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BUSINESS STUDIES IGCSE NOTE
Section 1: Understanding business activity 2
Chapter 1: Business Activity 2
Chapter 2: Classify of Business 6
Chapter 3: Enterprise/Business growth and Sizes 9
Chapter 4: Type of business organization 16
Chapter 5: Business objectives and Stakeholder objectives 22
Section 2: People in business 26
Chapter 6: Motivating workers 26
Chapter 7: Organization and management 33
Chapter 8: Recruitment/ Selection and training of workers 39
Chapter 9: Internal and External communication 48
Section 3: Marketing 53
Chapter 10: Marketing, Competition and customer 53
Chapter 11: Market Research 57
Chapter 12 : The marketing mix - Product 63
Chapter 13 : The marketing mix : Price 70
Chapter 14 : The marketing mix - Promotion and technology marketing 74
Chapter 15 : The marketing mix : place 80
Chapter 16 : Marketing Strategy 87
Section4: Operation Management 91
Chapter 17: Production of goods and services 91
Chapter 18: Cost /scale of production and break-even points 99
Chapter 19: Achieve quality production 103
Chapter 20: Location services 108
Section5: Financial information and financial decisions 115
Chapter 21: Business Finance: needs and resource 115
Chapter 22: Cash flow forecasting and working capital 121
Chapter 23: Income Statement 122
Chapter 24: Balance Sheet 124
Chapter 25: Analysis account 125
Section 5: External influences on business activity 127
Chapter 26: Government and Policy 127
Chapter 27: Environmental and ethical issues 133
Chapter 28: Business and international economy 137

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Section 1: Understanding business activity

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Chapter 1: Business Activity

Key terms
1. Need: is a good or service essential for living.
2. Want: is a good or service which people would like to have, but which is not
essential for living. People’s wants are unlimited.
3. Economic problem: there exist unlimited resources to produce the goods and
services to satisfy those wants. This creates scarcity.
4. Factors of production: are those resources needed to produce goods and
services. There are 4 factors of production and they are in limited supply.
5. Scarcity: is the lack of sufficient products to fulfill the total wants of the
population.
6. Opportunity cost: the next best alternative given up by choosing another item.
7. Specialization: occurs when people and businesses concentrate on what they
are best at.
8. Division of labour: is when the production process is split up into different
tasks and each worker performs one of these tasks. It is a form of
specialisation.
9. Businesses: combine factors of production to make products (goods and
services) which satisfy people’s wants.
10. Added value: is the difference between the selling price of a product and the
cost of bought materials and components.

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1. Economic Problem

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Economic problem: resources are scarce and want is unlimited want. This makes
people have to choose and therefore opportunity cost occurs.
Need: goods and services that are essential for living such as water, medicine.
Want: goods and services that people desire to have such as watch, cars.
Resources: are factors of production including land, labour , capital and enterprise

Factors of Definition Example

production

1. Land Natural resources oil and coal

2. Labour Workers who are used in production Builder, teacher

of goods and services

3. Capital Human-made goods used in Machines,

production equipment, tools

4. Enterprise Who take risks and make key The owner of a

decisions in business business

2. Opportunity Cost
: Cost of an alternative that must be forgiven in order to pursue certain action.
3. Specialization
: People concentrate on what they are best at.
Eg. one man does only one stage they specialize in.
4. Division of labour

: Production process is split up into different tasks and each worker performs
one of these tasks.

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Advantages Disadvantages

• Increasing efficiency and the • Creating boredom since workers do the

amount of output. same task all the time.
• Reducing production time. • Efficiency might be dropped
• Reducing error and cost of • Demotivating employees to create new
production. things.
• Training a worker to do only • If a worker is absent, no one can
one task can reduce training replace. The production process will be
cost. stopped.

5. The purpose of business activities

: to combine factors of production to make products or services to satisfy

customers.

• Combining factors of production including land, labour, and capital.

• Producing products or services to satisfy needs and wants.
• Employing workers and workers can get wages as a return.

6. Value added

: Selling price - Material price

Knockout tip: It is not the profit, need to concern other expenses eg. labor cost,
operation cost etc.

How could a business increase value-added ?

1. Increasing price of a product and keeping material costs unchanged.

2. Reducing material costs and keeping selling price unchanged.

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Chapter 2: Classify of Business

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Key terms
1. Primary sector: industry extracts and uses the natural resources of the earth
to produce raw materials used by other businesses.
2. Secondary sector: industry manufactures goods using the raw materials
provided by the primary sector.
3. Tertiary sector: industry provides services to consumers and the others
sectors of industry.
4. De-industrialisation: occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country.
5. Mixed economy: has both a private sector and a public(state) sector.
6. Capital: the money invested into a business by the owners.

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1. Economic activity

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: action involves production/distribution/consumption of goods and services at all
levels of society.
Eg. selling ice-cream: production + distribution, buying ice-cream: consumption

2. Type of economic activity classified by activities:

• Primary sector: involves extracts natural material; agriculture, fishing, forestry

and farming.
• Secondary sector: involves taking raw materials from the primary sector to
produce products. It includes manufacture, building, and construction.
• Tertiary sector: involves providing services and distribution. It includes retails,
department stores, insurance services, hairdressing, banking.

3. Type of economics activity classified by ownership:

• Private sector: Organized by private companies. The objective is to maximize

profit
• Public sector: Organized by government or state-owned enterprises. The
objective is to improve social welfare. eg. Government provides education and
healthcare to improve people’s living standards.

4. Reasons for the changing importance of business classification

• In developing countries, there are a larger proportion of people working in
the agricultural sector then in the manufacturing and service sector. Then,
when the countries become more developed, there will be more workers in
the manufacturing and service sector as wage and working conditions are
better.
• In developed countries, there are a large proportion of people working in the
service sector.

