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Business Edexcel > 1- Business activity and influences on business > Flashcards

1- Business activity and influences on business Flashcards

1
Q

Business

A

organisation that produces goods and services

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2
Q

Goods

A

physical products, such as a mobile phone, a packet of crisps or a pair of shoes

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3
Q

Services

A

non-physical products, such as banking, car washing and waste disposal

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4
Q

private sector

A

business organisations owned by individuals or groups of individuals

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5
Q

public sector

A

business organisations owned by central or local government

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6
Q

entrepreneur

A

person who takes risks and sets up businesses; individual who organises the other factors of production and risks their own money in a business venture

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7
Q

stakeholder

A

an individual or group with an interest in the operation of abusiness

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8
Q

show the different business stakeholders

A

Owners
Customers
Employees
Managers
Financiers
Suppliers
Government
Local community

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9
Q

objectives

A

goals or targets set by a business

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10
Q

The importance of clear objectives

A

Objectives help to motivate employees.

Without objectives owners might not have the motivation needed to keep the business going.

Make it easier to assess the performance of a business.

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11
Q

The financial objectives

A

Survival
Profit
Sales
Increase market share
Financial security

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12
Q

profit maximisation

A

making as much profit as possible ni agiven time period

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13
Q

dividends

A

share of the profit paid to shareholders ni a company

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14
Q

profit satisficing

A

making enough profit ot satisfy the needs of the business owners

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15
Q

The non-financial objectives

A

SOCIAL OBJECTIVES

PERSONAL SATISFACTION

CHALLENGE

INDEPENDENCE AND CONTROL

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16
Q

SMART objectives

A

Specific
Measurable
involved Realistic
Time specific

An example of a SMART objective might be for a business to increase
its revenue by 8 per cent ni the next 12 months.

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17
Q

Why might objectives change as business evolve ?

A

As a business develops and evolves over time, its aims and objectives are likely to change. This is usually because businesses have to respond to events
or changes in circumstances.

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18
Q

What are the reasons for a company to change its objectives?

A

MARKET CONDITIONS
TECHNOLOGY
PERFORMANCE
LEGISLATION

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19
Q

unincorporated

A

businesses where there is no legal difference between the owner and the business

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20
Q

incorporated

A

business that has a separate legal identity from that of its owners

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21
Q

sole trader

A

business owned by a single person

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22
Q

unlimited liability

A

owner of abusiness is personally liable for al business debts

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23
Q

Advantages of a sole trader

A

-The owner keeps al the profit.
-Owner has complete control.
-It is simple to set up with no legal requirements.
-Flexibility
-Can ofer a personal service because they are small.

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24
Q

Disadvantages of a sole trader

A

-Have unlimited liability.
-May struggle to raise finance
-Long hours and very hard work.
-No continuity - the business dies with the owner.

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25
Q

partnership

A

business owned by between 2 and 20 people

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26
Q

deed of partnership

A

legal document that states the formal rights of partners

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27
Q

advantages of partnerships

A

-Easy to set up and run
-The job of running a business si shared.
-More capital can be raised with more owners.
-Financial information is not published.

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28
Q

Disadvantages of partnership

A

-Partners have unlimited liability.
-Profit has to be shared.
-Partners may disagree and fall out.
-Partnerships still tend to be small.
-Any partners’ decision is legaly binding on all.

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29
Q

legally binding

A

agreement has been made, and certain actions are now either required or prohibited by law

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30
Q

limited partnership

A

partnership where some partners contribute capital and enjoy a share of the profit but do not take part in
the running of the business

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31
Q

limited liability

A

business owner is only liable for the original amount of money invested in the business

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32
Q

franchise

A

structure in which a business (the franchisor) allows another operator (the franchisee) to trade under their name

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33
Q

Advantage to the franchisee

A

-Less risk
-Back-up support is given.
-Set-up costs are predictable.
-National marketing may be organised.

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34
Q

Disadvantages to the franchisee

A

-Profit is shared with the franchisor.
-Strict contracts have to be signed.
-Lack of independence
-Can be an expensive way to start a business.

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35
Q

Advantage to the franchisor

A

-Fast method of growth.
-Cheaper method of growth.
-Franchisees take some of the risk.
-Franchisees more motivated than employees.

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36
Q

Disadvantages to the franchisor

A

-Potential profit is shared with franchisee.
-Poor franchisees may damage brand’s reputation.
-Franchisees may get merchandise from elsewhere.
-Cost of support for franchisees may be high.

