UNIT 1 - BUSINESS AND ITS ENVIRONMENT
1.1 ENTERPRISE
1.1.1 The nature of business activity
The Purpose of Business Activity
Businesses aim to add value to raw materials and semi-finished goods in order to satisfy
needs and wants.
The factors of production needed for business activity
1) Land - all natural resources used in production (land, renewable and non renewable
resources of nature - E.g. Coal, crude oil, timber etc.)
2) Labour - both manual and skilled work - make up the workforce of a business
3) Capital - finance that is needed to set up and run the business as well as man made
goods used in production (E.g. machinery). These are also known as capital goods.
4) Enterprise - entrepreneurs providing the managing, decision making and coordinating
roles of a business.
The concept of adding value → Increasing the selling price of a product / service so it’s
higher than the cost of materials, manufacturing process etc.
*Adding value (creating value) ≠ Added value ≠ Profit
Added value: the difference between the selling price and the cost of raw materials
Added value = Selling price - Cost of resources
,The nature of economic activity, the problem of choice and opportunity cost
Nature of business activity: the purpose of economic activity is to provide for the needs and
wants of the people
The problem of choice: as there is a shortage of resources, we need to take a choice in
what to buy in relation to our needs and wants
Opportunity cost: when purchasing one thing over another, the opportunity cost was the
benefits we were unable to obtain from the thing we didn’t buy.
Scarcity = there are limited resources and unlimited wants.
Due to the existence of scarcity, people are forced to make a choice, and the opportunity
cost is the next best alternative forgone
The dynamic business environment
A business MUST always be kept dynamic as the business environment (things that happen
around a business that will affect them) is always changing.
E.g. New competitors, legal changes, economic / tech. Changes etc.
Why businesses succeed or fail
Success:
· Good understanding of customer needs (achievement of sales targets)
· Efficient management of operations (keeps costs under control)
· Flexible decision making → Adapt to new situations (allow investment in new business
opportunities)
· Appropriate / Sufficient sources of finance (prevents cash shortages / allows expansion)
Fail:
· Poor record keeping (lack of accurate records, failure to spend sufficient time on them)
· Lack of cash (no cash to pay day to day expenses, debts, liabilities etc.)
· Poor management skills (E.g. Leadership, decision making, cash handling, planning etc)
,Record keeping: the process of recording the financial activities / information of a business.
Shortages: a state or situation in which something needed cannot be obtained in sufficient
amounts
How to improve:
· PRK - improve employee training (gain new skills / experiences relevant to the job)
· LoC - collecting outstanding debts, increase prices (increase income), borrow money
· PMS - strengthen decision making, cultivate self awareness, build trust, efficient
communication.
Differences between local, national, international and multinational businesses
Local businesses → operate in small, well defined parts of the country. Owners have no aim
to expand, so no attempts to attract customers across whole country
E.g. Hairdressing business etc.
National businesses → branches / operations across the country. No attempts of
establishing operations in other countries or to sell internationally
E.g. Large car retailing shops, national banks etc.
International businesses → sell products in more than one country (using foreign agents or
online shopping)
E.g. Nude Project, Yuxus etc.
Multinational businesses → operations in more than one country. Established base for
either producing or selling products outside their own domestic country
E.g. Nike, Coca Cola etc.
, 1.1.2 The role of entrepreneurs and intrapreneurs
The qualities entrepreneurs and intrapreneurs need for success
1) Innovation → fill a gap in the market
2) Commitment and self motivation
3) Multiskilled → make the product, promote it, sell it, keep account of it etc.
4) Leadership skills → communication skills, controlling etc.
5) Self confidence / Ability to bounce back → failure is part of the process (keep motivated)
6) Risk taking → willing to take the risk in order to see results
*Innovation is important for the success of a business. Offering the same goods / services
as existing businesses might not lead to great success
The role of entrepreneurship in creating and starting up a business
1) Have an idea for a new business
2) Create a business plan
3) Invest some of their own savings / capital
4) Accept the responsibility of managing the business
5) Accept the possible risk of failure
Business plan: a document setting out a business’s future objectives and strategies for
achieving them
Barriers to entrepreneurship
· Lack of business activity
· Obtaining sufficient capital (finance)
· Cost of good locations → Lack of customer base
· Competition
1.1 ENTERPRISE
1.1.1 The nature of business activity
The Purpose of Business Activity
Businesses aim to add value to raw materials and semi-finished goods in order to satisfy
needs and wants.
