Topic 8 Judging Success

Factors used to measure success

• The amount of profit made
• The number of employees and their efficiency
• The amount of capital employed
• The market share of the product portfolio
• The quality of the products
• The amount of social welfare

Reasons for business failure

• Overestimation of sales
• Underestimation of expenses
• Unfavorable economic condition
• Increased competition
• Change in consumer tastes and fashion

Topic 7 External factors affecting the business

External Factors are those which can not be controlled by the business but these will have a greater influence on the decision making process.These factors are known as PESTEL.

Political factors such as changes in government, political crises, government policies & war
Economic factors such as tax and interest rates
Social factors such as changes in consumer behavior
Technological factors such as the internet
Environmental factors such as pollution
Legal factors

International Trade

Reasons for international trade:

• To obtain goods that can not be produced domestically
• To obtain goods from foreign markets at cheap prices
• To provide choice to customers
• To sell off surplus goods

Visible trade is the result of visible imports deducted from visible exports. "Visible" refers to tangible goods.

Invisible trade is the result of invisible imports deducted from invisible exports. "Invisible" refers to intangible services.

Balance of Payments is a document which shows the detailed transactions that one country has with the rest of the world.

Advantages of foreign trade to a business:

• Increased number of customers
• Enhances competition and increases efficiency
• Cheaper access to raw materials and labor in foreign markets
• Risk is minimized as the business relies on both home and foreign markets

Exchange rates

The exchange rate refers to the value of one country's currency in terms of another country's currency.

2015 $1 = Tk 50

2016 $1 = Tk 75

In 2015 $1 could buy 50 taka, but now $1 buys more(75 taka). Hence the dollar has appreciated.

Similarly, in 2015, it would take 50 taka to buy $1, but now it takes 75 taka to buy $1. Hence taka has depreciated.

Appreciation = Imports increase as foreign goods become cheaper

                        Exports decrease as exports become more expensive to foreigners

Depreciation = Imports decrease as foreign goods are more expensive

                        Exports increase as exports are cheaper to foreigners

Topic 6 Government Influences on business activity

Government Aims

1. Balancing the income between the rich and poor
2. Providing social and physical security
3. Controlling the economy, hence guiding workers to a progressive economic structure
4. Generating laws and regulations which will control the activities of the economy. They are external shareholders
5. Controlling the Balance of Payments[The total income a country generates by buying and selling goods with the rest of the world]

Business Trade Cycle

The trade cycle shows the stages that an economy must pass irrespective of time, showing the different levels of GDP.

GDP stands for Gross Domestic product and shows the total value of goods and services provided by an economy within a particular period of time, usually a year.

The Stages are:

• Boom - Positive growth of GDP
• Recession - Negative growth of GDP
• Peak - Highest period of economic growth after which the economy goes towards recession
• Slump - Lowest point of economic growth after which the economy starts to recover
• Recovery - After recession when the economy goes towards boom

A successful government will prolong the period of boom and shorten the period of recession

During boom, an economy will grow and more business ventures will open. Unemployment rates will fall and people will have more disposable income. This will increase overall consumer spending which will increase aggregate demand. The challenge of the government is to balance the increasing demand with an increase in supply. Any difference between demand and supply for a prolonged period of time will lead towards recession.

During recession, the unemployment levels of the economy will continue to increase. As a result disposable income continue to fall and consumer spending will fall as well. In this case, firms will face a shortage of sales and this will decrease profits, which will lead to a further reduction of the workforce and more unemployment.

Government policies:

1. Fiscal policy - deals with taxation and government spending
2. Monetary policy - deals with money supply and interest rates
3. Supply side policies - increases total supply of an economy

Competition policies:

• Encouraging the growth of small firms, which is the easiest way develop a business environment
• Lowering the barriers to entry by helping businesses in various ways such as providing training and interest free loans
• Introducing anti competitive laws which will prevent any kind of private monopoly

Environment legislation will help reduce the level of pollution and increase awareness among the common public against the companies which contribute towards negative external costs such as pollution and congestion.

Factors Affecting Choice of Organisation

Factors influencing the choice of organisation:

• Capital - The amount of capital invested will determine what type of business the owner will open
• Projected Sales/Profit - The amount of profit that the owner is expected to make will determine the type of business they can open
• The amount of control the owner would like to have
• Set up process - Sole traders are easier to set up than limited companies
• Certain types of business enjoy government support such as tax holidays and subsidies.