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37
Q

merchandise

A

goods that are being sold

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38
Q

social enterprise

A

business that aims to improve human or environmental well- being, charities for example

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39
Q

cooperative

A

company, factory
or organisation in which all the people working there own an equal share of it

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40
Q

consumer cooperative

retail cooperative

worker cooperative

A

cooperative that is owned by its customers

cooperative of retail members, who often work together to assert their purchasing power

cooperative that is owned by its employees

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41
Q

What are the forms of the social enterprises ?

A

-Cooperatives : usually operate as consumer cooperatives or retail cooperatives.

-Worker cooperatives : are businesses in which its employees share ownership.

-Charities : organisations that give money, goods or help people who are poor.

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42
Q

limited companies

A

business organisations that have a separate legal identity from that of their owners

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43
Q

certificate of incorporation

A

document needed before a new company can start doing business

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44
Q

private limited companies

A

-Their business name ends in Limited or Ltd.
-Shares cannot be traded on the stock market.
-They are often family businesses or close friends.
-The directors of these firms tend to be shareholders and are involved in the running of the business.

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45
Q

Advantages of private limited companies

A

-Shareholders have limited liability.
-Control cannot be lost to outsiders. -Business continues if ashareholder dies.
-Has more status .

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46
Q

Disadvantages of private limited companies

A

-Financial information has to be made public.
-Costs money and takes time to set up.
-Profits are shared between more members.
-Takes time to transfer shares to new owner.
-Cannot raise huge amounts of money, like PLCs.

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47
Q

public limited company (PIC)

A

-tend to be larger than private limited companies.
-Their shares can be bought and sold by the public on the stock exchange.
-Any person or organisation can buy shares in a PLC.

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48
Q

Why going public can be expensive ?

A

-the company needs lawyers
-a bank may be paid to process share applications
-there are advertising and administrative expenses
-the PLC must have a minimum of £50 000 share capital.

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49
Q

Advantages of public limited companies

A

-Large amounts of capital can be raised.
-Shareholders have limited liability.
-May be able to dominate the market.
-Shares can be bought and sold very easily.
-May have a very high profile in the media.

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50
Q

Disadvantages of public limited companies

A

-Setting up costs can be very expensive.
-Outsiders can take control by buying shares.
-More financial information has to be made public.
-Managers may take control rather than owners.

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51
Q

Multinational company

A

large business with significant production or service operations in at least two different countries

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52
Q

The features of the multinational

A

-huge assets (land, buildings, plant, machinery and money).
-highly qualified and experienced executives and managers.
-highly advanced and up-to-date technology.

53
Q

Public corporations

A

business organisations owned and controlled by the state/ government.

54
Q

Features of public corporations

A

-State owned.
-Created by law.
-State-funded.
-Provide public services.

55
Q

Reasons for the public ownership of businesses

A

-Avoid wasteful duplication.
-Maintain control of strategic industries.
-Save jobs.
-Fill the gaps left by the private sector.
-Serve unprofitable regions.

56
Q

Reasons against the public ownership of businesses

A

-Cost to government.
-Inefficiency: Public corporations are often criticised for their low productivity.
-Political interference: Public corporations often suffer owing to government interference.
-Difficult to control.

57
Q

privatisation

A

transfer of public sector resources to the private sector (business).

58
Q

The forms of Privatisation

A

-Sale of public corporations.
-Deregulation.
-Contracting out.
-The sale of land and property.

59
Q

Why does privatisation take place?

A

-To generate income.
-To reduce inefficiency in the public sector.
-As a result of deregulation.
-To reduce political interference.

60
Q

Factors affecting the appropriateness of different forms of ownership

A
  • Groth: Many businesses start small and gradually get bigger.
  • Size: Many small businesses are sole traders or partnerships. Public
    limited companies are much larger.
  • The need for finance: Quite often the only way to get more money is to change the type of organisation.
  • Control: Some owners like their independence.
  • Limited liability: some owners become limited companies to give themselves more financial protection.
61
Q

Show that different types of business organisation wil have different objectives.

A

-Sole traders might be happy to make a modest amount of profit ( profit satisficing).
- Family businesses and private limited companies often do not wish to go public because they are afraid of losing control to outsiders.
- multinationals want to grow, so that they can dominate global markets.

62
Q

primary sector

A

production involving the extraction of raw materials from the earth.

63
Q

Examples of primary sector

A
  • Agriculture.
  • Fishing.
  • Forestry.
  • Mining and quarrying.
64
Q

Secondary sector

A

production involving the conversion of raw materials into finished and semi-finished goods.

65
Q

Examples of secondary sector

A
  • metalworking.
  • car production.
  • textile production.
  • chemical and engineering industries.
  • aerospace manufacturing.
  • engineering,
  • food processing.
66
Q

assembly plant

A

factory where parts are put together to make a finished product.

