CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES

ZNOTES.ORG Businesses combine scarce factors of production to

produce goods or services to satisfy people’s needs and
Reasons for changes in the relative importance of the
three sectors over time:
Advantages
It may become successful and
Disadvantages
Lack of knowledge and
Why is it bene cial to compare business size?
Investors can decide which business to invest in.
Merger: When two owners of a business agree to join
their businesses together
1. Understanding Business wants.
When sources of some primary products become very pro table if the business experience in starting and Government, di erent tax rates for small and large There are three types of External Growth:
depleted rms. Horizontal Integration: The same industry and stage of
Business Activity: grows operating a business
Activity Combines scare factors
Developed economies are losing competitiveness to
Lost income from not being
Competitors, to compare size and importance with production rms merge or take over.
newly industrialised countries. Able to make use of personal other rms. For example, a chocolate manufacturer takes over
Produces goods and services an employee for another
Due to the rise in living standards, consumers spend interests and skills Workers, to have an idea of the number of employees another chocolate manufacturer.
1.1. Business Activity Employees people business (Opportunity cost)
more of their income on services such as travel and needed. Bene ts:
restaurants than on manufactured goods. They will have to invest their Banks, the importance of the loan compared to Reduces the number of competitors in the
Needs: goods or services that are essential for survival. 1.4. Added Value Pro ts to themselves, no need
savings as well as nd other business size. industry
Wants: goods or services customers desire but are not sources of nance, which is There are several di erent measurements of business Opportunities for economies of scale
essential for survival. Added value is the di erence between the cost of
1.6. Mixed Economy to share them with anyone
time-consuming and size, and they all have limitations: A bigger share of the total market can be
Economic Problem: unlimited wants but limited resources purchasing bought-in material and the price of the expensive achieved
Has both a private sector and a public sector.
to satisfy the wants. nished goods. Income is higher than a Measurements Limitations Problems include diseconomies of scale and
Private Sector: Businesses NOT owned by the
Scarcity: the lack of su cient products to ful l the total regular employee The number of people Capital-intensive rms di culty in controlling and managing the business
Added Value = selling price – total cost government will decide what and how to produce. The
wants of the population. employed in the business employ fewer people but Vertical Integration: when one business merges or
main aim is to make pro ts.
Factors of production: resources needed to produce (accessible to calculate) produce high levels of output. takes over another business in the same industry but
For example, by transforming cotton into a T-shirt, the Public Sector: Owned by the government. Government 1.8. Business Plans
goods and services; they are: at di erent stages of production, it can be forward or
business adds value to the cotton, as the same material will decide what and how to produce (i.e. healthcare, The value of the output of the Does not take into account
Land – any natural resource used in production. can be sold for more after the transformation. backward.
education, defence, public transport). The main aim is Business Plan: a document containing the business business (useful for same the value of goods sold and
Labour – mental and physical e orts of employees. Forward integration is when merging/takeover is
It is NOT the pro t because added value does not include to provide a service to customers. objectives and essential details about operations, nance industry Businesses) the sale of goods.
Capital – nance, machinery and equipment needed done with the next stage of production, Ex. a
the expenses of producing this good (e.g. labour, Privatisation refers to selling a public sector business to and owners of the new business. The value of sales (useful for di erent businesses sell
for the manufacture of goods. chocolate manufacturing company (secondary
electricity, machinery, etc.) the private sector. Contents of business plan:- retail businesses, especially if di erent products (expensive
Enterprise – individual/s who manage/coordinate the sector) merging with a chocolate shop (tertiary
three other factors, make decisions and take risks. Description of the product similar products) and cheap)
Advantages Disadvantages Arguments against sector)
Opportunity Cost: the next best alternative is given up by Arguments for Privatisation Products and services Some businesses use Labour-
Maybe able to make a pro t if Privatisation The total value of capital Bene ts for forward:
choosing another item. Increasing the product's price The market intensive methods, which
these other costs come to a Costs can be controlled Increased unemployment as employed (takes into account The merger provides an assured outlet for
Due to scarce resources, a choice has to be made; this can lead to lower sales and, Business location and how products will reach require less capital, more
total less than the added because the private sector’s private sector businesses may all values of capital) its products
leads to opportunity cost. perhaps, pro t. customers workers
value main objective is pro t. want to cut costs. The expanded business absorbs the pro t
Organisation structure and management
margin made by the retailer/Manufacturer.
It can be used to pay other Less likely to focus on social Financial information Capital Employed: the total value of capital used in the
1.2. Importance of Specialisation expenses.
More e cient use of capital
objective business strategy
Information regarding consumer needs and
business preferences can be obtained directly from
Competition between private Business plans assist entrepreneurs because: No method of measuring the size is considered correct,
Specialisation: When people and businesses focus on what the manufacturer.
To increase added value, a business can either: sector businesses will help It helps gain nance. Banks will ask for a business plan as each method gives di erent answers. Businesses
they are best at. Backward integration is when
improve product quality. before agreeing to a loan or overdraft for the business choose the method they think is the best. Therefore,
Increase the selling price by increasing the quality of merging/takeover is done with the previous
Division of labour is when production is split into di erent It forces the entrepreneur to plan carefully, which businesses may use more than one method.
goods and services to convince customers/consumers stage of production, Ex. a chocolate
tasks, and each worker performs one of these tasks. It’s a reduces the risk of the business failing.
Reduce the cost of materials but keep the price the same. 1.7. Enterprise, Business Growth and manufacturing company takes over a cocoa
form of specialisation. 1.11. Business Growth farm.
Size 1.9. Government Support for Start-Ups Bene ts for Backward:
Advantages Disadvantages 1.5. Classi cation of Businesses Bene ts of the expansion of the business: Merger gives an assured supply of
Workers are trained in one repetitive tasks can cause An entrepreneur is a person who organises, operates and Governments encourage entrepreneurs to set up a The possibility of higher pro ts for the owner. essential components
task and specialise in this, boredom and burnout for Businesses can be classi ed into three sectors: takes risk to make the business better business because start-ups: More status and prestige for owners and managers. The expanding business absorbs the
increasing productivity and employees, reducing Primary Sector: Industry extracts and uses the earth's Characteristics of Entrepreneurs: reduce unemployment Lower average costs. pro t margin of suppliers.
e ciency motivation and job e ciency natural resources to produce raw materials for other Hard-working Increase competition A larger share of its market portion of total market A supplier could be prevented from
businesses. Risk Takers Increase output
If a worker is not present, sales it makes is greater. supplying to other manufacturers.
Secondary Sector: The industry manufactures goods Creative Bene t society
Specialisation with division of production will be disrupted, Costs of components and supplies are
using the raw materials provided by the primary E ective Communicators Further growth of the economy
UPDATED TO 2023-2025 SYLLABUS labour will result in better causing a waste of time and
sector.
Ways of Business Growth controlled.
resources, as well as less Optimistic Governments may give support to entrepreneurs by: Conglomerate Merger: a rm merging/taking over
quality output

CAIE IGCSE
Tertiary sector: The Industry provides services to Self-con dent Business ideas & help, organising training for
output and e ciency. Businesses can either grow by: another rm in a di erent industry. (also known as
consumers and other industry sectors. Innovative entrepreneurs that gives advice, and support Internal Growth ‘diversi cation’)
Specialised workers require

BUSINESS
Developing Countries: where the primary sector is the Independent. sessions. External Growth
An increase in e ciency will higher wages, and training For example, a chocolate manufacturer is merging
most important, as more employees and output are Finance, they may lend loans at low-interest rates or Internal Growth is when the business expands its existing
lead to economies of scale. current employees will with a photography company.
produced than in secondary and tertiary sectors Advantages and Disadvantages of being an Entrepreneur:
grants, as well as low-cost premises operations Bene ts:
increase costs. Developed Countries: where the output of the tertiary Advantages Disadvantages Governments provide grants for training employees to External Growth is when the business takes over or Activity in more than one industry will diversify
Workers become more skilled sector is often higher than the other two sectors

STUDIES
entrepreneurs will have to put make them more e cient and productive merges with another business. and spread the risk taken by the business.
and experienced, reducing combined. Independent, able to choose
their own money into the Governments allow entrepreneurs to use research Takeover: When one business buys out the owners of Transfer of ideas in the di erent sections can
waste of time and resources. De-industrialisation occurs when there is a decline in the how to use time and money
business. facilities in Universities another business, which then becomes part of the help the business.
importance of the secondary sector.
Able to put own ideas into many entrepreneur’s ‘predator’ business.
1.3. Purpose of Business Activity practice businesses fail (risky) 1.10. Business Size Disadvantages Caused by Business Growth

SUMMARIZED NOTES ON THE THEORY SYLLABUS

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Control and management get harder with expansion (can It is a business owned and controlled by one person- the Advantages Disadvantages Advantages to franchisor Disadvantage to franchisor Advantages Disadvantages Objectives of Social Enterprise Money Advantages Disadvantages
be prevented by carefully planning expansions and owner, who is the sole proprietor. It is a form of an Raise capital from the sale of Cannot sell shares to the The franchisee keeps some Ine ciency because Job Security It is di cult to identify how
adjusting management style and hierarchy). unincorporated business. Expansion is faster Ensure consumers are not Social Enterprise: an enterprise with social objectives and Training Is it possible for managers to
shares public pro t managers rely too much on much of the needs have been
Larger businesses lead to poor communication (stronger taken advantage of aims to make a pro t to reinvest in the business. It has Promotion satisfy some or all of their
Limited liability for Training, some aspects of the government met or which level each
and more e cient communication channels can prevent Advantages Disadvantages Legal formalities Management is the three objectives: Status needs
shareholders administration, and It can be unfair to the private worker is on
it). Few legal regulations (Easy to Decisions can be hard to responsibility of the Social: to provide jobs and support for disadvantaged Responsibilities
Accounts are available for the advertising are paid by the Reduce wasteful competitors sector if subsidies are Easy to set goals and It doesn’t include money as a
Expansion costs are high and can result in a shortage of set up) make Separate legal identity franchisee groups Work environment
public to see franchisor provided to the public sector. objectives need
nance for businesses (A nancial plan must be prepared No separate legal identity, Environmental: to protect the environment.
in anticipation of expansion; it can include short/long-term Complete control Continuity Not easy to transfer shares Percentage of sale revenue is Can help stabilize failing Financial: to make a pro t to reinvest in the enterprise Bene ts of a Well-Motivated Workforce Not all needs are included.
unlimited liability Lack of close competition can
loans to compensate for nancial loss). given to the franchisor every businesses to create job and expand its social work. Self-actuation is rarely, if
May not be able to raise funds decrease many activities
Integrating with another business can have con icts and Flexible working time Articles of Association: Contains the rules for managing year opportunities Improved productivity ever, achieved.
to expand business
di culties, for example, business culture and style of the company. It can be used for political Objectives of Public Sector Businesses Low rate of absenteeism (Workers’ non-attendance at
Ability to respond quickly to reasons, preventing the work without a good reason)
management. (Compromises will have to be made, or a Memorandum of Association: Contains vital information Advantages to franchisee Disadvantages to franchisee Fredrick Herzberg - Two-Factor Theory
new style of management can be applied altogether, the needs and wants of May have to work long hours Important public services business from opportunities Financial: Meet pro t targets set by the government - Low rate of labour turnover (The rate at which workers
about the company and the directors. Chances of business failure
which can help reduce con icts) customers Less independence like other pro t-making either reinvested or funded back to the government. leave the business) Hygiene Factors: The factors that must be present in the
are reduced
Di cult to compete with large These also apply to a public limited company. businesses. Service: meet quality targets the government sets and Better quality goods and services workplace to prevent job dissatisfaction.
All pro t goes to the owner The franchisor pays for Unable to make decisions that
Why Small Businesses Remain Small? rms provide services to the public. Improved labour productivity (A measure of the e ciency Working Conditions: Things that show how clean and
advertising would suit the local area
Complete secrecy in Business May not have the proper skills 1.17. Public Limited Company (PLC) 1.21. Business Objectives
Social: protect or create employment in certain areas. of workers by calculating the output per worker) safe the workplace is and what facilities are provided
The type of industry the business operates in The franchisor has the power Relationship with others: Good working relationships
matters to run a business
Market share Fewer decisions to make with to withdraw the agreement Key Motivational Theories with workers and managers, and treated fairly with
Public Limited Company: Businesses owned and
an independent business and can prevent the use of Business Objectives are aims or targets a business works 1.23. Stakeholder Objectives
Owners’ objective controlled by the shareholders, but they sell to the public, respect.
1.15. Partnerships and their shares are tradeable on the stock exchange.
the premises towards F.W. Taylor - Scienti c Management Theory Salary and wages
Businesses need objectives to help them be successful. Stakeholder: any person or group with a direct interest in
1.12. Why Businesses Fail The franchisor provides Supervisions: Leadership style and how closely works
Partnerships: A form of business in which two or more However, they don’t guarantee success. the performance and activities of a business It aims to reduce ine ciency in the workplace by nding
Advantages Disadvantages training for sta and There are two types of stakeholder groups: are supervised
people agree to own a business jointly. It can be set up by Bene ts of having business objectives: the quickest method of performing tasks and training all
Lack of Management Skills – from lack of experience, poor Can sell shares to the public Legal Formalities management Internal Stakeholders work/own the company (owners, Company policy and administration: rules and
creating a partnership deal. It’s a form of unincorporated A clear target to work towards, thus improving workers to use this method.
choice of managers (family business), bad decisions can Banks are often willing to lend procedures that control and a ect the workplace.
Rapid expansion Motivation. managers, workers) The theory of economic man: the theory that humans are
business. Disclosure of accounts and Hygiene Factors must be present to prevent job
occur possible/specialist managers to franchisees due to the low External Stakeholders are outside the business only motivated by money, in which Taylor believed that
Deal of partnership: The written and legal agreement other information It can help in decision-making. dissatisfaction
Failure to plan for change – businesses must adapt to an appointed risk. (consumers, government, banks) money was the only motivational factor.
between business partners. It is not essential but is It helps unite the whole business towards the same Job dissatisfaction: How unhappy and discontent a person
ever-changing business environment. It would be best if Divorce between ownership Each stakeholder group has di erent objectives for the The piece rate method of paying production came from
recommended goal. is with their job.
risks were taken. Limited liability performance of the business
Contents of Partnership Agreement: and control 1.19. Joint Venture It can be used to compare how the business performs his research.
Motivators (Factors that in uence a person to increase
Over-Expansion – (diseconomies of scale) Internal Stakeholder (Owners, managers and employees) Disadvantages:
Amount of capital invested by all partners Continuity Expensive to ‘go public‘ through objectives. their e ort):
Poor nancial management and liquidity issues objectives are payments or pro ts; they want business His ideas were too simplistic
Tasks to be done by each partner Joint Venture: is when two or more businesses join Private sector business objectives: The work itself: Variety of jobs and challenging tasks
Competition with other businesses – intense competition growth, so the value of investment increases, or they get If employees are unful lled with their work,
The way pro ts are shared out Annual General Meeting (AGM): A yearly meeting where together to create a new business Business Survival - Adjust to business environment, through job enrichment.
in the market can make it hard for new businesses to set higher status/power productivity won’t be gained, no matter how high the
How long partnership will last shareholders may attend to vote for a Board of Directors change price of products if necessary Responsibility: Giving workers responsibility for tasks
up, as already established businesses can drive newly Advantages Disadvantages Customers' objectives are reliable products, value for wage.
Arrangements for absence, retirement and how for the upcoming year. Generating pro t (total income of business revenue they perform.
established businesses out of the market with their low, money, good quality, good design and good service If employees’ output can’t be measured, practical
partners could be let known Dividends: Payments made to shareholders from the Pro ts have to be shared if subtracted by total cost)– pay a return to owners or Advancement: Opportunity for promotion
competitive prices. Sharing of costs Government objectives include money from taxes, problems arise.
pro t of a company. They are the return for investing in the project is successful provide nance to invest further in business Achievement: They feel like they have reached a
Advantages Disadvantages Returns to shareholders - discourage shareholders employing more people, increasing the country’s output
the company. Knowledge and experience The bank’s objectives are to make a pro t out of loans and Abraham Maslow: Concept of Human Needs - Maslow’s challenging goal.
1.13. Legal Identity Easy to set up a deed of can be shared
Con ict in decision-making from selling their shares. This can be done by Recognition of Achievements: Recognised by the
Unlimited liability the payback of interest. Hierarchy
partnership increasing pro t or increasing the share price
Unincorporated Business: A business that does not
1.18. Franchise Risks shared
Di erent methods of running
Growth of business – increase salaries, economies of Since di erent stakeholders have di erent objectives, it
people for their achievements
Greater access to funds Share the pro t a business can create con ict may cause con ict, to try to please all the stakeholders
possess a separate legal identity from its owner. These scale. This is only achieved if customers are satis ed
Businesses usually have: shared decision-making
Business ceases to exist if Franchise: An agreement of a business based upon an
with the product For example, customers want cheap products, but 2.2. Methods of Motivation
one partner leaves existing brand/business workers want higher salaries.
Unlimited liability: the owner can be held responsible 1.20. Public Corporations Market Share (the total percentage of total market
shared management and Decisions binding on all Franchisee: the business a company allows to conduct Therefore, managers must compromise to decide which Financial Rewards: cash and non-cash rewards paid to
for the business's debts. sales held by one brand or business) - gives good
workload partners business using the company’s name and brand. Have to objectives are best for the company. workers motivate them to increase their e orts.
Greater risk, as owner is putting his personal Public Corporations: a business in the public sector owned publicity and more in uence over suppliers and
pay an original fee to the franchisor and a percentage of
possessions and living at risk. Di cult to raise nance and controlled by the state of government (By appointing customers.
its pro t for the privilege Hourly Wage rate: payment to workers based on a xed
Incorporated Business: Business with a separate legal
identity. Private/Public limited companies. These
The Franchisor: the company that allows another
a board of directors and setting objectives). Calculation = 100 × Company Sales
Total market Share 2. People in Business amount every hour worked.
1.16. Private Limited Company (LTD) company to conduct business using the company’s name Advantages Disadvantages
Why business objectives can change:
Businesses usually have: It will work towards pro t after being set up and Advantages Disadvantages
and brand.
Limited liability: the liability of shareholders in a
Private Limited Company: Business owned by
Government ownership may stable. 2.1. Motivating Employees Business only pays workers
company is limited to only the amount they invested be essential to some The pro t objective is not as After achieving a high market share, it aims to “return
Pay is not linked to how much
shareholders but cannot sell shares to the public (can only Advantages to franchisor Disadvantage to franchisor for the number of hours
Less risk, as the owner is only risking the capital they countries' industries, such as powerful or important as in to shareholders”. Motivation they produce
sell to family and friends). Franchisee buys the licence, worked
invested, as well as any legal charges e ect only the Bad reputation if one branch water supply and electricity private-sector industries. A pro t-making business hit with a crisis now has the
Shareholders: Owners of a limited company who buy which means another source
business and not the owner directly has poor management generation. short-term objective of survival. Motivation: factors that in uence the workers' behaviour
shares represent part-ownership of the company. of nance Advantages Disadvantages Salary: xed annual payment to speci c grades and types
towards achieving business goals.
of sta , not based on hours worked or output
1.14. Sole Trader Advantages Disadvantages 1.22. Social Objectives Factors that in uence motivation at work:

