Section 1 - What is Business?

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  • Created by: Clarence
  • Created on: 27-04-13 18:41

What is Business Activity? What is Business Activi

-Business Activity produces an output, either a good or a service

-Goods and Services are consumed

-Resources are used up i.e. Money, Staff, Gas and electricity etc

-A number of business functions may be carried out e.g. Administration (the paper work), managing staff (human resources) etc

-Businesses can also be affected by external factors i.e. Legislation and Regulations, Pressure Groups and Competition etc

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What is Business? Business Resources

Businesses use resources of Factors of Production in business activity. They are usually divided into four groups, which are known as the 4 Factors of Production.

Land- Land is where the business is located, however it also includes natural resources such as coal, diamonds, forests, rivers and fertile soil. The owners of the land receive rent from those who use it. Business activity uses both renewable and non-renewable resources

Labour- Labour is the workforce of the business. Manual workers, skilled workers and management are all members of the workforce. They are paid wages or salaries for their services. It is possible to improve the quality of human resources through training and education, human resources becomes more productive if money is invested by business or government in training and education.

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What is Business? Business Resources

Capital- Capital is sometimes described as the artificial resource because it is made by labour. Capital is refers to the tools, machinery and equipment which businesses use. Capital also refers to the money which the owners use to set up a business. Owners of the capital receive interest if others borrow it. 

Enterprise- Enterprise is the entrepreneur or business person who develops a business idea and then hires and organises the other three factors of production to carry out the activity. Entrepreneurs are risk takers because they will often use some personal money to help set up the business, If the business fails the entrepreneur may lose some or all of the money. If the business is successful, any money left over will belong to the entrepreneur. This is called profit.

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What is Business? Business Functions

A business is a system - it has parts that work together to achieve an objective. A business is also part of other systems such as economic and political systems.

Production- This involves changing natural resources into a product or the supply of a service. Most business resources are used up in the production process. An example of production can be seen on a building site where houses are constructed.

Marketing- This function is concerned with identifying consumer needs and satisfying them, i.e. Market Research is carried out to satisfy the needs of the consumer, their other activities also include advertising, packaging, promotion, distribution and pricing.

Finance- This department is responsible for the control of money in the business. It has a number of important duties. This includes recording transactions, producing documents to illustrate the performance of the business and its financial position and controlling the flow of money in the business.

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What is Business? Business Functions

Administration - This part of the business handles enquiries, communicating messages and producing documents for the workforce.

Human Resources - This is responsible for things such as recruitment, selection, training, appraisal, health and safety, equal opportunities, payment systems and worker disputes. Human resources is responsible for the management of people.

Research and Development (R&D) - This involves technical research, e.g. research into a new medicine or a new production production technique. R&D can be expensive, as a compromise businesses must rely on adapting new products and new technology developed by other companies. 

Business activity is highly integrated. e.g. production is heavily influenced by marketing activities. If marketing is effective then more of the product is sold and more will have to be produced. Also, the finance department, for example, will carefully watch the amount of money used by other departments

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What is Business? What does Business Acti

All business activity results in a good or a service.                                            Consumer Goods are those which are sold to the general public. They fall into two categories;

-Durable goods such as cookers, TVs, iPods, Books, Cars and Furniture, they can be used repeatedly for a long period of time.

-Non-Durable goods such as food, confectionery, newspapers and shoe polish are used very soon after they are purchased. Some of these goods are called fast moving consumer goods, such as soap, crisps, and cornflakes. 

Capital Goods are those goods purchased by businesses and used to produce other goods. Tools, equipment and machinery are examples.

The supply of services has grown in recent years, Banking, Insurance and Hairdressing are all examples of services. Business activity also results in the production of waste materials. Most waste is very dangerous and expensive dispose of. Some production techniques results in by-products which can be sold. e.g. Yeast is generated by the brewing industry which can then be used by producers of Marmite.

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What is Business? External Factors

Business activity can be affected by a number of external factors, these are beyond the control of the business. In some cases they constrain a firm's decision and may prevent its growth and development. 

