2.2.1 The structure of business activity Flashcards
analyse and discuss why business exists
Businesses exist to provide goods or services to customers.
Possible motives include:
-Making a profit. A business does this by selling items at a price that more than covers the costs of production. Owners keep the profit as a reward for risk-taking and enterprise.
-The satisfaction that comes from setting up a successful business and being independent.
-Being able to make a difference by offering a service to the community such as a charity shop or hospice.
define stakeholder
an individual group of people who have an interest in a business and its activities
examples of stakeholders
- Owners who are interested in how much profit the business makes.
- Managers who are concerned about their salary.
- Workers who want to earn high wages and keep their jobs.
- Customers who want the business to produce quality products at reasonable prices.
- Suppliers who want the business to continue to buy their products.
describe profit as a business objective
- some businesses might want to ‘maximise profits’, which means they’ll try to make as much profit as possible.
- other might try to make just enough to pay for future plans(satisficing)
describe increase market share as a business objective
a market is any place buyers and sellers meet. To increase market share business needs to gain greater percentage of total sales in market. business might takeover competitors in order ti increase their market share
describe growth as a business objective
- doesn’t necessarily mean increase in profit
- sales growth often achieved by opening more outlets
describe survival as a business objective
- objective of new businesses, or established businesses facing problems such as falling sales
- covering costs with revenue may temporarily be enough
describe service as a business objective
- closely linked to profit, better service, the more customers will be attracted and o profits grow
- good service=good reputation
demonstrate knowledge and understanding of social enterprise
social enterprises or ‘more than profit’ organisations are profit-seeking businesses that exist to achieve social objectives, aim to use profit made for benefit of society
analyse and discuss how the aims and objectives of business may change over tie and with changing circumstances
- new+small businesses interested in survival
- as business grows, focus on needs of wider stakeholders
- PLCs have to protect interest of shareholders, so likely to place profit as most important objective
- business needs to react to changing needs of stakeholders, power of different stakeholders may change over time
primary sector
- first stage of production
- produces raw materials for other businesses to use
secondary sector
- second stage of production
- uses raw materials to manufacture gods
tertiary sector
- last stage
- concerned with providing a service
reasons for change in primary sector
- raw materials used up
- increased use of machinery
- foreign competition
reasons for change in secondary sector
- use of machinery to replace jobs
- foreign competition, products manufactured overseas
reasons for change in tertiary sector
- rise in population
- increase in wealth
- increased leisure time, money spent on things like sports, cinema, travel
- businesses putting more emphasis on customer service
define interdependence
the way in which businesses i different sectors depend upon each other
define sole trader/proprietors
any business that is owned and controlled by one person
advantages of sole traders/proprietors
- set up is cheap and easy
- owner has complete control of business and its profits
- owner is able to keep all profits
disadvantages of sole traders/proprietors
- may have to work long hours and lack holidays
- unlimited liability
- unincorporated, business not legally separate from owner
- shortage of skills
define partnerships
a business which can have a minimum of 2 but maximum of 20 owners
advantages of partnerships
- variety of skills
- easy and cheap to set u
- financial info remains private
- workload and ideas can be shared
disadvantages of partnerships
- profit has to be shared
- may have disagreements
- most have unlimited liability
- unincorporated
define Private limited companies
often a small business such as an independent retailer in a market town. Shares do not trade on the stock exchange.
define Private limited companies
often small business such as an independent retailer in market town. Shares do not trade on stock exchange.
define public limited companies
usually large, well-known business. could be a manufacturer or chain of retailers with branches in most city centres. Shares trade on stock exchange.
advantages of private limited companies
- limited liability
- incorporated, can continue trading after shareholder dies
disadvantages of private limited companies
- more expensive to set up, because of all legal paperwork
- legally obliged to publish its accounts every year
advantages of public limited companies
- limited liability
- more capital can be raised
- Liquidity – shareholders are able to buy and sell their shares
disadvantages of public limited companies
- each shareholder has very little say in how company is run, unless own a lot of shares
- easy for someone to buy majority of shares (51%) and take over company
- can have large numbers of shareholders, makes agreements difficult
define public corporations
- limited liability business activities in public sector of the economy
- owned and controlled by national or local government
advantages of public corporations
- They base their decisions on the full costs and benefits involved.
- They can be used to influence economic activity. To boost the country’s output, public corporations can be directly encouraged to increase their output.
disadvantages of public corporations
- They can be difficult to manage and control. The large size of the organisations may mean that time has to be spent on meetings and communicating with staff, slowing down decision making.
- They may become inefficient, produce low quality products and charge relatively high prices, due to a lack of competition and the knowledge that they cannot go bankrupt.
define multinationals
a company based in one country but manufactures and sells products in variety of other countries
advantages of multinationals
- manufacturing bases can be spread around the world nearer to markets that they serve
- economies of large-scale production can be obtained
- production can be located in countries where lower production costs can be obtained
disadvantage of multinationals
- communication problems can be caused by being located in different countries
- can be high costs of transporting goods between countries
- coping with different legal requirements of different countries
- fluctuating exchange rates for different currencies
define franchise opportunities
exist when an already established business offers to for sale to other businesses or individuals the right to use its product, services and logo
advantages of franchises
- franchiser does all their advertising
- less risk of failing going into business
- franchiser will pay for franchisee training
disadvantages of franchises
- franchisee doesn’t get much choice of what to sell
- large amount of initial capital might be required
- annual royalty payments based on revenue or profit ma be required
define royalty payments
payment made to franchisers based on sales revenue or profit of franchise
describe cooperatives
- producer cooperatives owned and controlled by workforce
- retail cooperatives owned and controlled by customers
- no conflict between the main stakeholders
- only big, easily available sources of finance are owner’s capital and retained profits
define horizontal integration
when organisation is in same industry and same stage of production merge/takeover
advantages of horizontal integration
- increased economies of scale
- bargaining power over suppliers and reducing it for customers
disadvantages of horizontal integration
-customer has less choice so prices may rise
define backwards vertical integration
when organisation merges/takeovers organisation in different stage of production below their current operation
advantages of backwards vertical integration
-reduced unit costs
disadvantages of backwards vertical integration
-reduces choice
define forward vertical integration
when organisation merges/takesover organisation in different stage o production above their current operation
advantages of forward vertical integration
-provides an outlet for their products
disadvantages of forward vertical integration
-reduces choice
define diversification/conglomerate
when organisation merges/takesover organisation in an unrelated business activity
advantages of diversification/conglomerate
-reduces dependency
disadvantages of diversification/conglomerate
-business might have lack of understanding of new market
what are 2 ways in which a business can grow
merger or takeover
list 5 factors affecting location of a business
- cost of location
- access to customers
- availability of labour
- access to materials
- transport and infrastructure