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Chapter 3: Enterprise/Business growth and Sizes

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Key terms

1. Entrepreneur: is a person who organizes, operates and takes risk for a new
business venture.
2. Business plan: is a document containing the business objectives and
important details about the operations, finance, and owners of the new
business.
3. Capital employed: is the total value of capital used in the business.
4. Internal growth: occurs when business expands its existing operations.
5. External growth: is when a business takes over or merges with another
business. It is often called integration as one firm is integrated into another
one.
6. Merger: is when the owners of two businesses agree to join their firms
together to make one business.
7. Takeover or acquisition: is when one business buys out the owners of another
business which then becomes part of the predator business (the firm which
has taken it over).
8. Horizontal integration: is when one firm merges with or takes over another
one in the same industry at the same stage of production.
9. Vertical integration: is when one firm merges with or takes over another one in
the same industry but at a different stage of production. Vertical integration
can be backward or forward.
10. Conglomerate integration: is when one firm merges with or takes over a firm
in a completely different industry. This is also known as diversification.

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1. Enterprise and entrepreneurship:

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: Entrepreneurs : person who organize/operate/take risk of new business such
as Steve Job/ Mark Zeckerberg

Advantages Disadvantages

• Putting ideas in practice • Having high risk from unsuccessful

• Having independence and business.
freedom • Requiring capital for investment.
• Taking huge profit • Lacking knowledge and experience
• Gaining high reputation in new business.
• Using personal interest and • Opportunity cost from losing salary
skills in the business. from being an employee.

Characteristics of successful entrepreneurs

1. Hard working
2. Risk taker
3. Creative
4. Optimistic
5. Self-confidence
6. Innovative
7. Independent
8. Effective communicator

Why and how governments support business start-ups

Government supports business by grants and training schemes.

1. Reducing unemployment.
2. Increasing competition by helping new and small businesses to start up.
3. Increasing output.
4. Supporting social enterprise which generates benefits to the society.
5. Helping business to grow.

How a business plans assist entrepreneurs

Business plan: is a document containing the business objectives and important

details about the products, cash flow, business costs, ___location, and resources
required.

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The benefits of business plan
1. To help gain finance; e.g. when a business would like to borrow money from a
bank, the bank manager will require a detailed business plan.
2. To carefully plan and to reduce risk.

2. The methods and problems of measuring business size

2.1 Number of employees

Limitation:
• Some companies are capital-intensive. They might hire less employees but
there will be a large scale of production.

2.2 Value of output

Limitation:

• The price of the product can be varied.

• Some companies might hire high employees but they sell cheap products.

2.3 Value of sales

Limitation:

• It cannot compare the size of businesses that sell different products. It is difficult
to compare e.g. bakery shops and Luxury handbags.

2.4 Value of capital employed (Total value of capital used in the business)
Limitation: Some companies use labor-intensive which use little capital
equipment.

3*. How business growth:

• Internal growth: expanding business without merger and acquisition with other
companies.

E.g. selling products in other countries, increasing branches.

• External growth: merger and acquisitions with other companies:

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• Horizon Integration : combine companies with same industries + same
stages

Advantages Disadvantages

1. It reduces competition in the 1. The combined business may experience

market. diseconomies of scale. A large business
2. A business can take advantage can be difficult to control.
of economies of scale resulting 2. It is difficult to integrate the two
in lower average cost. businesses with different management
3. The combined business can get structures and culture.
bigger market share.

• Vertical Integration: combine companies with same industries + different

stages
• Backward Vertical Integration: Firm integrates with another firm at the
earlier stage of production. Eg. Manufacturing + Primary sector

Advantages Disadvantages

1. To ensure an adequate supply of 1. There is no competition between

good quality raw materials at suppliers anymore. It may lead to
reasonable price. higher raw material costs.
2. The business can get profit made 2. There is higher risk from adverse
by the supplier. change in supplier as it will affect the
3. It is more certain over the supply whole business.
of raw materials and cost. 3. It may cause diseconomies of scale
4. To restrict suppliers to supply raw from being a large firm.
materials to rival firms.

• Forward Vertical Integration: Firm integrates with other firms at the next
stage of production. Eg. Manufacturing + Service sector

Advantages Disadvantages

1. To ensure that there are sufficient 1. There is a higher risk from holding
outlets. high fixed costs. The fortunes of
2. To ensure that products are stored business are tied to the distribution
and displayed well in high quality system.
outlets. 2. Processes are independent then a
3. The business can control after slight disruption will affect the
sale service and marketing and whole.
get customers preference.

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4. The business can get profit made 3. It may cause diseconomies of scale

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by retail shops. from being a large firm.
5. The business can prevent retailers
from selling competitor’s products.

• Conglomerate integration: combine companies with completely different

industries and different stages

Advantages Disadvantages

1. A merger spreads a business's 1. It may cause diseconomies of scale

risks. If the sale revenue from a from being a large firm.
product falls, the business still has 2. A merger may lack experience in new
revenue from other products. business. It has a chance to fail.
2. It enables a merger to grow even
if the market of one of its products
is declining.
3. A merger is being larger, it can
borrow more money at lower
interest.

4. Why some businesses grow and others remain small:

Why the owners of a business may want to expand the business?

• To get higher profit

• To take advantages of economies of scales (increasing production leads to
lower average cost)
• To get bigger market share
• To have higher status and prestige for owners and managers
5. Problems linked to business growth and how these might be overcome?

Problems from expansion Solution

1. Difficulty in controlling and 1. Operating the business in small units or

diseconomies of scale decentralization.

2. Poor communication 2. Operating the business in small units

Using up-dated IT equipment and
telecommunications.

3. It can cause financial 3. Using profits to grow.

problems from huge
expansion costs.

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4. Problems from different 4. Introducing a different style of

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cultures and management management requires good
styles. communication with the workforce.

6. Why do some businesses remain small?

6.1 Owner’s objective

: Owners would like to avoid the stress or worry of running a large business.

