Business Activity & Influences on Business

Question 1

What are business objectives ?

Answer 1

Business objectives are targets that guide operations and drive growth in an organisation

Setting and sharing clear objectives can help a business to succeed for several reasons
Business owners have a focus for their decision making
Employees have common goals to work towards and can be motivated to achieve targets
Performance can be weighed up against objectives and suitable adjustments made for future success

Objectives are most useful when they are SMART
Specific: it states precisely what is to be achieved
Measurable: the desired outcome is expressed in quantitative terms
Achievable: it is possible with the people and resources involved
Realistic: it is possible with the resources the business has at its disposal
Time specific: it is clear when, precisely, the objective is to be achieved

An example of a SMART objective might be for a business to increase its sales revenue by 10% by the end of the year

Financial objectives are specifics goal related to the financial performance, resources or structure of a business
They are particularly important in the private sector as owners are likely to want to make money

Question 2

What are the main Types of Financial Objectives?

Answer 2

Question 3

What are non-financial Objectives?

Answer 3

Non-financial objectives are targets that are not directly connected to making money

Achieving non-financial objectives is often the main focus of businesses in the public sector and the voluntary sector

Many profit-making businesses also set non-financial objectives that compliment their key financial objectives

Question 4

What are the main Types of Non-financial Objectives?

Answer 4

Question 5

What are changes in business objectives ?

Answer 5

Business objectives may change over time due to a number of internal factors
As a business grows its objectives may change from survival to profit or sales maximisation
Retiring business owners may choose to spend less time running the business
Its objective may change from increasing market share to maintaining financial security
A new leader or manager may set challenging targets or implement their preferred social objectives
Business performance can require a change in objective
E.g. A business that has succeeded in becoming the market leader may now decide to focus on maximising profit

Businesses may also need to change their objectives in response to external factors

Question 6

What are is the impact of External Factors on Business Objectives?

Answer 6

Legislation refers to laws or regulations that compel individuals or organisations to behave in a desired way
New laws may increase business costs and force the firm to focus on increasing sales volumes

The introduction of new regulations to protect the environment has increased business emphasis on social objectives such as reducing their carbon footprint
In 2023 the EU ban on many single-use plastics increased costs for businesses such as France’s SEF Packaging which had to research new materials and invest in new production processes whilst accepting it would achieve lower profit margins

Question 7

What are sole traders ?

Answer 7

When an entrepreneur starts a business they need to consider what form of ownership they want for their business

The main forms of ownership for start-up businesses are
Sole trader
Partnership
Private limited company (Ltd)

Question 8

What are the Advantages & Disadvantages of Setting up as a Sole Trader?

Answer 8

Question 9

What is a partner ship ?

Answer 9

A partnership involves two or more people joining together to own a business
They are relatively easy to set up with relatively few legal formalities
Partners may choose to draw up a deed of partnership which states the formal rights of each partner including
The amount of capital contributed by each partner
How profits or losses are shared amongst partners
The procedures for dissolving the partnership and taking on new partners
The level of control each partner has

Examples of business that commonly operate as partnerships include lawyers, accountants and doctors

Question 10

What are Advantages & Disadvantages of Setting up as a Partnership?

Answer 10

Question 11

What are Private Limited Companies?

Answer 11

A private limited company is a business that is owned by one or more shareholders whose responsibility for debts is limited to the level of their initial investment (the price they paid for the shares)
The business name is suffixed with ‘Limited’ or ‘Ltd’ in the UK and S.A. in Spain
Shareholders are often family members or close friends
Shareholders are usually also directors who run the business on a day to day basis
Private limited companies are registered with Companies House and need to submit details of financial performance and changes in ownership each year

Private limited companies may be more suitable than sole traders or partnerships if setting up the business involves significant capital investment, or involves some risk
The owners personal assets are protected as they have limited liability
Most private limited companies are owned and controlled by just one person (just like sole traders) who has made the decision to reduce their personal financial risks by forming a company that provides them with limited liability protection
In some countries it is possible to form a limited liability partnership
Sleeping partners invest money but take no part in decision-making
At least one partner must continue to accept unlimited liability

Question 12

What are the Advantages & Disadvantages of Private Limited Companies ?

Answer 12

Question 13

What are Public Limited Companies?

