CHAPTER 1 | Enterprise

1. THE NATURE OF BUSINESS ACTIVITY

1.1 | Purpose of business activity 1.2 | Factors of production

the resources needed by business to produce
goods or services.
● Businesses aim to add value to resources (raw
materials) and semi-finished goods 1. Land - all natural resources used in production.
> in order to satisfy needs and
wants of consumers. ● Return for land is “rent”.
● This helps raise living standards of the economy 2. Labour - both manual and skilled work.
as businesses will employ people for production. ● Return for labour is “salary” or
● Business activity at all stages involves adding “wages”.
value resources (raw materials) making them 3. Capital - finance is needed to set up and run the
more desirable to and valued by final purchase. business and man-made used in production >
capital goods.
● Capital goods : the physical goods
used by industry to aid in the
production of other goods and
services, ex. machinery, computers,
factories, offices, vehicles) .
What businesses do? ● Return for capital is “interest”.
4. Enterprise - driving force that arranges all other
● Identifying the wants and needs of factors of production and takes the risk of the
new business venture.
customers.
● Return for enterprise is “profit”.
● Buying resources relating to the 4 factors
of production in order to start production ● Provides the managing, decision-
of goods and services. making and coordinating roles.
● Produce goods and services that meets the ● Individual who will take the risk and
customers needs combine all factors of production
● it is done usually with the aim of together to produce goods and
services > entrepreneur.
making a profit.

1.3 | Added Value

Added Value
● Difference between cost of materials required to
make the product and the selling price of the
finished product.

Added value = selling price - cost price

 Adding value = increasing the difference Benefits to businesses
● Attract more customers and increase
● Businesses aim to create value by producing
profits
goods and services and selling them for a higher
price (adding value). ● Standing out form competition (unique
● Business is successful if the consumer is willing to features and customer experience)
pay more than the cost of materials. ● Increase rates of customer loyalty
(repeat purchase / return –
membership discounts)
Difference between added value and profit Benefits to customers
● Added value used to measure efficiency of a
● Getting free products and services
business within a specific operation, assessing
whether the product is profitable before ● Getting a good return on investment
selling/not and if there’s a room of improvement. (gain more than value spent)
● Profit – used to assess gain/losses of a business
● Building a relationship with a provider
(quarterly/annually)
1.4 | Economic problem and Scarcity
How to increase added value
1. Increase selling price by : ● It occurs as there are limited resources
⮚ providing higher-quality goods (higher-quality and unlimited wants
raw materials), increasing advertising, ● Due to the existence of scarcity,
changing packaging, or making small people (government, business,
improvements in the product. workers, etc.) are forced to make a
2. Decrease cost price by : choice.
⮚ reducing wastage through lean production o Choice that will give us the greatest
methods, finding cheap supplies, reducing benefit, leaving out those things
product quality, and increasing efficiency by that provide less value to us.
training workers and using advanced ● Opportunity cost is the next best
technology. alternative forgone.

● There are insufficient goods to satisfy

all of our needs and wants, so we must
choose which needs to satisfy now.
E.g., how different businesses could add value to
● There is Scarcity = Limited resources +
their products
Unlimited wants
● Jewellery shop beautiful and exclusive
● A shortage of products
packaging for each jewellery item
● Furniture store offers free delivery and ● Limited supply of resources need
assembly to make them
This forces all economic decision
● Software program provides free trial makers (governments, businesses,
 workers, charities, etc.) to make
● Economic changes – inflation rates and
choices.
economic downturn (less spending
power).
| Opportunity cost
● Technological changes – make products /
Opportunity Cost (lost opportunity) processes outdated.
● The benefit of the next most desired option, Rise of smartphones and apps made
which is given up. standalone GPS devices from companies
like Garmin and TomTom less relevant,
● If we decide to choose one option, the
pushing them to innovate.
opportunity cost is the one we didn’t choose.
examples :
1.7| Why do some businesses succeed?
1. Consumers have to choose between
smartphone and trainers and choose
smartphone, then the trainers become the ● Good understanding of customer needs
opportunity cost.
⮚ achieving sales target
2. Government has to choose between building
the fighter plane or the hospital and choose ● Efficient management of operations
the fighter plane, then the hospital becomes
the opportunity cost. ⮚ keeps costs under control

● Flexibility in decision-making

⮚ allows investment in new business

opportunities
1.6| Dynamic Business Environment
● Sufficient source to finance
Dynamic Business Environment
⮚ prevent shortages of cash and
● Rapidly changing (dynamic) business environment
allow expansion)
making setting up new businesses risky.
● Changes can make original ideas less successful.

● Businesses need to adapt quickly to changes.

Changes include :
1.8 | Why do some businesses fail?
● New competitors – entering the market.
Amazon entered the grocery market with 1. Poor record keeping
Amazon Fresh, it significantly increased - Especially small businesses don’t find it
competition for established players like important above meeting customer needs
Walmart and Kroger. (e,g., florist shop – cant remember small
● Legal changes – new safety regulations / details like delivery dates, orders paid for or
not, number of hours shop assistant worked)
limits on who can buy the product.
- Need paper or computer records as evidence.
Introduction of GDPR (General Data
Protection Regulation) in the EU required
2. Lack of cash and working capital :
companies like Facebook and Google to
- Working capital is the capital needed to run
overhaul their data protection policies and
the day-to-day business.
systems.
 - No working capital – unable to buy more other countries / sell internationally (e.g., national
supplies, pay suppliers, or offer credit to banks).
important customers.
- Ways to avoid working capital shortage: ● International: Provides goods and services to
● Make a cash flow forecast more than one country (e.g., online selling,
exportation).
● Inject more capital into the business