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Advantages Disadvantages Job Enrichment: organising work so workers are Tall Structure: the longer the chain of command is, the Advantages Disadvantages Sta Managers: are specialists who provide support Providing services for members including holiday scheme, 2. Design a job description:
encouraged to use their full ability. This increases job ‘taller‘ the organisational structure and the ‘narrower‘ the Senior managers are in close information. And assistance to line managers. pension scheme, insurance scheme, etc. Job description: outlines the responsibilities and
They do not receive more
satisfaction. span of control. Reduce e ective The functions of managers include: duties to be carried out by someone employed to
payment if they have to work Salary is not linked to e ort or touch with what is going on in
Job redesign: increasing the variety or di culty of tasks to management of subordinates Planning – Planning is about where the business is Advantages Disadvantages do a speci c job. Several functions of a job
long hours to complete the the amount produced the business
discuss more exciting and challenging work for workers. now and where it wants to be. Once it has been Strength in numbers when It costs money to be a description:
task.
Quality circles: a group of workers who meet regularly decided, management must set clear objectives and negotiating with employer member Given to applicants so they know exactly what
Delegation: Giving a subordinate the authority to perform
lower down in the organisation. an action plan. Workers may be required to the job entails.
Piece Rate: Payment to workers based on the number of particular tasks. Improved conditions of
Team working: organising production so that groups of Organising – Management will have to decide the best take industrial actions even if Allows a job speci cation to be drawn up to see
units produced. employment.
workers complete the whole unit of work. Advantages Disadvantages way of completing important tasks at the lowest they disagree. if they are skilled.
Advantages Disadvantages Delegation: passing responsibility to perform a task to possible cost to the business. It shows if an employee is working e ectively
Some managers are reluctant Motivation is higher Trade unions can organise
workers lower down in the organisation. Communicating - Control and supervision of once they are employed.
Quality of goods may vary Application of job enrichment, to delegate, as they will be Creativity and engagement with workers are strikes against employers if
subordinates also aim to motivate workers to achieve Improved environment where The contents of a Job description:
Workers are only paid for the because of the need to Bene ts of decrease in labour turnover: leading to job satisfaction held accountable for any encouraged. they don’t receive the pay
the planned objectives. people work. Condition of employment salary, hours,
number of items produced produce more goods to errors Workers and employees are involved in decision- levels and work conditions
Coordinating - Making sure that all the di erent parts permission, etc.
increase pay There is no need to hire new employees, decreasing A form of training for junior Managers lose some control making. they deserve.
Flat Structure: when a chain of command is short, the of the business are working together to achieve the Training that will be o ered
recruitment costs, training costs, and retaining skilled managers over subordinates Improved bene ts for Wages are likely higher -
organisation will have a ‘wider’ span of control, thus business’s goals and corporate objectives. Opportunities for promotion
Commission: Paying sales sta based on the value of employees. This improves productivity. Advantages Disadvantages members not working adding to business costs -
Achieving the Esteem needs Controlling – involves checking to make sure that the Purpose of the job
items they sell. making it a ‘ at‘ structure. because of sickness, when many employees are
(Maslow’s hierarchy) plan is working and if it would be completed in time Better Decisions could result Main duties/addition or occasional duties
Unpopular decisions could not
2.3. Organisation and Management and the required standard, and if not, then correcting from consulting with
e ectively be made using this
retirement, or redundancy. trade union members. 3. Design a job speci cation:
Advantages Disadvantages employees using their ideas
Centralised Organisation: one where all the important it style 4. Job description: is a document that outlines the
Pay is linked to the value of Workers are never sure of Organisational Structure: refers to the levels of and experiences.
goods sold how much they will earn management and division of responsibilities within a
decision-making power is held at the head o ce/the Extra functions managers do: 2.7. Work of Human Resource requirements, quali cations, physical characteristics,
centre and then passed down to lower levels. Understand the people who work for them etc. For a speci ed job.
company. Advantages of short chain of command:
Set a good example Laissez-Faire Leadership: makes the broad objectives Department Usual Requirements:
Bonus scheme: an additional reward paid to workers for Organisational Charts: refers to diagrams that outline the Communication and decision-making are quicker. Advantages Disadvantages known to employees, but then they are left to make
Delegate tasks The level of educational quali cation
achieving target set by managers. Method of internal management structure. Fewer management levels to build connections with by decisions and organise their work. Characteristics: Recruitment and Selection:
Decision-making is often Treat subordinates fairly Special skills, knowledge, or a particular attitude
performance-related pay. Hierarchy refers to the levels of management in any the top management. Slower communication Recruitment: is the process of identifying that the
quicker communicate e ectively Personal Characteristics
organisation. The span of control will be wider, encouraging business needs to employ someone up to the point at
Decisions are taken for the Unable to respond quickly to 5. Advertise the vacancy:
Advantages Disadvantages Levels of Hierarchy: refers to managers to delegate more and allowing workers to which applications have arrived.
bene t of the whole business changes in the local market 2.5. Leadership Styles The rst stage is to decide how the post will be
Linked to a performance If the target is unrealistic, it management/supervisors/other employees who are given feel trusted. Employee Selection: is the process of evaluating lled.
target can be demotivating a similar level of responsibility in an organisation. Advantages of a long chain of command: Greater use of specialist sta candidates for a speci c job and selecting an
May reduce motivation
As decisions get passed down, it is checked by improves decision-making Leadership Styles: are the di erent approaches to dealing
Example of Organisational Chart: individual based on the organisation's needs. Internal requirement: is when a vacancy is lled by someone
multiple people, thus reducing error and preventing with people and making decisions when in a position of Wages and Salaries:
Fringe bene ts: non-cash rewards used to recruit and who is an existing employee of the business
Decentralised Organisation: authority.
retain workers and recognise certain employees' status. bad decisions from happening These must attract and retain the right people and be Advantages Disadvantages
Lesser subordinates means management can focus There are three leadership styles:
(e.g. Car, insurance, health care) su ciently high to motivate employees. Quicker and cheaper than No new ideas or experiences
more on their designated workers. Advantages Disadvantages Autocratic Leadership: where the manager expects to be
Industrial Relations:
in charge of the business and to have their orders external recruitment. come into the business.
Advantages Disadvantages Factors a ecting the size of the span of control: Decisions are made based on Decisions taken might not be Workers and employees are expected to make the There must be e ective communication between
Di culty of the task local needs. in the interest of the business followed. Characteristics: decisions.
The reliability, ability, and
Helping recruitment and Linked to status, not representatives of management and the workforce. Rivalry and jealousy may
The experience and skill of workers The leader will only give guidance. potential of the person are
retaliation of workers performance Poor decisions might be made This may be to resolve grievances and disputes and arise.
The size of the business
It can be used to train junior The leader only takes charge when necessary. known.
often due to lack of put forward ideas and suggestions for improvements.
Bene ts: managers.
the level of hierarchy experience and skills Training Programs: The person is already familiar
Pro t sharing: an additional payment to workers based on The chart shows how everybody is linked in the The quality of internal
Management style Advantages Disadvantages It involves assessing and ful lling the training needs of with the organisation's
the business's pro t. organisation, which allows employees to be aware of Delegation helps improve candidates might be low.
Delayering: reducing the size of the hierarchy by It is unlikely to be appropriate employees. This should also be linked to the plan. structure and expectations.
their communication channel (chain of command). worker motivation. Encourage employees to
Advantages Disadvantages removing one or more levels, often the middle in organisations with a Health and Safety: It can be motivating for other
Everyone can see what they are accountable for, show creativity and
management. consistent and clear decision- The business must ensure that it complies with all the employees to see their fellow
Pro t to employees may which they have authority over, and who to take responsibility
2.4. Role and Function of Management making structure. laws on health and safety. workers promoted.
Linked to the performance of reduce dividends to orders from. Advantages Disadvantages Redundancy and Dismissal:
the business shareholders or the amount Everyone is in a department, thus giving a sense of
Increased workload on Directors: are senior managers who lead a particular This involves releasing employees, either because the External Requirement: when a vacancy is lled by any suitable
reinvested in the business. belonging
managers, thus decreasing department or division of a business. Responsibilities:
A leader does all the decision-making 2.6. Trade Unions business changes in some way or because the
Don’t take input from others. applicant outside the business
Chain of command - The structure in an organisation Reduces cost Setting strategy (long-term plans)
the quality of work and its Highly structured working environment employee is not satisfactory. The business must Advantages Disadvantages
Non- nancial rewards and methods: methods used to allows instructions to be passed down from senior Reviewing the performance of managers. Trade Unions: A group of employees who have joined to
completion. comply with all the redundancy, dismissal and
motivate workers that do not involve giving any nancial management to subordinates. Provide leadership protect their interests. A more comprehensive Increased costs due to
Communication and decision- Have to make redundancy Advantages Disadvantages disciplinary laws.
rewards. The span of control - The number of subordinates working Making sure resources are available
selection of candidates. advertising.
directly under a manager. making are quicker due to payments to employees who There is no opportunity for The Role of Trade Unions:
Line Managers: manage employees and are responsible Adding fresh perspective and
Job Rotation: increasing variety in the workplace by Subordinate: an employee below another employee in the reduced chain of command. lost their job
for the team development and performance.
Quick decision-making employee input into key 2.8. Recruitment Process ideas.
Additional training
allowing workers to switch from one task to another. Negotiating with employers to improve pay and working
organisation’s hierarchy. Increases the opportunity for Supervisors: are junior managers who supervise and are
process decisions, which can be
Job satisfaction: how content and happy a person is with conditions. Adds a transitional period for
delegation, which helps in Reduction in job security demotivating 1. Analyse the exact nature of the job and duties to be Enhancing diversity in the
their job responsible for the employees below them in the Resolving con ict by negotiating a solution on behalf of its all employees to adjust to the
There are two types of organisational structures of a motivation undertaken. organisation.
Job Enlargement: increasing or widening tasks to increase organisational structure. members new
business: Democratic Leadership: gets other employees involved in Job analysis: it identi es and records the
the variety of workers. Providing legal support and advice.
the decision-making. Characteristic: responsibilities and tasks relating to a job

