Business revision

    Cards (264)

    • Business activity
      Any kind of activity that results in the provision of goods and services which satisfy human wants
    • Business activity can be described as 'wealth-creating'
    • Wealth
      The amount of goods and services, or output available - the more goods and services that exist the greater the amount of wealth
    • Types of consumer goods
      • Durable goods (e.g. cars, washing machines, personal computers)
      • Non-durable goods (e.g. sweets, drinks, newspapers)
    • Factors of production

      Resources used by business to produce goods and services
    • Factors of production
      • Land
      • Labour
      • Capital
      • Entrepreneur
    • Entrepreneur
      The person who brings together the factors of production to produce goods and services
    • Entrepreneurs are 'risk takers' - they can stand to lose everything if the idea doesn't work
    • Many entrepreneurs use franchising as a means of starting up their own business - this reduces the risk of failure as support and guidance is provided by the franchiser
    • Sectors of industry
      • Primary sector
      • Secondary sector
      • Tertiary sector
      • Quaternary sector
    • Countries tend to go through three stages of development: primary sector dominant, secondary sector dominant, tertiary and quaternary sectors dominant
    • Types of organisations
      • Private-sector organisations
      • Public-sector organisations
      • Third-sector organisations
    • Sole proprietor (sole trader)

      An organisation which is owned and run by a single individual
    • Advantages of sole proprietorship
      • Easy and cheap to set up
      • Owner has complete control and takes all decisions
      • No division of profits
      • Profits are kept by the owner
    • Disadvantages of sole proprietorship
      • Difficult to raise finance
      • Unlimited liability - owner responsible for all debts
      • No one to share responsibilities with
    • Partnership
      A business formed by two or more people on the basis of a partnership agreement
    • Advantages of partnership
      • Responsibilities can be shared
      • Partners can specialise
      • More capital available
      • New partners can bring ideas and capital
    • Disadvantages of partnership
      • Unlimited liability for debts
      • Potential for conflict between partners
      • Lack of continuity as partners change
      • Profits have to be shared
    • Limited company (Ltd)

      Company where capital is divided into shares owned by shareholders, run by a Board of Directors
    • Advantages of limited companies
      • Limited liability for shareholders
      • More privacy than public companies
      • Easier to raise capital
    • Disadvantages of limited companies
      • Legal procedures to set up can be costly
      • May become inflexible and difficult to manage as they grow large
      • Employees may feel alienated from top management
    • Public limited company (PLC)

      Large company where shares can be bought and sold on the stock exchange
    • Advantages of PLCs
      • Shareholders have limited liability
      • Shares can be resold on stock exchange
      • Large sums of capital can be raised from investors
    • Disadvantages of PLCs
      • More financial information must be made public
      • May become inflexible and difficult to manage as they grow large
      • Employees may feel alienated from top management
    • Multinational corporation

      Large PLC with branches (subsidiaries) in more than one country
    • Public limited companies (PLCs)

      Have to make more information available to the public than private limited companies - e.g. publish Annual Reports
    • PLCs
      • May grow so large that they become inflexible and difficult to manage effectively
      • In very large companies employees may feel out of touch ('alienated') from those at the top and it may be difficult to take a personal approach to customer service
    • The legal procedures necessary to set up companies, especially PLCs, can be very costly
    • Examples of public limited companies
      • Legal & General plc
      • Marks and Spencer plc
      • Manchester United plc
      • The Boots Company plc
    • Multinational corporations (MNCs)

      • Have branches (called subsidiaries) in more than one country
      • Distinguish feature is that they set up production facilities in more than one country
    • Reasons for establishing MNCs
      • To increase market share
      • To secure cheaper premises and labour
      • To avoid or minimise the amount of tax which has to be paid
      • To take advantage of government grants available
      • To save on costs of transporting goods to the market place
      • To avoid trade barriers like the EU Common External Tariff
      • To enable their products to be sold globally without having to rely on other companies to sell them in some areas, under licence
    • Disadvantages of MNCs for the host country
      • They can be very powerful - some of them earn more than some small countries in the course of a year - and can therefore exert quite a strong influence on the governments of host countries - for example, by threatening to close down their operations there
      • They can be accused of exploiting labour in low wage countries
      • They may use up non-renewable resources in the host country
      • Because they are so powerful and able to take advantage of economies of scale, they may force local organisations out of business
      • Profits go back to the parent company - in which ever country it has its headquarters
      • All the major functions tend to remain at headquarters so that, in times of difficulty, it is relatively easy for the MNC to close down a subsidiary causing many job losses
    • Franchise
      • A business run by one organisation under the name of another
      • The franchiser gives the franchisee a licence permitting them to sell goods or services under the franchiser's brand name, usually in return for a share of the franchisee's profits
      • The franchisee's licence permits him/her to use the franchiser's name, publicity materials, decor, uniforms, etc.
    • Examples of franchises
      • McDonald's
      • Kentucky Fried Chicken
      • The Body Shop
      • The British School of Motoring (BSM)
    • Advantages for the Franchiser
      • It is a quick way to enter new geographical markets and the franchiser's name becomes more well known as the business expands
    • Disadvantages for the Franchiser
      • Franchisers are reliant on franchisees to maintain the image and 'good name' of the business
    • Advantages for the Franchisee
      • The new business can begin trading on the established reputation of the franchiser immediately
      • The franchisee has the advantage of a well known brand name and back up service
      • All franchisees can benefit from ideas generated by each of them
    • Disadvantages for the Franchisee
      • A percentage of the profits has to be paid to the franchiser
      • The franchiser may impose strict rules on the franchisees and restrict their ability to operate on their own initiative
      • The franchisee's reputation and profitability depend in part on that of the franchiser and the performance of the other franchisees
    • Public-sector organisations
      • The overriding aim is to provide services thought necessary for the general public
      • Often have to operate within an allocated budget
    • Public corporations
      • Business organisations owned and run by the state on behalf of the people
      • Their chairman and board of directors are chosen by the government and are accountable to a government minister who in turn is responsible to Parliament