The Government has a great deal of influence over business activity. In most countries the government will be in favour of business development. It is a legal framework, where all individuals abide by the law and offenders are punished. A country also needs an infrastructure including roads, railways, telecommunications, schools and hospitals. Some of these items may be provided by the state. Government policies can also influence businesses. i.e. profits and many goods or services which businesses may be taxed. 

The Economic Climate can have an impact on a business, From 1993-2007 the UK economy was relatively stable. Interest rates and price increases were relatively low, while unemployment fell steadily. These stable economic conditions allowed businesses to grow. During this time, the UK had the best performing economy throughout the whole of the EU.

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What is Business? External Factors

World events can influence business activity. 9/11 and the military conflict against Iraq had affected a number of industries. There was a fall in the number of passengers travelling by air in many countries. This affected the aviation industry. There was also a fall in the number of holidaymakers which affected the tourist industry. It often takes years for businesses to recover from such events. In some cases they may fail to survive and go bankrupt. 

Another external factor which can affect businesses are Pressure Groups. e.g. Transport 2000 is a pressure group that promotes ways of reducing the environmental and social impact of transport. It aims to reduce the use of cars and encourages the public to use public transport. If Transport 2000 is influential then the car industry is likely to be affected. 

Consumers' Taste change can affect a business, In recent years there has been an increase in demand for gardening products. Gardens and gardening has been popularised by a number of television programmes on gardening. There has also been a rise in demand for vegetarian and vegan foodstuffs. Increasing the number of people who are opting for non-meat diets. 

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What is Business? External Factors

Changes in population can be another factor which can affect a business externally. This is because it can affect the demand of products and the supply of workers. i.e. The ageing population of the UK has increased the age of people still looking for work (60+), this has also affected businesses which have a target audience towards this age group e.g. Saga Holidays.

Competition is one of the obvious external factors which can affect a business, rival businesses can influence each other's operations, they tend to compete by lowering their prices which reduce the demand of the other businesses. e.g. The secondary sector has been affected by competition from China and India as it is cheaper to a manufacturing business there. 

Social Factors may influence businesses from time to time. Women's role in society has changed as more women go to work, This has meant that there has been a rise of businesses which offer creche facilities for women who have returned to work.

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What is Business? External Factors

Environmental Factors have had a major effect on businesses recently. Some now use recycled materials for their manufacturing processes to reduce cost, some have also tried to use environmentally friendly materials to boost sales.

Legislation and Regulation may influence business activity. Through government imposed laws and EU regulations e.g. The smoking ban in 2007 has had an impact on a majority of businesses - particularly pubs and bars.

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What is Business Activity- Markets

The goods and services produced by businesses are sold in Markets. A market exists when buyers and sellers communicate in order to exchange goods and services. Buying and Selling can take place anywhere, i.e. Online, Telephone, Shopping Centres and even newspapers and magazines etc.

The goods and services of most businesses are bought by Customers and used by Consumers to satisfy their wants and needs. A business may be interested in the following markets; 

  • Consumer goods markets- where products like food, cosmetics and magazines are sold in large quantities (Bulk)
  • Markets for services- these are varied and could include services for individuals, such as banking, or services for industry, such as cleaning
  • Capital goods markets- where items used by other businesses are bought and sold, such as machinery 
  • Labour markets- where people are hired for their services
  • The housing market- where people buy and sell properties
  • Money markets- where people and institutions borrow and lend money, such as commercial banks 
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What is Business? Wants and needs

The success of a business depends on many factors. The most important is to supply a product that consumers want to buy. Businesses must satisfy consumers' Needs and Wants to be successful. 

People's needs are limited. They include things which are needed to survive, such as food, warmth, shelter and security. Humans also have psychological and emotional needs such as recognition and love. Wants, however are infinite. People are always looking for a better quality life, which might include better housing, better health care, better education, longer holidays and more friends.

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What is Business? Opportunity Cost

Opportunity Cost is the benefit of the next best option foregone when making a choice between a number of alternatives.

Capital Goods - Capital goods are goods which are used to produce other goods, such as tools, equipment and machinery 

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