Answer 13

Public limited companies are large businesses that sell shares publicly on the stock exchange (New York Stock Exchange; London Stock Exchange etc.)
Public limited companies have the suffix ‘PLC’ in the UK, ‘Inc’ in the US and ‘GmBH’ in Germany
Selling shares on the stock exchange for the first time is called flotation or going public
Flotation is a complex legal process that allows large amounts of share capital to be raised
E.g. When Google floated in 2004 $23 billion was raised in one day

Question 14

What are Advantages & Disadvantages of Public Limited Companies?

Answer 14

Question 15

What are Public Corporations ?

Answer 15

Public corporations are owned and controlled by the government
They are usually funded through tax though some earn revenue from sales
They operate as incorporated entities that are separated by law from the government
Profits (surpluses) are reinvested in the business or returned to the government
They exist to provide public services such as healthcare, transport and broadcasting services
Some public corporations have a majority share ownership held by the government, but may have also sold a large number of shares (but less than 50%) to the private sector

Question 16

What are some Examples of Public Corporations?

Answer 16

Public ownership has generally declined in recent years
Many state-owned businesses in Eastern Europe have been privatised since 1990 following the break-up of the Soviet Union
Profitable organisations in sectors such as telecommunications in the UK and Australia have been transferred to the private sector, raising large sums of revenue for governments to spend on other public services

Question 17

What are the Benefits & Drawbacks of Public Ownership?

Answer 17

Question 18

What are Characteristics of Small Businesses?

Answer 18

Small businesses employ fewer than 50 people
Micro enterprises employ fewer than 10 employees
Small enterprises employ between 10 and 49 employees

Small businesses usually provide goods and services at a local or regional level

They are the most common form of business in most countries
In 2022 5.5 million small businesses existed in the UK, more than 99% of all businesses operating at that time
Italy has the highest number of small businesses in the EU
Germany’s businesses tend to be larger, on average, than those in other EU countries

Small businesses share a range of characteristics

Question 19

What are some Characteristics of Small Businesses?

Answer 19

Question 20

What are Characteristics of Large Businesses?

Answer 20

Large businesses are commonly classified as those that employ 250 or more workers and may be very well-known
In many countries, a small number of large business generate the largest proportion of revenue
Germany has the highest number of large businesses in the EU
Greece and Ireland have few large businesses, with their economies dominated by SMEs

Large businesses usually find it easier to raise external finance than small businesses
They are seen as less risky than unincorporated businesses
They have significant assets to allow them to pay back money they have borrowed

Some private limited companies can grow into very large businesses without ever having to sell shares to the public in order to raise finance
The benefit of this is that the owners maintain full control of the company
E.g. Hermès is one of the wealthiest family-owned businesses in the world

Question 21

What are some Characteristics of Large Businesses?

Answer 21

Question 22

What are Franchises?

Answer 22

Franchising is a business format in which an individual (franchisee) buys the rights to operate a business model, use its branding and software tools and receive support from a larger company (franchisor). The franchisee will pay both an initial lump sum plus ongoing royalty fees

The franchisee is usually the owner of a private limited company
The business is operated under the franchisor’s established system and training, marketing support and ongoing assistance are provided
Examples of well-known franchises include Domino’s Pizza, KFC and Burger King
Diagram with Logos of fast food Fra

Question 23

What are the Advantages & Disadvantages of Owning a Franchise

Answer 23

Question 24

What are Social Enterprises?

Answer 24

A social enterprise is a business that has the primary purpose of creating social or environmental impacts, in addition to generating profits

Social enterprises can take different forms
Cooperatives have a social mission. They are owned and controlled by workers or customers and their members have the right to elect directors and share profits
Charities raise money, provide help and raise awareness of social, ethical, environmental or developmental issues

Question 25

What are some different Objectives of Social Enterprises?

Answer 25

Question 26

What are some Advantages & Disadvantages of Social Enterprises?

Answer 26

Question 27

What are Multinationals?

Answer 27

A multinational company (MNC) is a business that is registered in one country but has manufacturing operations/outlets in different countries
E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries

Factors such as globalisation and deregulation have contributed to the growth of MNC’s
MNC’s choose locations based on factors such as cost advantages and access to markets
E.g. Nike originates from the USA but 50% of their manufacturing takes place in China, Vietnam and Indonesia due to the lower production costs in these countries

Question 28

What are Examples of Suitable Ownership Types for Small Businesses?

Answer 28

Question 29

What are Examples of Suitable Ownership Types for Large Businesses?

Answer 29

Question 30

What is a primary sector ?