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Advantages Disadvantages Easier to ask employees to work at busy times Advantages Disadvantages Redundancy: when an employee is no longer needed Protection against discrimination (due to unfair reasons i.e. if a company communicates ine ciently with their
2.14. Methods of Communication
Finding a specialised More accessible to extend business Maybe a legal requirement to and loses their job. It’s not due to any aspect of their such as gender, race, colour, etc.). suppliers, they might receive the incorrect materials
opening/operating hours by working evenings or Workers are being paid while work being unsatisfactory. Impact on Employers and Employees: E ective communication involves:
candidate that ts the E ects on employee morale. give health and safety training Formal communication: when messages are sent through
weekends. no work is being done Factors that decide in redundancy: Employees have to be careful in wording 1. The transmitter/sender sending a message to
requirements perfectly. at the start established channels using professional language.
It ts in with looking after children or other Workers may volunteer and are happy to be advertisements for a job. pass on information
Can help the competitiveness Workers are less likely to Delays the start of work for Informal communication: when information is sent and
circumstances such as school, which means made redundant due to nding another job. Applicants must be treated equally, or the 2. A medium of communication – the method for
of the business make mistakes the employee received casually using everyday language.
employees are willing to lower pay. Length of time employed by the business - business will be prosecuted and ned. sending a message (i.e. e-mail, phone, etc)
Reduce tension between Reduces business cost employees might have worked long hours and Employees must all be treated equally, regardless 3. The message being sent to the receiver
employees. On-the-job Training: Occurs by watching a more
The Direction of Communication
In some countries, it’s easier to make part-time expect high payments. of gender, disability, colour, etc. 4. The receiver con rms that the message has been
experienced worker doing their job.
workers redundant. Workers who have skills that could be used in When businesses recruit and promote sta on received and responds to it (feedback)
5. Send out application forms to the applicants or read Limitations: multiple departments are retained. merit alone, it helps to increase motivation. There are two types of communication:
curriculum resumes and letters of application.
Advantages Disadvantages
They are less likely to seek training, as they see The worker's employment history- whether Laws of health and safety at work, such as: One-way communication – where the receiver cannot
Advertising job vacancies can be done in several the job as temporary.
The individual is given in the Trainers won’t be as they are punctual, good at their job, etc. Protect workers against dangerous machinery. reply to the message (i.e. posters)
ways: Tasks longer to recruit. workplace, so there is no productive because they are Which departments need to lose, and which Provide safety equipment and clothing. Two-way communication – where the receiver can
Local newspapers Less commitment to business. need to send them away. teaching employee need to retain workers Maintain reasonable workplace temperatures. respond to the message could be just con rmation
National newspapers Less likely to be promoted due to lack of The trainer might have bad Provide hygienic conditions and washing facilities. that the message was received (e-mail)
Ensures there is some Extra information: workers can retire (get old
Specialist magazines experience. habits and pass them on to Do not insist on excessively long shifts, and provide
production while training and want to stop working) and resign ( nd The methods of communication include:
Online recruitment sites It is more di cult to communicate outside of work. the employee breaks.
Recruitment agencies Full-time Employees work for more than 35 hours a week another job), but it’s through the employee’s Impact on employers and employees:
Not recognized training Verbal Methods: The sender speaks to the receiver (i.e.,
Centres run by the government Usually costs less than o - will in those two cases.
Bene ts: quali cations outside the Cost to the employer of meeting the health and
the-job training through meetings, telephone, or video conference)
6. Produce a shortlist from the applications for Consistency of schedules and reliability business safety regulations. Arrow A shows downward communication - where
interviews and take up references. Loyalty - A permanent contract means the Training tailored to the 2.12. Legal Controls Over Employment Time needs to be found to train workers in Advantages Disadvantages messages are sent from managers to subordinates. Used
Applicants must provide a referee (someone the employee is more loyal health/safety precautions.
potential employer can contact, intending to get Limitations:
speci c needs of the issues Workers feel ‘safer‘ and more motivated at work.
Information is given out
If talking to many people, it’s
for instructions or statements, no feedback.
business. quickly & an e cient way to Arrow B shows upward communication - when messages
more information/references from). A permanent contract has to be made, a long-term Reduce accident rates and the cost of hard to tell whether everyone
The most important employment issues a ected by legal communicate with many or feedback can be passed from subordinates to
Interviews are the most used form of selection. Its commitment. compensation for workers injured at work. got the message.
O -the-job training: Involves being trained away from the controls are: people. managers.
primary purpose is to assess in the shortest time Full-time employees have xed pay, regardless of Legal minimum wage and its impact on employer and
workplace, usually by specialist trainers. Arrow C shows horizontal communication - when people
possible: the number of hours committed to work (ex, sick employee: It is unsuitable for accurate
The Contract of Employment: A legal agreement between Opportunity for immediate at the same level in an organisation communicate. Ideas
Applicant’s ability to do the job leave, slow work day, emergency, etc). It should prevent strong employers from exploiting messages, and a permanent
Advantages Disadvantages an employer and employee, listing the rights and feedback and info can be shared. Con ict can happen.
Any personal qualities that could be bene cial unskilled workers. message record is needed.
A broad range of skills can be responsibilities of workers.
or not. Note: full-time employee bene ts are the Costs are high As many unskilled workers receive higher wages, it The speaker’s body language
Impact on Employers and Employees:
The general character and personality of the limitations of part-time and vice versa taught
will encourage them to be more productive. reinforces the message. 2.15. Demonstrate an Awareness of
Both know what is expected from them.
applicant. If taught in the evening,
Workers are being paid but It will encourage people to seek work. Communication Barriers
Some businesses include tasks in the selection 2.10. The Importance of Training and employees can work during
not doing any work.
Provides security of employment for employee
If the employee does not meet the condition of the Low-paid workers will earn more and have higher Written Methods: the sender creates e-mails, memos or M
process, such as: the day living standards, making them a ord to buy more. letters, including the use of Information Technology
the Methods of Training contract, then legal dismissal is allowed. Communication Barriers
Skill test (ability to carry out speci c tasks) Additional quali cations mean If an employee fails to meet the conditions of the Increase business costs
Often uses expert trainers
Aptitude test (candidate’s potential of learning an employee's chances of contract, then the employee can seek legally Some employers will not be able to a ord these wage Advantages Disadvantages Communication Barr
Importance of training: who have up-to-date business
a new skill). leaving for another job are binding compensation. rates. It might lead to too many e-
To introduce new processes or equipment practices and knowledge. Message can be referred to in
Personality test (used if a particular type of high. Higher-receiving workers may ask for higher pay to mails and ‘information
Improve the e ciency of the workforce Unfair Dismissal: when an employer ends a worker’s the future as “hard evidence.”
person is required). keep the exact di erence between them, increasing overload.’
Provide training for unskilled workers employment contract for a reason not covered by the
Group situation test (to show how well they business costs.
work with a team).
Decrease the supervision needed 2.11. Why Reducing the Size of the contract. Easy to explain complicated Two-way communication is
Improve opportunity for internal promotion Industrial Tribunal: a law court (legal meeting) judges messages di cult
7. Hold interviews and selection of tasks. Workforce Might Be Necessary disagreements between companies and their employees. 2.13. Internal and External It can be copied and re-sent to It is hard to check if the
8. Select suitable applicants and o er them the job. Decrease chances of accidents
Aims of training: Impact on Employer and Employee: many people message has been received
Reply to unsuccessful applicants. Workforce Planning: establishing the workforce the
The Employer must have an accurate record of a
Communication
Increase skills
The nal decision can depend on several factors: business needs for the foreseeable future regarding the worker’s performance if they want to claim that the
Increase knowledge E ective Communication is important so that the Visual Methods: The sender uses diagrams, charts,
Work experience number and skills required.
employee has broken the contract before
Education and other quali cations Improve employee’s attitudes to encourage them to Reasons to reduce workforce: information sent in the message is received, understood, videos, PowerPoints
accept change and raise awareness. dismissing them.
Age Automation (robots replacing human jobs) and acted upon as it should be. Otherwise, lack of
There are three types of training: Employees have employment security — as long Advantages Disadvantages
Internal Falling demand for their goods or services communication can lead to severe consequences.
Induction Training: an introduction given to an employee, as they ful l their contract or are not made If information is presented No feedback and needs other
External Factory/chop/o ce closure There are two types of communication in businesses:
explaining the business’s activities, customs, and redundant. more appealingly, people will methods of communication to
Circumstance The business might have relocated abroad Internal Communication: communication between
procedures and introducing them to their fellow workers. Allowed employees to take their employer to an be more interested in it. go with it
Businesses are being taken over/merged, and now employees of the same business.
industrial tribunal if they felt like they weren’t being
2.9. Types of Workers there are too many workers doing the same job External Communication: communication between the Graphs and charts may be
Advantages Disadvantages treated fairly, and they could get compensation if it It can be used to make written
Two ways a business can reduce the number of business and other businesses and individuals. di cult for people to
Helps new employees settle were found to be true. messages clearer, to
Part-time Employees work for less than 35 hours a week. Time-consuming employees: External communication has to be especially e cient understand, and the message
It makes businesses less likely to mistreat illustrate the point
into their jobs quickly Dismissal: employment ends against the employee's because it establishes the image and the e ciency of a may be misunderstood
Bene ts: employees.
Work hours are exible. will, usually for not following an employment contract. business