The factors of production needed for business activity
1) Land - all natural resources used in production (land, renewable and non renewable
resources of nature - E.g. Coal, crude oil, timber etc.)
2) Labour - both manual and skilled work - make up the workforce of a business
3) Capital - finance that is needed to set up and run the business as well as man made
goods used in production (E.g. machinery). These are also known as capital goods.
4) Enterprise - entrepreneurs providing the managing, decision making and coordinating
roles of a business.
The concept of adding value → Increasing the selling price of a product / service so it’s
higher than the cost of materials, manufacturing process etc.
*Adding value (creating value) ≠ Added value ≠ Profit
Added value: the difference between the selling price and the cost of raw materials
Added value = Selling price - Cost of resources
,The nature of economic activity, the problem of choice and opportunity cost
Nature of business activity: the purpose of economic activity is to provide for the needs and
wants of the people
The problem of choice: as there is a shortage of resources, we need to take a choice in
what to buy in relation to our needs and wants
Opportunity cost: when purchasing one thing over another, the opportunity cost was the
benefits we were unable to obtain from the thing we didn’t buy.
Scarcity = there are limited resources and unlimited wants.
Due to the existence of scarcity, people are forced to make a choice, and the opportunity
cost is the next best alternative forgone
The dynamic business environment
A business MUST always be kept dynamic as the business environment (things that happen
around a business that will affect them) is always changing.
E.g. New competitors, legal changes, economic / tech. Changes etc.
Why businesses succeed or fail
Success:
· Good understanding of customer needs (achievement of sales targets)
· Efficient management of operations (keeps costs under control)
· Flexible decision making → Adapt to new situations (allow investment in new business
opportunities)
· Appropriate / Sufficient sources of finance (prevents cash shortages / allows expansion)
Fail:
· Poor record keeping (lack of accurate records, failure to spend sufficient time on them)
· Lack of cash (no cash to pay day to day expenses, debts, liabilities etc.)
· Poor management skills (E.g. Leadership, decision making, cash handling, planning etc)
,Record keeping: the process of recording the financial activities / information of a business.
Shortages: a state or situation in which something needed cannot be obtained in sufficient
amounts
How to improve:
· PRK - improve employee training (gain new skills / experiences relevant to the job)
· LoC - collecting outstanding debts, increase prices (increase income), borrow money
· PMS - strengthen decision making, cultivate self awareness, build trust, efficient
communication.
Differences between local, national, international and multinational businesses
Local businesses → operate in small, well defined parts of the country. Owners have no aim
to expand, so no attempts to attract customers across whole country
E.g. Hairdressing business etc.
National businesses → branches / operations across the country. No attempts of
establishing operations in other countries or to sell internationally
E.g. Large car retailing shops, national banks etc.
International businesses → sell products in more than one country (using foreign agents or
online shopping)
E.g. Nude Project, Yuxus etc.
Multinational businesses → operations in more than one country. Established base for
either producing or selling products outside their own domestic country
E.g. Nike, Coca Cola etc.
, 1.1.2 The role of entrepreneurs and intrapreneurs
The qualities entrepreneurs and intrapreneurs need for success
1) Innovation → fill a gap in the market
2) Commitment and self motivation
3) Multiskilled → make the product, promote it, sell it, keep account of it etc.
4) Leadership skills → communication skills, controlling etc.
5) Self confidence / Ability to bounce back → failure is part of the process (keep motivated)
6) Risk taking → willing to take the risk in order to see results
*Innovation is important for the success of a business. Offering the same goods / services
as existing businesses might not lead to great success
The role of entrepreneurship in creating and starting up a business
1) Have an idea for a new business
2) Create a business plan
3) Invest some of their own savings / capital
4) Accept the responsibility of managing the business
5) Accept the possible risk of failure
Business plan: a document setting out a business’s future objectives and strategies for
achieving them
Barriers to entrepreneurship
· Lack of business activity
· Obtaining sufficient capital (finance)
· Cost of good locations → Lack of customer base
· Competition