Answer 30

The primary sector is concerned with the extraction of raw materials from land, sea or air
Examples include farming, mining, forestry and fishing

Less developed economies are primarily focused on the primary sector, with most people employed in agriculture and the production of food
There has been a global trend away from employment in primary sector industries over the last two decades
Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high
This is partly as a result of lower participation rates in education and a lack of infrastructure to support manufacturing or service provision

Some developed economies, such as Australia (viticulture or wine production) and Norway (forestry and oil extraction), continue to have significant primary sectors

Question 31

What is a secondary sector ?

Answer 31

The secondary sector is concerned with the processing of raw materials and components
Examples include oil refinement and the manufacture of goods such as vehicles

In emerging economies, improved technology enables less labour to be needed in the primary sector and more workers to be employed in the secondary sector
The proportion of workers employed in manufacturing has risen over the last few decades
Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies

Question 32

What is a tertiary sector ?

Answer 32

The tertiary sector is concerned with the provision of a wide range services for consumers and other businesses such as leisure, banking or hospitality
It includes a sub-sector called the quaternary sector, which is concerned with the provision of knowledge-focused services related to IT technology, consultancy or research

Emerging economies have experienced growth in the tertiary and quaternary sectors in recent years, with many businesses now focused on the provision of consumer services

The most developed economies have a very high proportion of the workforce employed in the provision of services, increasing focus on the quaternary sector
Developed economies use their wealth to fund advanced education and higher-level skills training, which further supports the growth of these industries

Question 33

What are Factors Affecting the Choice of Business Location?

Answer 33

Question 34

Explain the Factors Influencing the Choice of Business Location.

Answer 34

Question 35

What is E-commerce & Location Decisions?

Answer 35

E-commerce involves the buying and selling of goods and services online
Some businesses sell goods online as well as operate physical stores
Small businesses have the ability to reach international customers by selling products online
E-commerce has grown significantly in recent decades

Question 36

What are Factors for E-commerce stores to consider?

Answer 36

Question 37

What are Laws and their Impact on Location?

Answer 37

Question 38

What is a trading bloc ?

Answer 38

A trading bloc is a group of countries that come together and agree to reduce or eliminate any barriers to trade that exist between them
There are different levels of economic integration ranging from relatively low integration in a bilateral agreement to high integration in a monetary union, e.g. the Eurozone
Globally, there were more than 420 regional trade agreements in effect in 2022
Each subsequent type of trading bloc has increased levels of economic integration

Examples of trade blocs include the EU (European Union), NAFTA (North American Free Trade Agreement) and ASEAN (Association of Southeast Asian Nations)

Question 39

How does a Free Trade Area Trading Bloc Work ?

Answer 39

Question 40

What is Globalisation ?

Answer 40

Globalisation is the business and economic integration of different countries through increasing freedoms in the cross-border movement of people, goods, services, technology and finance

Question 41

What a reasons for globalisation ?

Answer 41

Question 42

Give an explanation of theses reasons of globalisation .

Answer 42

Question 43

What are the Main Opportunities of Globalisation for Businesses?

Answer 43

Question 44

What are some threats of globalisation ?

Answer 44

1. Increased competition
   Competition from international rivals may put domestic firms out of business
   International firms may benefit from lower costs and greater economies of scale, so they can offer lower prices than domestic businesses to consumers
   Large overseas competitors can spend more on research, marketing and distribution than a small domestic business
   Access to cheaper labour or materials allows them to sell products at lower prices
2. Increased need to develop a profitable niche
   Businesses risk losing sales and market share as a result of globalisation unless they can adapt or exploit a profitable market niche
   Exploiting a gap in the wider market is often very profitable
   E.g. Walkers Crisps dominate the lunchbox market with their multipacks
3. Vulnerability to international takeovers
   Domestic Public Limited companies risk being taken over by foreign rivals
   Capital can flow easily across borders
   Most countries allow foreign businesses to take ownership of domestic businesses
   E.g. In 2009 UK confectionary company Cadburys was acquired by US company Kraft in a hostile takeover
4. Greater risk from external shocks
   Interconnected financial systems allow economic difficulties in one part of the world to be felt by businesses operating in another
   The UK’s vote to leave the EU in 2016 caused immediate financial shocks around the world, with stock exchanges in countries as distant as Australia and Japan reporting sharp falls

Global distribution networks can be affected by natural disasters or other interruptions, such as accidents or terrorism
In 2021, the grounded container ship Ever Given blocked the Suez Canal for six days, causing delays to deliveries of goods such as semiconductors, which impacted technology manufacturing around the world

Question 45

What are multinationals ?

Answer 45

A multinational company (MNC) is a business that is registered in one country but has manufacturing operations or sales outlets in different countries
For example, Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries

Question 46

What are Benefits & Drawbacks of Multinationals?