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product, its price, and the sales technique. base/loyalty. The competitiveness of a business is majorly Market Segmentation: an identi able subgroup of a whole Producers’ main concern is price and quality. Advantages Disadvantages Bene ts Limitations Promotion - how the productivity is advertised and Brand name: the unique name of a product that
A good marketing department should also be able a ected by its ability to respond to any changes in the market where consumers have similar characteristics or Risky due to the large market and many They can be linked to prize There is some information promoted. distinguishes it from other brands.
to anticipate changes in customer needs (i.e. due market. preferences. competitors. draws and encourage people (i.e. economic forecasts or Data may be outdated or You should always mention the 4 Ps when answering Brand loyalty: when consumers keep buying the same
to advancements in technology) A market can be segmented by: A market-oriented business is a business that focuses to ll them. population size) that can’t be incorrect as others collected it questions about Marketing Mix! brand again instead of choosing a competitor’s brand.
Find new trends or gaps in the market with Some markets have become more competitive because: Age on market research and nding out what the customer Brand image: an image or identity given to a product
obtained by primary research
potential. Socio-Economic group – grouping people according to wants BEFORE a product, such as clothing or 3.7. Product which gives it a personality of its own and distinguishes it
Globalisation: products are sold all over the world Interviews: A person will interview another person and ask It might not have the speci c
Satisfy Customer Needs: selling the exact product how much money (income) they make electronic devices, is developed. from its competitors.
Transportation: it is cheaper, quicker, and easier to send questions. information
customers want for a price they are willing to pay. Region/Location – where people live (ex, people who Better able to survive because of more Some products are sold to consumers, and some to other Good branding includes:
products around the world now Advantages:
Maintaining customer loyalty: maintaining close live in wet areas will buy more waterproof clothing adaptability to changes in customer taste and businesses. Brand name
Internet/e-commerce: customers can now search for The interviewer will be able to explain the Internal Sources of secondary data – within the rm’s own
customer relationships to discover the product's than those who live in dry areas) trends. They are usually grouped: Higher quality than unbranded products.
products or services and buy from somewhere else questions and clear confusion. records:
expectations and changes needed to be made. It’s Gender – men's and women's products di er Takes advantage of new market opportunities. Consumer goods: bought by consumers for their own Unique packaging
around the world Detailed information about the interviewee can be Sales department records, price data, customer
cheaper for businesses to keep existing customers Lifestyle – ex: how many children a person has, Market Research Methods: use. Can be perishable goods such as food or long- Brand loyalty
The ways businesses respond to changing spending gathered. records, sales reports, etc.
than to attract new ones. religion, habits, etc. Quantitive information (quantity related) lasting such as furniture. Assured quality
patterns and increased competition: Disadvantages: Opinions of distribution and public relations personnel
Customer Loyalty: existing customers continually Use of the product - products may be used for Qualitative information (where opinion or judgement Consumer services: services bought by consumers for Creates a brand image associated with consuming the
Keep improving its existing products The interviewer may lead the interviewee to Finance department.
buy products from the same business. It is di erent uses (ex, cars for business use and domestic is necessary). their own use. Ex. Cleaners product.
Bring out new products to keep customer’s interest answer in a certain way. Customer service department
achieved by always satisfying customer needs. use, each the same product but can be marketed Can be gathered through: Producer goods: there are goods that are produced
Keep costs low It is time-consuming and Expensive. External Sources of Secondary Data:
Building customer relationships to gain information di erently) Primary Research: Gathering ORIGINAL data by directly for other businesses’ use to help with the production Role of Packaging
maintain good customer relationships Focus Groups: collect opinions and feedback from a group Government Statistics: a detailed source of general
about customers Bene ts of Market Segmentation: contacting existing customers/potential customers. process. Ex. Trucks
of people about a speci c product, concept, or service. information (ex: population and its age structure)
Customer Relationships: communicating with You can use it to sell more products, creating di erent Packaging: the physical container or wrapping for a
Producer services: services that are produced to help
customers to encourage them to become loyal to 3.3. Market Types variations for di erent groups. Advantages Disadvantages
Advantages Disadvantages
Newspapers: useful articles about the general
other business. Ex. Accountants.
product. 2 functions - protect and promote product
economy state Protects the product and makes it easier to transport
the business and its products. A more e ective marketing strategy can be placed (as Expensive in both time and Identifying the type of product is important as it
Market: the total number of customers, potential Up-to-date and relevant It is time-consuming and Trade Association: information about business in the Eye catching
Through customer relationships, changing needs the characteristics of consumers are known), resulting money decides how the product would be
customers and other sellers of a product/service. expensive if done by a industry Carries information about the product
can be understood. Research information can be in an increase in sales. Usually planned and carried Provide detailed information advertised/marketed and developed.
There are two types of markets: specialist market research Market Research Agencies: specialist agencies Promotes brand image
applied to make e ective marketing through these Identifying a market segment that is not having its out by people who want to use Not available immediately Points to consider about choosing product:
Mass Market: where there is a vast number of sales of agency. researching on the company’s behalf; the commission
relationships. needs fully met increases the opportunity for the data rst-hand. Satisfying existing needs and wants of consumers
a product type. Interacting between members The discussion could be is paid. Product Life Cycle (PLC)
Anticipate changes in customer needs – increased sales. Not be expensive to produce.
It is most e ective when used can help businesses based on some people being Internet: easily accessible source. Paper-based
Identify new trends in customer demands or gaps Making marketing expenditure cost-e ective by New and original idea
Advantages Disadvantages for a speci c problem. understand the reason for in uenced by the opinions of sources can also be found. Product life cycle: describes the stages a product will pass
in the market. producing a product that can closely meet the needs Unique selling point
When the marketing department succeeds in identifying Total sales are very high Abundant competition of those customers and targeting its marketing e orts
Not available to business peoples’ opinions. others. Regardless of which type of research a business chooses through from its introduction, though its growth until it is
Capable of stimulating new wants from their
Can bene t from economies High costs of advertisement A few people can dominate it, to use, the accuracy of the research data depends on the mature, and then nally its decline.
customer requirements and future needs, it will enable to that group only. consumers.
Process: Quicker and cheaper than following:
the business to: of scale and promotion Which method of segmentation should be used depends so researchers must have
Purpose of market research individual interviews. How carefully the sample was drawn up 1. Development: First, the product is developed. The
Raise customer awareness of a product or service of Standardised products or on factors such as: experience dealing with this. Development of New Products:
How the questions in questionnaires/interviews were prototype will be tested in the market before its
the business Detailed analysis of the market and the ‘size’ of each Decide on the most suitable method of market
Opportunities for growth services, so it may not meet launch. There are no sales during this time.
research phrased to ensure honest answers were given. 1. Generate ideas
Increase in revenue and pro tability (large sales) the speci c needs of all potential segment in terms of consumers and likely Sampling: A group of people who are selected (randomly)
Decide the size of the survey and who is going to be The sample itself and its size. By using quota 2. Select the best idea for further development 2. Introduction: Then it is introduced or launched in the
Increase or maintain market share customers sales. to respond to a market research exercise (i.e.
asked. sampling, you might get more reliable results. 3. Decide if the company will be to sell enough for the market. Sales are often slow. No pro t made as
Maintain or improve the image of the product or Company image and brand image - ‘high-tech ' questionnaire). 2 standard methods of sampling:
There are many variations of Carry out the research The bias – some secondary research will be biased product to be a success. development costs are not yet covered.
business products, so the risk is businesses may not want to produce innovative, high- A Random Sample is when people are selected 3. Growth: The product gains more sales. Advertising is
Analyse the data and results (i.e. articles in newspapers), which means the 4. Develop a prototype
Target a new market or market segment quality products for low-income consumers. randomly as a source of information for market
spread. Produce a report of the ndings information might be unreliable 5. Launch the product in one area to test the market changed to persuade and encourage customer loyalty.
Enter a new market at home or abroad. For example, the cost of entering each segment is a research.
Methods of Primary Research: Age of the information: older data might be 6. Go to a full launch of the product to the whole market. Prices reduced due to competitors and pro t starts to
Develop new products or improve existing products. specially designed product and advertising campaign. Advantage: Everyone has an equal chance to be
Niche Market: a SMALL (usually specialised) segment Questionnaires inaccurate. be made.
picked, but not everyone in the population may be
(part) of a mass market. Specialised and sold by small They may be conducted face-to-face, by telephone, Presentation of data from market research: Bene ts Drawbacks 4. Maturity: sales increase slowly. Competition intense
3.2. Market Changes 3.5. Market Research a product consumer. and advertising is used to maintain sales growth and
businesses that would nd it di cult to compete in a mass or online. Tables or tally chart USP – a unique selling point: a
A Quota Sample: People are selected based on Costs of carrying out market pro t is at its highest.
market (ex, a business specialised in scuba diving gear) Pie Chart special feature about a
Markets change because consumer spending patterns Market Research: Gathering information about speci c characteristics. They can nd out the views of research and analysing the 5. Saturation: sales have stabilised at their highest point.
Advantages Disadvantages Diagram product that di erentiates it
change; this might be due to the following: Advantages Disadvantages consumers' needs or preferences in a market a speci c group. ndings
Bar chart Competition and advertising is high and stable, but
If questions are not well- Advantage: can nd out the views of these speci c from its competitors’ product.
Trends and Fashions Change: for some time, it might Avoid competition with big The roles of market research: Line graph pro t starts to fall as sales static and prices are
Small – limited sale potential thought-out, answers may groups. Cost of producing trial
be fashionable to have a speci c product (i.e., Fidget businesses Identify demand for the product and how much they Detailed qualitative reduced to be competitive.
mislead the business, as Secondary Research: Diversi cation products, including waste
Spinner), but a month later, no one bought them are willing to pay. information can be gathered. 6. Decline: sale of product starts to decline as new
Usually, they specialise in just there may not be accurate Information that has already been collected and is 3.6. Marketing Mix materials
Advancement in Technology: new products provide Identifying the target audience is the most e ective products enter, or it has lost its appeal. Product is
Customers' speci c needs are one product; if the product answers. available to others
the latest technology so older versions (i.e., iPads or way to promote to these customers. Brand image is damaged if withdrawn from market and sales, prices and
focused, leading to high levels has low demand, it will fail. It The customer’s opinion can Lots of time and money are Marketing Mix: a term used to describe all the activities Allows businesses to expand
computers) don’t have high sales To measure the competitiveness of the market and the product fails to meet advertising low until it stopped.
of customer loyalty and good would require businesses to be obtained. needed. Bene ts Limitations that go into marketing a product or service. into new and existing markets
Unemployment/Wages: Economies with high the best way to compete with it. consumer demand
customer relations. have multiple products to It is cheaper than primary as You do not get speci c results The marketing mix can be summed up as the 4 Ps:
unemployment rates/low wages will not have There are two types of businesses: Online surveys may be The lack of sales if the target
spread risks. Collating and analysing data research has already been for a particular product or Product - applies to the product or service. Design,
increased sales of expensive products Product-Oriented Business: a business that focuses cheaper and make it easier to market is wrong
also takes a long time. features and quality.
Ageing Population: di erent ages are interested in mainly on the product, disregarding market needs and collate the results. done by others service; you get broad results
Price - the price at which the product is sold,
other products (i.e. anti-ageing creams) 3.4. Market Segmentation wants. Often, it produces necessities for living, such as Importance of Brand Image
comparisons between prices of competitors.
Businesses have to keep up with customers' changing agricultural tools or fresh food.
Place - channel of distribution that is selected.
needs to stay relevant and maintain their customer It may not have a brand name.

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How Stages of PLC In uence Marketing Decisions Cost-plus Pricing: the cost of manufacturing the product Bene ts Limitations Bene ts to consumers Problems for consumers Advertising: paid-for communication with potential Advantages Disadvantages
3.9. Place (Distribution Channels)
plus a pro t mark-up. It involves: often used for newly launched No need to go out Internet needed customers about a product to encourage them to buy it. Often, it uses memorable The advert needs to be
Introduction – Estimating how many of the products will be produced. Sold at a low price, therefore, There are two types of advertisements:
products to create an impact Products should be available when and where customers Bene ts Limitations High chances of fraud and songs or tunes so that the AD remembered because there
Product – newly launched product Calculating the total cost of producing this output. pro t per unit may be low. Wide options Informative Advertisement: where advertising or sales
on customers. need them theft can be remembered. is no hard copy.
Price – price skimming or penetration pricing Adding a percentage markup for pro t. Reduces storage costs for More expensive to buy from a promotion emphasises giving complete information
Ensure sales are made and Customers may ‘get used‘ to Wrong place, low sales and pro ts Products can’t be physically It's not as broad an audience
Place – limited range of exclusive shops (if price Total cost /output + % markup. small retailers because small wholesaler than from a Easy Comparison about the product. (i.e. the bene ts of the product)
the new product enters the low prices and reject the The place must be convenient for consumers examined as television.
skimming is used) quantities are sold manufacturer Persuasive Advertisement: advertising or promotion
market. product if the price is raised. Distribution Channel: is how a product is passed from the
Promotion – informative advertising Bene ts Limitations A wholesaler might not have Payment through net banking No direct contact trying to persuade consumers that they need the
place of production to the customer. Small quantities, so transport Newspaper
Growth Businesses could lose sales if It might not be appropriate for all the products a retailer Easy access to imported product and should buy it.
Market share should build up costs are low Examples of suitable products or services: Local
Product – remains the same The method is easy to apply. the selling price is higher than products that have a There are four main distribution channels: wants goods The advertising process:
quickly. products and events in the local newspaper.
Price – raise prices is penetration pricing was used competitors. reputation for quality. 1. Set objectives of advertising to capture new
Wholesalers can give Low prices
Place – increase the number of outlets, e-commerce Manufacturer sells products directly to consumers (i.e. It takes longer to get to the market and increase market share
A total pro t will only be made feedback on what sells well to Advantages Disadvantages
Promotion – establish a strong brand identity through Di erent pro t markups could Promotional Pricing: when a product is sold at a low price car components to car factories). consumer 2. Decide the advertising budget-predict how
if su cient product units are producer Other methods include: Often, it is black and white;
promotional activities. be used in di erent markets. for a short period of time. To increase short-term sales. This channel is most common with business-to- much sales will be in the future, and spread Can be selected to target a
sold. Huge gap between the Department stores therefore, it is not attractive
Maturity/Saturation business transactions. a certain percentage (between 2% to 10%), particular group
Each product earns a pro t There is no incentive to manufacturer and the Discount stores to the eye.
Product – plans for product changes begin Bene ts Limitations or set by how competitors are spending, or
for the business. reduce costs. customer Chain stores
Price – lower prices to competitive Useful for getting rid of Revenue will be lowered simply what the business can a ord to A large number of people Many young People do not
Consumer prices may be Superstores
Place – full range of distribution channels used unwanted inventory that will because the price of each spend. buy/read national read/purchase traditional
Competitive Pricing: When the product is priced in line Bene ts Limitations higher than direct selling, as Independent retailers
Promotion – sales promotion techniques to encourage not sell. item is reduced. 3. Create an advertising campaign- the target newspapers. newspapers.
with or just below competitors’ prices to try to capture It is impractical because retailers and wholesalers Direct sales
repeat purchases Help renew interest in a This might lead to price Supermarkets audience and objective must be kept in Local newspapers are cheap
more of the market. Very simple consumers don’t usually live need pro t.
Decline product if sales are falling. competition with competitors. Mail order mind. and, therefore, cost-e ective.
near factories
Product – changes made to extend the life cycle Bene ts Limitations 4. Selecting the media to use the target Adverts are permanent and
Price – lower prices Not suitable for products that A manufacturer hires an agent (person or business) that audience will decide the media, how often
The impact of psychology on price decisions- Selecting Which Distribution Channel to Use can be cut and kept.
High-quality products must be Suitable for products that are can’t be sent quickly by post, will sell products on behalf of the manufacturer.
Place – sell through low-cost outlets Sales are likely to be high due High prices for high-quality products can be AD appears, and should be cost-e ective.
sold at higher prices to give sold straight out of factories especially if they’re perishable Agent: an independent person or business appointed A lot of information can be put
Promotion – re-launch the product as an extension to realistic level prices. purchased for status symbols. Type of product 5. Evaluate the e ectiveness of the campaign-
them a high-quality image. or easily breakable goods. to deal with sales and distribution of a product or in the advert.
strategy When a price is lower than a whole number, it creates Is it technical? if sales or brand image improved.
If cost is high and sales are It is not cost-e ective, as range of products.
the illusion of being cheaper. There is a lower price for How often is it purchased?
Avoids price competition low, competitive prices can Magazines
Extending Product Life Cycle: Supermarkets may choose low prices for products sending products by post is How expensive is it? Types of Advertising Media
lead to loss. consumers (cuts retailer) Ex of suitable products/services: Feature in specialist
purchased regularly. expensive How perishable is it?
Extension strategy: a way of keeping a product at the Television magazines, gold equipment, medical equipment.
Often used when it is di cult Repeat sales are often made to reinforce consumers’ Products can be sold by mail Bene ts Limitations Where are customers located?
maturity stage of the life cycle and extending the cycle. Detailed research will be Examples of suitable products/services are food
for consumers to tell the perceptions of the product. order catalogue or via the Where do competitors sell?
needed to determine these Agents know the most Advantages Disadvantages
Introduce new variations into the original product di erence between the Using di erent pricing methods for the same product- internet. Manufacturers lose much products/drinks, cars, and household products.
Sell into new markets prices, which costs time and pro table places & prices to An e ective way to reach the
products of di erent Dynamic pricing: When businesses change product control over how the product Published once a month or
Make small changes to the product’s design, cover, colour money. sell in other markets that
is sold to customers.
3.10. Promotion Advantages Disadvantages target population is if there
businesses. prices, usually when selling online, depending on the Producers sell to retailers, who sell to consumers (i.e., week.
Sell through additional retail outlets manufacturers may not know. It will go out to millions of are specialist magazines.
level of demand, for example, Aeroplane tickets. farms selling food to big supermarkets). Promotion: where marketing activities aim to raise Very expensive
Introduce a new, improved version of the old product Agents will provide advice on Higher costs for consumers, people. Magazine adverts are in They are more expensive
Price Skimming: setting the price for a new product on the There are ethical issues with some dynamic pricing; This channel is most common where retailers and awareness of a product or brand by generating sales and
Use a new advertising campaign the best ways to survive new as agents will need Young consumers often colour, thus attractive. than newspapers.
market. A product is usually a new invention or a new using technology, businesses can track customers' large such as supermarkets or the product is helping create brand loyalty. Includes the following:
development of a product.
markets. compensation for expenses. Can be shown in a favourable download lms/movies and
buying history and then charge accordingly. expensive, Ex. furniture or jewellery. Advertisement: Involves ‘above-the-line‘ promotions.
3.8. Pricing Gives the manufacturer some way (Attractive). don’t watch many television Posters
Ex. TV, Social media. Newspapers, etc.
Bene ts Limitations Price Elasticity of Demand control over the way product programmes. Ex of suitable products/services: Local events,
Sales Promotion: Involves ‘below-the-line‘ promotions.
The price chosen may not be related to the cost of High prices may discourage is sold. products purchased by a large population.
It can help establish the Used for short periods of time to reinforce the above- Reaches the most signi cant
manufacturing but rather to what consumers are willing some customers from buying Price Elasticity of Demand: How responsive is a demand number of consumers and
product as good quality. the-line promotions. Ex. Money-o coupons, gifts, Advantages Disadvantages
to pay, the product's value, and the brand image. it. for a product to a change in price? Bene ts Limitations Methods of Distribution protect placements in programmes or newly released reaches the target audience
The business must constantly monitor what its PEDs are a ected by the no of substitutes available There is no direct contact with Permanent It can be easily missed.
If production is unique, a high High prices and pro tability lms. by showing AD after speci c
competitors charge for their products to ensure its prices Price-elastic demand is when a product is very responsive Manufacturer sells lots of customers, which makes It E-Commerce No detailed information can
price may lead to pro t, and may encourage competitors programmes. Relatively cheap
remain constant. to a change in demand. The % change in demand is stock to retailer hard to create customer Selling of goods and services through the internet be included
the price may be reduced. to enter. Aims of Promotion
A business can adopt new pricing strategies for: GREATER than the % change in price, i.e., prices increase loyalty. Potentially seen by everyone
High research and Radio
To break into a new market by 5%, but sales decrease by 10%. Bene ts to the business Problems to business
development costs can be Price is often higher than To raise awareness about a rm’s products Examples of suitable products or services: Local passing
To increase market share Therefore, the business's revenue would be falling Cheaper transportation costs Cheaper Website must be maintained
rapidly recovered from pro t ‘direct selling‘ as the retailer Encourage customers to make a purchase services or events, e.g., local shops or car showrooms.
To increase pro ts with a price increase. Businesses must nd another because all products go to
made. has to cover its costs and Customers are encouraged to Increase sales Cinemas, DVDs, Blu-ray discs:-
way to increase demand without using the product's one place High distribution costs
To make sure all costs are covered and a particular make a pro t buy in bulk Introduce new products in the market Advantages Disadvantages Examples of suitable products/services: Coca-Cola
pro t is earned price. Create brand image
Penetration Pricing: when the price is set lower than the Lower storage costs for the Business-2-Business e- It cannot put across a visual (make sure to boycott ;) ).
Price-inelastic demand is when the product is not very No direct contact It's cheaper than TV.
manufacturer commerce is cheaper Improve the company’s image message.
competitors’ prices to enter a new market. responsive to change in demand. The % change in
The Main Methods of Pricing Compete with competitors Advantages Disadvantages
Wider options for customers, It is pretty expensive
demand is LESS than the % change in price. Returns – higher costs Reaches a large audience.
Bene ts Limitations Producers sell to wholesalers, who buy in bulk, divide their brand image and loyalty compared to other methods. Shows visual image of Scene by only a limited
There are ve main types of pricing methods: This means you can increase the price of the product Advertising
stock into smaller quantities, and sell them to retailers. product positively. number of people.
a lot without the demand changing (i.e., oil & petrol A stock system will be
needed. Relatively low cost.
because people have to buy it)