Topic 1 Business Objectives

Business objectives are long term goals that a business tries to achieve within a given period of time.

Market Share refers to the percentage of sales of a particular business compared to sales in the entire industry. 
Market Share = Company Sales x 100
                         Industry Sales 

Common business objectives:

• Increasing market share
• Product innovation
• Product introduction
• Product differentiation
• Satisfying customers 
• Enhancing consumer knowledge
• Developing a Unique Selling Point(USP)

Factors influencing business objectives:

• Financial strength of the business
• Marketing objective of the company
• Efficiency of the workforce 
• Duration of completing the objective
• Demand pattern of the market

Business objectives are discussed in more detail in Rob Jones' Edexcel International GCSE Business Studies Book

Multinational Companies

Multinational Companies(MNCs) are the firms that have extensive production facilities in more than one country
Globalization refers to the growing integration of the world's economies. Due to this, the operation of MNCs  is getting easier.

Advantages:

• They generate employment by offering jobs at a large scale
• Their products are of international quality and are hence generally expected to be better
• MNCs are useful in extracting resources that would otherwise be difficult to extract
• MNCs can utilize unused factors of production

Disadvantages:

• MNCs overuse resources. As a result, resources may deplete faster.

• MNCs provide priority to foreign culture. As a result, they may implement those cultural beliefs in the country in which they operate.

• MNCs have been criticized for exploiting customer rights by charging different prices for different groups of customers

MNCs and their Advantages/Disadvantages are explained in more detail in Rob Jones' Edexcel IGCSE Business Studies book.

Business Activity

Business Activity involves the process of converting raw materials into finished goods and selling at a profit.

Purpose of business activity:

• Ensures smooth production of goods and services
• Helps minimize cost of production
• Helps to improve efficiency

Stakeholders are people who are affected by the business, directly or indirectly.

Types of stakeholder:

Owner

Shareholders

Managers 

Staff

Customers 

Suppliers 

Society 

Government

Note: the first 4 are internal stakeholders and the latter 4 are external stakeholders.

Responsibility of the owner towards a business:

• They are responsible to invest capital, allocate resources and participate in decision making.
• In case the owners can not make decisions, they will hire external people who will be responsible to make decisions
• Their reward from the business is annual profir.

Functional Departments of a Business

Every business organisation works for a collective goal or objective. The organisation is internally divided into various departments which work together to fulfill business objectives.

Functional Departments of a business

Finance Department:

• Controls money supply within the business
• Responsible for preparing all the statements of account and budgets
• Prepares ratios in order to monitor the financial position of the business
• Conducts tax calculations - Income tax & Corporation tax

Production Department:

• Converts raw materials into finished goods
• Purchases raw materials
• Maintains stock of raw materials. work in progress and finished goods
• Responsible for maintaining machinery and hardware

Human Resources(HR) Department:

• Controls the welfare of workers(Payment + Motivation)
• Responsible for hiring and firing workers
• Arranges training programs and seminars
• Evaluates employee performance

Marketing Department

• Responsible for the 4Ps (Product, Price , Place, Promotion)
• Sets targets for the firm
• Deals with customer complaints and takes necessary action
• Performs market research

Research & Development(R&D) Department[Optional]:

• Designs new products
• Updates existing products
• Finds cheaper production processes

Business Structure

Unlimited Liability means that, should the business go bankrupt, the owners would not only lose the business assets but also their personal assets.

Unincorporated Companies are those which don't have a separate legal existence. All the documents are prepared in the name of the owners and all owners have unlimited liability.

Incorporated Companies are those which have a separate legal identity. All documents are prepared in the name of the firm and the owners have limited liability.






Details and Advantages/Disadvantages of all types of firms can be found in Chapters 3 through 5 of Rob Jones' Edexcel International GCSE Business Studies book.

Entrepreneurs

Characteristics of an entrepreneur

• Risk Taking - Entrepreneurs take calculated risks
• Time and energy - Entrepreneurs have a willingness to do hard work
• Creative Skills - Entrepreneurs have innovative ideas on work practices
• Initiative - Entrepreneurs start with a new idea for a business
• Entrepreneurs have interpersonal communication skills

 Motives for an Entrepreneur

• Financial reward - Profit
• Independence - working on their own
• Building a business on their own
• Satisfaction
• The product
• Ethical stance[Applicable for Non Profit Organisations]