6.2 Small market size

: Total number of customers may be small. Eg. luxuries car, rural areas

6.3 Personal services or specialized products

: Some industries offer personal services which require close relationships

with customers.
7. Why do some businesses fail?

1. Poor management: it can be caused by the lack of experience.

2. Businesses are not responding effectively to new technology or change in
customer demand.
3. Poor financial management: it can cause the lack of liquidity and default.
4. Over expansion: some businesses expand too fast and they might face
financial problems.
5. Risk of new business start-up: it can be caused by poor planning or
adequate research.

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Chapter 4: Type of business organization

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Key terms

1. Sole trader: is a business owned by one person.

2. Unlimited liability: means that the liability of shareholders in a company is only
limited to the amount they invested.
3. Unlimited liability: means that the owners of a business can be held
responsible for the debts of the business they own. Their liability is not limited
to the investment they made in the business.
4. Partnership: is a form of business in which two or more people agree to jointly
own a business.
5. Partner agreement: is the written and legal agreement between business
partners. It is not essential for partners to have such an agreement but it is
always recommended.
6. Unincorporated business: is one that does not have a separate legal identity.
Sole traders and partnerships are unincorporated businesses.
7. Incorporated business: are companies that have separate legal status from
their owners.
8. Shareholders: are the owners of a limited company. They buy shares which
represent part ownership of a company.
9. Annual general meeting: is a legal requirement for all companies.
Shareholders may attend and vote on who they want to be on the Board of
Directors for the coming year.
10. Dividends: are payment made to shareholders from the profits (after tax) of a
company. They are the return to shareholders for investing in the company.
11. Franchise: is a business based upon the use of the brand names promotional
logos and trading methods of an existing successful business. The franchisee
buys the license to operate this business from the franchisor.

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1. Business organisation in private sector:

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1.1 Sole trader
: Business owned by only one person.

Advantages Disadvantages

• A Sole trader has few • No different ideas and discussion with

regulations. others.
• Owner makes decisions • It is unlimited liabilities. If the business
easier without discussion with fails the owner may lose money more
others. than initially invested in the business.
• There will be less conflict and • It is difficult to find a source of finance.
faster in making decisions. • If the owner pass away or unable to
• The owner gains all profits. work, the business cannot be
• There will be close contacts transferred to others.
to customers and employees.
• There is a quick response to
demand and increased
morale of employees.

1.2 Partnerships
: A group of 2-20 people agree to run a business , they contribute money and share
profit together.

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Advantages Disadvantages

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• Partnerships have more • It is unlimited liabilities. If the business
capital than a sole trader. fails, owners need to spend personal
• The responsibility can be money to repay debt.
shared between partners. • It is an unincorporated business.
• Partners have different skills • It may have disagreement among
which can be applied to the partners and slow decision making.
business. • It has limited finance and also limits
growth of the company.

1.3 Private limited company

: A group of 2-50 people agree to run a business, formed as a company. The
company has a separate legal identity from owners.

Advantages Disadvantages

• Private limited companies • Private limited companies cannot

have more capital from advertise and sell shares publicly in
shareholders up to 50 the stock market. (limit finance)
persons) • It needs to prepare financial
• There is limited liability. statements which is costly.
• Shares cannot be transferred and sold
to anyone without any agreement of
other shareholders. (Less liquidity)

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1.4 Public limited company (*** not public sector or public corporation)
: A company can sell shares publicly in the stock market which has unlimited
shareholders. The companies also have a separate legal identity from owners.

Advantages Disadvantages

• It is limited liability and • More regulations require the

incorporated business. company to prepare financial
• The company can raise more statements and objectives.
funds, as it can sell shares to • It is difficult to control and manage
the public which has unlimited the large size of public companies.
shareholders. • The original owners may lose control
• There is no restriction on over the business.
buying/selling/transferring • Selling shares to the public is
shares. expensive since they need to pay for
• The company will be more commission and advertising.
reliable and has a higher status.
It can be easier to deal with
banks and suppliers.

1.5 Joint ventures

: Two or more businesses agree to start a new project together.

Advantages Disadvantages

• Joint ventures can share cost. • Profit needs to be shared.

• Joining with local firms can • It can cause disagreement in
make the business better decision making.
understand the local customers • There might be some conflicts from
and knowledge. differences in cultures.
• Risks are shared.

1.6 Franchising
: A franchise is a type of license.
: Franchisee buys license / trademark of the business from franchisor.

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Advantages and disadvantages of franchisor

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Advantages Disadvantages

• The franchisor can expand • The poor management of the

business by selling license to franchisee can create a bad
franchisee. reputation in the overall business.
• Selling franchising can • It is difficult to control standards.
increase in customer based • The franchisee may keep profit from
and market share, resulting in the outlet.
higher revenue.
• The franchisor can make profit
from selling raw materials to
franchisee.

Advantages and disadvantages of franchisee

Advantages Disadvantages

• It has lower chance of • It has less independence since the

business failure as the franchisee needs to follow
franchisee sells the well-known franchisor’s instructions.
product. • The franchisee cannot make
• It is easier for the franchisee to decisions according to local market
borrow money from banks due conditions.
to relatively low risk. • License fee and profit need to be
• The franchisor pays paid and shared.
advertising.
• Franchisor provides training
staff.
• There are existing customers
so the franchisee does not
need to spend lots of time to
build the target customers.

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2. Business organisation in public sector:

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Public Corporation: a business organisation owned by the government which is
designed to act in the public interest such as water supply, railway, and electricity.
Advantages Disadvantages

1. Government directly provides 1. Government might be slowing down

essential goods such as water decision making.
supply and electricity. 2. Due to the lack of competition and
2. It can prevent private monopoly to profit motive, it might cause
supply goods and services at high inefficiency and low-quality products.
price and low quantity. 3. Government corruption.
3. Government may nationalize an
important industry that is failing to
protect jobs.
4. Government aims to maximize
social welfare then goods and
services provided by government
are likely to have low price and
high quality.

