Understanding Business Activity

• Needs


  Essential e.g. shelter or food
• Wants


  Desires which are non-essential, even if consumers consider them to be essential e.g. Nike trainers
• Scarcity


  Problem where choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of resources
• Opportunity cost


  The loss of the next best alternative when making a decision
• Factors of production


  Land, labour, capital and enterprise
• Specialisation


  When people and workers focus on one particular role or task and thereby gain significant skill in doing it
• Division of labour


  The separation of a work process into a number of tasks that are completed by a separate person or group of persons
• Specialisation


  • Results in higher output per worker which increases productivity
  • Is now more common due to specialised technology, machinery and increasing global competition
  • Occurs on individual, business, regional and global levels
• Purpose of business activity

  The activities that businesses engage in to produce goods or services that meet customer needs while adding value
• The process of adding value

  1. Taking raw materials and using them in such a way that the end product created is worth more than the cost of the raw materials used to create it

  2. The added value is the difference between the price that is charged to the customer and the cost of inputs required to create the product or service
• Methods of adding value

  • Branding
  • Offering more convenience to customers
  • Improving the product quality or design
  • Building out the unique selling points
• The greater the added value, the more successful the business is likely to be and the higher their profits
• Classification of Businesses


  • Classification Using the Economic Sector
  • Classification Using the Public & Private Sector
• Primary sector


  Concerned with the extraction of raw materials from land, sea or air such as farming, mining or fishing
• Secondary sector


  Concerned with the processing of raw materials such as oil refinement, and the manufacture of goods such as vehicles
• Tertiary sector


  Concerned with the provision of a wide range services for consumers and other businesses such as leisure, banking or hospitality
• Chain of production


  Series of steps taken to turn raw materials into a finished product that can be marketed and sold
• Firms can often add value to their products throughout the chain of production
• As economies grow and develop

  Many of the firms within that economy will change their sector of operation (sectoral change)
• Higher added value equates to higher profits
• Less developed economies


  • Primarily focused on the primary sector - with most people employed in agriculture and the production of food
  • There has been a global trend away from employment in primary sector industries over the last two decades
  • Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high
• Emerging economies


  • Improved technology enables less labour to be needed in the primary sector and more workers are involved in manufacturing
  • The proportion of workers employed in manufacturing has risen over the last few decades
  • Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies
  • Emerging economies have experienced growth in the tertiary and quaternary sectors in recent years, with many businesses now focused on the provision of consumer services
• Developed economies


  • Very high proportion of the workforce employed in the provision of services, increasing focused on the quaternary sector
  • Use their wealth to fund advanced education and higher-level skills training which further supports the growth of these industries
  • Some exceptions such as Australia (viticulture, or wine production) and Norway (forestry and oil extraction) continue to have significant primary sectors
• As economies develop, we see a movement away from the primary sector towards the secondary sector. Post-industrial economies are focused on the tertiary and quaternary sectors.
• It is easy to assume that tertiary sector employment is higher-paid than jobs in the secondary sector. This is not necessarily the case. Value-added is certainly higher in most tertiary industries than in secondary sector industries but in many tertiary sectors (such as hospitality and healthcare) pay is very low and a cause for concern.
• Public sector firms


  Owned and controlled by the Government
• Private sector firms


  Owned and controlled by other firms and private individuals (entrepreneurs and shareholders)
• Privatisation


  When government-owned firms are sold to the private sector
• Many government owned firms have been partially privatised, with the government retaining a share so they can influence decision-making and receive a share of the profits
• Characteristics of Public and Private Sector Firms

  • Public Sector Firms: Main goal is usually to provide a service, can operate on a local, regional or national government level
  • Private Sector Firms: Objective is profit maximisation, often more efficient than public sector with higher productivity, types of business ownership vary from sole trader to partnerships to company shareholders
• Reasons Why Public Firms Exist


  • Public service provision
  • Protect strategic industries and national security
  • Create jobs
  • Provide economic growth
• Public service provision


  Government-owned firms are often established to provide essential public services such as transportation, healthcare, education, and utilities, prioritising social welfare over profit maximisation
• Strategic industries and national security

  Governments may own firms operating in strategic industries such as defense, energy, telecommunications, and natural resources to exert control over sectors vital to national security, economic stability, and long-term development
• Employment and economic development

  Government-owned firms can stimulate economic activity, create jobs, and support industries that contribute to overall growth and stability of the economy
• Businesses are usually started by an entrepreneur
• Entrepreneur


  A person who is willing and able to create a new business idea or invention and takes risks in pursuing success
• Successful entrepreneurs


  • They can identify and pursue opportunities
  • They create value for customers
  • They build thriving businesses
• What entrepreneurs do


  • Organise resources
  • Make business decisions
  • Take risks
• Organise resources


  An entrepreneur must be able to gather and coordinate the resources necessary to start and operate a business
• Make business decisions


  Entrepreneurs must be able to make decisions that will determine the success or failure of their business