even though it is
losing money to reduce unemployment.
• Fill the gaps left by private sector : sometimes private sectors can’t meet
market’s needs. For eg : private sectors would provide private school for
those who pay but government provide with everything.
• Serve unprofitable regions : private sectors would not deliver important
services to unprofitable regions. Public corporation may be prepared to meet
this cost because profit is not the key objective.
Reasons against the public ownership of businesses
▪ Subsidise
Paying part of the costs often by the government in business
Drawbacks of public ownership :
• Cost to government : public corporation make losses. These losses have to
meet the taxpayers. If losses get bigger, taxpayers might object to financial
burden. Any money used to subsidise public corporation cannot be used for
more attractive alternative such as improving security.
• Inefficiency : low productivity and inefficiency. Due to lack of competition,
the absence of profit and the knowledge that they cannot ‘go bust’ because
losses will be met by government.
• Political interference : often suffer owing to government. Different
government have different views about the way public corporation should
operate. Policy changes every time new government elected.
• Difficult to control : very large so lose control. Might make difficult to
coordinate different parts of business and run it effectively.
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▪ Privatisation
Transfer of public sector resources to private sector business
Privatisation can take number of forms :
• Sales of public corporation : very popular because business changes from
public to private. One way of doing this is selling shares in business to anyone
that wants them. Government have sold off parts of state owned businesses.
• Deregulation : involves lifting legal restrictions that prevented private sector
competition.
• Contracting out : government and local authority service have contracted out
to private sector business. Contractors are given a chance to bid for services
previously supplied from public sector.
• The sale of land and property : private sectors are given generous discount if
they agree to buy
Why does privatisation take place ?
• To generate income : sale of state assets generate income.
• To reduce inefficiency in the public sector : public corporation lacked the
incentive to make profit and often made losses. In private sector they have
cut cost, improve services and return profits to shareholders. Also more
accountable.
• As a result of deregulation : legal barriers were removed that allowed new
business in some markets. Existing farms were privatised so that new farms
can join the market.
• To reduce political interference : government could not use these
organisations for political aims. They would be free to choose their own
investment levels, prices, product ranges and growth rates.
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Chapter 6
Factors affecting the appropriateness of different forms of ownership
• Growth: businesses start small but grow bigger later. Most change their
legal status as they grow to raise more capital. Sole trader finds difficult to
raise capital so they decided to do the business in partner or to change to
private limited company. More owners can generate more capital. If they
want large amount of capital, they can become public limited company.
• Size: most are sole trader or partnership. PLC are much bigger than them
and have thousands of employees and turnover.
• The need for finance: finance is the main reason why owners change legal
status of their business. Only way to get more money is to change the type
of organisation.
• Control: some owners like their independence. They like to have complete
control over business. Which is why most owners stay as sole traders. If
business is with shareholders and partners some control is lost. Possible to
keep control of limited company by holding majority of shares. If a person
has 51% shares in limited company, person with 49% wishes cannot be
ignored.
• Limited liability: owners can protect their own personal financial position if
the business is a limited company. Sole trader and partners have unlimited
liability. So, some owners become limited company to give themselves
more financial protection.
Other factors
• Type of business activity may influence the choice of legal status.
Service such as plumbing, decorating and gardening tend to be provided by
sole trader. Accountancy, legal advice and architectural design are usually
offered by partnerships. Small manufacturing and family business tend to
be private limited company. Retail chains and manufacturers are PLCs.
• Way business plans to use its profit may be important. PLCs usually pay
dividend to their shareholders. Growing business that prefers to reinvest a
lot of profit may choose to remain private limited company.
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• Different stakeholders might influence the choice of organisation. For eg,

leading employees in private limited company might discourage the
stakeholders from going public. May argue that company operates more
effectively without external owners.
Objectives and the type of organisation
• Sole trader might be happy to get profit and aim to have objective for profit
and not thinking other objective such as growth. This is called profit
satisfying
• Family business and other medium sized private limited company often do
not wish to go public because afraid of losing control to outsiders.
• Multinational wants to grow. Their aim is to get bigger and bigger so they
can dominate global market.
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Chapter 7
▪ Primary Sector
Production involving the extraction of raw materials from the earth.
• Agriculture
• Fishing
• Forestry
• Mining and quarrying
▪ Secondary Sector
Production involving the conversion of raw materials into finished and
semi-finished goods.
• All of manufacturing, processing and construction lies within this
sector.
• Includes metalworking, car production, textile production, chemical
and engineering industries, aerospace manufacturing, energy
utilities, engineering, food processing, construction and shipbuilding.
▪ Assembly Plant
Factory where parts are put together to make finished product
• Examples of semi-finished goods might include the parts used in
assembly plants to make motor car, such as car seats, brakes,
engines, etc....
▪ Tertiary Sector
Production of services in the environment.
• Commercial services
• Financial services
• Household services
• Leisure services
• Professional services
• Transport
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Interdependence
• Business in all three sectors are likely to be independent
• They rely on each other
• Workers in both secondary and tertiary sectors rely on the primary sector
• In modern developed economies, the interdependence is huge
Changes In Sectors
• Number of employees in each sector does not stay the same
• Different sectors grow and decline overtime
• Number of employees
• Most production was in the primary sector (18th century)
• Secondary production expanded rapidly as manufacturing grew (19 th
century)
• Tertiary sector has started to expand at the expense of both agriculture and
manufacturing (last 60 years)
▪ Decline in manufacturing is de-industrialisation
Why has manufacturing declined in developed countries while services has

grown?
• People may prefer to spend more money on service than manufactured
goods. There also has decline in demand for goods.
• Fierce competition in the production of manufacture goods from
developing countries
• As countries develop, the public sector grows. Public sector mainly provide
services. This adds growth to tertiary sector.
• Advance in technologies mean employment in manufacturing falls because
machine replace people.
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Chapter 8
Factors influencing the location and relocation of businesses
Proximity (closeness) to the market
• Businesses that make large or heavy products may be located close to their
customers to keep transport costs down.
• Service providers have to locate their premises close to their markets. This
is because many services are sold direct to consumer.
Proximity to labour
• Businesses needing large numbers of workers have to consider wage cost
and labour skills. Wages rate varies in different countries.
• Large businesses have to locate business where labour is very cheap
• Labour skills are also not evenly distributed throughout the country
• If firm need particular type of skilled workers, certain location will more
suitable
Proximity to materials
• Firms that use large amount of raw materials that are difficult to transport
may choose to locate the business near the sources
• For eg: chemical processers, still use large amounts of energy. They may
look for location where cheap energy sources are available
• Such as supermarket and manufacturers, require large area of land. They
may set up in area where:
o Premises are cheap
o Business rates (tax paid by business to local authorities) are low
o Land has been allocated for business development such as
brownfield sites and Greenfield sites
▪ Brownfield sites
Areas of land that was once used for urban development
▪ Greenfield sites
Previously undeveloped areas of land, usually on the outskirts of towns and
cities
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Proximity to competitors
• Service providers will prefer to locate where competitors is minimised
• For eg: entrepreneurs opening hair salon may avoid location where this
type of business is already exist
• But some business deliberately choose locations where competitors are
closely concentrated
• This might be important in industries where comparison shopping is
popular
The Nature Of Business Activity
Services
• When choosing a business location, business have to take into account the
ease of access and parking facilities
• For eg: the traffic congestion is growing rapidly. So business need to locate
where there is less traffic and less chance of delays.
• If customer are not okay then they will go to other place where they can
find alternative parking
Office-based business
• In some field of business, business activity is office based
• If large number of people have to be employed in offices, business need to
unsure that there are full facilities nearby.
• Many businesses locate their office in large and popular cities
• This give access to a wide range of other facilities
• Locating in high profile city also improve the image of business. But still
some office-based business prefer to locate where cost are lower
Manufacturing and processing
• Location chose by manufacturer vary because different types of
manufacturing have different needs.
• For eg: manufacturing that is labour intensive will need to locate business
where there is good supply of skilled and cheap labour
• Manufacturer who need very large areas of land may choose locations
where land is relatively cheap and where there is lots of space
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Agriculture
• Farmers require large area of land for business
• Not all type of land are same. Some may need a particular type of land
• For eg: diary farmers need land where grass can grow effectively so that
cows can get access to a good food source
The Impact Of The Internet On Location Decision
• Online shopping is relatively increasing
• Development of online shopping businesses means that help entrepreneurs
with a lot more flexibility when choosing location
• This means retailers can now serve with national markets and can operate
far away from actual customers
• Business do not need to have fixed premises
• Could run business from anywhere, where they can get Internet Connection
• Electronic data continue to grow, business will require greater network
speed
• Most businesses operate in an increasingly global market ( access to
continuous communication is vital)
• Some location have better connection and faster electronic communication
link than others
Influence Of Legal Controls And Trade Blocs On Location
Legal Control
Government may try to influence over location decision
• To avoid congestion where there is already enough or too much
development
• Minimise the impact businesses might have on local community
• Encourage manufacturers to locate where unemployment is high. Will help
to improve distribution if jobs around the country
• Government uses incentive to influence business choice of location. If
business locate in area where preferred by government , they offer low
rates, low tax, low rents ( assisted area)
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• To attract foreign manufacturers into the country. Many countries rely on

inward investment to help create unemployment and work for domestic
suppliers
1) Apply strict control ( will need official permission from authorities before
trading in particular location)
2) There are bans in some countries to protect the environment
3) The location of some large-scale business operations require lengthy period
of consultation and viability studies. (Many year for delay of business)
▪ Trade blocs
Group of countries situated in the same region that join together and enjoy
trade free of barriers
• Countries use trade barriers to control imports into the country
• Trade barriers can have an impact on location decision
• To avoid trade barriers, such as tariffs ( tax on imports which makes them
more expensive) business might decide to locate inside trade blocs
Batch 13
Chapter 9
▪ Emerging economies
Rapidly growing economies emerging economies have huge growth
potential but also pose significant risks
The Concept Of Globalisation
• Globalisation
Growing integration of the world’s economies
• Today’s market are global
• Some firms expect to sell their products anywhere in the world
• Firms and people are behaving as though there is just one market or one
economy in the whole world
• Key features of globalisation
✓ Goods and services are traded freely across international borders. No
government laws to prevent from selling goods overseas.
✓ People are free to live and work in any country they like. Increase in
multicultural societies where people from many different nations live
and work together
✓ High level of interdependence between nations. Event in one
economy is likely to affect other economies
✓ Capital can flow freely between different countries. For eg: Australia
can keep its money in the bank of USA. Investors can also buy shares
in foreign countries and firms can buy companies that operate in
other countries
✓ Free charge of technology and intellectual property across borders.
• Intellectual property
People’s knowledge or creative ideas that have commercial value and are
protectable under different forms of copyright
Reasons for globalisation
• Monetary system
System of money in a particular country or the world as a whole, and the
way that is controlled by government and central bank
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• Saturate (market)
To offer so much of a product for sale that there is more than people want
to buy
• Development in technologies have helped globalisation to gather pace
• Modern computing allows firms to transfer complex data instantly to all
part of the world
• People can work at home or any location
• Do not have to be office based to do jobs
• Make easier to set up business in any part of the world
• Internet allows customers to gather information and buy online from
different countries
• International transport network has improved in recent years
• Flying cost have fallen down so people can travel easily and good can be
transported cheaply
• Privatisation has allowed more competition in industries
• Barriers to trade has been removed
• Increase in tourism has helped globalisation.
• Due to changes in consumer taste people are willing to try goods and
services produced by other countries
• Many businesses want to sell abroad
• Domestic markets have become saturated. Markets are dominated by large
multinational
• Benefit from having international markets and producing goods anywhere
in the world can be cost minimised
Government and Globalisation
Globalisation can only flourish when government are committed to it
• Countries cannot trade if government close international borders
• If government put trade barriers international trade will be limited
• People won’t be free to work and live overseas unless borders are open
• If planning permission is denied firms cannot develop their business
overseas
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Opportunities of Globalisation for Business

Globalisation results in more free trade, higher levels of employment, increase
income and improve living standards for huge number of people
Access To Larger Market
• Access to huge markets
• Global markets are larger than domestic markets
• Provide growth opportunities for business. Should result in higher sales
revenue and increase profit
Lower Costs
• If business are able to grow by selling more output to larger markets, may
be able to lower costs. As firms grow they can exploit economies of scale.
These are cost reduction that firms can enjoy as they grow
• Lower cost → more competitive
• Win larger share of market, increase sale and raise profit margin
Access To Labour
• Have free movement of labour
• People are free to move around world and find jobs
• If business is growing fast, shortage of domestic labour
• If globalisation, then workers from overseas help boost labour supply
• Business also have more people to choose when recruiting
• Also improve productivity
• Labour shortage restrict development of business
• Arrival of large number of foreign workers hold wages down
• Lower wages help lower cost to business
• Can recruit high skilled labours from anywhere
• If business cannot recruit skill worker that they need, then business will
develop slowly
Reduce Taxation
• Can choose where to locate business
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• Can reduce amount of tax pay by choosing low tax country to locate office
Threats Of Globalisation To Business
Competition
• Businesses will face competition because more countries sells goods and
services in increasing countries. So some have to survive from bring
threatened
• But globalisation companies are strong, well-resourced and influential
• Can use resources to invest highly in market
• As globalisation accelerates, increase in competition is most worrying
threatening for both large and small businesses
International Takeovers
• With free movement of capital globalisation brings, it’s possible for a
business in one country to take over another business
• Companies may feel more vulnerable to takeover due to large number of
predator business
• Some experience hostile takeover
• Predator
Business that try to use another weakness to take advantage
• Hostile takeover
Takeover that the company being taken over does not want or agree to
• Bid
Offer to pay particular price for something
Increase Risk Of External Shocks
• Event in one economy are likely to affect other economies
• For eg: when UK is in EU, and UK voted to leave EU , it has an impact on
other companies in future. Because for eg: German car manufacturers may
face trade barriers when trying to sell their products to UK and vice versa
Batch 13
Chapter 10
The Importance And Growth Of Multinational
• Multinational contribute about 10% to world GDP and about 66% to global
export
• They have a significant and increasing role in the world economy
How Have Multinationals Developed?
▪ Commodities
Products that are bought and sold
▪ Patents
Legal documents giving a person or company the right to make or sell a
new invention, product or method of doing something and stating that no
other person or company is allowed to do this
▪ Ventures
New business activity that involves taking risk
Economies Of Scale
• Many have developed in multinational because larger companies enjoy
lower costs
• Who sell to global markets will produce more than those who just sell to
domestic markets so cost will be lower
• Are powerful and can put pressure on supplier to lower their price
• Have access to cheap global resources such as labour, capital and
commodities
Marketing
• Have become multinational by relying on effective marketing
• Low-tech firm that have developed a successful brand at home and then
exploited it globally
• Face fierce competition in market
• Protect their brand with patents and use heavy advertising and innovative
marketing to attract customers globally
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Technical And Financial Superiority

• Developed into large business over a period of time and enjoy superiority
• Developed advance technology and build huge bank of knowledge
• Can also afford to invest heavily in research and development
• Well experienced and can afford to employ the most talented people
• Have resources to take risk
• Can explore business venture that small firm never dream of
Benefit Of Being Multinational
Generally enjoy higher revenue and lower cost
Larger Customer Base
• Will have access to wider market than companies
• Can boost sales revenue by selling to global markets
• Help increase profits and win market share from competitors
Lower Costs
• Since large companies they can exploit economies of scale and enjoy lower
costs
• Can buy resources at lower prices and borrow money at cheaper rates
• Reduce transport cost
• Likely to set up factories in new countries so that distance from the
production site to market is reduced
• Reducing costs will help gain competitive edge and put pressure on their
rivals
Higher Profile
• Enjoy higher profile in market
• Brand name are recognisable
• Help encourage existing customers and attract new ones
Avoiding Trade Barriers
• Trade barriers can be avoided
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• Bypass trade barriers by establishing operations in those countries that

have barriers in place
• But same trading rules and regulations as domestic producers
Lower Taxes
• Reduce tax by locating head office where taxes are lower
• By minimising taxes, higher dividend can be paid to shareholders
Benefits Of Multinational To A Country
▪ Currency reserves
Money in foreign currency held by a country and used to support its own
currency and to pay for imports and foreign debts
▪ Human capital
People and their skills
▪ Enterprise
The activity of starting and running business
Increase in income and employment
• When set up overseas, income in those countries rises
• Create new jobs in developing countries
• Local suppliers also get work when multinational arrives
• Extra output and employment will also increase economic growth and also
raise living standards
Increase in tax revenue
• Profits made are taxed by host nation.
• Increase tax revenue for government
• Can be used to improve government services
• Sometimes tax revenue may be lost if multinational locate their base in ‘tax
havens’
Increase in exports
• Product produced are marked as output for country
• If outputs sold to host country, it’s counted as export
• Helps countries to increase foreign currency reserves
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Transfer to technology
• Provide suppliers with technical help, training and other information
• May also help local suppliers to purchase resources and modernise
production facilities
Improvement in the quality of human capital
• Provide training and work experience for their workers
• In less developed countries training may not be available
• In less developed countries, government will spend more on education to
improve human capital and attract multinational with that
Enterprise development
• Encourage more people to set up businesses in less developed countries
• Provided the skills and motivation needed by enterprise
Possible Drawbacks Of Multinational To A Country
Environmental Damage
• Environmentalists are suspicious because they are afraid multinational will
cause environmental damage
• Because most are heavily involved in extraction industries
• Mining is often destructive
Exploitation Of Less Developed Country
• Some may encourage developing countries to rely on producing primary
products.
• Risky because primary products price can change sharply. Causes variation
in income
• Also limit their own development if they concentrate too much on
multinational needs. They won’t be able to develop more to secondary and
tertiary industries
• Often pay lower wages
• Multinational also employ child labour and workers in factories are often
very poor
• Tax paid to host country are also minimal
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• Put back into the country because this would reduce profit made by
multinational
Reparations Of Profits
• Profits made abroad are repatriated (sent back to its based country)
• So host country loses out
• Multinational bring more benefits to developing countries than less
developed countries
Lack of accountability
• They may be able to evade law especially in weak government countries
because they are large and powerful
• May also want to operate where regulation is insufficient or non-existent
• But pressure group may monitor multinational. This helps with
accountability
Batch 13
Chapter 11
International Trade
• It benefits the world
• Create opportunities for business growth, increase competition and provide
more consumer choice
International trade :
• Allows countries to obtain goods that cannot be produced domestically
• Allows countries to obtain goods that can be bought more cheaply from
overseas
• Improve customer choice
• Provide opportunities for countries to sell off surplus commodities
Visible and Invisible trade
▪ Visible Trade
Trade in physical goods
• Eg: India sells textile, leather goods and etc... to overseas. These are
visible export. India buy goods from overseas. These are visible
imports. Difference between total visible export and import is called
visible balance.
▪ Exports
Goods and services sold overseas
▪ Imports
Goods and services bought from overseas
▪ Invisible trade
Trade in services
▪ Balance of trade (visible balance)

Difference between visible export and visible imports
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What is exchange rate?