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Chapter 5: Business objectives and Stakeholder objectives

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Key terms
1. Business objectives: are the aims or targets that a business works towards.
2. Profit: is total income of business(sales revenue) less total costs.
3. Market share: is the proportion of total market sales achieved by one
business.
4. Social enterprise: has social objectives as well as an aim to make a profit to
reinvest back into the business.
5. Stakeholder: is any person or group with a direct interest in the performance
and activities of a business.

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1. Why need to set a business objective?

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Business objectives: are the aims or targets that a business works towards.
• Providing motivation to people (workers/managers) to achieve the target
• Comparing performance whether the business is successful or not
• Using in making decision

2. Business objectives:

2.1 Profit maximization

Benefits:

1. Using for reinvestment

2. Paying dividend to shareholders

2.2 Market share

Benefits:

1. Higher market share brings higher revenue.

2. If the business has higher market share, it is easier to negotiate with
banks and suppliers.
3. The businesses with high market share are likely to be well recognized
and reliable, then they can charge high price.

2.3 Business Survival

: Normally it is a short term objective especially during an economic recession

or introduction stage.

2.4 Growth of business (Measured by value of sales or output)

Benefits:

1. Growth of business can create more jobs for employees.

2. Large businesses can increase salary to managers.
3. It increases opportunities to expand businesses to diversify risk e.g.
increasing branches of restaurants with bakeries.
4. Growth allows businesses to have larger market share.
5. Large size businesses can achieve economies of scale (lower average
cost).

2.5 Return to shareholders

Benefits:

1. It is easier to raise funds in the future as shareholders want to invest in

the company which generates high dividends.

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2.6 Non-profit organization

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Benefits: Non-profit organizations can provide jobs to society and help poverty
in rural areas and protect the environment.

3. The role of stakeholder groups involved in business activity:

Stakeholder group: a person or a group with a direct interest in activities of a

business.

2 types of stakeholder group

• External stakeholder: person/group are outside business eg.
consumer/ government / suppliers.
• Internal stakeholder: person/group are inside business eg.
owners/employees.

External stakeholder

Stakeholder group Objectives

1. Customer
Cheap products / responding demand / safety

2. Government
High tax revenue / providing jobs

3. Bank
Expecting that business pays back principal money
plus interest on time.

4. Community
Safe products / environmentally friendly products / job
creation.

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Internal stakeholder

Stakeholder group Objectives

1. Owners
Maximize profit which can be used to reinvest in
business and pay dividends to shareholders.

2. Workers and Higher salary, bonus and also job security.

Managers

4. Conflict of stakeholders’ objectives.

E.g. The owners objectives is profit maximization which may conflict with the
community. As the business may damage environment.

E.g. The owners want to introduce new machines to produce products faster and
they may lay off some workers to reduce cost which may conflict with workers’
objective.

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Section 2: People in business

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Chapter 6: Motivating workers

Key terms
1. Motivation: is the reason why employees want to work hard and work
efficiently for the business.
2. Wage: is payment for work, usually paid weekly.
3. Salary: is payment for work, usually paid monthly.
4. Commission: is payment relating to the number of sales made.
5. Profit sharing: is a system whereby a proportion of the company’s profits is
paid out to employees.
6. Bonus: is an additional amount of payment above basic pay as a reward for
good work.
7. Performance related pay: is pay which is related to the effectiveness of the
employee where their output can easily be measured.
8. Share ownership: is where shares in the company are given to employees so
that they become part owners in the company.
9. Appraisal: is a method of assessing the effectiveness of an employee.
10. Fringe benefits: are non-financial rewards given to employees.
11. Job satisfaction: is the enjoyment derived from feeling that you have done a
good job.
12. Job rotation: involves workers swapping round and doing each specific task
for only a limited time and then changing round again.
13. Job enlargement: is where extra tasks of a similar level of work are added to
worker’s job description.
14. Job enrichment: involves looking at jobs and adding tasks that require more
skill and/or responsibility.

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1. Why do people work?

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• Money: to pay for living cost / necessities goods or some luxury goods and
services.
• Security: not lose job
• Connection: to meet people / friends
• Self-Importance: to feel that they are important or being part of company.
• Job-Satisfaction: to enjoy working.
2. Motivation and Motivation theories
2.1 F.W. Taylor
: This theory is based on payment.
: Higher payment motivates labor to work harder and more effectively.

For example
Labor wage 100 Baht per day. Each employee can produce 20 units /day.
If an employer increases wages to 200 Baht per day, an employee increases
productivity and can produce 50 units per day.
Existing: Average cost per unit: = 5 Baht / unit
New: Average cost per unit: = 4 Baht / unit

To sum up: an increase in wage can increase motivation of workers to work harder
and as a result this can increase productivity and lower average cost.
2.2 Maslow theory
: The concept of a hierarchy of needs provides a five-tier model of human
needs.

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1. Maslow argued that needs at the bottom are basic needs, they are concerned

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with survival. These needs must be satisfied before a person can move to the
next level.
2. Once each level is satisfied, the needs at this level become less important.
The exception is the top level of self-actualization, the need to fulfill your
potential.
3. Each level of needs is dependent on the levels below. An employee has been
motivated by an opportunity to take responsibility but they might lose jobs.
The whole system collapsed. => need to provide security on jobs first.

2.3 Herzberg
: There are two factors of motivation which are Hygiene or Maintenance factors and
Motivator factors.

Factors of Motivators factors Hygiene Factors

motivation

➔ Hygiene or maintenance factors

Definition Motivators are factors that are factors that can lead to workers
give workers job being dissatisfied such as pay and
satisfaction, such as conditions.
recognition for their effort, ➔ An improvement in hygiene
more responsibilities. factors cannot motivate workers but
if they are not met there could be a
fall in productivity.