Answer 46

Question 47

What are drawbacks of being a multinational?

Answer 47

Legal and tax complexities
Different countries have varied tax rules and laws in areas including contracts, the environment and employment

MNCs usually need to employ local legal and tax specialists to navigate these differences, increasing business costs

Public relations
MNCs are often accused of sending jobs outside of the company’s home country or exploiting local workers, resources and laws in foreign countries
Effective public relations can counter these accusations and emphasise the benefits the MNC brings to the countries in which it operates

Political instability
Most MNCs locate headquarters in politically stable, developed countries but operate in less developed locations
Sometimes the less developed country will experience political turmoil or corruption, which can disrupt business operations
Careful risk management and plans for business continuity need to be developed

Question 48

What are the Impacts of Multinationals on Stakeholders in Host Countries?

Answer 48

Question 49

What are Exchange Rate Calculations?

Answer 49

Value of currency 1 x exchange rate = value of currency 2 .

Question 50

How do Changes to Exchange Rates Affect Importers & Exporters?

Answer 50

Question 51

What are Government Economic Objectives?

Answer 51

Question 52

What are the government’s macroeconomic objective?

Answer 52

Positive economic growth

Positive economic growth is the increase in the amount of goods and services produced per head of population over a period of time

The standard of living of the population is likely to increase with GDP growth
As output is rising, more workers are needed, and high levels of employment are achieved
Households can afford to buy more goods and services as most people become richer
Business owners expand their business as people have more money to spend on their products and revenue rises

Low levels of inflation

Inflation refers to a general increase in prices and fall in the purchasing value of money over time
Both the UK and US governments set their Central Bank an inflation target of 2%
Central Banks have a range of tools they can use to achieve this target, such as base rates and quantitative easing

Low levels of unemployment

Unemployment refers to the number of people without a job who are actively seeking and available for work
Low unemployment increases national output, improves workers’ living standards and reduces government spending on welfare benefits

A healthy balance of payments

The balance of payments is the relationship between the value of imports and exports over a period of time
A balance of payments deficit occurs when the money spent on imports is higher than the money received from exports
A balance of payments surplus occurs when the money received from exports is higher than the money spent on imports

If a country has an ongoing deficit, it means there is possibly less support for domestic business (imports preferred)
The country’s residents may need to borrow more money to fund these imports

Maintaining a healthy balance of payments helps to avoid some of these issues

Question 53

What is the impact of the objectives on business?

Answer 53

Question 54

Why is tax revenue raised ?

Answer 54

Tax revenue is raised to fund public spending
Rates of taxation are set by national or regional governments

These decisions are sometimes considered to be politically-motivated

E.g. The reduction of income tax prior to an election could persuade voters with more disposable income to back the existing government

Tax revenue can be raised from a variety of sources

Question 55

What are Sources of Tax Revenue?

Answer 55

ax on company profits
Sometimes known as corporation tax
A proportion of profit is paid by private limited companies and public limited companies
The rate of corporation tax varies from country to country
Income tax
Paid by workers based on their earnings
Employers usually deduct this tax before distributing earnings to workers
In most countries, workers earn a minimal amount before income tax is deducted
E.g. The first $12,000 of income may not be taxed at all, but any income beyond that has progressively higher levels of taxation attached
Sales tax
Applied to purchases of certain goods, e.g. VAT or GST
Higher rates are often applied to luxury goods and services
Different rates can be applied to encourage or discourage spending behaviour
E.g. The rate of GST in Singapore is 9%
Import tax
Applied to products purchased overseas
Free trade agreements often involve the removal of these taxes to minimise trade barriers
Excise tax
Applied to some manufactured products such as alcohol, tobacco and fuel
In the UK, excise tax of approximately £0.53 is charged on each litre of unleaded petrol

Question 56

How does the government spend tax revenue ?

Answer 56

Governments spend the tax revenue they have collected to provide a range of public services, such as
Education: including schools, colleges and universities
Healthcare: including hospitals, public health programmes, doctors and dentists
Emergency services: including police, paramedics, the fire service and coastguard
Judicial systems: including courts and prisons
Defence: including the armed forces and border controls

Tax revenue also funds social security, such as state pensions and unemployment benefits

Some governments use tax revenue to provide grants that encourage certain behaviours
Homeowners may receive funding to improve insulation or install environmentally friendly heating systems

Question 57

What is the provision of infrastructure ?

Answer 57

Question 58

What is legislation ?