▪ Exchange rate
Value of currency in terms of another
Eg: $1 = 2000 kyats
The impact of changes in the exchange rate on importers and exporters

Can have an impact on the demand for export and import.
When exchange rate changes, price of export and import also changes.
Fall in the exchange rate
• When exchange rate falls there is said to be a depreciation in the exchange
rate
Rise in the exchange rate
• When exchange rate rises there is said to be an appreciation in exchange
rate.
International Competitiveness and Exchange Rates

Exchange rate rise and fall can sometimes benefit a business
• If the value of the money falls, exporters will benefit because price of
export falls and demand should increase
• But importers will lose out because their purchase will be more expensive
• Changes in exchange rate can have impact on international
competitiveness of a country
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• If exchange rate falls for a longer period, all exporters in the country can
sell their goods more cheaply abroad. This is positive impact on the
economy of that country.
• Higher export sales means more employment, income and tax revenue for
country
• Lower exchange rate means that import prices rise, so consumer will have
to pay more for overseas goods.
• Varying exchange rate cause uncertainty. Because businesses don’t know
what will happen in future
Batch 13
Chapter 12
Government Spending
• Government provides public services
• In less developed countries, government will spend less
• Government spending levels will influence businesses
• Higher levels of government spending will be welcomed by business
Taxation
▪ Fiscal Policy
Using changes in taxation and government expenditure to manage the
economy
• Money raised by taxation is used by government for help funds spending on

public services
• Business and individual all pay taxes
Tax
Indirect Tax Direct Tax
Income Tax Corporation Tax VAT
-Personal -Company Profit When buy of

Income goods & service
• If income tax were lower there would be more spending in economy

• Business may respond by increasing production and expanding
• In some countries income tax may be cut to help low paid
• Business may respond to higher corporation tax by cutting investment or
reducing divided
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• Government reduces corporation tax because to attract foreign businesses

to locate operations in their country. This help to create jobs and improve
living standards.
Constraints on Public Spending
Some countries built up massive debts as a result of financial crisis. The effect
on business of such constraints can be severe.
• Public Sector organisation that supplies services directly may got their
funding cut.
• Hospital, school, university, social service providers and libraries may be
forced to lay off staff to cope up with funding cuts
• This will affect businesses because those people laid off in public sector
will have lower incomes
• Demand will fall and business will not need to produce
• Private sector business that rely on public sector contract for part of
their business will be hit. For eg: private company which carry out
government work will lose revenue if project is cancelled
• Cuts in pension and other government payment. Business are affected
by such cuts because people who rely on state benefits will have their
spending reduced which lower demand in economy
How can government affect business activity?

The government can affect business activity. It can:
• Change the law
• Influence the rate of interest and exchange rate in the economy
• Change level of government expenditure and taxation
• Introduce policies that have a direct impact on business such as subsidise to
farmers
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Three specific approach:
▪ Infrastructure Provision (နင

ို ်ငံံ့အခ ြေြေံအခ ောက်အအံို)
o Heavy expenditure on large scale projects can have big benefits to

business. Because private sector businesses are likely to get most
of the work
o Employees will spend some of money received by these
businesses from government. This boost demand for all types of
businesses.
• Legislation
▪ Anti-competitive Practices
Attempts by firms to prevent or restrict competition
o Without government, some business may not meet the need of
certain stakeholders
o Role of government is to provide a legal framework in which business
can operate
Three areas where legislation has an impact on business
1. Consumer protection
o Customers want to buy good quality products and services
at fair price
o They also want accurate information about products
o Do not want to buy goods that are dangerous or overpriced
o So without government, business will exploit customer by
anti competitive practice such as:
- increasing prices to higher levels than they would
-price fixing, where firms agree to fix price of a product to
avoid price competition
-restricting consumer choice by market sharing
-raising barriers to entry by spending huge amount of
money on advertising
▪ Barriers to entry
Restrictions that mean it is difficult for new firms to enter a market
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2. Competition Policy
Governments should try to promote competition. This helps to
prevent from anti-competitive practice and consumer exploitation.
o Encourage the growth of small firms: if small firms are to join
market there will be more competition. Small firms will be
dominated by larger firms
o Lower barriers to entry: more firms will join market. Make more
competitive
o Introduce anti-competitive legislation: laws are often designed to
protect consumers from exploitation by monopolies, mergers (two
or more businesses joining together to form one new firm) and
restrictive practices.
3. Environmental Legislation
Business activity can have a negative impact on environment.
o Many governments make new laws to minimise the damage
done by business to the environment.
o Much of the pressure for environmental legislation has
emerged owing to the growing concerns about global warming
o If business fail to obey the law, may be forced to close until
problem is solved
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• Trade Policy
▪ Protectionism
Use of trade barriers to protect domestic producers
▪ Infant Industries
New industries that are yet to be established
▪ Dumping
Where a business sells goods in another country often below cost
▪ Trade barriers
Measures designed to restrict trade
▪ Subsidy
Financial support given to a domestic producer to help compete with
overseas firms
Protectionism might be used to:

o Protect jobs if foreign competitors threaten the survival of domestic
producers
o Protect infant industries
o Prevent dumping
o Raise revenue from tariffs
Government can use to trade barriers to restrict trade
o Tariffs: a tax on imports, which make more expensive
o Quota: physical limit on the amount allowed into the country
o Subsidy: such as grant or tax break to exporters or domestic producers that
face fierce competition from imports
o Administrative barriers: the use of strict health and safety or environmental
regulations and specifications to make importing more awkward
▪ Trade bloc
A group of countries in the same geographical region sign a trade
agreement to reduce or remove trade barriers.
Benefits to business of trade bloc includes:
o The opportunity to specialise in the production of those goods
and services which they can produce more expertly or at low cost
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o Access to wider markets

o Lower cost when sales and output rise
o Protection from large predatory multinational from outside the
bloc
Effects on the interests rates on business
▪ Interest
Price of borrowed money and the saver are rewarded
▪ Monetary
Using changes in interest rate and the money supply to manage the
economy
• Higher interest rate means it is more expensive to borrow money so

demand in economy is likely to fall
• Lower interest rates will increase demand in economy because it will be
cheaper to borrow
• High interest rate are bad for business because:
o When the interests rates rises, cost will increase for any business that
has already taken the loan. Higher interest rate will therefore reduce
profit. This will cut the rewards of business for the owner and shrink
the fund available for new investment. Lower investment could
reduce the growth of business.
o The purchase of capital goods by borrowing is discouraged because
it’s more expensive. Will be unwilling to invest in new machinery. If
postpone or cancel of investment, business will fail to keep up with
change in technology. Could affect competitiveness and their ability
to grow.
o Demand in economy falls. Because consumer are less willing to
borrow money to fund spending. It clearly have impact on business.
Finally, change in interest rate will have bigger impact on business which
already have lots of debts. Lower interest rate can have positive effect
on business. When borrowed money is cheap, businesses are more
likely to invest more and grow faster.
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Effects of interest rates on consumer spending

It can have effect on consumer behaviour
• House owner with mortgages will be affected negatively when interest rate
rises.
• They will have less disposable income( income remaining after tax and bill
are paid for) to spend
• Cut in consumer spending will be hit harder than those with smaller ones
• Demand for goods bought with borrowed money will fall when interest rate
rises.
• Many people use loans, overdraft and credit cards to fund their spending
• Interest rate rises → funding expenditure with borrowed money becomes
less affordable, demand for goods and services is likely to fall
• Savers will be hit if interest rate are low. Because they will earn less interest
on saving
Batch 13
Chapter 13
Nature of external factors
PEST (abbreviations) → P – Political , E – Economic , S – Social , T – Technology
The effects of external factors can be both positive and negative
External factors may fall into a number of different categories.
1. Social
Business have to adapt to any changes that occur in society
• Increased consumer awareness: Customers have easy access through
the Internet to lots of information about products and are more
aware of their rights. Many businesses have become customer-
focused
• Changing demand pattern: Change in society bring changes in
demand of products. Many people these day like goods to be
delivered to their doors. Rapid growth in online business has also led
changes in demand pattern
• Increased numbers of women at work: More and more women have
abandoned the traditional childcare role and have combined family
life with employment. Has increased the supply of labour. Helped to
increase number of new businesses
• More part-time workers: Huge increase in number of people taking
part on part-time works. Improved flexibility in business organisation
cause part-time labour is more adaptive
• Urbanisation: Many people have left rural areas to live in towns and
cities. It provides business with more labour.
2. Technology
New technology results in new product and provide with new market
opportunities. New technology means production becomes more capital-
intensive and cost reduced
• Primary Sector – use of tractor,.... has helped to lower cost in
agriculture. Chemical and pesticides have also helped to increase
crop yields
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• Secondary Sector – Introduction of robots on production line

reduced costs. Cheaper to employ than people because they can
work 24/7
• Use of technology in service industries has reduced cost too. Internet
banking has also helped to reduce banking cost. Because customers
can manage their account online
• Use of IT has reduced administration and communication cost in
business. Computer can carry out many routine tasks quickly. Wide
range of different information can be sent electronically anywhere in
the world instantly.
• Rate of technological change increase all the time. Business often
provide new product opportunities or help to improve efficiency
• Changes in technology can shorten the amount of time products can
be marketed for. New product are quickly developed.
• Business can replace labour with capital. New technology lowers unit
cost
• Development of social media has helped improve communication
between business and customer
3. Environment
As economies grow environmental damage increases. Businesses are
blamed for pollution.
• Global Warming
• Habitat Destruction
• Resource Depletion
• Sustainable Development
o The use of resources by business and consumers needs to be
reduced.
o If business take sustainable approach they will also find it
easier to comply with regulations, reduced costs, improve their
image and increase profits.
▪ Sustainable Development
Idea that people should satisfy their basic needs and enjoy improved living
standards without compromising the quality of life of future generations
Batch 13
Businesses may respond to environmental issues in a number of ways. For

example to help reduce resource depletion businesses could:
• design packaging that can be reused or recycled
• use more energy-efficient equipment or renewable energy sources
• explore ways of selling waste to other businesses as a by-product
• reduce business travel and use video conferencing for meetings.
4. Political
▪ Pressure Group
Group or organisation that tries to influence the options of ordinary
people and persuade the government to do something
• Issue of national security has become priority for many government.
If measures designed to improve national security restrict the
movement of goods, people and capital, could have negative impact
on business
• A new government might be elected which is very pro-business.
Encourage more people to become entrepreneurs. More foreign
investment may be attracted
Batch 13
Chapter 14
Measure of Success for Business
Financial
• Revenue: if revenue increase each year, most owners would feel they
are making a success of their business.
• Market Share: better for a business to have a larger market share.
With a large market share a business might be able to dominate the
market; will raise profile of business and allow to charge higher price.
So, is a business were increasing its market share, it’s considered as
successful because winning sales from its competitors. But measuring
success with market share is challenging. Some information might be
difficult to obtain
• Profit: most private sector aims to make profit. Rising profit signal
improve in success.
o Will make higher profit if no competition in market.
o Amount of profit made will depend on the business size.
Larger business will make higher profit.
o One approach is to compare profit to the amount of money
invested in business by calculating ROCE (return on capital
employed)
o Profit should be compared with other business in same
industry. Different industries often expect different profit
levels
o Profit can only be measured if objectives of business is to
maximise profits
• Growth: Business aim to grow.
o Turnover or revenue: Revenue is used to measure the size
o The number of employees: A business with thousands of
employees may be considered large
o Market Share: larger market share is more successful than
lower market share in same industry
o The amount of capital employed: the more money invested
the larger the business
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o EU definitions of size
Non-Financial
• Customers Satisfaction: Business will look whether customers
need and want are satisfied. If customer service is good,
successful business will have loyal customer and growing
customer base. Many businesses make effort to get feedback
from customers. Any complaints from customers should be taken
seriously and must take action to improve. Therefore, business
will be considered as successful.
• Owner/Shareholder Satisfaction: Shareholders bought share with
aim of making money and they focus on dividend and share
prices. They like to see regular divided growth. If dividend are
frozen or cut, business might seem to be failure.
• Employees Satisfaction: Employees depends on business for their
livelihood. Employees rely on wages. Employees also want
business to be successful. Only if business grow and profitable,
employees will get higher wages and will benefit and got bonus.
They will also feel more secure. They will need training so to do
jobs properly. Also want good working condition, fair and equality
and opportunities for promotion. Also, safety. Employees will
want to maximise their financial rewards and welfare. If all these
needs are satisfied, then business is likely to be successful
Importance of targets when judging success
Many owners set targets when running business. This makes easier to measure
success. Targets might be used to motivate staff. If targets are met staff will
receive bonus.
Batch 13
Chapter 15
Business Failure
Business fails for many reasons. Most common reason is money; ran out of cash
even when u get profit. Other fail because they don’t raise enough finance before
trading began. Financial planning is necessary. Need to ensure that business has
enough money when it is needed.
5. Overtrading 1. Investing too much 4. Allowing too much

• Large volume of Fixed Asset credit
production with • Spending large • As goods are sold
less cash amount on F.A can on credit, cash
• Cash runs out while quickly use of become shortage
spending money on resources and have to wait
resources • Better to lease for money. So, will
• Trying to expand some fixed assets have to borrow
business too to protect cash money
quickly can also
face problem
2. Over-borrowing 3. Seasonal Factors
• Borrow to finance • Farmers cash
growth inflow is large if
• Interest cost rise if they’re sold
borrow a lot • But for much of
• Instead sell shares
Cash Flow Problems years, they’ve t pay
and raise capital expenses
• Requires careful
management
6. External Factors
8. Unexpected Expenses 7. Poor Financial
• Events that are
• Business need to Management
outside the control
be prepared for • Inexperienced in
cause cash flow
bad debt, managing cash may
problems
equipment lead to cash flow
• Changes in
breakdown problems
customer, changes
• Might be caused by • It is careless to
in legislation or a
lack of experience spend cash when
downturn in
or poor planning its not there
economy cause
cash flow problem
Batch 13
▪ Fixed Assets
Resources that are used repeatedly for a period of time by a business
such as property, tools and vehicles and machinery
▪ Downturn
Period or process in which business activity, production etc...is
reduced and conditions become worse
Lack Of Finance
• Both new and established business may fail if they cannot attract funding
• Established business may fail to get funding because their track record is
poor and therefore too much risk for investors
• New business struggle to attract funding because they don’t have funding
history and are too risky for investors
• Some owners think they can survive with limited amount of capital by being
undercapitalised; starting a business with insufficient capital
• If business does not raise enough money before trading begins it will risk
failure
Failure because not being competitive
Business fails because they’re unable to compete effectively in the market
• New Entrants
Business may begin successful and then fail due to new firms entering the
market and take away the trade. Competitors might:
o Bring out superior product
o Read market condition more effectively
o Charge lower prices because their cost is lower
o Use of high discounting, if they are powerful company, and drive
smaller firms out of the market
• Ineffective Cost Control
If cost is too high then a business needs to change more to make profit.
This might result in loss of trade to low-cost competitors.
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o Firm’s may be too small to exploit economies of scale. Larger firms

produce more output and enjoy lower unit cost. Can buy huge
amount of raw materials at lower cost.
o Business that does not have an effective budgeting system may lose
control of its cost
o Business might pay too much for some its resources. Business may
not be spending enough time researching supplier in market
o Business might not be minimising labour cost. For eg: it might be
possible to relocate production to a country where wages are lower
o Cost might also rise owing to external factors. For eg: if exchange
rate falls, cost of imported raw materials rise. This could
disadvantage a business that rely on imports
• Ineffective Marketing
Business may struggle to compete if marketing is weak
o Business might launch new product, which fails to take off
o Might use inappropriate pricing strategies, which means price are too
high or too low. If too high, customer will switch to another firm. If
too low, customer might think quality is too poor.
o Might invest too much in inappropriate marketing campaigns
o Might use inappropriate marketing strategy
• Lack Of Business Skills
Lack competitiveness and fail because owners are not skilled. Running
business require skills. Have to be creative, good with number, motivational
and good decision maker. Need skill in communication
• Poor Leadership
Senior managers and business leaders sometimes bring down companies by
actions. If leader make mistake business might lose its competitive edges in
market. Poor decisions can lead to urgent changes.
Failure To Innovative
Some fail because they are not innovative. Might have failed to adopt new technologies or to
develop new product. Some are not prepared to take risk and invest money. Relying on old
product can lead to collapse in business. If not used of modern technology, then cost will be
higher and lose out to rivals that do invest in technology
Batch 13
Chapter 16
What is Communication?
Communication is sending and receiving information.
• Communication begins with sender (job applicant)
• Message being sent is a job application form for a clerical assistant
• Receiver is the personal manager
• Feedback is a letter inviting the applicant for an interview
How does communication take place?