• Company policy
Example • Achievement • Supervision
• Recognition • Relationship
• Personal Growth • Work conditions
• Promotion • Salary
• Responsibility • Security
• Remuneration

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3. Motivating Factors

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: There are 3 factors which are financial rewards, Non-financial rewards and
introducing ways to give job satisfaction.

3.1 Financial Reward Motivators: involved with monetary basis

Financial
Advantages Disadvantages
Rewards

1. Wage • Employees receive • It is a waste of time to

: payment for money every week calculate every week.
work, usually and they do not have
paid every week. to wait for long.
• If employees work
overtime, they can
receive extra
payment.

2. Time Rate • It is easy to calculate. • Good or bad workers

: payment by receive the same
the hour amount.
• It needs to make sure
that workers keep
producing good
quality.
• Supervisors are
needed.

3. Piece Rate • Piece rate can • Employees concern

: payment by the motivate workers to only quantity but not
amount of work faster and more quality.
product outputs are produced • If machinery breaks
is made. to meet customers’ down, employees can
demand. produce less amount.
Therefore, it is unfair to
employees.

4. Salaries • Employees feel • Extra work is not paid.

: are paid secure since
monthly. employees can
Salaries are receive fixed amounts
usually a every month.
standard rate. • It is easy to calculate
salary cost for the
business.

However, people can gain extra money top-up from salary

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• Commission: The more sales they make the more money they are paid

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which is similar to piece rate.
Advantages: This can encourage sales staff to sell more products.
Disadvantages: The sales staff are very persuasive. ⇒ annoy customers
and create a bad reputation for the company.
• Profit Sharing: Employees receive a share of the profits in addition to their
basic salary.
Advantages: This can motivate employees to work harder.
Disadvantages: The company might have a lower dividend paid to
shareholders.
• Bonus: A lump sum paid to workers when they have worked well. It can be
paid at the intervals during the year or end of the year.
• Performance-related pay: Employee pay is linked to the effectiveness of
their work.
• Share Ownership: Employees are given some shares of the company.
Advantages: This should encourage them to work hard and also improve
employee loyalty as well as create sense of being part of the company.

3.2 Non-financial reward: or Fringe benefits e.g. car / discount on firm’s

products / holiday / health insurance/ tuition fee / free accommodation.

3.3 Job satisfaction: is the enjoyment derived from feeling that workers have
done a good job.
o Job enrichment: Giving employees greater responsibility and
recognition by vertically extending their work role.
Advantages Limitation

• Giving employees a challenge • Workers who are unable to make it

will develop their unused skills may not respond to incentives.
and encourage them to be more • Not all workers react in the same
productive. way to job enrichment as
• Making workers feel important to motivation.
business as they contribute work
to the business.

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Job rotation: the periodic changing of jobs or tasks. Eg. Moving from

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HR to marketing.
Advantages Limitation

• Reducing boredom • Lower productivity as workers learn

• Employees benefit from new jobs and take time to settle in.
wider training. • Worker motivation is not guaranteed.
• Motivating workers They may change from a boring job to
another.

o Job enlargement: Giving an employee more work to do of similar

nature; horizontally extending their work role. E.g. An employee putting
wheels on a bicycle could be allowed to put the entire product together.
Advantages Limitation

• Preventing boredom by • Giving a worker more of the same =>

completing the entire boredom, dissatisfaction
process. • It may reduce efficiency as it allows a
worker to complete all tasks. => A fall
in productivity.

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Chapter 7: Organization and management

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Key terms
1. Organisational structure: refers to the levels of management and division of
responsibilities within an organisation.
2. Chain of command: is the structure in an organisation which allows
instructions to be passed down from senior management to lower levels of
management.
3. Span of control: is the number of subordinates working directly under a
manager.
4. Line managers: have direct responsibility over people below them in the
hierarchy of an organisation.
5. Staff managers: are specialists who provide support, information and
assistance to line managers.
6. Delegation: means giving a subordinate the authority to perform particular
tasks.
7. Leadership styles: are the different approaches to dealing with people when in
a position of authority-autocratic, laissez-faire or democratic.
8. Autocratic leadership: is where the manager expects to be in charge of the
business and to have their orders followed.
9. Democratic leadership: gets other employees involved in the decision-making
process.
10. Laissez-faire leadership: makes the broad objectives of the business known to
employees, but then they are left to make their own decisions and organise
their own work.
11. Trade union: is a group of workers who have joined together to ensure their
interests are protected.
12. Closed shop: all employees must be a member of the same trade union.

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1.* Organization chart

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: refers to the level of management / division of responsibility within an organisation.

Advantages of an organisation chart

• Employees know the communication channel which is used to reach them

with the messages and instruction.
• Every employee can see their own position in the company.
• It represents the links and relationships between different departments in the
company.

2. Chain of command and span of control

• Span of control: is the number of subordinates working directly under
manager.
• Chain of command (Line of authority) : is the structure in an organisation
which allows instructions to be passed down from senior management to
lower levels of management.

Business A : Short chains of command / Wide span of control

Business B : Long chains of command / Narrow span of control

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Advantages and Disadvantages of short chains of command

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Advantages Disadvantages

1. Communication is quicker and 1. Managers may lose control

more accurate. because of lots of subordinates.
2. Top managers are less remote 2. If subordinates are poorly trained,
from employees then it can they could make many mistakes.
increase morale to employees.
3. Spans of control will be wider.
Each manager is responsible for
more subordinates.
• Less direct control of each
worker and they will feel
more trusted.
• Increase job satisfaction
since employees can make
decisions by themselves.
• This can encourage
managers to delegate tasks
and have more time to do
other jobs.

3. The role of management

3.1 Planning : Planning resources relating to future goals and targets.

3.2 Organising : Since managers cannot do everything. Tasks must be delegated to

others in the organisation. Manager must organise people and resources effectively.