Answer 58

Legislation refers to the laws and regulations created by governments
Businesses must operate within these so as to avoid fines or legal action

A strong legal framework in the country in which a business is located provides stability for businesses to plan and invest

Question 59

What is a trade policy ?

Answer 59

Government trade policy determines their approach to the import and export of products across borders
Importing involves bringing goods or services into a country from overseas
Exporting is where a business sells its products abroad

Governments can use trade barriers to restrict the level of trade between countries for several reasons
Protect new industries from overseas competition
E.g. The UK government heavily subsidises the solar panel industry

Achieve a healthy balance of payments
Trade barriers applied by the US on products from China since 2017 have focused on reducing the country’s trade deficit

Protect jobs in industries that are major employers
E.g. The UK government provided subsidies of more than $500 million to Tata Steel, a major employer in South Wales

Retaliation for trade barriers applied by other countries
China has applied retaliatory tariffs of up to 25% on US-produced goods such as soybeans

Prevent dumping of cheap goods from overseas
In 2017, India applied tariffs on imports of Bangladeshi jute that was priced to undercut domestic producers

Pressure a foreign power to change policies
Many western governments have applied sanctions on Russia since 2022 in response to its foreign policy

Question 60

What are tariffs ?

Answer 60

tariff is a tax placed on imported goods from other countries
E.g. Tennis rackets imported into the UK from China have a tariff of 4.7%

A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses

Question 61

What are trade blocs ?

Answer 61

A trade Bloc is a group of countries that come together and agree to reduce or eliminate any barriers to trade that exist between them

Membership of a trade bloc, such as the EU or ASEAN, usually includes barrier-free trade between member countries
Most EU countries share a common currency, the Euro
ASEAN members are cooperating to harmonise laws and regulations relating to product safety, labelling and ingredients
This enables products manufactured in any of the countries within the trade bloc to be suitable for sale in all of the other countries

Governments can cooperate with other countries outside of trade blocs to ease business transactions
A free trade agreement allows goods and services to be sold across borders as easily as domestic firms trade with each other
E.g. Norway’s free trade agreement with the EU allows its goods to be exported with ease to its member countries

Question 62

What is the Impact of Interest Rates on Business?

Answer 62

Question 63

What is the Impact of Interest Rates on Consumer Spending?

Answer 63

Low interest rates can stimulate demand in an economy
Household repayments on mortgages and short-term credit borrowing is likely to reduced
Consumers have more disposable income to spend on goods and services
They may take advantage of cheap borrowing to fund large purchases such as consumer durables

Low interest rates are not always beneficial for consumers
Some households rely on the income they receive from savings to fund their day-to-day living expenses
Pensioners and those using savings may struggle to afford necessities and are likely to reduce their non-essential outgoings, especially if inflation is high

Question 64

What are the main external factors ?

Question 65

What are the Political Factors that Impact Business?

Answer 65

Question 66

What are the Environmental Factors that Impact Business?

Answer 66

Changing infrastructure
Many governments are taking steps to make public transport more environmentally friendly, reduce vehicle usage and encourage the use of electric vehicles
Businesses may need to upgrade to electric vehicle fleets, increasing costs in the short term
Improved public transport may increase the accessibility of businesses for workers and customers
Waste disposal
Strict regulations dictate the way businesses dispose of manufacturing waste to avoid pollution
Higher charges for disposal, as well as limits on the volume of permitted waste, increase business costs
Some businesses may identify ways to increase the amount of waste they recycle or reuse
Energy sources
Some governments have prioritised the switch from fossil fuels to green energy production, such as solar and wind power
In the long term, this should mean that businesses are likely to enjoy lower and more consistent energy costs
Changes in climate and weather patterns
Global warming is set to cause permanent changes to the world’s climate
Businesses in high-risk areas face more frequent disruption due to floods or intense heat conditions
Insurance premiums may rise, increasing business costs
Some businesses may relocate to less exposed regions or take advantage of changed climates in previously unsuitable areas

Business impact on the environment can be controlled by governments, which can legislate or take enforcement action against those that break environmental laws

Question 67

What are the Governments Control and the Environment?

Answer 67

Question 68

What are Social Factors that Impact Business?

Answer 68

Question 69

How do you measure businesses success ?

Answer 69

Question 70

What is Financial Measures of Success?

Answer 70

Question 71

How to calculate percentage change ?

Answer 71

Question 72

What are Non-financial Measures of Success?

Answer 72

Question 73

What are the main reasons business fail?

Answer 73