▪ Communication channel
Routes along which information might travel in a business
• Messages can be passed vertically (upward and downward) and
horizontally (from side to side)
▪ Downward Communication
Passing messages from the top of the organisation to those at the bottom
It is important because:
• Subordinates look to their managers for leadership and guidance
• It allows the decision made by management to be carried out by
employees
• It allows managers to command, control and organise
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▪ Upward Communication
Passing messages from the bottom of an organisation to those at the top
• Involves workers giving feedback to managers.
• Might also involves request by workers
• Help managers to understand the views and needs of subordinate
• May make manager aware of problems
• Helps staff to feel that they’re valued
• Provide manager with information to help make decision
▪ Horizontal Communication
Exchange of information between parties on the same level in an
organisation in hierarchy
• Communication between the people in same department
Internal and External Communication

▪ Internal Communications
Communication between people inside the business between employees
• Manager warning subordinate for repeated lateness
• Board meeting where director is discussing a possible merger
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▪ External Communications
Communication between business and those outside such as customers,
investors or the authorities
• Occurs when businesses exchange information with people and
organisations outside the business
• A statement from a credit card company
• Focus group where people from the marketing department discuss a
product with members of the public
Formal and Informal Communication

▪ Formal Communication
Use of recognised channels when communicating
• Use recognised channel
• Formal groups are set up by business
• Shown on organisation charts as department
▪ Informal Communication
Use of non-approved channels when communicating
• Use through non-approved channels
• Unofficial information is passed by gossip and rumours
• Can be both helpful and unhelpful
• Employees who meet outside works communicate informally
• Family and friends who work in different departments
• Group of workers that started together or trained together
• Informal groups influence formal groups
• Formal and informal give different information and staff may not
trust formal communication
Importance of good communication in business
If poor communication:
• Internal communication poor → problem arise
• Efficiency and profitability may suffer
• Poor communication can lead to mistakes, wasted resources and confusion
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• Can lead to workers not understanding what to do, poor motivation

• Make the business look foolish, may cost money
• Also damage image of company
Methods of Communication
• Face-To-Face Communication
Used when spoken information is exchanged by people who can see each
other. It is effective. Used when:
o An interview where a candidate is being interviewed for job
o At training session where new skills are taught
o Dealing with customers
o At presentation to investors for financial progress
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Advantages Disadvantages
-Allows immediate feedback -Negative body language may create
-Encourages cooperation barrier
-Allows new ideas to be generated -Record of the message may not be
-Saves time kept. Non-relevant information may be
included & some people may not listen
-Limits to the number reached, for
example, by the capacity of largest
meeting room
Written Communication
• Letters: Flexible because can be sent to variety of different people.
Information in each letter can be expressed so recipient can understand.
Can also be used for private information and have a record. But take time
and effort
• Reports: Communicate important in a formal manner. Short, complex but
detailed. But must be concise and structure and present carefully.
Disadvantage is that take time to research and write
• Memorandums: Used for internal communication only. Contains brief
message and are flexible. Used for reminding of events, confirm telephone
conversation or pass on simple instructions
• Forms: Used for routine information. Application form are to collect
information for jobs, loans or license. Claim forms for expenses. Forms are
inflexible and can become out of date
• Noticeboards: Cheap to use and can pass on information to a large number
of people. Can be untidy
Electronic Communications
• Email
Problem with email might be that it is ignored. People don’t have time and
motivation to read every single message.
• Internet
o Market product by displaying on shopping site
o Allow customers to buy with debit and credit cards
o Provide information about nature of business
o Advertise jobs
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o Obtain information about products for market research and about

potential suppliers
o Deal with customer inquiry online
• Mobile Phone
o Useful when employees are away from work
o Cheap method
• Social Media
o Communicate with customers
o Can communicate with customers from all over the world
o Product information is up to date
• Intranets (where all computer in a particular department or organisation
are linked together)
o Advantages is that changes made to information such as time table,
stock list, prices, can be updated instantly and available to everyone
• Videoconferencing and teleconferencing
o Allow people from different places to have face to face meeting
• Public Address (PA)
o Used in factories, hotels and large stores to pass information to staff
or customer.
• Electronic Noticeboards
o Communicate information to employees and visitors through display
units located around business
Online Communication is not without problems

1. It is not possible to get a broadband connection
2. Connection can be lost when using Internet
3. Email inbox get filled with electronic junk mail and spam
4. Computer viruses can result in loss of files
5. Computer hacker may get hold on sensitive and confidential
information
Batch 13
Chapter 17
Barriers to communication
▪ Communication barriers
Anything that come in the way of effective communication between the
sender and the receiver.
• Types of communication barriers-
➢ Lack of clarity
o If a message is not clear, it may be misunderstood
o Unclear communication may be the result of poorly written
message
➢ Technological Breakdown
o Business communication is done electronically
o Communication may be unclear because of weak signal
o The use of electronic communications are increasing and
technological breakdowns are becoming a more serious issue
o The websites of some business have been taken out of by
computer hackers
➢ Poor communication skills

o Customer sometimes complain that they cannot understand
people when they are put through to staff working in an
overseas call centre
o This may be due to the unfamiliar accent or use of informal
language
o Some people may be poor listener so they may only be able to
concentrate for short periods and may be impatient during
communication process
o Written message may contain poor spelling or weak grammar
errors that can make a message appear untrustworthy
o Some messages might be completely ignored if they are poorly
written
o Sending messages in anger is an example of poor
communication and can act as a barrier
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➢ Jargon- vocabulary used by people in specific group

o Jargon should not be used when communicating outside the
group
o Customer sometimes get frustrated when employees start to
use technical jargon
➢ Distractions
o Communication may break down if there are distractions in
communication process
o An obvious distraction is noise
➢ Business culture
o Some Business may develop a culture of poor communication
o If a business fails to its employees fully informed of important
events, it can lead to doubt and uncertainty
o This may result in rumours, gossip, suspicion, and anger
➢ Long chain of command

o If there are too many layers of management in the
organisation, the chain of command will be longer
o It means the message will take longer to pass through the
chain and may become unclear on the way
➢ Using the wrong medium

o The different methods which messages can be send are called
communication media
o Some examples of appropriate use of communication media –
o Confidential information - such as person’s personal details
should be communicated securely
o Sensitive information – such as staff disciplinary matter should
be communicated face to face
o Some communication- such as job offer must be supported by
a document such as letter
o Verbal communication- if immediate feedback is required
o Standard information – best communicated using forms
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o Complex and detailed information- best communicated in a

report
➢ Different countries, language and cultures

o In multinational company, people may be working in different
countries where languages and culture vary
o Employees may be in different time zone from one another
which can delay response
The problems of ineffective communication in business

• Ineffective communication can result in expensive problems
• Some problems such as higher staff turnover, more staff absences, poor
customer services, more worked – related injuries, difficulties making
changes, higher legal costs and lower profits
• Ineffective external communications can damage relations with customers
and suppliers
• If communication problems cannot be solved customer may find alternative
shops or suppliers which will result in lost revenue and lower profit
• Ineffective internal communication can result in low motivation,
disengaged workers, conflict, mistakes and injuries
How can barriers to communication be removed?

➢ Recruitment
o Business should recruit staff with good communication skills
o Is a job applicant is unable to communicate effectively during
an interview, they should not likely to get the job
o Business might use formal tests to assess the communication
skills of potential recruits
➢ Training
o Business must overcome barriers to communication
o They can attend specialised courses to improve verbal
communication, learn a language, improve written skills and
develop presentation skills
➢ Written communication
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o One way of removing the barriers is to provide provide

standard company letters, which can be used by all staff
o A business might also use forms to gather information which
helps to present written information in a structure and clear
way
➢ Technology
o If communication barriers result from faulty technology, a
business may have to repair or replace equipment
o Barriers sometimes exist because employees do not
understand how IT system work or they are not aware of the
system full capabilities
➢ Chain of command
o A shorter chain of command means that information can pass
through an organisation more quickly
➢ Social events
o Internal communication may improve if social events are
organised for staff
o Getting to know colleagues at social events might help people
to develop working relationships and improve communication
➢ Culture change
o A business might need to introduce some formal
communication systems
o It might need to remove physical barriers, provide more open
workspace and introduce an ‘open door ‘ policy
Batch 13
Chapter 18
Type of Employment
▪ Full-Time Employment
Work usually five days a week. The number of hours may vary in different
countries.
▪ Part-Time Employment
Work hour less than 30 hours. Have some flexibility. And Mainly students.
▪ Job Share
Two part time worker share the work. Interact effectively. Less stressed for
employees.
Other Type of Employment
• Casual employment
- Do not get guarantee of work.
- Hours of work often variable and uncertain.
- Provide great flexibility for business.
- Causal work is often used in hospitality industry and specific events.
• Seasonal Employment
-Workers at particular times of the year.
-The work is regular and full time but short lived .
-Still provide flexibility for business .
-Workers are laid off when the season ends.
• Temporary employment
-Take on staff for a short period of time to cover for absent workers.
-The work is full-time but the length of contract may vary. ( 3 – 12 months)
- Provide a ‘doorway’ into permanent position.
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Recruitment
HR department is responsible for employing staff
• The business is expanding and more labor is needed
• People are leaving and they need to be replaced
• Position have become vacant owing to promotion
• People are required for a temporary period to cover staff absence owing to
maternity leave or paternity leave, for example.
Recruitment Documents
▪ Job Description
Documents that shows clearly the task , duties and responsibilities
expected of a worker for particular job.
▪ Pearson Specifications
Personal profile of the type of person needed to do a particular job.
▪ Job Application Form

Standard document used to collect information from a job applicant.
Ensure the same data is collected from each applicant, which make
comparison easier.
▪ Curriculum Vitae (CV) Or RÉSUMÉ

Documents used by a job seeker that lists personal details,
qualifications, work experience, referees, and other details.
Stages in the recruitment process
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Internal and External Recruitment

▪ Internal Recruitment
Appointing workers from inside the business.
• Advantages of internal recruitment:
o it is cheaper because it saves on advertising
o internal recruits are familiar with company policy and working
practices
o staff may be more motivated if they know there is a chance of
promotion
o the ability, personality, attitude and potential of the person
appointed will be more predictable.
▪ External Recruitment
Appointing workers from outside the business.
• Advantages of external recruitment:
o a business will have a much larger pool of potential employees
to choose from
o a new person may be very talented and have some have fresh
ideas, which could help the business become more
competitive.
Methods of attracting job applicants
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Chapter 19
Legal Controls Over Employment
Why legal Control is needed?
The employers may be paid low wages, make the employees work long hours,
deny them employment rights, expose them to danger, discriminate against
certain group or dismiss them unfairly.
What Are Equal Opportunities?
1. Gender (sex discrimination)
Woman now form a significant proportion of the working population. Laws
have been passed to help deal with the problem of gender discrimination.
Legislation outlined below is likely to have impact on business:
• Advertisement for job must not specify particular gender. Both
genders must have equal opportunities
• Reference to work title in job adverts must be genderless
• Promotion must not be made on the basis of gender
• Wages for staff occupying the same position must be same for both
genders
• Business will have to take care when designing internal documents
such as person specification and job description
2. Race And Religion

Business must ensure not to discriminate on grounds of color, race, ethnic
origin, religion or nationality. Effects of race legislation on business.
• Business cannot prevent employees from wearing ethic or religious
dress
• Use of selection tests must be monitored to ensure that their styles
do not discriminate against people from minority background
• Must take into account the religious holidays of ethic group
• Cannot refuse to employ people from particular ethic/religious group
• Worker must receive equal training and prevent racial harassment
3. Disability
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Unemployment rates for people with disabilities around the world trend to
be higher than those without disabilities. Effects of legislation:
• Improve access to the workplace by widening door and provide
wheelchair
• Allow disable to attend medical appointments
• Alter equipment to accommodate those with sight or hearing
difficulties
• Allow more time for training
4. Sexual Preference
• Discrimination against people on grounds of their sexual preference
is illegal.
• Laws have been made to protect the rights of Lesbian, gay, bisexual,
transsexual, and intersex (LGBTI).
• Business must take care to avoid sexual preference discrimination in
recruitment, pay, terms and conditions of employment, promotion
and training opportunity and dismissal
5. Age
Age discrimination in the workplace occurs when a business decision is
made on the grounds of a person’s age. The possible effect on business of
such legislation are:
• It’s illegal to not offer a job to someone on the ground of age
• Prevent older workers from being harassed in the workplace
• Cannot refuse promotion or training on ground of age
• Assumption cannot be made about ages of candidates while
interview
• Cannot state about the number of years experience. Might
disadvantage younger applicant
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To prevent discrimination in workplace. If they fail to do so business may:

• Be involved in expensive legal battles
• Fail to recruit or promote the best staff for the post
• Demotivate certain sections of workplace
• Create unnecessary tension or conflict between employees
Minimum Wages Law

▪ Minimum wage
Minimum amount per hour which most workers are entitled to be paid.
• To benefit disadvantaged workers: It is argued that people such as
women, ethnic minorities and low-income families benefits from
minimum wages.
• To reduce poverty: A minimum wage increase will help reduce
poverty. The minimum wage raises the wages of low-income workers
in general
• To help business: Equality and fairness among workers. Worker will
be better motivated, reduce staff turnover and absence and raise
productivity. Low paid people receive more money.
▪ Effects of Minimum Wage Laws on Business

If a minimum wage is introduced, business employing people on the
minimum wage will have to match this increase. It is also suggested that
higher wages encourage business to replace labor with capital and
outsource production to countries where labor is cheaper.
Benefits of minimum wage to business:
• People on low pay may be better motivated and more productive
when they receive a pay rise.
• Low wage earners will have more disposable income so demand for
many goods and services will rise. This will help drive up sales and
profits for some businesses.
• Businesses may experience lower rates of staff absence and better
reliability.
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Chapter 20
▪ Training
Process that involves increasing the knowledge and skills of a worker to
enable them to do their job more effectively.
Importance of Training
• It is important because it allows employees to acquire new skills,
improve existing ones, perform better, increase productivity and be
better leaders.
• Also improve employee motivation so productivity will be higher
• Training involves teaching new recruits how to work safely
• Can be expensive. Lack of training might endanger workers.
• Lack of training might endanger workers
▪ Induction training
Training given to new employees when they first start a job
▪ On-The-Job training
Training that takes place while doing the job.
• Watching by another worker
• Mentoring (experience people advice and help junior)
• Job Rotation (Working at range of department. This will improve
flexibility of the business.
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▪ Job Rotation
Where employees alternate between different jobs during the course
of their employment.
Advantages and Disadvantages of On-The-Job training
▪ Off-The-Job Training
Training that takes place away from the work area .
Advantages and Disadvantages of Off-The-Job Training
Training In Health and Safety

Due to potential danger, governments aim to protect workers with legislation that
forces businesses to provide a safe and healthy workplace. Legislation addresses
training in health and safety
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Employee will need to learn about:

• Using and maintaining safety equipment and protective clothing
• The importance of a hygienic environment
• Danger from hazardous substances
• The protection needed from violence, bullying, threats and stress in
workplace
The Benefits of Training

1. Keeping Workers Up to Date
• New health and safety procedures
• New technology
• After a takeover
• New working practices
• New legislation
2. Improving Labor Flexibility (Due to multi-skilled)
3. Improving Job Satisfaction and Motivation
4. New Jobs in the Business (Due to expansion, new product, new technology,
new jobs are created)
5. Training For Promotion (allow employees to handle the different duties and
new responsibility)
The Limitations of Training