3.3 Coordinating : “ Bringing together” and Inter-relationship. Managers will try to

make sure that all departments in the organisation work closely together in order to
achieve the goal of business.

3.4 Commanding : The task of management is more concerned with guiding,

leading and supervising people than just telling then what to do.

3.5 Controlling : Managers must try to measure and evaluate the work of all
individuals and groups to make sure that they are on target.

4. Delegation

: means giving a subordinate the authority to perform particular tasks.

: A reduction in direct control once tasks are done by workers and increasing trust of
workers by supervisors and managers.

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Advantages of delegation to managers Advantages of delegation to subordinates

m
• Managers do not have to do • Employees feel more important to
everything by themselves. company.
• Managers can assess • Delegation allows workers to be
performance of staff from the trained.
tasks delegated. • The works are more interesting.

5.* The main of leadership

5.1 Autocratic leadership: Communication is mainly one way, downward or top-

down. Managers expect to be the leader and employees will follow the orders.

5.2 Democratic leadership: Communication is two ways , downward or top-

down and upward or bottom-up. Employees involved in the decision-making
process.

5.3 Laissez-faire leadership: this tends to make the broad objectives of the
business known to employees, but then they are left to make their own decisions and
organise their own work.

Summary type of leadership

To choose type of leadership: It depends on the situation and business goal.

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6. Trade Union

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: A group / worker who have joined together to ensure that their interests are
protected.

Why do workers join a trade union?

Advantages Disadvantages

1. Improved conditions of 1. Cost of money for members

employment (Rate of payment, 2. Trade unions may be required to
holiday, Working hours) take industrial action even if they
2. Improved environment / welfare don’t agree.
(Health, safety, noise)
3. Improved benefits for members
who are not working because of
sickness or retirement
4. Improved job satisfaction by
encouraging training
5. Advice or / and financial support if
a member thinks that they have
been unfairly dismissed or
received unfair treatment

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Chapter 8: Recruitment/ Selection and training of workers

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Key terms
1. Recruitment: is the process from identifying that the business needs to
employ someone up to the point at which applications have arrived at the
business.
2. Job analysis: identifies and records the responsibilities and tasks relating to a
job.
3. Job description: outlines the responsibilities and duties to be carried out by
someone employed to do a specific job.
4. Job specification: is a document which outlines the requirements,
qualifications, expertise, physical characteristics, etc. for a specified job.
5. External recruitment: is when a vacancy is filled by someone who is not an
existing employee and will be new to the business.
6. Part-time employment: is often considered to be between 1 and 30-35 hours a
week.
7. Full-time: employees will usually work 35 hours or more a week.
8. Induction training: is an introduction given to a new employee, explaining the
firm’s activities, customs and procedures and introducing them to their fellow
workers.
9. On-the-job training: occurs by watching a more experienced worker doing the
job.
10. Off-the-job training: involves being trained away from the workplace, usually
by specialist trainers.
11. Workforce planning: is establishing the workforce needed by the business for
the foreseeable future in terms of the number and skills of employees
required.
12. Redundancy: is when an employee is no longer needed and so lose their job.
It is not due to any aspect of their work being unsatisfactory.
13. Ethical decision: a decision taken by a manager or a company because of the
moral code observed by the firm.
14. Industrial tribunal: is a legal meeting which considers workers’ complaints of
unfair dismissal or discrimination at work.
15. Contract of employment: is a legal agreement listing the rights and
responsibilities of workers.

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1. Human resource department

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The role of human resource department :

• Recruitment and selection: involves attracting and selecting the best

candidates for position
• Wage and salaries: retain and motivate employees
• Industrial action: it must be effective in communication between
representatives of the management and of the workforce.
• Training Programme: provides training programme linked with future plan of
the business.
• Health and Safety
• Redundancy and Dismissal

2. Recruitment Process

Recruitment: is the process from identifying that the business needs to employ
someone up to the point at which applications have arrived at the business.

2.1 Job analysis : identifies and records the responsibilities and tasks relating to a
job.

2.2 Job description : outlines the responsibilities and duties to be carried out by
someone employed to do a specific job.

2.3 Job specification : is a document which outlines the requirements,

qualifications, level of education, experience , personal characteristics etc. for a
specified job.

2.4 Advertising Vacancy:

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2.4.1 Internal Recruitment: vacancy may be advertised on a company board,

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filled by someone who is an existing employee of business.

Advantages Disadvantages

• It saves time and money from • No new ideas or experience

advertising and interviewing costs. come into the business.
• The person is already known to the • There may be jealousy and
business. rivalry among existing
• It is easier to work with others. employees.
• It can be motivating for other
employees to see other workers
being promoted.

2.4.2 External Recruitment : is when a vacancy is filled by someone who is

not an existing employee and will be new to the business.

• Local newspaper: It is usually for clerical (office) or manual (factory) positions

which do not require high skills.
• Specialist magazines and journals
• Recruitment agencies : They will advertise and interview people for particular
types of jobs.
• Job Centres

Advantages Disadvantages

• Receive new ideas or experience • It might be higher cost since

come into the business. companies need to advertise in
public and spend longer
recruiting.
• New employees might not know
the business overview so
companies need to provide
training courses which are
expensive.
• It is more difficult to work with
new employees and it takes time
getting to know each other.

2.5 Application form : A job advertisement will require the applicant to apply in
writing. Eg. a curriculum vitae (CV) or resume (a summary of a person’s
qualifications, experience and qualities which is written in a standard format), cover
letters.

2.6 Interviews : this can arrange into one-to-one / two-to-one or panel of people
interviews. This can also include other selection tasks; for example, written tasks,
practice tests, presentation for skills evaluation. (Skills tests / aptitude test /
personality tests / group situation tests)

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2.7 Select suitable applications : select and offer them the job, and reply to

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unsuccessful applicants.