● Establish good relations with the bank ● Multinational: A business that has its
(overdraft to solve short-term cash flow headquarters in one country, but with operating
problems) branches, factories, and assemply plants in other
countries (e.g., McDonalds).
● Effective credit control with customers

3. Poor management skills 2. THE ROLE OF ENTREPRENEURS AND

- Poor leadership, decision making, cash INTRAPRENEURS
handling and management, planning,
coordinating, communication, marketing,
2.1| Roles
promotion and selling.
- To minimize risks: training, employ experts.
Intrapreneurship Entrepreneurship

Develop innovative Generate ideas for a

ideas for projects / new business.
improve existing
product.

Increasing productivity. Create business plan

Cutting costs and Invest own savings

increasing efficiency. and capital

Accept responsibility of
running and managing
the business

Accept possible risks

of failure
1.9 | Local, national and international and
multinational businesses Difference between entrepreneur and
intrapreneur
● Local - One that sells its products and services to
consumers in its own city, town, or geographic Entrepreneur Intrapreneur
area (e.g., single-branch shop, hairdressing
business, childminding services). Main activity Starting up a Developing an
new business innovative
● National: One with branches / operations across a product or
country with an attempt to establish operations in project within
 an existing 1. Injecting creativity and innovation – developing
business new products > boosts sales and improve product
offerings.
Risk Taken by the Taken by the
entrepreneur business 2. Developing new ways of doing business –
creativity in solving problems and enhance
Rewards To the To the efficiency.
entrepreneur business
3. Creating a competitive advantage - by
developing innovative products.

2.2 | Qualities of successful entrepreneur 4. Encouraging innovators to stay within the

and intrapreneurs business.

1. Innovation – original ideas and ability to do 2.4| Barriers to entrepreneurship

things differently.
2. Commitment – energy, focus , willingness to 1. Identifying successful business opportunities .
work hard. Find markets that have enough demand to be
3. Self –motivation – ambition to succeed. profitable. Ideas come from hobbies, own skills or
4. Multiskilled – make a product, promote, sell, previous employment experiences (e.g.,
keep account (multiple qualities). dressmaking, small budget research)
5. Leadership skills – lead by example,
motivates, encourages workers. 2.Obtaining sufficient capital (finance)
6. Self –confidence and ability to bounce back – ▪ Insufficient savings
believe their ideas will work and able to
bounce back from setbacks. ▪ Lack of awareness of grants and subsidies
7. Risk-taking – investing their own savings in ▪ Lack of trading records to receive loans from a
new business. bank
▪ A poor business plan

3. Cost of good locations

Deciding on the best location, considering costs,
potential target market, the status of the area,
etc.

4. Competition (established players in the market)

5. Lack of a customer base

For a firm to survive, it must build customer
loyalty by providing good customer services.

2.3 | Advantages of intrapreneurs in an

existing business
Good customer service could be provided by:
▪ Offering pre and after-sales services
▪ Providing discounts and other sales promotions good example, create jobs and career
opportunities.
▪ Providing goods that meet specific needs (which a
large firm will be reluctant to do)

2.4 | Business risk and uncertainty 2.6 | Business Plans

Business Risk: Business Plans : document that describes a
It refers to potential events or decisions that can business, its objectives, its strategies, the market
affect a company's profitability and are often it is in and its financial forecasts.
measurable or predictable.
● It includes competition, operational Purpose: used to create a strategy and to obtain
finance by attracting potential investors or
challenges, or regulatory changes.
creditors.
Business Uncertainty:
Main elements:
Uncertainty cannot be foreseen, measured or
1. Executive summary – an overview of the new
calculated.
business and its strategies.
It involves unpredictable and uncontrollable
2. Description of the business opportunity –
events that can impact the business but are not
details of the entrepreneur’s skills and
measurable.
experience; nature of the product; the target
● such as natural disasters or sudden market.
economic crises. E.g. COVID-19 pandemic, 3. Marketing and sales strategy – details of why
2008 market crash. the entrepreneur thinks customers will buy
the product and how the business will sell to
2.5 | Roles of enterprise in a country’s them.
4. Operations – premises to be used,
economic development
production facilities, IT systems.
5. Financial forecasts – future projections of
● Job creation > Decrease in umemployment level sales, profit and cash flow for at least one
● Economic growth > Increase output and GDP > year ahead.
increase SOL > increase taxes
● Firm’s survival and growth – expansion into large
and important businesses > job creation > boost
economic growth and take place of businesses
that may be in decline or closing down.
● Innovation and technological change > creativity
increases competitiveness.
● Exports > increase the value of a nation’s exports
and improve its international competitiveness.
● Personal development - development of useful
skills > personal achievement.
● Increased social cohesion (increase in unity of a
community) – lessen social problems by create
 Advantages Disadvantages

Provides owners Rely on the plan and

with clear overlook the fact that its
vision/aim to work based on forecast and
towards (know predictions.
actions to take).

Ensure business is Need to be detailed and

less likely to fail supported by accurate
after considering market research
possibilities like its otherwise
strengths, creditors/stakeholders
weaknesses, will delay decisions to
opportunities, and invest.
threats.

Easier to get Reluctance to adapt to

finance from changes and inflexible to
banks / injections dynamic environment.
from venture
capitalists and
potential investors.