1. High Cost of Training Courses and Other Resources
2. Learning By Doing (cannot be easily taught through stimulation, can be
stressful and distraction)
3. Loss Of Output (Due to time taken in training)
4. Employees Leaving
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Chapter 21
▪ Motivation
Motivation is the desire to achieve a goal.
• Some people are self-motivated. This means they have the drive to
achieve goals on their own; they do not need any encouragement.
Why Is Employee Motivation Important in Business?
• If a business has a well-motivated workforce, it will perform better.
• People will be happier in the workplace.
• The working environment will be more agreeable and labor
productivity will be higher.
• Business profits are likely to be higher.
Three specific reasons why motivation is important:
• Easier to attract employees
o Business needs to attract the best possible workers available.
o If a business can recruit highly capable and reliable workers, it might
gain a competitive edge on its rivals.
o If employees are motivated, the working environment and
atmosphere is likely to be pleasant.
o Also attract good employees from rivals.
• Easier to retain Employees
o To keep hold of its workers. If they are well motivated, they are Less
likely to leave their jobs.
o Staff turnover will be lower
o If stuff turnover is high, recruitment, selection and training costs will
be higher.
o If good quality workers are maintained, the business is more likely to
be profitable.
▪ Higher Labor Productivity
o Well-motivated employees will work harder.
o They are likely to take more pride in their work, complete tasks
quickly and feel that their jobs are important.
o They will produce higher level of output.
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o Businesses need workers to cooperate. Conflict might result if a team

member is uncooperative.
o Poor motivated staff take time off, become depressed, use minor
illness as excuse for missing work, business production will be lost,
costs will rise and profits will fall.
HERZBERG Two-Factor Theory

▪ Hygiene factors
Things at work that result in dissatisfaction (would not motivate workers)
▪ Motivators
Things at work that result in satisfaction
▪ Job enrichment
Making a job more challenging and interesting (motivate workers)
▪ Job satisfaction
Pleasure, enjoyment or sense of achievement that employees get from
work
Motivators Hygiene Factors

Achieving aims Pay
Chance of promotion Working condition
Responsibility Job security
Interesting work Quality of supervision
Recognition Staff relationship
Personal development Company policy
Maslow’s hierarchy of needs:

Batch 13
How the needs in hierarchy can be satisfied at work

Need Work can provide
Physiological Adequate pay; meal and
accommodation
Safety and security Job security and working
condition
Love and belonging Teamwork, good
communication and
social facilities
Esteem Praise for doing good
job; award and rewards
Self-actualisation Opportunities to be
challenged, creative,
solve problems and
make decision
Maslow once said to motivate workers by satisfying their needs should be as

follows:
• Once one set of need is satisfied, they’re no longer motivator. By achieving
next set of needs they will be motivated
• Make pay sufficient
• Offer promotion
Taylor’s Theory of Scientific Management
Taylor said workers were motivated by money. But he also thought that the pay
system was not motivating them to work. Jobs should be broken down into
simple tasks that workers should:
• Use specialist tools and equipment
• Follow a strict working procedure
• Receive poorer training
• Get breaks to recover from the physical strain of work
• Be paid according to what they produce
Taylor’s felt that employees should get a ' fair day’s pay for a fair day’s work.’
Batch 13
Chapter 22
▪ Remuneration
Money paid to employees for their work or services.
• Taylor said people only work because of money.
• Maslow said money is needed workers to satisfy their physiological
needs
Different Methods of Remuneration
▪ Time rates
Payment system based on the amount of time employees spend at work.
• Common system for workers works per hour or months.
• Gross pay: pay before deduction such as tax
• Net pay: pay worker take home after deduction as follows;
• Overtime: rate of pay above the normal rate to compensate

employee for working extra hours.
• Salary: express in annual terms and paid monthly. Usually paid to
non-manual workers. Salaried workers are not always paid overtime.
▪ Piece Rates
Payment system where workers receive an amount of money for each unit
produced. Rewards productive workers.
• Problems of piece rates,
o Piece rate cannot be used if work cannot be measured
o Quality of output may suffer if people work too fast. They may
take shortcut and make mistake.
o Workers might use dangerous practices trying to work so fast
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▪ Performance-Related Pay (PRP)

Payment system designed for non-manual workers where pay increase are
given if performance targets are met. Work best if business use an appraisal
system. This includes
• Discuss progress at work
• Access whether targets have met
• Set new targets for next year
• Problems with performance-related pay;
o Some workers felt unfair because appraiser may be
inconsistent
o The financial incentives may not be high enough to motivate
workers to improve their performance
o Some may feel performance targets are too demanding
o Some workers may blame other factors if targets are missed
▪ Bonus Payment
Payment in addition to the basic wage for reaching targets or in recognition
for service.
• Usually paid if targets are met.
• Can be paid to group of workers.
• Advantage for business is that money is only paid if it has been
earned.
• Help to motivate workers.
▪ Commission
Payment based on the value of sales, usually a percentage of sales made.
• Often used to reward sales staff.
• Top up the payment to salesperson.
▪ Promotion
The chance of promotion at work will help to motivate workers; this may be
because promotion nearly always come with higher pay. If a business wants
to use promotion as a means of motivation, it must be prepared to use
internal recruitment.
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▪ Fringe Benefits
‘perks’ over and above the normal wage or salary.
Examples of fringe benefits:
Good reasons for rewarding fringe benefits:

• Employees may also pay less tax if fringe benefits are taken instead
of cash
• Productivity may improve because less staff absence. May be
healthier
• Attract and retain better qualified employees for a business
• Provide protection and security. Improve workers satisfaction
• Motivate staff.
Notes: HERZBERG would argue that fringe Benefits cannot be used motivate
workers since they are hygiene factors.
Non-financial Rewards
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▪ JOB ROTATION
Changing of jobs from time to time.
• Give workers more variety and help to avoid feeling bored.
• Help motivate workers and provide business with more flexibility.
• (Disadvantage) Training cost will rise. And specialization may be lost.
▪ JOB ENRICHMENT
Job should be made more challenging and rewarding.
• Gives employees the opportunity to develop unused skills.
• Make work more interesting.
• Encourage staff to aim for promotion and may feel valued.
• (Disadvantage) employees are force to take extra work without
resources and training. Some may be displeased. Could have
negative impact on labor productivity.
▪ Autonomy (Empowerment)
Giving workers the authority to make choices and decisions about the way
they work.
• Gives workers control and suggest that they can be trusted.
• Give employees self-confidence.
• Help motivate workers.
• Business productivity will be higher. Reduce number of manager and
supervisor.
• (Disadvantage) some may act negatively to being given autonomy if
they don’t received extra pay. Some workers may not be confident
taking on more responsibility .
Batch 13
Chapter 23
▪ Organizational chart
Diagram that shows the different job roles in a business and how they
relate to each other.
Formal organization can be represented by an organization chart, which shows:
Traditional organization chart

Batch 13
Employees and Responsibilities:

• Director: Appointed by the owners to run the business.
o Make all important decisions in the business.
o Have authority over the manager.
• Manager: Are responsible for planning, controlling, organizing, motivation,

problem solving and decision making.
o Are employed to ‘get things done’.
• Payroll officer: someone who is responsible for the administration of

workers' pay in an organization.
• Supervisor: Monitor the work in their particular area.

o Have authority over operatives and general workers.
o May carry out managerial duties, but at lower level.
▪ Operatives: Are skilled workers.

• Involved in the production process.
▪ General Staff: Staff who doesn’t have any specific skills.

• With training, can perform a variety tasks and gain promotion to
other positions.
▪ Professional Staff: Staff who are skilled and highly trained.

• eg. Lawyer, accountant, doctors, pilots, and dentist.
Features of Organizational Structures

▪ Chain Of Command
Route through which orders are passed down in the hierarchy.
• Information passes down through top to bottom or bottom to top.
• If the chain of command is too long:
o Message may get lost or confused as they pass up and down
the chain.
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o Changes might not be accepted lower down the chain.
▪ Span Of Control
Number of people a person is directly responsible for in business.
• If a business has wide span of control, it means that a person controls
relatively more subordinates (who work under the control of a more
senior worker)
• Narrow span of control means with fewer subordinates.
• If span of control is greater than 6, difficulties may rise.
Flat And Hierarchical (Tall) Structure
Flat -------- > wide span of control

Tall -------- > narrow span of control
▪ Delegation
Authority to pass down work from superior to subordinate
• Time can save if subordinates complete the task.
• Same delegation may motivate workers but some may lead to
dissatisfied.
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• The extend to which delegation depends on whether decision making

is centralized or decentralized.
Centralization and Decentralization

▪ Centralized
Type of organization system where most decisions are made at the top of
the organization and then passed down on the chain of command.
-Senior has complete control over resources -Employees may be demotivated without
-Senior manager are trained and experienced any authority
in decision making -Less creative and fewer ideas
-Prevent part of business; different -Procedures are needed for making
departments, acting independently decisions making easier
-Coordination and control are easier -At top may be out of touch with needs of
customers served by local employees
▪ Decentralized
Type of organization system where decision making is pushed down the
chain of command and away from top.
-Workers have autonomy and may be better -Senior manager may lose control of
motivated resources
-Speeds up decision making -Cost may be high owing to less
- Take pressure off senior manager by standardization and more variability in
reducing their workload decision making
-Workers get the opportunity to be creative -Employees may not have ability to make
and share ideas decision
-Provides more promotion opportunity at -Employees may not welcome the extra
different levels responsibility
Batch 13
▪ Matrix Structure
Employees are put together into teams that cut across departmental roles.
They may work together on a specific project
Batch 13
Chapter 24
▪ Trade Unions
Organization, usually in a particular trade or profession, that represent
workers, especially in meeting with employers.
▪ Human Resources Department (HR)

Is responsible for the welfare of employees. The main tasks are;
• Workforce planning: Calculating the number and types of staff
required by business.
• Recruitment and selection: Plan the number and types of workers
needed, place job adverts, provide application form, selection of
appropriate candidates, interviewing, and selection of best
employees.
• Training: Organize induction and training needed during
employment.
• Health and Safety: Ensure that staff are fully trained in health and
safety and issue all employees with the required safety equipment
and protective clothing.
• Staff welfare: HR department is reasonable for meeting the welfare
needs of employees. Such as, working environment have to be
comfortable.
• Employment issues: Has to draw up contract of employment for
employees. Need to explain them. It is important to clarify the pay,
hours and place of work, job description, holiday allowance, non-
financial incentives and other services.
• Industrial relations: Have to maintain good communication with
trade unions. Have to organize, and be involved in, negotiations
better employees and employer.
• Disciplinary and grievance: If workers have problems with work
issues, HR have to provide information to employees on procedures.
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• Dismissal: HR is responsible for giving formal warning to workers and

dealing with any legal requirements when laying off staff. If there is
unfair dismissal, workers may take employer to employment tribunal
(court that deal with disputes between employees and employer).
• Redundancy: HR will handle to make people redundant.
▪ Finance Department
Is responsible for administering and monitoring all financial transaction. In
large business, the following tasks may be carried out;
• Recording transaction: Details of every single purchase and sale must
be recorded by a business which is used to produce important
financial statements.
• Wages and salaries: Processing wages and salaries for all workers.
Provide workers with wage slips, ensure payment is made of time,
deal with wage queries and make payments to tax authorities.
• Credit Control: Monitoring the amount of money owed by
customers.
• Cash flow forecasting and budgets: Controlling the firm’s money.
Such control is aided by producing budgets and cash flow forecast.
• Accounts: Producing the business’s account. These are financial
statements that show how well the company has performed.
▪ Marketing Department
Most business today are market oriented (where a business focuses on the
needs of customers when developing products.) Marketing Department
may be involved in the following activities;
• Market Research: Gathering, processing and presenting data about
customer needs, markets and competitors.
• Product Planning: Deciding which product should be marketed.
• Pricing: Decide which price should be charged. Costs, competitors,
the state of the market and the type of the product will influence
these decisions.
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• Sales Promotion: Have to develop interesting and effective Methods

of promotion. Eg. Free gift, coupons, discount, buy-one-get-one-free
offers, competitions and loyalty cards.
• Advertising: Have to create innovative and effective adverts.
• Customer service: Focus on the importance of providing good quality
customer service. Is a way of gaining a competitive edge and involves
providing assistance and advice to people who buy firm’s products
• Public Relations (PR): Communication between the company and the
general public, including shareholders and potential investors.
Managing the company’s image and dealing with any issues affecting
reputation.
• Packaging: Play a key role in the design of packaging. It is important
as it often says a great deal about the product itself.
• Distribution: To make sure that the products are made available to
customer in the right place at right time. This may involve organizing
transportation and securing contracts with retailers and wholesalers.
▪ Production Department
▪ Production involves making goods and providing services. Some activities
carried out by this department are as follows:
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▪ Relationships And Interdependence Between Departments

It is important for departments to work together. There must be good
communication between departments to ensure business runs effectively.
Example of relationship and interdependence are;
Batch 13
Chapter 25
The Need for funds
1. Short-Term Needs
2. Long-term Needs
3. Start-Up Capital
4. Expansion
1. Short-Term Need
▪ Short-Term Finance
Short-term finance is the money borrowed for one year or less
• Once a business start trading it will earn revenue
• This money can be used to meet day-to-day running costs of business
• But sometimes revenue from sales may not cover all the expenditure
• At this time, business will need to borrow money
2. Long-Term Needs
▪ Long-Term Finance
Long term finance is the money borrowed for more than one year
▪ Capital
Capital are finance provided by owners of business
• Long term finance comes from the owners , which is called capital
• Capital remains in business permanently
• Long term sources may be borrowed from financial institutions, such as
banks
• Long term finance are often used to buy resources
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3. Start-Up Capital
• Funds are most needed when setting up the business
• Because a lot of resources are needed before trading can begin
• Some of the resources are “one off item” and “ one off cost”
4. Expansion
Once the business is set up, owners want to expand. They may want to :
• Expand the capacity to meet growing orders
• To develop new products
• Branch into overseas markets
• Diversify different industries
Internal sources of finance

Internal sources of finance comes from inside the business and can only be used
when the business is established .
Three main types of internal sources of finance:
1. Personal Savings
2. Retained Profit
3. Selling assets
1.Personal Savings
• When the business is set up owners are required to contribute some
finance
• For small business, the capital provided by owner come from personal
means
2.Retained profit
Retained profit is the money held by a business rather than returning it to the
owners and which may be used in the future
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• Advantages:
Cheap- because no charges are involved
Flexible- because it can be built by business and kept in a bank account
earning interest
More readily available
• Disadvantages:
If profit is used by business , it cannot be returned to the owners
3.Selling Assets
An established business may be able to sell some unwanted assets to raise
finance
• Assets are resources used or owned by the business, such as, cash, stock,
machinery, tools and equipment
• It is also possible to sell off assets needed by business and lease them back
External sources of finance

1. long term finance
2. Short term finance
1. Long term finance
▪ Loan capital
The fixed argument between business and the bank
• It must be repaid in regular instalments at fixed period

• Advantages- a business will know exactly what it has to pay every month
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▪ Unsecured bank loan

It means that bank lends money without the security of having a claim on
your assets if you don’t pay it back
• Some business may find it difficult to get an unsecured bank loan
• Because it presents too much risk and interest rate are higher
▪ Mortgages
A long term loan
• The borrower must use land or property as security
• If the borrower fail to make repayment the lender will repossess
• Repossess- take cars, furniture or property back
• It is popular because interest rates are lower
▪ Debenture
Long-term security yielding a fixed rate of interest, issued by a company
and secured against assets
• Debenture holders are entitled a fixed rate of return
• They have no voting rights
• Must also repaid on a set date when debenture matures
• Public Limited Company use this long term source of finance
▪ Hire purchase(HP)
Buying specific goods with a loan, often provided by a finance house
• Business use HP to buy tools, equipment, vehicles and machinery
• Features of HP:
> the business usually makes a down payment
> the remaining fee is paid in monthly instalment
> the goods bought do not legally belong to the buyer until the
last instalment payment
> if buyers fall behind with repayments, goods can be repossessed
> HP agreement can be long term or short term
> Disadvantage- more expensive than bank loan
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▪ Share capital
Permanent capital
• It is an important source of external finance.
• A right issue may be used to raise more share capital
• Right issue- sales of new shares to existing shareholders at a
discount
• The main advantages of selling shares to raise capital is that interest
payments are avoided
• The main disadvantage of issuing to raise capital is the cost of
administration
▪ Venture capitalists
Specialists in the provision of funds for small and medium sized
businesses
• They may invest in a business after the initial start-up
• They often prefer technology companies with a high growth
potential
• They prefer to take stake in a company, which means they have
some control and are entitled to a share in the profit
• They raise their funds from institutional investors, such as pension
funds, insurance companies, and wealthy individuals
• Most investment are in start-up or early stage expansions
• Some venture capitalists may be called business angels
▪ Crowd funding
Where a large number of individuals (the crowds) invest in a business
venture using an online platform and therefore avoiding using a bank
• Fundraisers tend to be businesses or groups who are involved in a
particular venture, such as putting on a concert, building a school or
setting up a community project
• The lenders or investors will be large number of individuals who
together represent ‘the crowd’
• Transaction are conducted online through specialist websites
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2. Short term finance
▪ Bank overdraft(over drawn)