3. Benefits and limitations of part-time employees and full-time employees

3.1 Full-time worker : employees will usually work 35 hours or more a week.

3.2 Part-time workers: worker is someone who works fewer hours than a full-time
worker. (Full-time workers usually work an average 35 hours/week; however, it
varies from one country to another.)

Advantages and disadvantages of part-time workers

Advantages Disadvantages

• More flexible in the hours of • Less likely to be trained from

work employers
• Easier to ask workers just to • Takes longer to recruit two part-time
work at busy times workers than one full-time workers
• Easier to extend business • Can be less committed to the
opening during peak-time or business
weekends • Less likely to be promoted
• Fits in with looking after • More difficult to communicate with
children part-time workers when they are not
• Less expensive than in work
employing a full-time

4. The importance of training and the methods of training

Why is training important?

• Introduce a new process or new equipment

• Improve the efficiency of the workforce
• Provide training for the unskilled workers
• Decrease the supervision needed
• Improve opportunity for internal promotion
• Decrease the chances of accidents

There are three main types of training

4.1 Inducing training: is an introduction given to a new employee, explaining the
firm’s activities, customs and procedures and also introducing them to their fellow
workers.

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Advantages Disadvantages

m
• It helps new employees to settle • Time consuming
into their jobs quickly. • Wages are paid but no work is
• Workers are less likely to make being done by the worker.
mistakes. • It delays the start of the employee
• It may be a legal requirement to to work.
give Health and Safety training
at the start of a job.

4.2 On-job training: occurs by watching a more experienced worker doing the job.

Advantages Disadvantages

• Individual tuition. • The trainer will not be as

• Some products are created from productive as usual because they
the workers while they are are showing the trainee what to
training. do.
• The cost is usually lesser than • The trainer may have bad habits
off-the-job training. and pass on them to the trainee.
• It is training to the specific • It may not necessarily be
needs of the business. recognised training qualifications
outside the business

4.3 Off-the job training: involves being trained away from the workplace, usually by
specialist trainers.
Advantages Disadvantages

• Trainees can get a broad range • Costs are high.

of skills. • It means wages are paid but no
• If these courses are taught after work is being done by workers
work, the employees still carry • After training, it is easier for the
out their work. employee to leave and find a new
• Employees may be taught a job.
variety of skills, they become
multi-skilled and they can be
moved around the company.
• It often uses expert trainers who
have up-to-date knowledge of
business practices.

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5. Why reducing the size of the workforce might be necessary

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Workforce planning : is establishing the workforce needed by the business for the
foreseeable future in terms of the number and skills of employees required. This can
be because of

• Introduction of automation
• Falling demand for their goods and services
• Factory / shop and office closure
• Relocating their factory abroad
• A business has merged or been taken over

2 ways to reduce the number of employees.

5.1 Dismissal
: Worker is told to leave their job because of unsatisfied behaviour.
5.2 Redundancy
: is when an employee is no longer needed and so loses their job. It is not due to any
aspect of their works being unsatisfactory.

6. Legal controls over employment issues and their impact on employers and
employees

Employees need protection in the following areas:

6.1 Protection against unfair discrimination
: e.g. different race or color / belong to a different religion / opposite sex / disablility
6.2 Health and safety at work
: e.g. protect workers from dangerous machinery / provide safety equipment and
clothing / maintain reasonable workplace temperatures / provide hygienic conditions
6.3 Protection against unfair dismissal
: e.g. in the UK, if workers feel that they have been dismissed unfairly. Then they can
take their case to an industrial tribunal. ( is a legal meeting which considers
workers’s complaints of unfair dismissal or discrimination at work)
6.4 Wage protection
: Workers have a right to be paid for work. There should be a written agreement
between worker and employer in terms of the wage rate and how frequently wages
will be paid.

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Advantages and disadvantages of a legal minimum wage

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Advantages Disadvantages

• It encourages people to find • It increases cost to business.

jobs. • Some employers might lay off
• Low-paid workers will earn some workers, resulting in higher
more and they will be able to unemployment.
afford more products. • Other workers receiving just above
• Unskilled workers will be minimum level may ask for higher
receiving higher payments, it wage to keep the same differential
might encourage employers to between themselves.
train and make employees more
productive.
• It prevents employers from
exploiting unskilled workers by
paying low wages.

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Chapter 9: Internal and External communication

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Key terms
1. Communication: is the transferring of a message from the sender to the
receiver who understands the message.
2. Message : is the information or instructions being passed by the sender to the
receiver.
3. Internal communication: is between members of the same organisation.
4. External communication: is between the organisation and other organisations
or individuals.
5. Transmitter or sender of the message: is the person starting off the process
by sending the message.
6. Medium of communication: is the method used to send a message, for
example, a letter is a method of verbal communication.
7. Receiver: is the person who receives the message.
8. Feedback: is the reply from the receiver which shows whether the message
has arrived, been understood and, if necessary, acted upon.
9. One-way communication: involves a message which does not call for or
require a response.
10. Two-way communication: is when the receiver gives a response to the
message and there is a discussion about it.
11. Formal communication: is when messages are sent through established
channels using professional language.
12. Informal communication: is when information is sent and received casually
with the use of everyday language.
13. Communication barriers: are factors that stop effective communication of
messages.

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1. Why effective communication is important and the methods used to achieve

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it

Communication: occurs when a message is transferred from one person to

another, who understands the content of the message. If communication is not
effective, or communication failure, this can lead to serious consequences.
1.1 Internal communications: is sending messages between members of the same
organisation.

1.2 External communications:is sending messages between members of the

different organisation. Eg. Orders raw materials from supplier / Advertising goods
and services to consumers.

The process of effective communication

Effective communication involves the following four features

1. A transmitter or sender of the messages: person who pass on information

to others
2. A medium of communication or method of communication
3. A receiver of the information
4. Feedback

One-way and two-way communication

• One-way communication : involves a message which does not call for or

require a response.
• Two-way communication : is when the receiver gives a response to the
message and there is a discussion about it.

