Understanding Business A

Question 1

Describe the 4 sectors of industry

Answer 1

PRIMARY SECTOR: Extracts earths natural resources eg Oil Industry

SECONDARY SECTOR: Manufactures man-made resources eg Construction Industry

TERTIARY SECTOR: Provide a service, not a tangible product eg Bus Travel

QUATERNARY SECTOR: Provides information services eg Consultancy

Question 2

Compare OWNERSHIP in the 3 Sectors of the Economy

Answer 2

PRIVATE: Owned by private individuals eg Sole Traders, Partners, Shareholders

PUBLIC: Owned by the UK Public / UK Government

3rd: Trustee’s can be liable for the organisation

Question 3

Compare CONTROL in the 3 Sectors of the Economy

Answer 3

PRIVATE: Controlled by appointed managers eg Board of Directors

PUBLIC: Controlled by Government appointed managers

3rd: Controlled by a Board of Trustees

Question 4

Compare FINANCE in the 3 Sectors of the Economy

Answer 4

PRIVATE: Selling a product also bank loan, investment etc

PUBLIC: Taxes

3rd: Donations

Question 5

Compare PURPOSE / MAIN OBJECTIVES in the 3 Sectors of the Economy

Answer 5

PRIVATE: To make a profit

PUBLIC: To provide a service to the UK public

3rd: To help their cause

Question 6

Describe the advantages and disadvantages of being a FRANCHISEE

Answer 6

ADVANTAGES
> Starts with an established name, which will attract new customers quickly
> Given Training and support from the Franchiser
DISADVANTAGE
> Key decisions are made by the Franchiser
> Must pay royalty or percentage of profits to the Franchiser

Question 7

Describe the advantages and disadvantages of being a FRANCHISER

Answer 7

ADVANTAGES
> The business will grow quickly
> Will receive royalties or a share of profits
DISADVANTAGE
> Franchisee may affect the image of the company

Question 8

Describe the advantages and disadvantages of a MULTINATIONAL

Answer 8

ADVANTAGES
> Provide jobs to the local community
> Gains Economies of Scale
DISADVANTAGE
> May exploit workers in low pay country
> Language / Cultural differences

Question 9

Describe a SOLE TRADER

Answer 9

A business owned by one person

> Easy and cheap to set up
Owner makes all decisions
BUT has Limited Liability

Question 10

Describe a PARTNERSHIP

Answer 10

A business owned by 2-20 partners, on the basis of a Partnership Agreement

> Shared expertise / decision-making
Shared finance
BUT shared profits

Question 11

Describe a PRIVATE LIMITED COMPANY (LTD)

Answer 11

Owned by shareholders - shares ARE NOT for sale on the stock market

> Shareholders have Limited Liability
Shareholders can bring expertise
BUT there is a legal process in setting up the company

Question 12

Describe a PUBLIC LIMITED COMPANY (plc)

Answer 12

Owned by shareholders - shares ARE for sale on the stock market

> Shareholders have Limited Liability
Can raise more money through selling on the stock market
BUT they must publish company accounts annually

Question 13

State other organisational objectives

Answer 13

> profit maximisation
provide a quality and/or free service
social responsibility
growth
working within a budget

Question 14

State examples of Corporate Social Responsibility (CSR)

Answer 14

> Recycling
Using renewable energy
Paying staff well (living wage)
Supporting the local community (eg working with schools)

Question 15

Compare mergers and takeovers

Answer 15

Merger: 2 companies join together by agreement

Takeover: One company buys another - it can be hostile or friendly

Question 16

Describe Horizontal, Backward Vertical and Forward Vertical integration

Answer 16

HORIZONTAL INTEGRATION
A business joins with another which produces the same product and is at same stage (competitor)

VERTICAL BACKWARDS INTEGRATION
A business joins with another at the previous stage of the production process (supplier)

VERTICAL FORWARDS INTEGRATION
A business joins with another at the NEXT stage of the production process (customer)

Question 17

Describe Lateral and Conglomerate integration

Answer 17

LATERAL INTEGRATION
A business joins with another that is in the same industry but not in direct competition (eg Apple aquiring Beats)

CONGOMERATE INTEGRATION
A business joins with another that is not related to them at all (eg Sports Direct aquiring GAME)

Question 18

Describe Organic Growth

Answer 18

A business increases in size naturally, without acquiring another company

This is done by reinvesting profits in materials machinery and labour each year

Question 19

Describe Diversification

Answer 19

When a business moves into a completely new market

This can be done organically or through Congomerate Integration

Question 20

Describe Outsourcing

Answer 20

Where a non-core part of the business is contracted out to a specialist (eg Cleaning or IT)

As specialists, they may do a better job