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Advantages Disadvantages Price Reductions The media used must depend on the following: Price: the internet allows businesses to gather A consumer should have a minimum of 7 days Problem Method to Overcome
3.12. Marketing Strategy
It can be e ective if the target Includes coupons Literacy rate information about customer purchasing habits, which cooling period (a consumer should have seven Joint-Ventures: by working
audience goes to see a Linked to loyalty cards Poverty rate means dynamic pricing can be used to increase revenue. Marketing Strategy: a plan to combine the right days to change their mind about the purchase they together/merging with local
particular lm. Reduced prices of products at certain times of the Availability of radio and cinema Place: The widespread spread of online purchasing and e- made)
combination of the four elements of the marketing mix for businesses in the same
year. Nature of target market commerce. Can create new opportunities. Trade Descriptions
a product or service to achieve a particular marketing market, a business will gain a
Gifts Supplying a good/ service which is unsafe/ not t
Lea ets objective lot of necessary knowledge
Small gifts to encourage purchases Public Relations and Sponsorship Use of the Internet and Social Media Network for for the purpose is illegal. Lack of knowledge (and Production: making a product or service to satisfy
Examples of suitable products/services: local events The Marketing Strategy developed depends on the about the culture & market \n
The main aim is to get customers to buy at regular Promotion Giving false info or misleading claims is illegal cultural Di erences) consumer wants and needs.
and retail outlets (can contain vouchers). following: Franchising: letting people
intervals It is concerned with promoting a good image of the brand Misleading consumers about the actual price is illegal The factors of production or ‘inputs’ include:
Size of market from the market abroad who
BOGOF (Buy One, Give One Free) Ways to increase public awareness: Social media for promotion: Making false claims about special deals and o ers is Land – For factories or materials
Advantages Disadvantages Number and size of competitors have local knowledge to
Multiple purchases are encouraged Sponsor events linked with good causes illegal Labour – Employees
Cheap It may not be read Marketing objectives choose the location of the
Competitions Donate to charities. Opportunities for Advertising on Threats of advertising on O ensive or indecent ads are illegal Capital – Money/ nance
Direct mail, also called ‘junk Target market shop
Packaging can allow customers to enter competitions All these activities are used to raise the public’s Social Media social media Complying with all legal controls can raise the total costs Enterprise – Managers
Give out on the street to a mail,’ can be annoying and Finance available Licensing: the business
Encourages sales awareness of the company and its product and increase It can alienate customers if of a business by: A business combines these inputs to produce a more
wide range of people. prevent customers from Target speci c demographic Marketing objectives may include: permits a local business to
High prices their chance of choosing their product over competitors. they nd the adverts Goods/ services may have to be redesigned to ensure Transport costs are valuable output (this is added value).
buying. group Increasing sales sell goods under its name, so
Point of sale display and demonstrations annoying. quality and safety expensive. Labour-Intensive Production: A larger workforce is used
Improve the existing product they do not have to import all
Direct mail (delivered door to Place where the product is sold 3.11. Technology and Marketing Mix Ads may have to be altered than machinery to make goods. Usually done in countries
Businesses have to pay for Increasing sales of a new product
door) Special display Some promotion techniques may have to be changed
the products physically with low wages so that it is more e cient (ex: SHEIN).
Guarantee it reaches customers advertising if using pop- Maintaining/ increasing market share
Sometimes contains money- After-sales services E-Commerce May have to change the packaging Localising Existing Brands: Capital-Intensive Production: businesses use machinery
ups. Increasing sales in a niche market
o -vouchers. For expensive products, good after services Prices may have to be controlled and altered where a business still has the rather than workers. Usually done in developed countries
Speed in response to market Lack of control of Increase market share/retain market share
encourage consumers to buy their products. It is the ‘online’ buying and selling of goods and services Increase employment same brand image but adapts where the wages are high.
changes: Information can be advertising if used by For example, A product is made, priced reasonably, and Cultural Di erences
Internet Free samples using computer systems linked to the internet and apps. it to the market it is in (i.e.
uploaded regularly. others. meets the consumer's needs, but no promotional element
For example, suitable products/services are familiar, Can be handed out to shops to encourage sales 3.14. Entering New Markets Abroad McDonald’s cooking Operations Department
Messages may be altered exists. No one will buy it because people don’t know about
e.g., books, clothes, electronics—services such as Maybe delivered at home Bene ts to the business Problems to business vegetarian meals in India)
Cheap to use-low cost if placing or used badly and its existence. The operations department’s role is to transform inputs
train information, ticketing, insurance, etc. Product placement Cheaper Website must be maintained The globalisation of businesses has been increasing over
advertisements. forwarded to another user, Or if a product is made that doesn’t meet consumer into outputs for consumers.
Featured in television programmes, movies or music Customers are encouraged to needs, it won’t sell regardless of the price set. the years; there are opportunities & problems with this: Limitations to the methods listed above:
Advantages Disadvantages videos. High distribution costs giving bad publicity. An operations manager ensures raw materials are
buy in bulk It is crucial to have all elements working together to
It is expensive to pay for placement and can have a It reaches groups that are Opportunities Problems Method Limitation available and made into nished goods.
Internet searches may not in uence consumer decisions (buying the product)
A large amount of information Business-2-Business e- di cult to reach any other way. Most manufacturing businesses have:
highlight the website, and it negative e ect if the image is unattractive to No direct contact Growth potential in other Management con ict between
can be placed. commerce is cheaper Lack of knowledge of Factory Manager - responsible for quality and quantity
could be missed. customers. Recommending and justifying a marketing strategy countries: countries are Joint venture the two businesses. Pro t
Wider options for customers, Create your own website for promotion: competitors or consumer shared. of products
A vast number of people can Some countries have limited Returns – higher costs in a given circumstance:- developing, and population
Advantages of Sales Promotion brand image and loyalty habits Purchasing Manager – responsible for providing the
see it access to the internet. incomes are increasing Quality problems caused by an
A stock system will be Opportunities of advertising on Threats of advertising on required materials and equipment
Orders can be made instantly Important points to include in your answer: Markets in the original region Cultural di erences: for inexperienced licensee could
A lot of competition. It can be used at the times of year when sales are low. needed. the business’s own website the business’s own website Research and Development Manager – responsible
via the website. might be saturated (sales are example, alcohol won’t sell damage brand reputation.
Encourages new customers to try an existing product. Potential customers may not for design and training of employees for new products
Marketing objective Licensee now had access to
Security issues can Encourages customers to try a new product. low) well in the Middle East Licensing In the retail business, the factory manager will be
Direct mail via email is cheap. Bene ts to consumers Problems for consumers No extra cost after setting up a see the website, as the page Marketing budget information about how the
discourage customers. Increase customer loyalty by encouraging existing website. may appear in a long results Exchange rates: in some replaced by the managers for the shop.
No need to go out Internet needed Target market Can produce products abroad product is made - could develop
customers to buy in greater quantities. list. Balanced marketing mix
countries, their currency isn’t In service businesses, e.g. Restaurants, the operation
High chances of fraud and and learn about its market to a better version and become a
Other forms of publicity: Encourages customers to buy their product instead of Wide options stable, so the price of department will include managers for each shop.
theft Control of advertising as the Relies on customers nding increase sales competitor.
Ex of suitable products/services: shops can use bags competitors. imported goods increase
as a form of advertising, billboards on the street. Products can’t be physically
website is owned. the website. 3.13. Legal Controls in Marketing Trade barriers are lowered in
Quality problems or poor service Productivity
Easy Comparison Can change adverts quickly and Transport costs are more o ered by franchisees could
Marketing Budget examined The website's design costs most countries, so it is
update pictures, prices, and so There are many laws in di erent countries to protect expensive International franchising damage brand image. Training Productivity: a way of measuring a business’s e ciency.
Advantages Disadvantages Payment through net banking No direct contact can be high. cheaper to enter markets
The marketing budget is the nancial plan for marketing a on. consumers from businesses taking advantage of their and support will need to be Note: Production is the making of the product, while
Very cheap methods of Easy access to imported Import restrictions - causes
product/brand for a period of time. It would need to be lack of knowledge or lack of product information provided by the franchisor. productivity is how e ciently the product is made.
advertising, e.g. T. Shirt goods price of goods to increase and
When deciding which type of promotion to use, marketing Interactive adverts can be more constantly updated, and a These legal controls include (in the U.K.): May be less successful than a Productivity = Quantity of output
delivery vehicles and bags Customers may not see it in sales decrease. Quantity of input
budget is an essential factor
Low prices Weights and Measures new product made to meet local
can be worn, and by walking the target market. attractive than magazines or team would need to be Labour Productivity = no. ofoutput
Businesses will need to compare the cost of advertising posters. nearby for any bugs or Selling underweight items or using inaccurate Increased risk of non- cultures and market conditions.
employees
around, it can be an Localising existing brands As employees become productive, per-employee output
and the increase in expected sales. Cost-e ectiveness if How technology in uences the marketing mix: issues. Which is costly. equipment to weigh goods is illegal. payment Expensive to change packaging,
advertisement itself. rises, and costs of production fall
important. Sale of Goods promotion, and so on for each
Social Media Marketing: a form of internet marketing that Can provide more information Many ways to increase productivity:
This is where small businesses struggle compared to big Supplying awed goods (not up to quality However, there are many methods to reduce and market the product is sold.
Sales Promotion involves creating and sharing content on social media in adverts and link to other Improve factory layout to reduce time waste and raise
businesses because their budget is much smaller. standard). overcome the problems of entering a new market:
networks to achieve marketing goals. pages with further information e ciency
Product not t for its intended purpose.
Sales Promotions: when incentives (i.e. special and pictures.
o ers/sales) are aimed at consumers to achieve a short-
Factors In uencing Type of Promotion
Viral Marketing: when consumers are encouraged to
share information online about a business's product. Attracts funds and payment
Products which do not perform as described in Problem Method to Overcome 4. Operations Management Introduce automation
Improve labour skills by training
label or by retailer.
term increase in sales. Product: may change to respond to new technology. from companies who want to Supply of Goods and Services Act
Improve quality control
Stage of PLC
Nature of product
Promotion: social media marketing and viral marketing advertise their product on the Service must be provided with skill and care. 4.1. Production of Goods and Services Improve employee motivation
Types of Sales Promotion can be used to promote. business’s site Consumer contracts Regulations Improve inventory control
Cultural issues involved in international marketing
Production Process Bene ts of increasing e ciency:

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More output compared to inputs. Defects - when goods have faults/defects that require Employees feel more valued and are less likely to Computer-Integrated Manufacturing (CIM): when
Lower costs per unit (and therefore lower average them to be inspected/ xed, wastes time strike or cause disruption. Flow Production: software that designs the products is integrated with the
cost) Advantages of lean production machines that produce (CAM + CAD).
For example, if the business has a limited workforce, Less storage costs Features Bene ts Limitations
4.3. Methods of Production
raising their wages will increase motivation and, Quicker production It is very boring for Electronic Payment Methods
therefore, also increase productivity. Better use of equipment 3 Main Methods of Production: Large quantities of High output, capital employees, leading
Less money tied up in inventory a product are intensive, more to decreased EPOS (Electronic Point of Sale): used at checkouts, where
Job Production: products made one at a time
Inventory Speed up production by cutting out processes produced. e cient. motivation over barcodes are scanned and displayed on the receipt. The
Batch Production: a quantity (batch) of a product is
Improved health and safety lead to less time o work time. inventory is automatically changed and reordered when
made, then a batch of another product is made
Inventory can take various forms. Inventory includes: due to injuries. the reorder level is reached.
Flow Production (mass): large quantity of products Cars, drinks,
Raw materials No need to repair defects or provide replacement Costs are low, EFTPOS (Electronic Funds Transfer Point of Sale): it is
made in a continuous process electronics, and High cost of
Work in progress goods services for a dissatis ed customer. therefore low where an electronic cash register is connected to the
Job Production: mass-made inventory of output
Finished goods All these save/reduce costs that lead to lower prices, leading to retailer’s bank accounts, and the money is directly
products are made & raw materials.
Why do businesses hold inventory? customer prices and increased business Features Bene ts Limitations high sales. transferred when the shopper’s bank info is entered.
this way.
To ensure enough inventory is available to satisfy competitiveness and pro t. Contactless Payment: works by the contactless device
Often labour- It requires only
sudden changes in demand. Capital costs for having an antenna; when touched against a contactless
Products are made intensive, relatively unskilled
Production and opportunity costs will also be high if Types of Lean Production Good for ‘one-o ’ setting up terminal, it securely transmits intervention about the
speci cally for the expensive as highly workers and some
inventory levels are high. products production are very purchase. e.g. credit cards, key fobs, mobile devices, etc.
customer’s order skilled workers are training, maybe
Inventories can be managed: Kaizen high.
needed needed. Advantages of Use of Disadvantages of Use of
Just-in-time inventory (JIT)
Cell production Meets the exact There is no need If one machine Technology Technology
Each order is Production takes
requirements of the for moving goods breaks down, the Productivity is greater as
di erent longer
Kaizen customer around (all made in whole production new, more e ective
Varied work the same place). stops. Unemployment could rise.
E.g. bridges, ships, methods are used, reducing
Kaizen means continuous improvement in Japanese increases Any errors made Automated average costs.
cakes, cinema,
Its primary focus is to eliminate waste employee are expensive to x production lines
lms, suits It is expensive to invest in new
Ideas are thought of by holding frequent meetings with motivation can operate 24*7. technology; this increases the
workers to discuss problems and possible solutions. Ability to charge Materials are more Greater job satisfaction
Bene t from risk as more products would
Advantages: higher prices expensive. stimulates workers.
economies of scale. need to be sold to cover the
High productivity
No possibility of cost.
Less space needed for production
purchasing Factors in uencing which production method to choose: More skilled workers may be
Work in progress is low
economies of scale Nature of Product - if unique or individual service, job needed to use and maintain
The business buys in inventory to ll its holding capacity, Improved layout of the factory may lead to combining
production can be used. the new technology.
known as the maximum inventory level. jobs. This will reduce labour demand. Employees may be unhappy
Batch Production: Size of Market - if demand increases and more Therefore, motivation and
As resources are depleted, inventory levels drop. At this with the change.
products can be sold but not in large quantities, batch work quality will increase as
stage, reorders will be made so it reaches the business in Just in Time
Features Bene ts Limitations production will be used. International market, ow training is provided to
time before it runs out.
A production method that reduces or virtually eliminates A similar range of Flexible work can Machines must be production. existing employees.
Bu er Inventory Level: inventory held to deal with
the need to hold inventories of raw materials or unsold products is made in change products reset to do di erent Nature of Demand - if large and fairly steady demand, New technology is constantly
uncertainty in customer demand and deliveries of
inventories of the nished product. batches easily batches e.g. soap powder ow production, can be used. changing and becoming
supplies.
Advantages: Ex. bakery: makes The size of the Business - if the business is small and outdated quickly; thus,
doesn’t have access to large funds, job production can Better quality products
All this reduces the costs of holding inventory. one type of bread, businesses must replace
4.2. Lean Production ‘Warehouse‘ space is not needed, reducing costs. then one type of
Semi nished be used. technology to remain
Gives some variety products may need
The nished product is sold quickly so that money will cake and each competitive.
Lean Production: various techniques to cut down waste to worker’s jobs to be transported
return to business quickly. Helping cash slow. product is produced
around (+ cost)
4.4. Technology in Production Methods Quick communication and
and raise e ciency.
However, to operate in JIT, businesses need to have in stages or reduced paperwork,
Types of Waste:
reliable suppliers and an e cient ordering system. If batches. Automation: Equipment in a factory is controlled by a increasing p
Transportation - when the goods are being moved
suppliers are late, it can disrupt the system. Need space for computer to perform mechanical processes (i.e., painting
unnecessarily → fuel price, chance goods may get
More variety, more stocks of raw a car). Only workers are to ensure it runs smoothly.
damaged Cell Production consumer choice material (high Mechanisation: production is done by machines but
Overproduction - leads to high storage costs and
storage costs) operated by people. Used to do di cult, precise or
possible damage to goods while in storage. This is where the production process is divided into dangerous tasks. Work 24/7, quicker and more accurate.
Overprocessing - when sophisticated machines are Production may not
separate units, each making an identi able part of the Computer-Aided Design (CAD): software that helps design
being used to do simple tasks good
be a ected to any
High work-in- or re-style products quickly, allows technical sketches to
Waiting - when goods are not moving or being Advantages:
grant extent if the
progress inventory be very detailed
processed, waste occurs due to ine ciency High motivation due to improved morale of
machine breaks
Computer-Aided Manufacture (CAM): when computers
Motion - any action made by an employee that does employees.
down.
monitor production and control machines/robots
not relate to the production of goods, wastes time More production e ciency. Expensive and
Unnecessary inventory time-taking

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also increase the xed cost because they must need a Businesses will ensure quality standards are set, and then Businesses look for locations when: Availability of power is very important. Security Finance: money that is needed to meet the expenses of a Advantages Disadvantages Advantages Disadvantages
bigger factory, more machinery, labour, etc.) employees will apply these standards throughout the Some businesses need to have reliable power sources A place prone to theft may reduce a business’s business. This is known as capital.
Reduces storage costs. Don’t have to be repaid Given with strings attached
Break-even charts assume that costs and revenues business. New business to continue production. chances to locate there. Capital is needed for:
can be drawn with straight lines, which doesn’t happen The present location is unsatisfactory Some production processes require a reliable water Insurance companies may not insure such companies. Starting up a business
Owner’s Savings Micro nance
in real life. Advantages of Quality Drawbacks of Quality Change in business aims and objectives source. Legislation Expansion
Providing nancial services to poor people not
It assumes costs and revenue increase at a constant Assurance Assurance Expansion Climate Some countries may have laws restricting trade in Increase working capital Advantages Disadvantages secured by traditional banking.
rate. Eliminates faults/errors some parts. Capital Expenditure: money spent on non–current
It is expensive to train Quick availability Savings may be low
before the customer receives Factors that in uence the choice of location of a Factors that in uence the choice of location of a assets. Advantages Disadvantages
employees to check products. Increases risks for owners, as they
4.9. Achieving Quality Production a product or service. MANUFACTURING business: SERVICE SECTOR business: Factors in uencing the decision of which country to Revenue Expenditure: money spent on day-to-day, No interest is paid
might have unlimited liability. Small loans can be obtained by
Relies on employees following locate operations in: recurring expenses.
start-ups (especially if it’s by High-interest rates
Quality: to produce a good or a service which meets Fewer customer complaints. instructions of the standards Production methods and location decisions Customers
External Sources of Finance simple people)
customer expectations. set by the business. Production methods play a signi cant role in deciding Services which require direct contact, must be located New market overseas - when a business sees an increase The Responsibilities of the Finance Department
the location of a business. near the customers. in sales overseas, it may decide to move/relocate there Greater risk for the lender
Quality is important for businesses because: Reduced costs if products
Job Production: the business will be small and won’t Services where personal contact isn’t required, instead of transporting products there. Recording all nancial transactions Issue of Shares: Sale of business shares (only for limited
It establishes the brand image don’t have to be scrapped or
have much e ect on competitors there. The location location doesn’t a ect. Cheaper Source of material – if the raw material runs out, Prepare nal accounts companies) Crowdfunding
It builds brand loyalty reworked or service repeated.
of suppliers won’t a ect much on the business. Ex. A Technology the business must either bring in alternative supplies Cash ow forecast Funding a project or venture by raising money from
It maintains a good reputation Advantages Disadvantages
small jewellery business. Technology has allowed e-commerce, so location from somewhere else or relocate to a new country with Make important decisions numerous people who each contribute a relatively
It will help to increase sales
Total Quality Management (TQM) If there is large-scale production, then competitors in doesn’t play a vital role. these raw materials, it also might be cheaper than Provide info to managers A permanent source of small amount.
Attracts more new customers Dividends are paid after tax.
that area will be highly a ected, and the business will Personal preference of owners. transporting it. capital
If quality is not maintained, businesses will: Total Quality Management (TQM): the continuous Advantages Disadvantages
Lose customers to other brands/competitors improvement of products and processes by focusing on
prefer closer suppliers as raw materials will be huge. Availability of labour Di culties with the labour force and wage costs – if the 5.2. Sources of Finance It doesn’t need to be paid Shareholders expect
Transportation costs may be high if the supplier is too If a business is labour-intensive, it must be located business is located in a country where wages keep rising, back dividends. Crowdfunding platforms may
Have to replace faulty products or repeat poor quality at every stage of production It's a fast way to raise a
far. where labour is easily found, like towns and cities. it may be more pro table to relocate to a country with The primary sources of capital include: Ownership will change if many reject the proposal if it is not
service, which raises costs for business Many companies use total quality management. No interest substantial sum.
Market Climate lower wages. Internal Sources: Obtained from within the business shares are sold. done well.
They have a bad reputation because people with bad It tries to “get it right the rst time” and has no defects
experiences will tell others, etc. This leads to lower When a product is heavier than its raw materials, Near to other businesses Rents/taxes considerations – if other costs such as rent or itself. No initial fees are payable to
It focuses on ensuring 100% that the customer is always If the total amount is not
sales & revenue. businesses decide to locate its factory near the Some services/ businesses serve large companies taxes increase, this might cause businesses to relocate to External Sources: Obtained from outside and separate Bank Loans: A sum of money from a bank repaid with the platform; only when the
satis ed. The customer is not just the nal user; it also raised, nance invented by
markets rather than the supplier, as a business will and so should be able to reach them immediately; countries where it is lower. from the business. interest. goal is reached a % will be
includes other people and departments within the others will have to be repaid.
Quality Control nd it much cheaper due to transportation costs. therefore, they must located closer to them. Availability of government grants and other incentives - If taken.
business
Due to advances in transportation facilities, the Rent/ taxes governments want to increase foreign investment and job Internal Sources of Finance Advantages Disadvantages It allows public opinion to be Media interest and publicity
Quality must be maintained throughout the business, and
Quality Control: Check for quality, whether a product or distances between factories and markets of heavy If services don’t require personal contact, they can be opportunities, they will provide grants, subsidies, and Quick, easy to arrange Must be repaid with interest heard to see if the idea is are needed for a chance of
no faults should occur. Retained Pro ts: Pro t businesses obtain after costs.
service, at the end of the production process. products don’t play a vital role. located in places with lower rents and tax rates. lower taxes. They may do this to provide new skills and good. success.
Available for varying lengths Security or collateral security
Quality control is a traditional way to ensure that products Perishable products need to be delivered quickly. increase employment.
Advantages of total quality Drawbacks of Total Quality Advantages Disadvantages of time. must be given It is often used by
leave the factories without defects. Raw Materials/Components Factors that in uence the choice of location of a Trade and tari barriers – If trade barriers are high, the
management Management Large companies receive low- entrepreneurs when other Competitors could steal the
Quality inspectors’ job is to maintain/check quality Transportation costs will be high if goods and raw RETAILING business: business’s chance of locating there would reduce costs. The new business will not have
Quality is built into each part It does not have to be repaid. interest rates if large sums traditional methods are not idea.
regularly for errors. It is expensive to train all materials are very heavy. Then, a company may want any.
of the production. It becomes are taken. available.
The whole production batch might have to be redone if employees. its factory to be located near the supplier. Shoppers The Role of Legal Controls on Location Decisions Small rms’ retained pro t
a habit for the employees. External economies of scale Retailers want popular areas as they attract
errors are found. It doesn’t incur interest. may be low to nance the
Eliminates virtually all When two rms support each other or work together, customers. Reasons the government in uences these location Selling Debentures Short vs. Long-term Sources
Their job is also to prevent any production errors before Relies on employees following expansion.
they happen during production, which will lead to money faults/errors before the they will be able to respond quickly to any important It depends on the type of product. decisions: Debentures are certi cates issued to a debenture
the ideology of TQM. Reduces payment to owners, Short-term nance (shortage of ash in short rem can be
loss. customers receive them. decisions to be made or any breakdowns. Expensive – a place where high-income people live or To encourage businesses to set up and expand in holder for the money they lent, which must be repaid
e.g., dividends for within 20 – 25 years. overcome in 3 ways):
No customer complaints, so Availability of Labour visit regularly. areas of high employment.
shareholders.
Advantages of Quality Control Drawbacks of Quality Control the brand image is improved. Every manufacturing business requires labour. Nearby shops To discourage rms from locating in overcrowded
Overdrafts
areas or on sites with natural beauty. Advantages Disadvantages
Eliminates faults/errors It is expensive, as employees Waste is removed, and If a business requires only skilled labour, it will try to Being located near a frequently visited shop means
Sale of Existing Assets Loans must be repaid, and interest
before the customer receives need to be paid to check the locate near a place where people with various skills people may shop in between while visiting other Two types of measures used by the government to Advantages Disadvantages
e ciency increases, which Long term nance
a product or service. product or service. live. shops. in uence where rms are located: must be paid.
means less money is wasted Advantages Disadvantages ‘Overdraw‘ (spend more
If a business requires unskilled labour, it will be A place with high competition attracts more Planning regulations (legally restrict business activity Interest rates are variable
Identi es the fault but not how (higher pro ts). It can take time to sell the money than is currently in the
located where wage rates are low and unemployment customers as they have greater choice. from certain areas). Debt Factoring (vary from each overdraw)
Less training is required for and why it occurred, so it is Better use of unwanted assets, and the amount may account)
is high. Customer parking availability/ nearby Government grants or subsidies encourage them to Debt factors are specialist agencies that buy the
the workers. di cult to remove the Customers can be assured of quality capital not be the same as when The bank can ask for the
Government In uence Convenient and nearby parking lots will encourage locate in undeveloped areas. claims of debtors of rms for immediate cash. Flexible form of borrowing
problem. products/services purchased. overdraft to be paid quickly.
When a government wants to encourage businesses people to visit your shop.
Increased costs if products Doesn’t increase the debts of Source of nance not Advantages Disadvantages Interest will be paid only in the
to locate in a particular area, it will o er state–funded Availability of suitable vacant premises
have to be scrapped or Businesses may apply a quality mark but will have to
grants to encourage rms to move there. If a proper location isn’t available, a company can’t
5. Financial Information and a business available for new businesses. The rm doesn’t receive 100% amount overdrawn.
reworked or service repeated. follow certain rules. This mark, e.g. ISO, makes sure Availability of immediate cash
amount Overdrafts are cheaper than
products meet a particular standard.
High unemployed areas may provide grants to
businesses to locate there.
locate there.
Access to the delivery vehicle
Decisions Sale of Inventories The risk of collecting the short-term loans.
Quality Assurance For service businesses, recommendations from satis ed
Transport and Communication Businesses try to nd places near transport debtors becomes the factor,
customers can be heard or read from online sites, where Advantages Disadvantages
bad and good reviews can be shown.
Businesses need to be closer to transport systems. businesses to gain easy access to delivery vehicles. 5.1. Why does a Business Need not the business’s. Trade Credit
Quality Assurance: checking for the quality standards Exported products, ability to reduce transport costs. Rent/ taxes It may disappoint customers if a It is when businesses delay payments to suppliers
throughout the production process. Reduces time taken. Popular area, high demand, and high rent.
Finance? Reduces opportunity cost. sudden change in demand is not Grants and Subsidies
4.10. Location Decisions Power and water supply Less popular, low demand, low rent. met. Advantages Disadvantages