67
Q

Tertiary sector

A

production of services in the economy

68
Q

Examples of tertiary sector

A
  • commercial services.
  • Financial services.
  • household services.
  • leisure services.
  • professional services.
  • Transport.
69
Q

interdependent

A

Businesses in each of the three sectors are likely to be interdependent. This means that they rely on each other.

70
Q

de-industrialisation

A

decline in manufacturing.

71
Q

the main causes of de-industrialisation

A
  • People may prefer to spend more of their income on services than manufactured goods.
  • There is fierce competition in the production of manufactured goods from developing countries such as India and China.
  • As countries develop, the public sector grows, this adds to the growth of the tertiary sector.
  • Advances in technology mean that employment in manufacturing falls because machines replace people.
72
Q

Factors influencing the location of business

A
  • Proximity to market.
  • proximity to labour.
  • proximity to material.
  • proximity to competitors.
  • services.
  • office- based business.
  • Manufacturing and processing.
  • Agriculture.
73
Q

brownfield sites

A

areas of land that were once used for urban development.

74
Q

greenfield sites

A

previously undeveloped areas of land, usually on the outskirts of towns and cities.

75
Q

globalisation

A

growing integration of the world’s economies, Firms and people are behaving as though there
is just one market or one economy in the whole world.

76
Q

Reasons for globalization

A
  • Developments in technology.
  • International transport networks have improved.
  • There has been a huge amount of deregulation. Privatisation has allowed
    more competition in many industries.
  • An increase in tourism.
  • Many firms want to sell abroad.
77
Q

monetary system

A

system of money in a particular country or the world as a whole, and the way that it is controled by governments and central banks

78
Q

saturate (market)

A

To offer so much of a product for sale that there is more than people want to buy.

79
Q

The government and globalization

A
  • countries cannot trade if the government keeps international borders closed.
  • international trade wil be very limited if governments put up trade barriers.
  • people cannot be free to live and work in overseas countries unless borders are kept open.
  • firms cannot develop their businesses overseas if planning permission
    is denied.

Governments can aid globalisation by relaxing laws and regulations that prevent or complicate trade and business.

80
Q

Opportunities of globalization for business

A
  • Access to larger markets.
  • lower costs.
  • access to labour.
  • reduced taxation.
81
Q

Threats of globalization to businesses

A
  • Competition.
  • International takeovers.
  • Increased risk of external shocks.
82
Q

How have multinationals developed?

A
  • Economies of scale
  • Marketing
    -Technical and financial superiority
83
Q

Benefits to a business of becoming a multinational

A
  • LARGER CUSTOMER BASE
  • LOWER COSTS
  • HIGHER PROFILE
  • AVOIDING TRADE BARRIERS
  • LOWER TAXES
84
Q

Benefits of multinationals to a country and economy

A
  • increase in income and employment.
  • increase in tax revenue.
  • increase in exports.
  • transfer of technology.
  • improvement of the quality of human capital.
  • enterprise development.
85
Q

Drawbacks of multinationals to a country/ economy

A
  • environmental damage.
  • exploitation of less developed countries.
  • repatriation of profits.
  • lack of accountability.
86
Q

exploitation

A

situation in which you treat someone unfairly by asking them to do things for you, but give them very little in return.

87
Q

repatriation (of profit)

A

where a multinational returns the profits from an overseas venture ot the country where it is based, typically from a developing country to a developed country.

88
Q

International trade

A

International trade benefits the world. It creates opportunities for business growth, increases competition and provides more consumer choice.

89
Q

Exports

A

goods and services sold overseas

90
Q

Imports

A

goods and services bought from overseas

91
Q

visible trade

A

trade in physical goods.

92
Q

invisible trade

A

trade in services

93
Q

balance of trade (or visible balance)

A

difference between visible exports and visible imports.

94
Q

exchange rate

A

value of one currency in terms of another.

95
Q

fiscal policy

A

using changes in taxation and government expenditure to manage the economy.

96
Q

How can governments affect business activity?

A
  • change the law.
  • influence the rate of interest and exchange rates in the economy.
  • change levels of government expenditure and taxation.
  • introduce polices that have a direct impact on businesses such as giving subsidies to farmers.
97
Q

infrastructure provision

A
  • the government is responsible for developing the nation’s key infrastructure. Such as schools, hospitals, roads,… and government offices. These projects can be very expensive.
  • Heavy expenditure on large-scale projects like this can have big benefits for businesses.
  • This is because private sector businesses are likely to get most of the work.
98
Q

Legislation

A

One of the roles of the government is to provide a legal framework in which businesses can operate and ensure that vulnerabl groups are protected.

99
Q

government intervention

A

government becoming involved in an argument, fight or other difficult situation in order to change what happens.