Agreement with a bank where a business spends more money than it has
in its account
• Common source of finance for most business
• The bank will set an overdraft limit and interest is charged when the
account is overdrawn
• Advantages- Simple and Flexible
• Limitations- Business has the right to call in the money owed at any
time
▪ Trade payables (or trade credit)
Business buy resources and pay them at a later date
• It is a cheap way of raising finances
• Disadvantage-Business hold on to its cash for longer
> many suppliers encourage early payment by offering discounts
> the cost of goods is often higher if firm buys on credit
> delaying payment may upset suppliers
▪ Credit Cards
• Convenient
• Flexible
• Avoid interest charges if accounts are settled within the credit period
• Small business use credit cards to buy materials from suppliers
• Disadvantage- interest rates on credit cards are high if accounts are
not settled within credit periods
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Chapter 26
The importance of cash

1. To pay suppliers, overhead, and employees
2. To prevent business failure
1. To pay suppliers, overhead, and employees
• A business always need cash to pay important bills

• Business also need cash pay overheads, such as rent, electricity,
insurance and telephone charges
• Purchases made from suppliers will have been made using trade
payables
• Failure to pay suppliers on time mean they will refuse to trade in
the future
2. To prevent business failure
• If a business runs out of cash, it may become insolvent

• It means business cannot pay its debts
• A business will have better control over its cash flow if it:
➢ Keeps up-to-date records of financial transactions
➢ Always plan ahead by producing accurate cash flow
forecasts
➢ Operates an efficient credit control system, which prevents
slow or late payment
▪ Cash flow forecast

Prediction of all expected receipts and expenses of a business over a future
time period, which shows the expected cash balance at the end of each
period
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The difference between cash and profit

• Cash and profit are different
• Some goods are sold on credit. So, at the end of the period,
some customers will still owe money. Therefore, profit is greater
than cash.
• Sometimes owner might more cash into the business. It will
increase the cash balance, but have no effect on profit.
• Purchases of fixed asset will reduce cash balance, but have no
effect on profit the company makes
• The amount of cash at the end of the period will be different
from profit. Because at the beginning of the year the cash
balance is unlikely to be zero
Cash inflows and cash outflows

▪ Cash inflows
Flow of money into a business. Examples- sales revenue, loans, fresh capital
from owners, interest and sales of assets
▪ Cash outflows
Flow of money out of a business. Examples- wages, materials, utilities,
machinery, rent and tax.
▪ Net cash flow
The difference between cash inflows and cash outflows
• If net cash flow is positive, there is more cash inflows than cash
outflows.
• If net cash flow is negative, a business may have to borrow some
money.
Why are cash flow forecast important?
1. Identifying cash shortages

• A forecast can help identify in advance when a business might need
to borrow cash
• This will help to identify when, or if , a bank overdraft will be needed
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2. Supporting applications for funding

• When trying to raise finance, lenders often insist that business
support their applications with a cash flow forecast.
• This will help to show the future outlook for business.
3. Help when planning the business

• It helps to clarify aims and improve performance
• Producing a cash flow forecast is a key part of the planning process.
4. Monitoring cash flow

• A business should compare the predicted figures in cash flow
forecast
• It can find out where problems have occurred
• It could then try to investigate the reasons why figures were different
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Chapter 27
1) Fixed costs(overheads)- costs that do not vary with the level of output
• Examples- rent, business rates, advertising, insurance premiums,
interest payments, and research and development
• The cost will not increase even if firm produces more output
2) Variable cost- costs that change when outputs levels change

• If firm produces more output, variable costs will increase
• Examples- raw materials, packaging, fuel and labour
• If firm produces nothing variable cost will be zero
3) Total costs- fixed cost and variable cost added together

Total cost = Fixed cost + variable cost
4) Average Cost- the cost of producing a single unit of output

Average cost = Total cost / Quantity produced
5) Total revenue- amount of money a firm receive from selling its output
Total revenue = Price x Quantity
6) Calculating profit
Profit = Total Revenue – Total Cost
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Chapter 28
The concept of break even

▪ Break- even point
Level of output where total costs and total revenue are exactly the same;
neither a profit nor a loss is made
Calculating the break- even point
Break- even point = Fix cost / Selling price – variable cost per unit
Break-even chart
▪ Break-even chart
Graph that shows total cost and total revenue; break-even point is where
total cost and total revenue intersect
▪ Margin of safety
Amount of output available to be sold above the break-even point where
the business makes a profit
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Effects of changes in price and costs on the break-even chart

• If price is higher, TR will be steeper and the break-even point will shift the
left.
• If price is lower, the TR will be flatter and the break-even point will shift
to the right.
• If FC is higher, TC will move upward with the steepness unchanged and
the break-even point will shift to the right.
• If FC is lower, TC will move downward with the steepness unchanged and
the break- even point will shift to left.
• If VC is higher, TC will be steeper and the break-even point will shift to
the right.
• If VC is lower, TC will be flatter and the break- even point will shift to the
left.
A break- even chart shows:

• How much output a business has to produce in order to break even
• The costs, revenue, and profit at different levels of output
• The margin of safety
However, the chart does have some limitations:

• The TC and TR are shown as straight lines. In practice, they may not be
straight lines.
• Example: A business may have to offer discounts on large orders, so total
revenues fall at high outputs.
• A business can lower costs by bulk buying
• Bulk buying- buying goods in large quantities, which is usually cheaper
than buying in small quantities
• So costs may fall at high outputs and total cost will be curved
• It is assumed that all output is sold and no stocks are held
• There are also times when firms cannot sell what they produce and
choose stockpile their output to avoid laying off staff
The accuracy of the break-even chart depends on the quality and accuracy
of the data used to construct total cost and total revenue
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Chapter 29
The purpose of a statement of comprehensive income

• Business use statement of comprehensive income to calculate profit at the
end of financial year.
• Statement of comprehensive income

Financial document showing a firm’s income and expenditure in a
particular time period
• A business normally calculates its profit using two steps:

1) Gross profit = revenue - cost of sales
2) Operating profit = gross profit- expenses
Retained and distributed profit
o Sole trader and business partner may pay income tax whereas limited
companies may pay corporation tax.
o The profit after tax can be distributed profit or retained profit.

• Distributed profit
Profit that is returned to the owner of business
• Retained profit
Profit held by a business rather than returning it to the owner and
which may be used in the future
o For example, limited company may return some of the profit to

shareholders.
o They are paid a dividend.
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Features of statement of comprehensive income:

• Revenue
• Cost of sales
• Gross profit
• Administrative expenses
• Other operating expenses
• Selling expenses
• Operating profit
• Finance cost- interest paid on loans
• Profit for the year
• Profit for the year after tax = Profit for the year – taxation
How might the statement of comprehensive income be used in decision making?
1) Investment decision
• A business might use the statement of comprehensive income to
decide how much money to invest in the business
2) Cost Analysis
• The statement of comprehensive income will show what has
happened to costs during the year
3) Basis for future forecast

• Many businesses like to forecast the future performance of
business
• Most public limited companies are expected to hive shareholders
some ideas of what earnings to expect in the future
4) Making comparisons
• Investors may use the statement of comprehensive income when
deciding where to invest their funds
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The Nature and importance of profit

• Profit is the most driving force in most business
• Profit has number of functions
• It is the prospect of making a profit that motivates many people to
set up a business
• Without profit, there would be little incentive for individuals to risk
their time and money in a business venture
• Economists refer to normal profit
▪ Normal profit
Minimum profit a business needs to make to retain the
interest of the owners
• Profit levels affect the flow of money into and out of different
industries
• Money will flow into expanding industries where profits are rising
and out of declining industries where profits are falling
• This is a natural process and helps resources in economy to be used
more efficiently
• Profit is also important as a measure of business performance
• Businesses that supply quality products and sold at prices which are
attractive to consumers, will generally make the most profit
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Chapter 30
What is a statement of financial position?

• Also known as balance sheet
• It provides business a summary of its assets, capital and liabilities
• Assets are the resources owned by the business
• Business use assets to make product or provide services
• Liabilities are debts of the business and a source of funds for a business
• Capital is the money put into the business by the owners
• It is used to buy assets
• Assets = Capital+ liabilities
Features of a statement of financial position

▪ Non current assets(fixed assets)
Assets that last for more than one year
▪ Current assets
Assets that will be changed into cash within one year
o They are liquid assets
o Examples of current assets include: inventory, trade
receivable, cash in hand or bank
▪ Current liabilities
Business debts that have to be repaid within a year
o Examples of current liabilities include: Trade payable, taxation,
leases and hire purchase and short-term loans
▪ Net current assets

o Current assets – current liabilities
o Also known as working capital
▪ Non-current liabilities (long term liability)

Debts that are payable after 12 months
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o Examples of non current liabilities include: mortgage, long

term bank loans , long term leases or long term hire purchase
agreement
▪ Net assets
o (Fixed Assets + Working Capital) - Non current liabilities
▪ Shareholder’s equity (Financed by)

o Examples of shareholder’s equity include share capital,
retained profit and other reserve
Interpreting the statement of financial position?
• A statement of financial position can be used to evaluate its

performance and potential. It shows the:
o Value of all business assets, capital and liabilities
o Assets structure of business
o Capital structure of a business
o Value of non current assets
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Chapter 31
What is Ratio Analysis?
Ratio Analysis – mathematical approach to investigating account by comparing

two related figures
Two types of financial ratios:
1) Profitability ratios
2) Liquidity ratio
1) Profitability ratio
Measure the performance of the business and focus on profit, revenue
and the amount invested in the business. Types of profitability ratios:
• Gross profit ratio- gross profit expressed as a percentage of turnover

o Gross profit margin = Gross profit / Revenue x 100
o To increase gross profit margin, revenue must be increase or reduced
cost of sales
o Example: Firms that sell inventory quickly, can operate with lower
gross profit margin
• Operating Profit Margin ( Net profit Margin) – operating profit expressed as

a percentage of turnover
o It helps to measure how well a business control its expenses and
costs of sales
o Operating profit margin = Operating profit / Revenue x 100
o Higher margin are better than lower ones
o Operating profit over 10 % would be regarded as very good
• Mark – up
o Some business are interested in the profit made per item sold
o This is called mark- up
o Mark-up = Profit per item / Cost per item x 100
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o Mark up is used by some business to set its price

o One main reasons is that it is a price that guarantees to recover all
the costs production and also generate a profit
o Price = cost + (cost x mark-up )
• Return on capital employed ( ROCE )

o It compares the profit made by business with the amount of money
invested(capital)
o ROCE = Operating profit / Capital employed x 100
o A higher ROCE shows a higher percentage of the company's value can
be returned as profit to stockholders
o ROCE should be equal to at least twice current interest rates
o ROCE can be improved by reducing costs or increasing sales and by
paying off debts
o ROCE can increase either because of 1) an increase in EBIT, 2) a
decrease in Equity 3) a Decrease in Non-Current Liabilities.
2) Liquidity ratios
- Measure how easily a business can pay its short-term debts, such
as wages or suppliers
- Liquidity refers to the speed with which assets can be converted
into cash
- Non-current assets are not liquid assets, because they cannot be
converted into cash very quickly
- Current assets are liquid, cash is totally liquid
- Trade receivable are fairly liquid, because some customers have
bought goods on credit
- Inventory are least liquid assets, because the sales of inventory
cannot be guarantee by a business
- A lack of liquidity mean that a business will collapse, not being
able to raise enough cash mean it may not be able to pay its bill
Two types of ratio to assess liquidity:
• Current ratio
o Current ratio = current assets / current liabilities
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o If a current ratio is between 1.5 and 2 business will have enough

liquid resource
o If its ratio is below 1.5 business does not have enough working
capital
o If the ratio is above 2 too much money is tied up unproductively
• Acid test ratio ( quick ratio )

o Acid test ratio = (Current assets – inventory) / current liabilities
o If the acid test ratio is less than 1 , it mean current assets do not
cover current liabilities
o Example- retailers that receive cash for all their sales it can operate
effectively with lower acid test ratio than the business that offer
trade credit to customers
o Acid test ratio can be improve by:
- Pay off liabilities quickly
- Increase inventory turnover and sales
- Reduce invoice collection period
Using ratios to make comparisons

• Ratio can be used to monitor the progress of a business over time
• It can be used to make comparisons between business in the same
industry
• This will help to judge the performance of a business compared to
its closest rivals
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Chapter 32
Using financial documents to assess the performance of a business

1) Managers and employees
• The profit made by business will be a reflection of their own
performance
• Managers might also make comparisons with competitors to see how
their performance compares with that of rivals
• Employees might need financial information during wage
negotiations
• Information about profit and the prospect of the business could be
used to decide whether it can afford to meet a wage claim
2) Owners and shareholders

• Owners of small business will obviously be interested in the
performance and the financial position of the business
• Shareholders in limited companies will also be interested in the
performance of business
• They may look at the size of dividends
• They may use ratio analysis to see how their investment is
performing and make comparisons with other companies
3) External Stakeholder
• Banks need up-to-date financial information when deciding whether
to lend money to a business
• They tend to focus on the amount of working capital a business has
• Suppliers will want to assess the creditworthiness of business that
buy resources from them using trade credit
• The supplier want assess to financial information to look at the
firm’s ability to pay its debt before making any deliveries
• The account of PLCs are used by potential investors and financial
analysts to help make decisions when buying shares
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Using financial documents to inform decision making

• Business will need financial documents which contain quantitative
information that can be very helpful in decision making progress
▪ Quantitative information
Information expressed in numbers
• Example- managers may need the financial documents to make key
decisions such as 1) Funding decisions, 2) reducing cost, 3) increasing
profitability, and 4) investment decisions
➢ 1) Funding decisions
o Financial information can help to predict when more money
will needed by a business
o If the business is planning to expand, it can use the statement
of financial position to see which type of funding might be
appropriate
➢ 2) Reducing costs
o A business might use the statement of comprehensive income
to analyse costs
o If the gross profit margin is rising and the operating profit
margin is falling, this would suggest that business expenses are
increasing
➢ 3) Increasing profitability
o If the gross profit margins are in small relations to competitors,
it may be because prices are too low or cost of sales are too
high
o Prices can be raised or new suppliers might be found for raw
materials and wages cost need to be controlled
o Profitability might be improved if revenues are falling behind
competitors
o Business should try to find new markets to help increase sales,
example- overseas, and etc..
➢ 4) Investment decision
o Investment decisions are risky
o However , information in financial documents might help
managers to assess whether the business is strong enough to
take risk
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Other useful financial documents

➢ Government
o Government uses information from business to monitor the
progress of economy and help evaluate the success of
economic policies
➢ Competitors
o Limited companies accounts are public therefore, competitors
can analyse them to make comparisons
o If competitors are planning to take over they can use the
information to help make decisions
➢ The media
o Television, online media companies and radio often produce
reports on business and commerce
➢ Tax authorities
o The authorities may require details of income and require
assess to business accounts when calculating VAT and excise
duties owed by business
▪ Excise duties
Taxes on selected goods
➢ Auditors
o The account of limited companies have to be checked by
accounts and registered auditors
o The process of checking the accuracy of accounts is called
auditing
➢ Registrar of companies
o One conditions of registration is that they submit a copy of
their final accounts every year
o The account are available to public
Batch 13
Chapter 33
Purpose of Market Research
▪ Market research
The collection, presentation and analysis of information relating to the
marketing and consumption of goods and services.
To identify and understand customer needs

A business will be more successful if it can supply products that meet the
customer’s need. The product features are important to potential customers.
These might include:
✓ Model design and style
✓ Colour
✓ Durability
✓ Efficiency / performance
✓ Ease of handling
✓ Ease of storage
Businesses need to anticipate (to expect that something will happen and be ready
for it) customer needs.
To identify gaps in the market
If a business can spot a gap in the market, it is likely to gain a competitive edge.
Finding untapped markets will help the business to generate higher revenue and
profit. For example: market research will help to identify a problem that sufficient
people are having that require a solution in the form of a new product.
To reduce risks
Setting up a business or launching a new product can be risky. As the market gets
larger, the competition will get fiercer, which becomes riskier. But investment in
effective market research can help reduce the risks of failure. But investment in
effective market research can help reduce the risks of failure.
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To inform business decision

Businesses must make countless decisions. Having access to meaningful
information can improve the quality of decision making. Market research can
provide a wide range of information that could be used in decision making.
Methods of primary research