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CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES

Advantages Disadvantages Existing Loans (risk and gearing ratio): If a business Due to: Delaying the purchase of xed assets will reduce cash Pro ts show that investing can be pro table, but 2018 2017 Assets 2018 ($00) 2017 ($00) the more e cient the business is with its capital
Almost an interest-free loan May not provide discounts has already taken out many loans, banks will think it is Over-trading out ows, but in the long run, a company may lack losses show that investment must not be made. Net pro t $195 $240 employed.
Cash 10 15
too risky to nance. Long credit time e ciency as they don’t have up–to–date technology. However, Pro t ≠ Cash as pro t is derived from Net Pro t Margin (%): how well a company converts
Reduces cash out ows in the Corporation tax – $35 – $40 140 125
Gearing: measures the proportion of total capital Less credit time received revenue, but cash can be derived from many sales into net pro t.
short run Long Term Solutions Pro t after tax $160 $200 Total Assets 1290 1165 Net Profit
raised from long-term loans. Many xed assets purchased places (e.g. selling assets like cars). NPM(%) = 100 × Sales Revenue
Importance of pro t to the public sector: Dividends – $120 – $130 Liabilities:- Shows the percentage of gross pro t per $1 worth
Factoring of Debt Attracting new investors
Common Reasons The Banks Refuse to Loan to Cash Flow Forecast Used as a source of nance to develop the state- Retained pro t for the year $40 $70 Current liabilities: of goods. If the following year's pro t increases,
Cutting costs and increasing e ciency using lean
Small Businesses owned business or be more e cient. Account payables (Creditors) 65 40 either the price increases or the cost of sales is
Long-Term (Loans Available for More than a Year) production.
Cash-Flow Forecast: an estimate of a business's future Importance of pro t to social enterprise: Uses of income statement: reduced.
Develop new products Bank Overdraft 65 60
Weak cash ow cash in ows and out ows on a month-by-month basis. Balance pro t-making with their aims, as pro t is used Know the pro t/loss made. Return on capital employed: how pro table a company
Bank Loans Shows the expected cash balance at the end. 130 100
Lack of security or collateral. for the rm's survival. Compare their performance. is compared to the money used.
They are payable over a xed period
Poor preparation by the business owner when applying Closing Cash Balance: the amount the business holds at 5.4. Working Capital Pro tability of individual products. Non-Current liabilities: RoCE(%) = 100 × Net Profit
Hire Purchase Capital Employed
for the loan. the end of each month. Understanding Income Statements Products to launch. long-term bank loans 300 245
It allows a business to buy a xed asset over a long Shows the net pro t made on each $1 Worth of
Opening Cash Balance: the amount the business holds at In the short run, it is the capital available to a business to
period with monthly payments, including interest. Total Liabilities 430 345 sales. The higher the results, the more net pro t is
Banks Need These to Lend the start of each month. pay for day–to–day expenses. Income Statement: a nancial statement that records the
Net Cash Flow: The di erence between the cash in ow income of a business and all costs incurred to earn that 5.6. Statement of Financial Position Total Assets - Total Liabilities 860 820 gained from the sales.
Advantages Disadvantages Working Capital = Current Assets – Current Liabilities One pro tability ratio isn’t helpful by itself. You need to
Cash ow forecast and out ow (in ow – out ow) income over some time. Share capital 520 500
Doesn’t have to nd a large Statement of Financial Position – a document that shows use all the pro tability ratios and compare them with
A cash deposit is paid at the Business plan Working capital can be in the form of: Managers, banks and other investors will use it to see if a Pro t and loss reserves 340 320
cash sum to purchase the the value of the business’s assets and liabilities at a time. previous years of the business.
start of the month Collateral/security January February March business is making a pro t:
Cash Assets: Items of value owned by a business. Total Shareholders’ funds/equity 860 820 Liquidity Ratios:
asset Forecast income statement available Opening bank balance (A) 10,000 15,000 (5,000) To compare with previous years - if it is greater than
Value of debtors Current Assets: (Short-term Assets) Items owned by Current Ratio: how good a company is to pay o its
High-interest rates Cash in ow (B) 35,000 45,000 50,000 the year before
Value of inventory the business for less than 1 year, i.e. Raw material, Interpreting Balance Sheets current liabilities with its current assets.
5.3. Cash-Flow Forecasting and Working Working capital should be handled properly because it To compare to competitors Current-Assets
Cash out ows (C) 30,000 65,000 40,000 cash. Current Ratio =
Leasing shows investors & banks how e cient a business is and The main features of an income statement include: Current-Liabilities
Shareholders can see the value of their stake Shows whether the business has enough current-
It allows a rm to use an asset without paying for it. Capital Net cash ow (D=B-C) 5,000 (20,000) 10,000
its nancial strength. Revenue: the income to a business from the sales of
Non-Current Assets: (Long-term Assets) Items owned
Closing bank balance (=A+D) 15,000 (5,000) 5,000 by a business for more than 1 year, i.e. Buildings, land, Shareholders can also analyse how expansion has been term assets to pay o short-term debts; if less
goods and services.
Advantages Disadvantages Cash is a Liquid Asset: it can be immediately available to company cars. paid for by long-term loans, retained pro t, or increased than 1 means the business does not have money,
Equation: Units sold x Cost per unit
Doesn’t have to nd a large The total cost of leasing spend on goods & services. Uses of Cash Flow Forecast 5.5. Income Statements Costs of Sales: the cost of production or buying the
Liabilities: debts owed to the business. share capital (sales of shares). 1 is when a business can exactly pay debts, and
Cash Flow: the cash in ows (money received by business) Current Liabilities: (Short Term Liabilities) Debts owed You can calculate the Working Capital. when more than 2 means it has excessive assets
cash sum to purchase the changes will be higher than goods the business sells during a period.
& out ows (money paid) over some time. Accounts: the nancial records of a rm’s transactions. by business for less than 1 year, i.e. bank overdrafts Working Capital = Current Assets - Current Liabilities that could be put to use.
asset purchasing the asset. Starting up a business Equation: Opening inventories + Purchases –
Cash In ow: money coming into the business. Accountants: professionally quali ed people who are and wages. You can also calculate the Capital Employed – the long- Acid Test Ratio: measures the ability of a company to
Maintenance is taken care of The rst few months are crucial to every business, as Closing inventories
Sale of goods responsible for keeping accurate accounts and producing Non-current liabilities: (Long-term Liabilities) debts term and permanent capital invested in a business. pay o its liabilities without depending on the
by the leasing company. owners don’t realise the amount of cash needed, Gross Pro t: the pro t made in revenue is greater
Sale of assets nal accounts. owed by a business for more than 1 year, i.e., long- Capital Employed = Non-Current Liabilities + Total inventory sales.
which is why they fail. than the cost of sales.
Payments to debtors Final Accounts: These are produced at the end of the term bank loans and creditors (money the business Equity Acid Test Ratio = Current assets-inventories
Businesses need to spend on labour, land, and capital. Equation: Revenue – Cost of sales Current-liabilities
Issue of Shares nancial year and give details about the pro t/ loss made owes to suppliers).
Borrowing money They even have to advertise and promote extensively. The acid ratio considers only the liquid assets of
Only available to limited companies Trading Account: shows how gross pro t is calculated.
Debentures
Investors Many owners don’t understand the importance of cash over the year and the worth of the business.
Net Pro t: the pro t the business makes after
The Total Equity (AKA Shareholders’ funds) is how 5.7. Analysis of Accounts the business, not the inventories. The uses as the
Cash Out ow: money going out of the business. ow in a business, so they fail. The simple equation for pro t: much a business is worth. (only for limited current ratio.
Long-term Loans or Debt Finance - this is di erent from deducting all costs.
Purchase of goods Keeping the bank manager informed Pro t = Sales revenue – total costs companies). Analysis of Accounts: using data in the accounts to make
share capital: Equation: Gross pro t – Overhead costs (Fixed
Purchase of non-current assets A cash ow forecast will help a business receive a Pro t can be increased through: Shareholders’ Funds = Total Assets – Total useful observations about a business's performance and 5.8. Users of Accounting Information
Loan interest is paid before tax and is an expense. costs)
Payments of salaries loan. Increasing the sales revenue so that it is higher than Liabilities nancial strength.
Loan interest must be paid every year. Depreciation: the fall in the value of a xed asset
Repaying loans The bank manager needs to know when the amount is the production costs. The shareholders’ funds are the total money invested Used to compare results from other years and other
The loan must be repaid. over time. Managers
Trade payables needed, for how long, and when it will be repaid. Reducing the production costs. in a business by the shareholders/owners. businesses. They will help them keep control over the
Often ‘secured‘ against particular assets. Retained Pro t: the net pro t, after taking away taxes
Managing an existing business A combination of the two. This money can be invested by either share capital or Liquidity: the ability of a business to pay back its short- performance of each product.
and payments to owners – which is reinvested into the
Cash Flow Cycle Managing cash ow reserves (Retained pro t and loss). term loans (debt). Help decision-making
Factors When Choosing the Source of Finance business.
Businesses with high bank balances can use their cash Importance of Pro ts If the total equity of a business has increased/fallen, Illiquid: assets are not readily convertible into cash. Ratios are a quick way for managers to compare their
Limited companies will have in their income statements:
It shows the stages between paying out cash and e ectively in other areas. the shareholder’s stake in the company will be worth Pro tability: the measurement of the pro t made relative ratios with other businesses and previous accounts.
The main factors considered in making the nancial Corporation tax is paid from net pro t.
receiving cash. Importance for Private Sectors: more/less, respectively.
choice: Dividends paid to shareholders. to either sales achieved or the capital invested in the Shareholders
1. Cash out ow to pay for materials, rent, etc. Reward for enterprise business. Also, a measure of e ciency.
Size of business & Legal Form (type of business): How do you Overcome Cash Flow Problems? Retain pro t after these two deductions. Shareholders and potential investors want to know
2. Goods produced Entrepreneurs have special qualities, and they Example of Statement of Financial Position There are 2 types of ratios:
Public limited companies have a larger choice of Results from the previous year will allow for easy how big a pro t/ loss the company has made.
3. Goods sold Short Term Solutions must earn rewards for that. Pro tability Ratios – how pro table a business is
sources of nance because they pay less interest (less comparisons. They will want to check the pro tability and liquidity
4. Cash payment received for goods sold (cash Reward for risk-taking Assets 2018 ($00) 2017 ($00) Liquidity Ratios – how able a business is to pay its
risk). ratios and decide whether shareholders have to buy
in ow) Increasing bank loans will inject more cash into the Shareholders/investors/owners take risks when Non-current ( xed assets):
Amount of Capital Required: if you need just a little Example of Income Statement short-term debts (current liabilities) more shares.
The longer it takes for the cash ow cycle to be business, but interest and loan must be paid. they provide capital; pro ts reward those risks. Pro tability Ratios:
money, you won’t issue new shares. Land and buildings 450 440 Creditors/Trade Payable
completed, the greater the working capital. Delaying payments to suppliers will decrease cash Payments act as incentives to invest more and Gross Pro t Margin (%): how well a company converts
Purpose of Capital & Time Period: The general rule is 2018 2017 Machinery 700 $600 Liquidity ratios indicate the ability of the company to
Cash ow is not the same as pro t. out ows in the short run, but suppliers may refuse to make the business pro table sales into gross pro t.
that the nance source should match the nancial Revenue $1250 $1300 pay back its debts.
Pro t consists of goods sold on credit, whereas cash ow provide discounts or supply. Source of Finance 1150 1040 Profit
need: GPM(%) = 100 × Sales Revenue Banks
is a business's cash sales in a month. Reducing credit periods may help a business increase Pro ts after payments can be used to fund Cost of sales – $900 – $900 Current assets:
If the use of capital is long-term, the source should The percentage of how much pro t you have to Risk of illiquid, no lending.
When pro table businesses run out of cash, it is known as short-term cash in ows, but customers may switch to expansion Gross pro t $350 $400 Inventories 80 50
be long-term (same with short-term). earn from the capital employed. The higher the %, Government
insolvency competitors. Indicator of Success Expenses, including interest paid – $155 – $160 Account receivables (debtors) 50 60