100
Q

Consumer protection

A

Consumers want to buy good quality products at a fair price and receive good customer services , Without government regulation, some firms may exploit consumers by using anti-competitive practices or restrictive practices.

101
Q

anti-competitive practices (restrictive trade practices)

A

attempts by firms to prevent or restrict competition

102
Q

Competition policy

A

Governments should try to promote competition by:

  • Encourage the growth of small firms.
  • Lower barriers to entry.
  • Introduce anti-competitive legislation.
103
Q

Environmental legislation

A

One approach used by many governments is to pass new laws to minimise the damage done by businesses to the environment.

104
Q

barriers to entry

A

restrictions that mean
it is difficult for new firms to enter a market

105
Q

merger

A

two or more businesses joining together to form one new firm.

106
Q

protectionism

A

use of trade barriers to protect domestic producers.

107
Q

dumping

A

where abusiness sells goods in another country often below cost

108
Q

trade barriers

A

measures designed to restrict trade.

109
Q

Trade policy

A

Governments can use trade barriers to restrict trade:
- Tariffs: a tax on imports, which makes them more expensive.
- Quota: a physical limit on the amount allowed into the country.
- Subsidy: the giving of financial support, such as grants or tax breaks, to exporters or domestic producers that face fierce competition from imports.
- Administrative barriers: the use of strict health and safety or environmental regulations to make importing more awkward.

110
Q

quota

A

physical limit on the quantity of imports allowed into a country.

111
Q

subsidy

A

financial support given to a domestic producer to help compete with overseas firms.

112
Q

interest

A

the cost of borrowing money and the reward to savers.

113
Q

monetary policy

A

using changes in interest rates and the money supply to manage the economy.

114
Q

Effects of high interest rates on business

A
  • Higher interest rates wil therefore reduce profits.
  • businesses won’t be able to invest in new machinery, so they may fail to keep up with changes in technology.
115
Q

Effects of high interest rates on consumer spending

A
  • House-owners with mortgages will be affected negatively because most people buy houses using a mortgage.
  • Demand for goods bought with borrowed money will fall because Many people use loans and credit cards to fund their spending.
  • Savers will be hit if interest rates are low. This is because they will earn less interest on their savings.
116
Q

External factors

A
  • Sometimes businesses have to deal with events and issues that are completely beyond their control.
  • The effects of external factors can be both positive and negative.
117
Q

Types of external factors

A
  • Social
  • technology
  • environment
  • Political
118
Q

The external factor social

A

examples of changes that have occurred in society in recent years and may affect business:

  • Increased consumer awareness.
  • Changing demand patterns.
  • Increased numbers of women at work.
  • More part-time workers.
  • urbanisation : process of constructing more and more buildings on rural land.
119
Q

The external factor technology

A
  • new technology means production becomes more capital-intensive and costs are reduced.
  • Changes in technology can shorten the amount of time products can be marketed for.
  • Developments in technology often mean that businesses can replace labour with capital.
  • The development of social media has helped to improve communications
    between businesses and customers.
120
Q

The external factor environment

A

Some examples of the impact of business on the environment:

  • global warming.
  • habitat destruction.
  • resource depletion.
  • sustainable development.
121
Q

The external factor political

A

Some parts of the world are politically unstable so it will affect business negatively, also political factors can influence businesses positively in stable, democratic countries.

122
Q

Measure of business success

A
  • revenue.
  • market share.
  • customer satisfaction.
  • profit.
  • growth.
  • Owner satisfaction.
  • employees satisfaction.
123
Q

capital employed

A

amount of money invested in a business

124
Q

overtrading

A

taking on more work than a business can afford to fund effectively.

125
Q

Reasons for business failure

A
  • cash flow problems.
  • lack of finances.
  • not competitive.
  • failure to innovate.
126
Q

Cash flow problems

A
  • overtrading.
  • investing too much in fixed assets.
  • allowing too much credit.
  • over borrowing.
  • seasonal factors.
  • unexpected expenditure.
  • poor financial management.
127
Q

Lack of finance

A
  • New businesses often struggle to attract funding because they do not have a trading history and they are too risky for investors, so if a business does not raise enough money before trading begins it will risk failure.
128
Q

Not competitive

A
  • new entrants: a business may begin successfully and then fail because a new rival enters the market and takes away their trade.
  • ineffective cost control: businesses cannot keep their costs down so a business needs to charge more to make a profit.
  • ineffective marketing.
  • lack of business skills.
  • poor leadership.
129
Q

Failure to innovate

A

Some businesses collapse because they fail to innovate - they do not change with the times. They may have failed to adopt new technology or to develop new products.

Business Edexcel (6 decks)

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