▪ Primary or field research
The gathering of new information that does not already exist.
Primary data is usually gathered by asking questions or observing people’s
behaviour. The main advantage of primary market research is that it is original
and the information gathered can be adapted to the needs of the business.
However, conducting primary field research can be time consuming, expensive,
and business may need to employ a market research agency to carry out the
research.
Questionnaires
A questionnaire is a list of written questions. A good question will have these
following features:
✓ A balanced of open and closed question,
✓ Contain clear and simple questions.
✓ Not leading questions
✓ Be short
Questionnaires can be used in different situations.
✓ Postal surveys: sent to people to complete in their own time. But most of
the questionnaires are never returned and resources are wasted.
✓ Telephone interviews: a cheaper method to interview a wide geographical
area. However, some people do not like being phoned by business.
✓ Personal interviews: often carried out in streets and on the door step, and
the interviewer fills in the answer. The main advantage is that the questions
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can be explained if a respondent is confused. But many people do not like

being approached in the street.
✓ Online surveys: Respondents may be directed to questionnaire, after
confirming an email.
Focus groups or consumer panels
Consumer panels
▪ Consumer panels
Where groups of customers are asked for feedback about products over a
set period. This can be a cost-effective method. But the group may be small
so generalizing from the result may not be reliable.
Observation
Market researchers watch the behaviours of the customers, which might be used
in retail outlets. Observers record the amount of time customers spend looking at
products and displays in store. However, no feedback will be gained and many
questions may go unanswered. Observers do not ask the customers to explain
reasons for their behaviour.
Test marketing
Selling new products in a restricted geographical area to test it and sales before
national launch. After a set period, feedback is gathered and used to modify
products before the final launch. This reduces the risks of failure
Method of secondary research

▪ Secondary or desk research
A collection of data that already exists.
It has been collected by someone else and may be available for other users. The
information collected may be external and internal. It is easier and quicker to
gather. Internal data may be available on internal company networks. And
external data is available online. The main problem with the desk research is that
the data collected might not be exactly what a business needs and may be out of
date and therefore inaccurate.
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Various sources of secondary data:

✓ Business websites
✓ Competitors
✓ Internal data
✓ Government publications
✓ Commercial publications
✓ Media
Qualitative data and Quantitative data

▪ Qualitative data
The information about attitudes, beliefs, and intentions, usually written in
words.
• Focus groups, interviews and social media can be used to gather
qualitative data. Using qualitative data can be detailed. But there may
be disagreement within business about the usefulness of the research. It
is less easy to analyse statistically than quantitative data.
• Quantitative data is the information that can be quantified, that is
expressed in numbers.
• Surveys and government publication are common sources of
quantitative data. It is easier to gather, process and present to readers.
But it is open to less interpretation than qualitative data.
Role of social media in collecting market research data

Using social media to gather information is a cheap way to gather information
about a firm’s customers, market, brand appearance and other market issues. By
searching the latest posts and popular terms, it is possible to gain understanding
of emerging trends and see what customers are talking about in real time.
Advantages of using social media for market research:
✓ Broad reach: It can reach millions of people.
✓ Ability to target: It allows specific groups of people to be targeted.
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✓ Free or low cost: It may be free for business and paid options are usually
cheap.
✓ Personal: allows communication on a personal basis with individual
customers or groups.
✓ Fast: Information can be collected very quickly from an enormous number
of people.
✓ Easy: High level IT skills and complex equipment are not needed.
Importance of the reliability of market research data

• Market research reduces the risk of products failing.
• It ensures that the data gathered is reliable. Reliability always depends on
the number of people questioned and whether they represent the views of
everyone.
• A sample is a much smaller group, however, so the behaviour and views of
the sample must be representatives of all the people in the market.
• Human behaviour is unpredictable, and people might change their minds or
misunderstand the question.
• If questionnaires are poorly designed or interviewers have not been
trained, the quality of the research carried out might be poor.
Large Vs Small business
Small businesses are likely to use cheaper methods of research and large
businesses may spend more on market research.
Batch 13
Chapter 34
Markets and marketing
▪ Market
A set of arrangements that allows buyers and sellers to communicate and
trade in goods and services.
▪ Marketing
Identifying customer needs and satisfying them profitably.
Some examples of markets:
✓ Consumer goods market
✓ Markets for services
✓ The housing markets
✓ Commodity markets
Marketing involves;
✓ Identifying the needs and wants of customers
✓ Designing the products that meet these needs
✓ Understanding the threat from competitors
✓ Telling customers about products
✓ Charging the right price
✓ Persuading customers to buy products
✓ Making products available in convenient locations
− A management process involved in identifying, anticipating, and satisfying
consumer requirements profitably
Satisfying customers' needs
Businesses identify customer’s needs by carrying out market research. Businesses
operate in a changing competitive environment and must keep up with the latest
designs, trends, fashions, and technology.
Building customer relationships
Many businesses try to build relationships with their customers. Businesses are
likely to be more successful if communication is two ways.
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Building relationships with customers:

✓ Build trust
✓ Take complaints seriously
✓ Personalized communication
✓ Say “thank you”
✓ Know your customer
✓ Connect regularly
Keeping customer loyalty
Business has attracted a customer, to retain their loyalty. Businesses must satisfy
their needs by developing new products, providing first-class customer services,
maintaining effective communication links, delivering reliability, and responding
to any changes in the market
• Rewarding cards
Some businesses, such as supermarkets and cafes reward customers every
time they make a purchase. Customers are awarded points according to the
amount they spend. Customers then receive money off vouchers.
• Free gifts
Loyal customers may receive free gifts from a business.
• Charitable donations
One approach to rewarding customer loyalty is for a business to make
donations to charity as result of customer purchase.
• Partnership deals
Some businesses set up deals with other businesses to share the cost a
benefits of rewarding customer loyalty.
PRODUCT AND MARKET ORIENTATION

▪ Product orientated
Where a business focuses on the design and manufacture of the product
itself rather than the needs of customers.
▪ Market orientated
Where a business focuses on the needs of a customer when developing
products.
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Market share and market analysis

Market share= total product or business sale ×100
Total sales in the market
▪ Market share
The proportion of sales in a total market that a business or product enjoys.
▪ Market analysis
Quantitative and qualitative assessment of a market
• A business might be more successful if it carries out market analysis.

• It will be useful if a business can find out:
✓ The size of the market
✓ The current growth rate in the market and the potential for future
growth.
✓ The number and size of the businesses currently operating in the
market
✓ The factors that might influence changes in the market (social,
political, technological, environmental, and economic factors)
✓ The possible costs and potential profitability in the market
✓ Opportunities for segmenting the market
✓ The way consumers behave in the market
Niche marketing and mass marketing

▪ Mass markets
Large markets in which products with mass appeal are marketed.
▪ Niche markets
Smaller markets, usually within a large market or industry.
• Fast moving consumer goods such as breakfast cereals, crisp are sold in the
mass market. The businesses can produce massive quantities at lower unit
cost by exploiting economies of sales. This might result in higher profit and
higher sales. However, there is often a lot of competition in the mass
market which increases the cost of marketing the products.
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• A niche market involves selling to a small customer group, with specific

needs. They can often avoid competition, which helps to focus the needs of
the customers.
Responding to changes in the market
Changing customer needs
• Change in customer’s income so they choose various products.
• Consumers become better educated and sophisticated.
• Consumers are influenced by changes in social habits
• Fashion changes over time
• Modern technologies result in diverse needs.
• Businesses must monitor markets, identify changes in customer needs and
be prepared to develop new products or services.
Changing customer spending patterns
• Businesses can gather information about spending patterns in markets.
Increased competition
• The behaviour of competitors needs to be monitored.
Competition puts business under some pressure
Businesses must encourage customers to buy their products in preference to
those rivals. Range of methods to attract customers:
✓ Lowering prices
✓ Making their products appear different to those of rivals
✓ Offering better quality products
✓ Using more powerful or attractive advertising or promotion
✓ Offering ‘extra’ like high quality customer service
These methods will help businesses to survive in the market.
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Chapter 35
What is meant by market segmentation?

▪ Market segments
Part of a whole market where a particular customer group has similar
characteristics.
• Some businesses concentrate on producing one product for one
segment.
• Some businesses produce a range of various products and target
them at several different segments.
• Some businesses aim their products at all customers.
Methods of market segmentation
Location segmentation
Different customer groups are likely to have different customer needs depending
on where they live.
Demographic segmentation
▪ Socio-economic groups
Division of people according to social class based on employment status.
✓ Age: Quite a lot of products are targeted to different consumer groups on
the grounds of age.
✓ Gender: Businesses are likely to target male and female customers with
various products.
✓ Income: Incomes in most countries vary considerably.
✓ Social class: Businesses pay a lot of attention to different socio-economic
groups.
✓ Ethnic groups: different ethnic groups are likely to have diverse needs
owing to their culture.
✓ Religion: different religions groups to have unique needs.
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Lifestyle(psychographic) segmentation
An alternate way of grouping customers is through lifestyles, -
✓ Television broadcasters may target sports channels at sports lovers.
✓ Fine dining restaurants will target customers with sophisticated menus,
high-quality locally produced foods
✓ Adventure holidays may be targeted at outdoor types.
✓ Organic foods might be targeted at people who care more about the
environment.
Benefits of market segmentation
• Businesses which produce a variety of goods can charge higher prices to
different customer groups to increase their revenue.
• Customers may be more loyal to a business that provides goods that are
designed specifically for them.
• Business may avoid wasting promotional resources.
• Some businesses can market a wider range of goods to different customer
groups. This helps to generate higher levels of revenue for businesses.
Large vs small business
− Small businesses may target their products solely at a specific niche.
− Large businesses may look at a market and decide to target several
segments with specifically designed products.
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Chapter 36
THE MARKETING MIX

▪ Marketing mix
Elements of a firm’s marketing that are designed to meet the needs of
customers (the 4Ps, they include product, price, promotion, and place).
Business must:
✓ Design and produce high quality products
✓ Charge a price that is acceptable to consumers
✓ Let consumers know about products through promotion
✓ Make products available in the right at the right time
Product development
• Generating ideas
Ideas for new products may come from business owners, customers,
competitors, staff, and research and development.
• Analysis
Businesses must decide whether products are marketable, technically
possible, a suitable fit with current portfolio and legal.
• Development
Stages involved carrying out experiments, using simulations, building
models, producing samples and initial testing.
• Test marketing
The sample used must be representative of the whole market. Test
marketing is used to gather information about what consumers think of
the product.
• Commercialization and launch
During this stage, business puts the final changes to the product. Any
problems identified during the test marketing stage can be resolved by
making changes or modifications.
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• Goods and services

The goods and services produced by businesses are called products. These
products can be split into distinct categories: producer goods and
consumer goods.
• Packaging
Packaging is important because consumers can often link the quality of
packaging with the quality of product. And it also helps people to
recognize it when it is placed next to rival products.
Factors that may influence the choice of packaging

✓ Protection
✓ Environment
✓ Cost-effective
✓ Information
✓ Design
✓ Convenience
Product life cycle

▪ Product life cycle
A level of sales at the various stages through which a product passes
overtime.
Products pass through five stages over their life
1. Development
During the development stage sales are zero. This is because the product
is being researched, designed, and tested. Development costs are so high
and can damage the cash flow of a business.
2. Introduction
Businesses often introduce new products with an official launch. Costs will
continue to be high and spending on promotion will be high. The price
charged by a business when a product is introduced will vary.
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3. Growth
If the product is successful, sales will start to grow. The business will now
get increased revenue and begin to recover the costs of development.
Costs are likely to fall and the product may start to make a profit. At the
end of this stage, sales may start to grow less quickly.
4. Maturity and saturation

Sales will start to level off. Some businesses will try to extend the life of the
product before it declines. They use extension strategies.
5. Decline
Sales of many products decline and are eventually taken off the market.
This is because consumer tastes change, modern technologies emerge or
new products appear in the market.
Extension strategies
▪ Extension strategies
Methods used to lengthen the life of a product.
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Examples of extension strategies:

✓ Finding new markets for the product
✓ Finding new uses for a product
✓ Modifying the product
✓ Change the appearance or packaging
✓ Encourage more frequent use of the product
Benefit of lengthening the life cycle of product with effective extension strategies
is that competitors will find more difficult to enter the market
Managing and reviewing the product portfolio

▪ Product portfolio
A range of products a business is currently marketing.
▪ Boston matrix
2×2 matrix that describes products according to the market share they
enjoy and whether the market has any potential for growth.
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• Stars are valuable products for business. They have a high market share but
also the potential for growth. They are likely to be profitable.
• Cash cows are mature products. They have high market share but the
market is not likely to grow very much. It generates a steady flow of income
for the business.
• Question marks are products with low market share but the market is
growing. If the right marketing action is taken these products could do well.
They have potential.
• Dogs are at the end of their life cycle. They have a low market share and
the market is not likely to grow anymore. Dogs are likely to be replaced by
new products.
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Chapter 37
▪ Early adopters
Consumers who are keen to buy new products as soon as they are
launched.
Pricing
Factors that affect the price charged by a business
✓ Marketing mix
✓ Objectives
✓ Taxes
✓ Competition
✓ Consumer's perception
✓ Costs
Cost-plus pricing
▪ Cost-plus pricing
Adding a percentage (the mark-up) to the cost of producing a product to
get the price.
▪ Mark- up
Percentage added to the costs that makes profit for a business when
settling the price.
− This method is common with retailers. However, one of the disadvantages
of this method is that it ignores market conditions.
Penetration pricing
▪ Penetration pricing
Setting a low price to start with to get established in the market; price may
get raised once established.
Two main reasons to use this strategy:
1. It is hoped that consumers get into the habit of buying the product when
the price is low. Then, when the price starts to rise, people continue to buy
the product.
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2. Large retailers or bulk buyers are more likely to show an interest in

products if they are generously priced.
− This will help business to sell larger quantities and get established in the
market.
− There could be a negative response from consumers when prices start to
increase after the introductory offer.
Competition – based pricing
▪ Competition- based pricing
Pricing strategies based on the prices charged by rivals.
▪ Destroyer or predatory pricing
Settling at a low price until rivals go out of business.
− The advantage of competition-based pricing is that price war is likely to be
avoided. (Safe pricing strategies)
− Another approach is for market leaders to set the price and all others to
follow. (Price leadership)
− In competitive markets, businesses are more likely to engage in non-price
competition. They might use special promotion or strategies designed to
differentiate the product.
− When the business is using destroyer pricing, it would make the rivals
difficult to compete. Some rivals would eventually leave the market and
allow the predator to raise price again.
Skimming
▪ Skimming or creaming
Setting higher price initially and lowering it again.
▪ Patent
A legal document giving a person or company the right to make or sell a
new invention, product, or method of doing something and stating that no
other person or company is allowed to do is
− The main objective is to generate high levels of revenue with a new product
before a competitor arrives.
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Promotional pricing
▪ Loss leader
A product sold below cost to draw in customers.
− Promotional pricing involves lowering the price of a product for a brief time
to draw in customers. Prices might be cut for several reasons:
✓ To get rid of stock
✓ To generate some cash
✓ To generate renewed interest in an existing product
✓ To attempt to win a larger share of the market by encouraging brand
switching.
• Discount and sales
Businesses often cut prices for a brief period. They have sales where goods
are sold below standard price. Some of these sales are seasonal.
• Psychological pricing
It is a pricing strategy where the price is set slightly below a round figure.
Consumers are tricked. For eg: Original price is £100 and customers got
tricked by the psychological pricing such as £99.9.
• Loss leaders
The objective of this strategy is to draw customers into a store where they
will buy the loss leader. Once in the store, it is hoped that customers buy
other products.
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Chapter 38
What is Place?
Place is one of the 4Ps in the marketing mix. If business can’t get products in the
right place at right time, they are not likely to be successful. If products are not
available in convenient location, customer may not have time search for them.
Distribution Channels
▪ Distribution channels
The route taken by a product from the producer to the customer.
Distribution Channels for consumer goods;
▪ Intermediary
Person or organization that helps to arrange agreement or business details
between other people or organization.
▪ Wholesalers
Person or business that buy goods from manufacturers and sell them in
smaller quantities to retailers.
Retailing
▪ Retailers
Business that buys goods from manufacturers and wholesalers and sell
them in smaller quantities to consumers.
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▪ Bulk Breaking
Dividing a large quantity of goods received from a supplier before selling
them on in smaller quantities to customers.
Retailers provide manufacturers and other sellers with key services.
• They sell in locations that are convenient to consumers. Most supermarket,
for example, are conveniently located and have good parking facilities.
• They may add value to products by providing other services. These might
include help with packing, delivery, repair service, information about
products, guarantee and gift wrapping.
• They bulk break
The main features of some common retailers are outline below;
• Independent: Many are owned by sole traders and may found in a variety
of locations.
• Supermarket: large stores selling up to 20000 products lines. Are cheaper
than independents selling the same sorts of product because they can
afford to buy in bulk form manufacturers. Many are located on the
outskirts of towns and cities. Offer free Parking and meet the needs of
customers who prefer’ one-stop-shopping’.
• Department stores: These are large stores split into distinct selling
departments. Aim to provide good quality products with high levels of
customer service.
• Multiples Or Chain Stores: Where one owner opens multiple stores selling
the same range of goods in many different locations. Stores will usually
have a standardized: -product range, pricing strategy, store fronts, store
layout, staff uniform, staff training, wages, and conditions of work. They
bulk buy direct from manufacturers so their cost of sales is low. However,
their ranges of goods are often limited and staff may be poorly motivated
because they aren’t usually given incentives.
• Superstores Or Hypermarkets: large store, usually located on the outskirts
of towns and selling a wide range of goods under one roof. Sometimes like
giant warehouses. Offer an approach to shopping without any non-
essential services, generally cheaper than supermarket and have a wider
product range.
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• Kiosks And Street Vendors: Small outlets selling a limited range of goods.
Maybe found in airport, bus and train station. Sell fast food, confectionary,
newspaper and limited range of clothes. Generally, operate with low set-up
costs and minimal overheads.
• Market Traders: Usually small-time business selling goods from market
stalls. Have low overheads and often cheaper than other retailers.
Sometimes move from one market to another and set up a stall each time
they relocate.
• Online Retailers: Business, such as Amazon, that buy goods from
manufacturers and sell them online to customers.
E-Tailing (E-commerce)
▪ E-tailing (E- Commerce)
Use of electronic system to sell goods and services
2 main types;
▪ Business To Consumers (B2C)
Selling of goods by business to consumers. Examples of B2C e-
commerce include: tickets for sports events, holidays, banking,
insurance.
▪ Business To Business (B2B)
Business selling to other business online. Business can use specialist
software to purchase resources.
Benefits to Consumers of Online Benefits to Business of Online Distribution
Distribution
It is cheaper because online retailers E-tailers may not have meet the costs of
often have lower Costs. operating stores.
Consumers can shop 24/7 Lower start-up costs- both fixed and variable
costs are lower.
There is generally a huge amount of Lower Costs when processing transactions-
choice. many systems are automated.
People can shop from anywhere if Payment can be made and received online using
there have access to Internet. credit cards or online payments systems.
B2C business can serve their customers 24/7
Businesses have more choice when locating
their operations
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Less paper needed such as receipts and invoices