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To check the tax revenue, whether the rms are Impact on Business from Changes in Economic Less investment Governments and spending decisions include a tax Pollution from factories. Use of renewable energy Even if it is not illegal, therefore wrong even if it may Potential
paying the right taxes. Indicators measure according to the e ect they want to achieve. Waste disposal Recycle waste increase pro t. Opportunities for E ect 1 E ect 2
Workers and trade unions Balance of Payment Governments will reduce spending and increase tax rates Transportation of goods by ship or track burns fossil use fewer resources Business
They just want to assess whether the company's Changes in employment levels will a ect the ability of the to reduce in ation. fuels such as oil, creating carbon emissions, which link Develop new ‘environmentally friendly‘ products and Potential bene ts of ethical Potential limitation of ethical
They are
future is secure. business to recruit new employees and also the income of Balance of Payment (of Imports & Exports): the di erence Governments will increase spending and decrease tax to global warming and climate change. production methods. decision decision
expensive to sell
Access the pro ts to help unions improve wages and between a country's imports and exports balance out rates to stimulate economic growth. Customers may be more Adults paid higher costs, Start selling exports
customers. Increase potential abroad, and
working conditions of employees. Rising in ation may increase business costs, leading to
(BoP = Exports – Imports). Arguments against being Argument with being mindful Main Reasons Why Businesses Respond to inclined to buy products not especially if good workers’ to other countries -
sales, especially foreign consumers
Other businesses – competitors higher product prices. The e ect of increasing in ation
Exports: Goods and services sold from one country to Monetary Policy mindful of the environment: of the environment: Environmental Pressure made by child labour. conditions were involved. opening up foreign
online sales. buy the products
The managers will compare their pro tability and depends on the type of product sold. another. Pollution and global warming markets.
Good publicity about ethical even if they are
liquidity with other businesses. Imports: Goods and services bought by one country Monetary Policy: change in interest rate by the It can be expensive and reduce a ect all, so social Consumers Prices may be set higher due
An increase in GDP means the economy is growing. decisions provides ‘free popular at ‘home‘.
from another. government and the central bank. pro t. responsibility helps reduce to higher costs.
Increase sales, higher income, but recruitment of promotion‘.
Limitations of Accounting Records and Ratio Balance of payments is a record of one country’s nancial Governments will have a set of objectives they would like Bad publicity can cause them not to buy; if consumers Quality good?
employees hard. this problem. Open
transactions internationally. to achieve and will present these objectives to the central think the products harm the environment, they will stop If consumers are not Ethical issues?
Analysis Increase prices to pay for Using non-renewable factories/operations Cheaper to make
Governments will aim for an equal balance of payments: bank, which will set the interest rate in accordance with buying, resulting in the business changing the product or interested in how it’s made Expensive or
Government Economic Objectives ‘environmentally friendly‘ resources leaves less for the Long-term pro t increases in other countries goods outside
exports equal imports. these objectives. production method. and care only for price - then di cult to set up
Managers have access to all account data; external users policies. future and raises prices. (become a than domestically.
Higher imports than exports lead to a budget de cit. If these objectives seek to increase the overall demand in
pro ts fall. operations in
only have what the business requires to show by the law. Low in ation multinational)
Scientists and Pressure groups Some workers and investors other countries?
Ratios are based on past accounting data and can not be Higher exports than imports lead to a budget surplus. the economy, the central bank will lower interest rates, It can make rms unproductive,
Problems of Budget De cit: which will lead to -
environmentalists believe may want to link an ‘Ethical Products need
used to forecast future business performance. Low In ation: Low prices of goods & services so that reduce salaries and relocate to Can take actions towards businesses like consumer Short-term pro t may fall.
The government can run out of foreign currency More consumer spending than borrowing.
that business activity can do business‘, making recruiting No trade maintenance and
Accounting data over time will be a ected by in ation, people will buy more money in the economy. places without such policies. boycotts. Import products from
reserves and will have to borrow. More risk of in ation (Decreases con dence permanent damage. and raising capital easier. restrictions, more partly repairs. Will
and comparisons can be misleading. In ation: The increase in average prices of goods & The impact of the actions depends on: other countries to sell
Di erent companies may use di erent ways of services. The exchange rate depreciates – the price of our consumers/Businesses have). Consumers are becoming It could be argued that some pro table to buy, the needed parts
Public support and media coverage. to customers in
accounting. Therefore, comparisons may be di cult. Rapid in ation may lead to: currency falls as compared to the other currency. There is less incentive for rms to invest/expand. more socially aware, so countries employ children as could sell be available from
Consumers buy less if the price Consumer boycotts result in a decrease in sales. Less risk of legal actions ‘home‘ country.
A fall in the value of money falls in real incomes. Exchange Rate: the price of a currency in terms of Depreciation of the exchange rate (Fall in value of the environmentally friendly they may be the only source of domestically. the foreign
is high. The group is well- nanced and organised. being taken against the
Wage price spiral. another. country’s currency) will make for cheaper imports. products have become a income for the family, and producer?
Whether the action is unpopular but not illegal
6. External In uences on Fall in international competitiveness as prices will be If these objectives seek to decrease the overall demand in market advantage.
Cost damage methods by the business.
company.
may cause them to fall to low Cheaper
high. 6.2. Government Economic Policies the economy, the central bank will raise the interest rate; Pressure groups can take If a business sells to another business - public levels. Import materials and purchases of
Business Activity Businesses may not want to expand and create jobs. this will lead to - The government should pay to action to harm the pressure is less e ective. components from supplies from
Are suppliers
Less consumer spending than borrowing. reliable? Does
Living standards will fall. clean it up. business's reputation and other countries. But other countries
Fiscal Policy
Less risk of in ation (Increases con dence Government through legal contracts
6.4. Business and the International greater distance
6.1. Economic Issues Low in ation rates will act as an incentive for rms to sales. still produce nal will free trade and
add too much
produce and encourage them to expand. Fiscal policy: any changes by the government in tax rates consumers/Businesses have). Owners can claim there isn’t Economy goods in the ‘home‘ reduce costs.
Increase incentives for rms to invest/expand. By making certain activities illegal: transport costs?
Main Stages of the Business Cycle and Trade Cycle or public sector spending. proof that the activity is country. Materials can be
Appreciation of the exchange rate (Rise in value of the Locating in an environmentally sensitive area.
Low Unemployment causing damage. Globalisation: the world is becoming more supplied ‘online‘.
Spending by the Government: country’s currency) will make for costlier imports. Producing non-recyclable products.
interconnected, leading to increasing worldwide trade &
Gross Domestic Product (GDP): the total value of the Dumping waste in nearby rivers/seas.
Low Unemployment: A high % of people work so that they people moving.
output of goods and services in a country in one year. Government spending decisions can have a great impact Pressure Groups: people who want to change business (or Pollution permits - licences that allow businesses to Potential Threats to
don’t rely on government funds. Supply-Side Policies The reasons for globalisation include: E ect 1 E ect 2
on certain business decisions. government) decisions by taking actions, such as pollute to a certain level. If the business exceeds the Businesses
When people want to and have the ability to work but consumer boycotts. More Free-Trade Agreements and economic unions
can’t work, then they are said to be unemployed. If the government decides to increase its spending: Supply-side Policies: try to increase the competitiveness account, it must buy from a ‘cleaner‘ business or pay large Increase imports Increased
between countries have replaced protection for If competitors o er
The country's output will be lower if unemployed Increase subsidies and grants (to encourage of industries in an economy against those from other nes. into the home competition forces
The Concept of Externalities industries. Consumers can purchase with few or no cheaper products,
people don’t produce goods and services. businesses to set up in high-unemployment areas). countries. Make the economy more e cient and increase Additional taxes on goods or factories resulting in market from foreign local rms to be
import controls. domestic sales fall.
It involves an opportunity cost as the government has Increase in welfare bene ts, meaning consumers will supply. pollution. competitors. more e cient.
Private Costs: costs paid for by a business or the Improved and cheaper travel links and communication
have a higher portion of income to spend. These supply policies focus on more long-term objectives, Create further
to pay greater unemployment bene ts, which could be consumer of a product. between countries made it easier to transport goods
used to improve education and increase living Stimulation of economic growth. unlike scal/monetary, which are more short-term and Ethical Issues globally. Interest also allows east price comparisons, Increase investment competition - Local rms become
Private Bene ts: gains to a business or the consumer of a
standards. If the government decides to decrease spending: demand-focused. They have three main categories: from multinationals Multinationals that suppliers to
product. and online/e-commerce allows orders to be placed
Increased competition (mainly if privation is used) Encouraging Competition: through Ethical Decision: based on a moral code of conduct, to set up operations a ord the best multinationals, and
External Costs: costs paid for by the rest of society, other anywhere.
Disin ation (the reduction in the rate of in ation) privatisation/deregulations. sometimes called ‘doing the right thing‘. in the home employees may their sales could
Economic Growth than the business. Many ‘Emerging market countries‘ are industrialising
Labour Market Reforms: through trade unions, very rapidly. They can sell globally at cheaper prices country. have economies of increase.
External Bene ts: gains to the rest of society, other than O ering or taking business from government o cials or
Economic Growth: growth of a country's GDP (Gross Tax minimum wage, and labour legislations. scale.
the business. people working for other businesses. because of the loss of growth of the rms and
Domestic Product) – more goods and services being Incentive-related Policies: through reduced tax rates industries. In some
Direct Tax Social Costs = External costs + Private costs. Employ child labour, even if it is illegal in some countries.
produced and sold. and increased subsidies. professions,
Income tax reduces consumer disposable income. Social Bene ts = External bene ts + Private bene ts. Buy supplies that lead to damage to the environment. Employees may It might encourage
Recession: too little spending, falling GDP, demand and If an economy’s total output rises, it is said to be The Opportunities and Threats of Globalisation to a Business employees have
Corporation tax on comparing pro t. If the social bene t exceeds social costs, the scheme will Agree to ‘ x high prices‘ with competitors. leave businesses local businesses to
experiencing economic growth. include:
prices, workers lose jobs.
Indirect Tax 6.3. Environmental and Ethical Issues likely be accepted; the government/local community will Pay high to the top of the hierarchy and poorly to the that cannot pay the
more choices about
use various
Slump: long-drawn-out recession. Unemployment is GDP is the total value of goods and services produced Potential where they work -
Expenditure taxes, e.g. VAT probably refuse permission. lower levels. same or more than motivational
higher, and prices fall; many businesses fail to survive this in an economy. Opportunities for E ect 1 E ect 2 businesses will
Import tari s/quotas to reduce imports from abroad. Social Responsibility international methods to keep
point. Economic growth may cause employment to rise, Sustainable Development Two main extreme views to the ethical standards: Business have to make more
Growth: GDP is rising, unemployment is falling, and living increasing living standards and reducing poverty. Import Tari s: tax on imported goods. competitors. their workers.
Social Responsibility: when a business decision bene ts e ort to retain
A fall in GDP can lead to: Import Quota: a physical limit on the quantity of a If the law is not broken, businesses can do whatever to
standards are higher. (Firms are doing well at this point). stakeholders other than shareholders. Sustainable Development: Development which does not them.
product to be imported. gain pro t.
Boom: too much spending, in ation, shortage of workers, Unemployment Examples of business activity impacting the environment: risk future generations' living standards.
and businesses uncertain about the future. Fall in average living standards as poverty rises Emission from transport vehicles. Business can be sustainable by:

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CAIE IGCSE BUSINESS STUDIES CAIE IGCSE BUSINESS STUDIES

Why Government Might Introduce Import Tari s and

Advantages to Host Country
Disadvantages to Host The product’s price in other countries will increase The product’s price in other countries will decrease
CAIE IGCSE
Business Studies
Import Quotas Country The business will make more pro t less pro t will be made
In uence the government and Businesses can lower the price and still make the Businesses need to raise the price to make the same
Import Tari s: tax placed on imported goods in the same amount of money as before – it is more amount of money as before – less competitive.
New investment economy (bringing outside
country. competitive.
in uences and culture).
Import Quota: a restriction on the quantity of a product If the currency depreciates:
Due to MNCs ' expertise and
that can be imported. More export increases the
activity, existing rms will
Protectionism: when a government protects domestic international competitiveness
likely be pushed out of the
businesses from Foreign competition using tari s and of the country
market.
quotas. This reduces employment incomes.
Fewer imports keep domestic Depletion of scarce resources
Import tari s increase the prices of imported goods,
businesses active and and endangerment of natural
making them less competitive than locally produced
goods.
prevent the BoP de cit. sites.
Import quotas decrease the quantity of imported goods; Jobs created reduced
Pro ts ow out of the country.
increasing the price means less availability, thus unemployment.
increasing sales for domestic products. Increase tax paid to the Often, unskilled work is
government. created.
6.5. Multinational Companies (MNCs) More competition helps
increase the productivity and
Multinational (Transnational) Company: a company that e ciency of domestic
has factories or service operations in more than one businesses.
country
It is not just selling products abroad; it is having
6.6. Exchange Rates
operations abroad
The bene ts of a business and its impact on becoming
Exchange Rate: the price of one currency in terms of
international:
another currency.
Bene ts to business Impact to stakeholders For example, 1 Euro is equivalent to 1.2 Dollars
Currency Appreciation: when the value of a currency
New market Higher dividends
increases.
Easier to obtain raw materials Opportunity to live and work It can buy more of another currency
as they can be closer abroad 1 euro = 1.2 dollars, to 1 euro = 1.5 dollars.
Avoid trade barriers and Suppliers increase/decrease Currency Depreciation: when the value of a currency
import taxes depending on the location decreases.
Government gains It can buy less of another currency.
Low Labour costs 1 euro = 1.2 dollars, to 1 euro = 1 dollar.
higher/lower taxes
Spread risk (if there are low 2 things in uence the exchange rate of a currency:
Demand for the Currency: if many people want to buy
sales in one country and high
the currency, the price will increase because there is a
sales in another)
‘limited’ number of currencies (so it leads to
appreciation).
Bene ts to the business Bene ts to the country
Supply of Currency: if the central bank prints more
Producing goods at lower money, the supply increases, but the demand is still Copyright 2024 by ZNotes
Jobs are created
costs the same, so the value is lower (leading to These notes have been created by Nidhi Jain for the 2023-2025 syllabus
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Avoid expensive taxes on the Import prices rise: your No part of this document may be copied or re-uploaded to another website without the express, written
Import prices fall: since your
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Tax – more money to the currency can buy more of the
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government other currency.
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Spread risks (if there are low currency is worth more, so it less, so other currencies can
Increased product choice for is more expensive for other buy your currency for less
sales in one country and high
consumers currencies to buy it. than theirs.
sales in another)

This means that if the currency appreciates:

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