Business production 22 Methods of production 24 Efficiency and new technology 26 Quality management 28

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1 Contents Exam board specification map Introduction Topic checker Topic checker answers iv vi x xiv Business types and objectives Business types 2 Enterprise and business planning 4 Business objectives 6 Business location 8 Sole traders and partnerships 10 Growing a business 12 Ltd companies and PLCs 14 Co-operatives and franchises 16 The public sector 18 Business organisation 20 Business production Business production 22 Methods of production 24 Efficiency and new technology 26 Quality management 28 Business finance Business finance 30 Break even 32 Cash flow 34 Financial statements 36 Financial performance 38 ii

2 People in business People in business 40 Motivation and pay 42 Recruitment 44 Recruitment case study 46 Training staff 48 Communication at work 50 Industrial relations 52 Negotiating 54 Business and marketing Business and marketing 56 Market research 58 The marketing mix 60 The product life cycle 62 Pricing decisions 64 Promoting products 66 Business environment The business environment 68 Business and competition 70 Business and the community 72 Business ethics 74 The national economy 76 Business and Europe 78 The global economy 80 Exam questions and model answers 82 Answers to further exam questions 90 Complete the facts 92 Complete the facts answers 104 Answers to practice questions 112 Glossary 117 Last-minute learner 119 iii

3 Business types Businesses can be classified (grouped together) in different ways: by sectors of activity or industrial groupings by the way they are financed and controlled by their different objectives. A Different types of business Business types include sole traders, partnerships, companies and co-operatives. Different business types can be linked together in a chain of production. There are usually many types of business within an industry. Bigger businesses are more likely to be companies. 1 John: sole trader on his own farm growing crops such as wheat (primary sector). 2 Rank Hovis MacDougall PLC: large food-manufacturing company (secondary sector) owned by shareholders. Aims to supply affordable bread through supermarkets nationwide and make profits for shareholders. 3 Co-op supermarkets: a wholesaling and retail service; gets bread and other products to customers at convenient sites. As a co-operative, customers and workers are part-owners and share the benefits. 4 Tom s bakery: supplies high-quality bread and cakes to customers in the local area. He and a friend run the business in partnership. Customers B Sectors of business activity To look at changes in business activity it is helpful to use three broad groupings called sectors. Primary sector: extract raw materials from land or sea, e.g. mining. Britain was once highly dependent on this sector for income and jobs. Secondary sector: use raw materials to make finished goods, e.g. car makers. Manufacturing has been hit by foreign competition. Tertiary sector: provide a service to industry/consumers, e.g. retail. This is the fastest growing sector in Britain. 2

4 C Chain of production Businesses in one sector are linked to, and dependent on, those in other sectors. At each stage in the chain a business will try to add value. A chain of production for the oil industry (as shown here) and for the bread industry (opposite) demonstrates the interdependence of businesses. Oil extraction (primary) Oil refining (secondary) produces a range of products, e.g. petrol, plastics Retail (tertiary), e.g. petrol stations D Trends in UK UK output has changed throughout the last century. The graphs show that there has been a significant shift in the UK from the secondary sector towards the tertiary sector. Causes for this include: E primary secondary tertiary increased demand for financial services and other tertiary sector industries from UK manufacturing firms moved to Asia due to lower wages. Chain of production As the UK specialises more in tertiary sector products, it has to trade more with other countries for manufactured goods. Business activities can be classified into eight industrial groupings. The groupings are: agriculture, forestry, fishing; distribution, hotels, repairs; energy and water; transport and communication; manufacturing; construction; banking, finance, insurance; education and health. They can be used to examine changes in employment and production, and are widely used in government statistics. >> practice questions 1 Classify each of the following businesses as either primary, secondary or tertiary: a) a food manufacturer b) a fishing company c) a car repair centre d) a private school. 2 Services in the tertiary sector include advertising, banking and communication services. Explain how each of these services could support a business such as a car manufacturer. 3

5 Enterprise and business planning An entrepreneur is someone who takes on the risk of a new business venture. Entrepreneurs must plan their business in order to gain necessary finance at the start-up stage. A The qualities of an entrepreneur An entrepreneur the person who starts an enterprise is a person who: is prepared to take calculated risks to start a new business is often creative and can see an opportunity to make and sell a new product shows determination and leadership can plan ahead. B Choosing a product As part of starting a business, entrepreneurs must decide on the product to be made or the sevice to be provided. They are likely to consider the following possibilities: develop a completely new product. This is often the result of using new technology improve or develop an existing product respond to new demands from consumers. Changing fashions, for example, create opportunities for new businesses. C Looking for a gap in the market New products can be either product-driven or market-driven. A product-driven firm develops a product and then tries to market it to customers. A market-driven firm will identify what the market wants and then try to develop products to meet their wants and needs. D Reasons for starting a business Entrepreneurs choose to start their own business and take on the risk associated with it. Reasons for doing this may include a desire to: have the freedom to run the business their own way feel a sense of achievement if the business succeeds have the prospect of high earnings. 4

6 E Business plans key fact A business plan is central to good financial planning. It shows the information and figures which predict future performance of the business. A business plan plays a vital role in financial planning, especially if other organisations, such as banks, are to be asked for loans. It is a formal, detailed document, which explains how the finance for a business is going to be raised. It contains a cash flow and other financial forecasts. It shows how soon the business is likely to break even. It includes background information (e.g. product/service offered, number of staff, target market). It shows the targets being set (the business objectives). key fact A business plan provides different kinds of information for different stakeholders. It helps managers: to avoid costly mistakes to set targets for review by providing financial guidelines. It provides vital information for lenders: the clarity of the managers planning the length of time it will probably take to repay the loan the risks of the business venture. Finance involves risks for business owners and for lenders. Will the possible profit outweigh the risk? >> practice questions 1 A group of 18-year-olds ask you, a bank manager, for a 5000 loan to help start a mobile disco business. They hope to be in profit after a year. What information would you expect to see in their business plan? If you loaned the money, what rules would you make for repayment? 2 Why are market-driven firms frequently more successful than product-driven firms? 5