and can offer goods to wide range of markets
Disadvantage of Online Distribution

• Business will face increasing competition since selling online is relatively
cheap method of distribution and can be organized from any location in the
world.
• There is lack of human contact, which might not suit some customers.
There is also heavy dependence on delivery service.
• There may be technical problems online.
• There is a security risk as computer hackers might gain access to sensitive
information.
• Consumers can’t touch or look goods before purchase and people may
have problems taking delivery of goods if they are out.
• Customer may experience poor aftersales service.
• Customer without Internet access and credit cards may be excluded.
• Fake traders may be more difficult to identify online.
Other Distribution Methods

▪ Direct Selling
Business sells their products directly to customers
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• Wholesaling
Some wholesalers are called cash and carry stores. Wholesalers may break
bulk, repack goods, redistribute smaller quantities, store goods and provide
delivery service. A wholesaler stocks goods produced by many
manufacturers. Therefore, retailers get to select from wide range of
products.
• Agents Or Brokers
Intermediary that brings together buyers and sellers. Used in a variety of
markets. Manufacturers may use agents when exporting. Agents can
reduce the risk of selling overseas. This is because they have knowledge of
the country and the market.
Choosing Appropriate Distribution Channels

• The Nature of The Products
✓ Most services are sold directly to Consumers.
✓ Fast-moving consumers goods, such as breakfast cereals, crisps and
toilet paper, can’t be sold directly by manufacturers to Consumers.
Wholesalers and retailers play an important role in the distribution of
these goods because they break bulk.
✓ Business producing high-quality ‘exclusive’ products, such as perfume
and designer clothes, will choose their outlets very carefully as the
image of their products is important.
✓ Some products need explanation or demonstration.
• Costs
✓ Business will choose the cheapest distribution channels.
✓ This is because each time an intermediary is used, they will take a
share of the profit.
✓ Many products are now sell direct to consumes from their website,
which helps to keep costs down
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• The Markets
✓ Producers selling to mass market are likely to use intermediaries.
✓ In contrast, business targeting smaller markers are more likely to
target customers directly.
✓ Producers selling in overseas markets are likely to use agents
because the agents will know the market better.
✓ Business selling goods to other businesses are likely to use more
direct channels.
• Control
For some producers, it’s important to have complete control over
distribution. Eg, producers of exclusive products don’t want to see them
being sold in ‘down market' outlets because this might damage their image.
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Chapter 39
• What Is Promotion?
Businesses have to communicate with their customers.
Two different methods of promotion:

▪ Above-the-line promotion
Placing adverts using the media. Eg. Advertising on television, newspaper
and magazine.
▪ Below-the-line promotion
Any promotion that does not involve using the media. Eg. Press release,
point of sales displays, merchandising, coupons and direct mailing.
Above-the-line promotion
Media Advantages Disadvantages
Television -Huge audience can be reached -Very Expensive
-The use of products can be -Message may be short lived
demonstrated. -Some viewers avoid
-Creative adverts can have great television adverts.
impact. -Delay between seeing
-Opportunity to target groups adverts and shopping.
with digital television.
Newspaper -National and local reach. -No movement or sound.

and Magazine -Reader can refer back. -Individual adverts may be
lost in a sea of adverts
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-Adverts can be linked to articles -Rival’s products may be

and features. advertised as well.
-Opportunity to target with
specialist magazines.
-Relatively cheap.
Cinema -Big impact with a big screen -Limited audience
-Can be used for local and -Message may only be seen
National advertising. once
-Specific age groups can be -Message is short lived.
targeted.
-Sound and movement can be
used.
Radio -Sound can be used. -Not visual.
-Minority audience allow -May be ignored.
targeting. -May lack impact.
-Cheap production. -Can be irritating for
-Can target youngsters. listeners.
Posters and -Can produce national -Posters can get damaged by

billboards campaigns. vandals
-Seen repeatedly. -Only limited information
-Good for short sharp messages. can be shown.
-Large posters can have big -Difficult to evaluate
impact. effectiveness.
Internet -Can be updated regularly. -Some adverts such as pop-
-Can be targeted. up adverts are irritating.
-Hits and response can be -Possible technical problems.
measured.
-Cheap and easy to set up.
Below -The- Line Promotion

1. Sales Promotion
• Free gifts: Business might give free gift to customers when they buy the
product.
• Coupons: Money-off coupons, or discount codes, can be used by business
to attract customers. Specialist coupon website have emerged in recent
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years. People can logon to the sites and print-off coupons entitling them to
discounts on a wide range of products.
• Loyalty cards: Some businesses reward customers according to how much
they spend. Points are collected and then exchanged for cash. Loyalty cards
are popular with supermarket, credit card companies and stores.
• Competitions: People may be allowed free entry into a competition when
they buy a particular product. An attractive price is offered to the winners.
• BOGOF offers: This stands for Buy One Get One Free. These are popular
with many businesses such as supermarket, transport services, and
restaurants.
• Money Off deals: Business may offer customer discount such as '30% off’ or
an ' extra 20% free’. These are similar to BOGOF deals and used by a range
of suppliers.
2. Merchandising and packaging:
• Product layout: The layout of products in a store is often planned
very carefully. Products that store want you to buy are placed most
visible location, such as at the end of the shelving units and at every
level.
• Display material: Posters, leaflet, and other materials may be used to
display certain products with the aim of persuading customer to buy.
• Stock: Business might keep shelves well stocked because empty
shelves create a bad impression. Also, if items are out of stock,
customers may shop elsewhere.
3. Direct Mailing
Direct mailing is where business send households leaflets or letters.
Sometimes personal letters are used. Contain information about new
products or details of price changes. The development of IT and use of
customer database has resulted in more use of personalized marketing.
4. Direct selling or persona marketing

Involve a salesperson calling at households or business hoping to sell
products. Could be telephone call from a call center. One advantage of this
approach is that the feature of the product can be discussed. However,
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people often irritated by this approach because the sales staff have not
been invited to call.
5. Exhibitions and trade fairs

Business set up a stand and promote their products face to face.
Commercial buyers or consumers, or both, may attend trade fairs. The main
advantages are:
• Products might be tested out on consumers before a full launch.
• Some exhibitions are overseas and can be used to break into foreign
markets.
• Products can be physically demonstrated and questions can be
answered.
• Exhibitions often attract the media.
• Customers can speak to business owners or senior personnel face to
face.
Public Relations
▪ Public Relations
Attempt by a business to communicate with interested parties
The main purpose of PR is to increase sales by improving the image of the
business and reinforcing an established brand.
• Press Release: Some information about the business may be presented to
the media. This might be used to write an article or feature in a television
programmed.
• Press Conference: This is where representative face the media and present
information verbally. This allows for questioning and other feedback. This
press might be invited to a new product launch.
• Sponsorship: Many companies attract publicity to linking their brands with
sporting events through sponsorship. The sponsoring of television
programmed is also becoming popular. One of the key advantages of
sponsorship is that the name of the brand can be projected globally on the
television or in print media without paying broadcasters or publishers. This
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is because most of the major events targeted by sponsors are televised or

covered in the press.
• Donation: Donation to charities and the local community might be used by
business to improve their image. A large donation from a business is likely
to be reported in the media is the identity of the donor is revealed.
The main Advantage of PR to business is that it is often a cheap method of
promotion. Some businesses have been known to deliberately seek bad publicity
by being controversial. This can raise the profile of a business very quickly,
sometimes at no cost, but can be extremely risky.
Using Technology in Promotion

1. Online Targeted Advertising
New technology means that adverts can now be more targeted. This
means that adverts are only directed at people who are likely to be
interested in the products. This information is then used to tailor
advertising to specific Customers and therefore avoids the waste of
misdirected adverts.
2. Virtual Advertising
Direct marketing technique in which a company persuades Internet
users to forward its publicity material in emails or via social media.
It creates the potential for exponential growth in the exposure of a
message. Like virus, these strategies exploit the process of rapid
multiplication that results from people sending messages to family,
friends and colleagues, who then send them again.
3. Social Media
The use of social media platforms, such as Facebook, Twitter, Instagram,
and Tumblr, in advertising is growing at a rapid rate.
Social networks gather lots of information about users, which allows
business to target their adverts more effectively.
Some advantages of using social media:
• It is relatively cheap compared with other methods of
advertising.
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• Business can respond immediately to developments in the

industry.
• The quality of customer service can be improved because it is
possible to communicate instantly with customers.
• The method has a huge reach -billons of people.
• Adverts can be accurately targeted.
• Links can be used to draw traffic into company websites.
4. E-Newsletters
• Some business sends customers E-Newsletters. These are
documents sent electronically to interested parties. They contain
a range of content that is not just related to shopping.
• E-Newsletters are only sent to customers who have already
purchased some goods or services or have expressed an interest
in the company.
• May also be personalized, which means less likely to be treated
like ‘spam’.
• Are not too long and contain information of interest, help develop
relationship with customers and bring to their attention new
buying opportunities.
Branding
• Used to:
✓ differentiate the product
✓ create customer loyalty
✓ help recognition
✓ develop an image
✓ raise prices when the brand and image become strong
The Use of Promotion Strategies in Different Market Segments
1. Advertising
• Used in most market segments. However, type of advertising used in
certain market segments is likely to differ. Eg, Large business use television
advertising. Business selling prestige cars use specialist magazines.
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2. Sponsorship
Sponsorship might be used in markets where image or product
positioning is important.
▪ Product positioning
Way that people think about a product in relation to company’s other
products and to compare products or the way that the company would like
them to think about it.
3. Product Trials
This is where people are encouraged to try a product for a trial period at
a reduced rate before fully committing to it.
Eg. Gyms and fitness use subscription pricing.
▪ Subscription pricing
Amount of money you pay regularly to receive a newspaper, magazine, or
broadcasting or telephone service.
4. Special Offers
Price discounts and other special offers are common in many market
segments. Special Offers might also be used to clear old stock, generate
quick cash flow and create interest in a new product.
5. Branding
Branding will be popular in virtually all market segment. The brand can
be stretched and perhaps used in other segments too
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Chapter 40
▪ Economies of scale
Financial advantages (falling average cost) of producing something in very
large quantities.
▪ Diseconomies of scale
Rising average costs when a firm becomes too big.
▪ Internal economies of scale

Cost benefits that an individual firm can enjoy when it expands.
• The internal economies of scales are:
Purchasing economies
• Large firms that buy lots of resources get cheaper rates.
• Supplier offer discount s to firms that buy raw materials and
components in bulk. (Bulk buying is a purchasing economies)
Marketing economies
• A number of marketing economies exist. Marketing economies can
occur because some marketing costs are fixed.
• These costs can be spread over more units of output for a large firm,
so the average cost is smaller for larger firm.
Batch 13
Technical economies
• The way large firm will make better use of an essential resource than
a smaller firm.
• It reduces average cost.
Financial economies
• Large frim can get cheaper money.
• E.g. a large limited company can raise money by selling shares.
• E.g. a large frim can put pressure on banks when negotiating the
price of loans as they are more reliable.
Managerial economies
• As firms expand they can afford specialist manager who are very
efficient and average cost will fall.
Risk-Bearing economies
• Larger firms are more likely to have wider product ranges and sell
into a wider variety of markets
• This reduces the risk in business
▪ External economies of scale

Cost benefits that all firms in the industry can enjoy when the industry
expands.
• The external economies of scales are:
- Skilled labour
- Infrastructure
- Ancillary and Commercial services
- Cooperation
Skilled labour
• If an industry is concentrated in one area, there may be build-up of
labour with skills and work experience required by that industry.
• So, training costs will be lower when workers are recruited.
Batch 13
Infrastructure
• If a particular industry dominates a region, the roads, railways, ports,
buildings and other facilities will be shaped to suit that industry’s
needs.
Ancillary and Commercial services

• An established industry is a region will encourage ancillary suppliers
in that industry to set up close up.
Cooperation
• When firms in the same industry located close each other they ae
likely to cooperate with each other.
▪ Diseconomies of scale
Rising average costs when a firm become too big.
• The diseconomies of scales are:
- Bureaucracy
- Labour relations
- Control and Coordination
Bureaucracy
• System of administration that uses a large number of department
and officials.
• Decision making may be too slow and communication channel too
big.
• Those waste resource, average cost rise.
Labour relation
• If a firm becomes too big, relations between workers and managers
may deteriorate. This could demotivate employee.
• Resource may be waste trying to solve the problem.
Control and Coordination
Batch 13
• Coordination – to organise people or things so that they work

together well.
• Thousand of employee, billions of pounds and dozens of plants need
more supervision which will raise cost.
Other limit to growth
Things that limit growth of business are:
- Lack of finance
- Nature of the market
- Lack of managerial skills
- Lack of motivation
Lack of finance
• Some business would like to grow but are not able to raise the
finance needed to expand.
Nature of the market
• Some markets are too small to sustain very large companies
• Businesses in this market will struggle to grow into very large
organisation.
Lack of managerial skills
• The owners do not have managerial skills required to run large
business operation.
Lack of motivation
• Some owners do no want to grow their business.
• Be happy running small business.
• May be making enough profit to satisfy their needs.
Batch 13
Chapter 41
Production and Productivity
▪ Production
Transformation of resources into a final product
• There are different types of job productions. They are:
- Batch production
- Job Production
- Flow production
- Labour-intensive and capital-intensive
production
▪ Batch production
Method that involves completing one operation at a time on all units
before performing the next.
• Business use this production when demand grows and orders for
multiple units are placed.
• Used when demand grows
• Examples: engineering, the cloth industry and food processing.
▪ Job production
Method of production that involves employing all factors to complete one
unit of output at a time.
• Each item produce is likely to be different.
• This production is use when orders are small, such as ‘one-off’.
• Example: making of a wedding dress, drawing design or
construction
• Is suitable when demand is lower.
▪ Flow production
Large-scale production of a standard product, where each operation on a
unit is performed continuously one after another, usually on a production
line.
• This production result in lower unit cost.
• Product moves here in conveyer belt. The main features of flow
production are:
Batch 13
o Large quantities are produced

o A standardised product is produced
o A semi-skilled workforce, specialising in one operation only
is employed
o Large amounts of machinery and equipment are used
• Example: newspaper, food and cement.
• Conveyer belt – Long continuous moving band of rubber and metal,
used in a place such as a factory or an airport to move things from
one place to another.
▪ Labour-intensive and Capital-intensive production
Labour-intensive production
Production methods that make more use of labor relative to machinery.
Capital-intensive production
Production methods that make more use of machinery relative to labor.
The impact of using different types of production
• Job production - The quality is very high
- Workers will be motived as the work varies.
- The product can be custom made
- It is slower and lead time longer
- More expensive than other method
• Batch production - Unit costs are likely to be lower
- Output higher, workers can be specialized
- More use of machinery
- Flexible, orders with different measurement or style
can be met
- Money may be tied up in work in progress
• Flow production - Reduce unit costs significantly
- Modern technology is so sophisticated it is possible
to produce flexibly.
- Set-up costs can be very high
- Employee motivation may be low because of
repetitive nature of production line work.
- Product are more Standardise
Batch 13
- If production delay because of breakdown it can be

very expensive for the business
▪ Productivity
Rate at which goods are produced and the amount produced, especially in
relation to the work, time and money needed to produce them
▪ Labour productivity
Output per worker in a given time period
Labour productivity = total output/number of workers
Capital productivity = total output/capital employed
Increasing labour productivity

• Businesses can provide more training and improve the quality of existing
methods.
• People are better motivated at work. This might be achieved by using
financial incentives such as piece rates, performance-related pay and profit
sharing
• Labour is organised and managed more effectively
• Labour is more flexible. One approach is to train workers to do different
jobs so they can switch at short notice. Some firms use flexitime, where
• workers can choose their hours of work (within limits).
Increasing capital productivity
Usually increases when new technology is introduced. Because it is more efficient.
▪ Downsizing
Processes of reducing capacity, usually by laying off staff
• Advantages are cost saving and increased profit.
▪ Relocation
• Businesses often relocate their operations to improve efficiency.
• firms can take advantage of cheaper resources
▪ Outstanding
• It may be possible to improve efficiency by outsourcing specific
business activities.
Batch 13
• This means that work currently done by a business is given to

specialists who can do the same work at a lower cost.
▪ Lean production
• To improving productivity in a business involves reducing the
amount of resourced used.
The impact on business of productivity improvement
▪ Financial impact
• Producing more should improve the profitability and provide
greater returns for the owners. However, some of the measures
used to improve productivity may cost money.
• a business may invest in new technology. This could have an
impact on the cash flow or put the business into more debt, or
both.
▪ Competitiveness
• If the business is competitive the business might increase its
market share and enjoy a higher profile in the market.
• It might start to attract new customers - from overseas perhaps.
▪ Workforce
• If a business introduces measures to improve labour productivity, clearly the
workers are likely to be affected.
• if financial incentives are introduced to improve motivation, workers may
benefit from higher earnings.
• If non-financial incentives are used, workers' jobs may become more
interesting.
• if new machinery is introduced, or some production is outsourced, some
workers might lose their jobs.
• Workers are also likely to feel a negative impact if a business uses
downsizing or relocation to improve productivity.
▪ Customers
• Customers will benefit because lower costs could result in lower prices.
Also, some measures designed to improve productivity might result in a
better product or service for customers.
• if customer service staff at a call Centre receive more training, customers
might experience a faster and more effective service.
• if new technology and lean production methods are introduced, the quality
of manufactured products is likely to improve.
Batch 13
Chapter 42
What is LEAN production?
▪ LEAN production
Approach of production aimed at reducing the quantity of resources used.
• This includes factory space, materials, stocks, supplier, labour, capital
and time.
• Lean production:
- raises productivity
- Reduces costs and cuts lead time
- Reduces the number of defective products.
- Improves reliability and speeds up product design.
Just in time production
▪ Just in time
Production technique that is highly responsive to customer orders and uses
very little stock holding.
• This means business does not:
- Hold any stock of raw materials or components
- Produce any goods unless they have been ordered
Kaizen
• Elimination of waste in business.
• Train workers to continuously search for waste and suggest how it might be
avoided.
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• Example of waste:
- Time wasted while staff wait around before starting task.
- Time wasted when workers move unnecessarily in the workplace.
- The irregular use of machine.
• Building a culture where all the employees are actively involved in suggesting
and implementing improvement.
• A clean and well-organised working environment is needed for continuous
improvement to flourish. A method called 5S to ensure that this is achieved.
• What does 5S stand for?
- Sort - get rid of the clutter in the workplace. Only necessary items
should be stored.
- Set in order - organise the work area, so that it is easy to find things.
- Shine - ensure work area and equipment are clean.
- Standardise - once the most effective working practices have been
identified everyone in the workplace should adopt them.
- Sustain - adopt systems to lock the other 4Ss into the way people work at
all times on a permanent basis.
• Kaizen is supported by a wide range of techniques, principles and practices.
Examples:
Standardisation
➢ Carrying out every business activity according to established formula.
➢ Develop into standard for the best, most efficient and safest way to
complete job
➢ It can avoid future failure.
Team working
➢ Dividing workforce into small groups.
➢ Workers should develop a 'team spirit. This may improve motivation
and
productivity.
➢ Flexibility might improve.
➢ Teams might plan their own work schedules, share out tasks and solve
their own problems.
➢ Communication and labour relations might also improve.
Batch 13
Empowerment
➢ Gives employee more control over their own work.
➢ They are given authority to make decisions, solve problems and work
creatively.
Suggestion schemes
➢ Encourage workers to suggest ideas to improve production or reduce
costs.
Quality circle
➢ Small group of workers in the same area of production who meet on a
regular basis to solve production problems.
Multi-skill
➢ Multi-skill workers are more useful to a business because they provide
more flexibility.
➢ The workers will also be motivated if they are allowed to do a range of
different job.
The importance of using resources effectively
• Financial benefits
➢ If fewer resources are used, business cost will be lower.
➢ If costs are lowered, nosiness will make more profit.
• Improved competitiveness
➢ Lean producers will have a competitive edge in the market.
➢ Business that use their resources effectively will be able to lower cost
▪ Positive environmental effects
➢ More effective use of resources, it will be making a positive
contribution to the environment.
➢ This might also improve its image.
▪ Improved customer service
➢ Customers are more likely to benefit if a business makes more effective
use of resources.
➢ Therefore, they are more likely to get better service.
Batch 13
Chapter 43
The impact of new technology on the primary sector
• All business sectors have enjoyed the benefits of new technology.
• In the primary sector automatic feeding systems have helped to raise
productivity in agriculture.
• Technological development in agricultural has significantly reduced the
need to employ large numbers of workers on farms.
• Another technological development in agriculture is the application of
drones.
• They can be used to help farmers with water and disease management,
and to develop better planting strategies.
• Can also provide information about the progress of crops.
• The technology is designed to decrease the energy, water and chemical.
The impact of new technology in the secondary sector
• Production has become more capital-intensive in many industries.
• This means that more machinery is used in production instead of other
resources such as labour.
• New technology is flexible, sophisticated and highly efficient.
ROBOTS
• Material handling robots - the transport of goods, parts or stock from
one place another.
• Processing operations robots - generally perform a specific task
• Assembly line robots - usually perform a single task on assembly lines
such
• as fitting a cap on a bottle.
• Disadvantages are that some staff may lose their jobs, robots can be
expensive to introduce and products may have to be standardised.
Batch 13
COMPUTER AIDED DESIGN

• This allows a business to produce accurate drawings, which can be
viewed in 3D and altered cheaply and quickly.
• CAD can also identify the best or optimal design solutions because it can
analyse a range of alternatives.
COMPUTER NUMERICALLY CONTROLLED

▪ Computer aided design (CAD)
Use of computers to design products
▪ Computer numerically controlled machines (CNCs)
Machines that carry out the instructions fed by computers
• can be programmed by computer to carry tasks such as cutting,
milling, drilling,
• welding, sewing and printing.
• Can produce both uniform and irregular shapes, and cut quickly
and accurately.
• can also carry out repetitive tasks without human error.
• Reduces waste and the need for rework
COMPUTER AIDED MANUFACTURING
▪ Computer aided manufacturing (CAM)
Where computers link and control the design and production of goods in
manufacturing.
▪ Computer integrated manufacturing (CIM)
Use of computers to control the entire production process
• may refer to the use of a computer to assist in all production
operations
including planning, management, transportation and storage.
• speeds up production and minimises waste. This is because CAM
only uses the exact amount of raw material needed and less
energy.
Batch 13
COMPUTER INTEGRATED MANUFACTURING

• functional areas such as design, planning, purchasing, cost
accounting, stock control and distribution are linked through the
computer with factory floor functions such as materials
management providing direct control and monitoring of all
processes.
The impact of new technology in the tertiary sector
• supplying services often requires direct and personal contact with
customers new technologies are being rapidly adapted for use in
the tertiary sector.
• In financial services, (ATMs) have been common for many. The
development of electronic funds transfer at point of sale (EFTPOS)
means that plastic cards and other electronic methods reduce the
need for cash.
• In marketing, (IT) has made market research easier. The gathering,
processing and presentation of market research data are cheaper
using IT. Data can also be gathered online. This is more convenient
for consumers, so more data is likely to be gathered.
• In advertising, television adverts and special effects to make
adverts more exciting and entertaining. Businesses have their own
websites where information about products is posted and updated
regularly.
• In retailing, EPOS refers to technologies that record the sale of
goods or services to the customer at the point where they are
purchased. EPOS saves time and reduces queues at the checkout.
It also improves stock control and automatically orders new stock.
• In the leisure industry, allows people to travel without a ticket.
which reduces administration costs.
• The use of IT has helped to reduce administration and
communication costs in business. A wide range of different
Batch 13
information can be sent electronically anywhere in the world

instantly.
• e-commerce, the use of electronic systems to buy and products. It
takes place online. There are two main types. First, business to
consumers (B2C) involves the selling of goods and services by
businesses to consumers. e-commerce still involves trading in
physical goods. This is called e-tailing and involves ordering goods
online and taking delivery at home. Second, business to business
(B2B) involves businesses selling to other businesses online.
The costs and benefits of new technology
Balancing the cost, productivity, quality and flexibility of technology

• The financial cost of purchasing, installing and maintaining technology
can be very high.
• are often very expensive and businesses often need to borrow or raise
funds to make the investment.
• There is also the human cost to consider.
• Introducing new technology often means making people redundant; this
is also expensive and can disrupt the workforce.
Batch 13
• have to be sure that the cost of the technology is lower than the value of
the productivity gains.
• The productivity gains may only be achieved if large quantities of output
can be sold.
• Decision makers also have to consider the impact that technology will
have on the quality of the product.
• Another issue is the flexibility of new technology.
• When production processes are automated, it often means that a
business can only produce standardised products. This reduces the
choice for customers.
• many would argue that that most technology is so sophisticated today
that quality and flexibility are not compromised.
• investing in new technology is risky and businesses have to evaluate the
costs, productivity gains, the impact on quality and the loss of flexibility
(if any) before going ahead.
Batch 13
Chapter 44
Four factors of production
▪ Factor of production
Resources used are more likely to produce goods and services –
including land, labour, capital and enterprise.
Land
- Business a plot of land to locate their premises.
- Land also include natural resources.
Labour
- The workforce in the economy is labour.
- Each worker is unique and has a different set of abilities,
characteristics, skills, knowledge, intelligence and emotions.
Capital
- Capital is often said to be an artificial resource because it is made by
labour.
- Two types of capital:
• Working capital or circulating capital refers to stocks of raw
materials and components that will be used up in production. It
also includes stocks of finished goods that are waiting to be
sold.
• Fixed capital refers to the factories, offices, shops, machines,
tools, equipment and furniture used in production. Fixed capital
is used in production to convert working capital into goods and
services.
Enterprise
- An entrepreneur is responsible for setting up and running businesses.
Without them production would not take place.
• They come up with a business idea. This might involve the
production of a completely new product.
Batch 13
• They are business owners. They usually provide some money to

help set up a business and are responsible for its direction.
• Entrepreneurs are risk takers. For example, they risk their own
money in the venture. If the business collapses they may lose
some or all of the money. However, if the business is successful
they may make a lot of profit.
• Entrepreneurs are responsible for organising resources. They
have to buy and hire resources, such as raw materials, tools,
equipment and labour. Entrepreneurs need to use skills such as
decision making, people management, time management and
financial judgment to organise resources effectively
▪ Entrepreneur
Individuals who organised the other factors of production and risks
their own money in a business venture.
Specialisation and division of labour
▪ Specialisation
In business, the production of a limited range of goods.
▪ Division of labour
Specialisation in specific task or skills by an individual
• The division of labour increase productivity:
- Workers concentrate on the task that they do best.
- Workers' skills improve as they regularly repeat the same
task.
- Time is saved because workers are not switching from one
task to another.
- The organisation of production is easier.
Labour-intensive and capital-intensive production
▪ Labour-intensive production
The use of relatively more labour than capital
▪ Capital-intensive production
Production relies more on the use of plant and machinery
Batch 13
The type of product

• Mass produced fast-moving consumer goods are likely to be
produced in huge plants using large amounts of machinery.
The relative prices of the two factors
• If labour costs are rising, a business may be encouraged to

employ more capital.
Batch 13
Chapter 45
What is quality?
▪ Quality
Features of a product that allow it to satisfy customers’ needs
The importance of quality

• Increased competition has forced firms to improve quality. Consumers
do not need to buy products from businesses that fail to deliver quality.
• Government legislation designed to protect consumers has forced firms
to improve quality. For example, the production of food products has to
be carried out in a hygienic environment and comply with health and
safety legislation.
• Faulty products are costly for a business. Machinery that breaks down or
constantly needs to be repaired will also be expensive. Late delivery and
productivity that results from poor quality in production can harm a
business's reputation.
Traditional quality control
▪ Quality control
Making sure that the quality of a product meets specified quality
standards
Batch 13
• Production department objective is to make sure that products:

- Satisfy consumers’ need
- Operate in the way they should
- Can be produced cost effectively
- Can be repaired easily
- Meet safety standards set down by legislation and
independent bodies
Quality insurance
• Its aim is to stop problems before they occur rather than finding after
they occur.
• Also take into account the customers’ views in production.
▪ Total quality management (TQM)
Managerial approach that focuses on quality and aims to improve the
effectiveness, flexibility and competitiveness of the business.
▪ quality assurance working
methods that take into account customers' wants when standardising
quality - it often involves guaranteeing that quality standards are met.
Total quality management
• TQM is designed to prevent errors, such as poor-quality products, from
ever happening.
o Quality chains: Every worker in a business is like a link in a chain and
every worker is both a customer and a supplier. The chain also includes
customers and suppliers outside the business.
o Everyone is involved: Every department, activity and worker are
organised to consider quality at all times.
o Quality audits: Statistical data is used to monitor quality standards.
These checks or audits aim to reduce variation, which is the cause of
most quality problems.
o Teamwork: TQM stresses that teamwork is the most effective way of
solving problems.
o Customer focused: Firms using TQM are committed to their customers.
They respond to changes in people's needs and expectations.
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o Zero defects: This aims to ensure that every product that is

manufactured is free from defects.
Quality standards
• Businesses can earn a reputation for quality by following a code of
practice or
gaining quality awards.
• One important example is the British Standards Institution (BSI). This is
an independent organisation that sets quality standards in industry.
• One internationally recognised standard is the ISO 9000.
Batch 13
Quality and competitive advantage

• Businesses that produce high-quality products may gain a competitive
edge in the market.
• If any business can develop and produce high quality products, this could
serve as a unique selling point.
• Adopting TMQ, buying better quality resources, employing more skilled
and experienced staff and implementing an effective marketing strategy.

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Batch 13

Features of Business Activity

Purpose of Business Activity

Social Enterprise: From private sector, non-profit making organisation such

Public Enterprise: Public sector organisations provide health care, education,

7) The Local Community

The importance of clear objectives:

4) Increase market share: If business can win customers from competitors.

3) Challenge: Some are motivated by challenges, starting a business can be

4) Independent and Control: People want to be their own boss. Entrepreneurs

Why might objectives change as business change (evolve)

Organisers Risk Takers

Unincorporated And Incorporated Business

Features of sole traders

-Owners keeps all profit -Have unlimited liability

• how profits and losses will be shared among partners

-Easy to set up and run -Have unlimited liability

What does the franchisor offer the franchisee?

• Materials equipment and support services

Advantages to Franchisor Disadvantages to Franchisor

- Fast method of growth -Poor franchisee may damage brand

Features of Social Enterprise

Features of Limited Companies

▪ Private Limited Companies

- Shareholders have limited liability - Financial information has to be public

▪ Public Limited Companies

- Shareholders have limited liability - Financial information has to be public

Key Features of Multinational:

• State Owned : government owns, government appoints the people who

Reasons for the public ownership of businesses

• Different stakeholders might influence the choice of organisation. For eg,

▪ Decline in manufacturing is de-industrialisation

Why has manufacturing declined in developed countries while services has

• To attract foreign manufacturers into the country. Many countries rely on

Opportunities of Globalisation for Business

Technical And Financial Superiority

• Bypass trade barriers by establishing operations in those countries that

▪ Balance of trade (visible balance)

What is exchange rate?

The impact of changes in the exchange rate on importers and exporters

International Competitiveness and Exchange Rates

• Money raised by taxation is used by government for help funds spending on

Indirect Tax Direct Tax

Income Tax Corporation Tax VAT

-Personal -Company Profit When buy of

• If income tax were lower there would be more spending in economy

• Government reduces corporation tax because to attract foreign businesses

How can government affect business activity?

Three specific approach:

▪ Infrastructure Provision (နင

o Heavy expenditure on large scale projects can have big benefits to

Protectionism might be used to:

o Access to wider markets

• Higher interest rate means it is more expensive to borrow money so

Effects of interest rates on consumer spending

• Secondary Sector – Introduction of robots on production line

Businesses may respond to environmental issues in a number of ways. For