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Communication methods

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1. Verbal communication methods : involve the sender of the messages
speaking to the receiver. Eg. one-to-one talk / telephone / video conference
etc.

Advantages Disadvantages

• Information can be given out quickly • Not everyone understands when in

. the large meeting.
• There is opportunity for immediate • It can take longer to use a verbal
feedback and two-way method when feedback occurs.
communication. • When an accurate and permanent
• Body language can be used, and record of the message is needed,
can help to put messages across verbal is not appropriate.
effectively.
2. Written communication method : eg. business letters / memos / report /
notice / text message / email etc.

Advantages Disadvantages

• It is “hard” evidence which can be • It cannot get direct feedback.

referred to in the future. • It cannot use body language.
• A written message can be copied • The language used can be difficult
and sent to many people. for some receivers to understand.
• Electronic communication is a quick • Sending large files by using
and cheap way to reach a large electronics can take longer time.
number of people.
3. Visual communication methods : eg. Films / video / posters / charts etc.

Advantages Disadvantages

• These methods can present • There is no feedback and the

information in an attractive way. sender may need to use other forms
• They can be used to make a written of communication to ensure that the
message clearer by adding a chart message is understood.
or diagram to illustrate the main • Charts and graphs are difficult for
point. some people to interpret.

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Formal and informal communication

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• Formal communication : when messages are sent through established
channels using professional language.
• Informal communication : is when information is sent and received casually
with the use of everyday languages.

2. Demonstrate an awareness of communication barriers:

• Communication barriers: are the factors that stop effective communication

of messages

Barrier Description How the barrier can be

overcome

Problems • Languages are too difficult • Making the message easy

with the to understand. to understand.
sender • Senders might speak too • Making the message clear
fast or unclear. and rechecking feedback.
• Senders communicate the • Making sure that the right
wrong message. person is receiving the
• The message is too long right message.
and has too many details, • Shorten the message to
the receiver may not know make it easy to
the main point. understand the main point.

Problems • The loss of message • Rechecking from

with medium • Using the wrong channel feedback.
• Inaccurate message • Selecting the appropriate
• No feedback channel for each message
• Breakdown of the medium sent
eg. computer failure • Using the shortest
possible channel to avoid
problems.
• Also using other forms of
communication

Problems • They might not pay • Emphasising the

with the attention. importance of the
receiver • The receiver may not like message.
or trust the sender. • There should be trust
between both the sender
and the receiver.

Problems • No feedback. • Asking for feedback

with • Feedback is received too • Using the method of
feedback slowly or distorted. communication which
Perhaps the feedback is allows the sender to get
passing through too many feedback.
people.

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• Using direct

m
communication between
subordinates and
managers which is more
effective.

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Section 3: Marketing

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Chapter 10: Marketing, Competition and customer

Key terms

1. Market share: is the percentage of total market sales held by one brand or
business.
2. Mass market: is where there is a very large number of sales of a product.
3. Niche market: is a small, usually specialised, segment of a much larger
market.
4. Market segment: is an identifiable subgroup of a whole market in which
consumers have similar characteristics or preferences.

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1. The role of marketing

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• Identify customer needs : find out what products or services customers want,
the price they are willing to pay, where and how they want to buy, etc.
• Satisfy customer needs : in order to achieve sales of their goods and services
• Maintain customer loyalty : by building customer relationships
• Gain information about customers : to meet their changing needs and to
establish a long-term relationship with them
• Anticipate changes in customer needs : by identifying new trends in
customer demand or gaps in the market.

2. Market changes

2.1 Why customer / consumer spending patterns change

• Change in customer tastes and fashion

• Change in technology : old versions have low sales.
• Change in income: during economic growth the sales of luxury goods
increase.
• Ageing population : increasing in demand for some products e.g. healthcare

2.2 Why have some markets become more competitive?

• Globalisation : products are sold around the world.

• Transportation improvements : It is easier to buy products from other places.
• Internet / E-commerce : Customers can search products easily.

2.3 How can businesses respond to changing spending patterns and increased
competition?

• Maintain good customer relationships : continue to meet customer needs and

do market research.
• Keep improving its existing product
• Create new products to keep customers interested : this will help maintain or
increase market share for businesses.
• Keep costs low to maintain competitiveness

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3. Concepts of niche marketing and mass marketing

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3.1 Mass marketing: where there is a very large sales of the products e.g. water.

Advantages Disadvantages

• The sales to these markers are • High levels of competition

very large. between firms
• Firms can benefit from • High cost of advertising
economies of scales. • Producing standardised products
• Firms can sell a wide variety of or services may not meet specific
products to diversify risk. needs.
• Opportunities for growth of the
business due to large potential
sales.

3.2 Niche marketing: is a small,usually specialized segment of a much larger market.

Eg. Rolex watches are aimed at a small section of the larger market.

Advantages Disadvantages

• This can avoid competition from • There is a limited number of sales.

the larger businesses. • If a product is no longer demanded,
• The needs of customers can be the business may fail from
focused on and therefore targeted producing only the specific product.
by the firm in a niche market.

3. How and why market segmentation is undertaken

Market segment : is an identifiable subgroup in the whole market which consumers

have similar characteristics and preferences.

Segmenting a market can help a business to :

• Make marketing expenditure cost effective by producing a product which
closely meets the needs of these customers.
• Get higher sales and profits, because of cost-effective marketing
• Identify a market segment which is not having its needs fully met, and therefore
offer the opportunities to increase sales

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Ways of segmenting a market :

By socio-economic group E.g. Higher income ⇒ Ferrari

Medium income ⇒ Toyota

By age E.g. Baby, Children, Adult

By region/___location E.g. Europe ⇒ Sweater

Tropical Countries ⇒ Linen clothes

By gender E.g. Man ⇒ Shaving razor

Woman ⇒ Sanitary Napkin

By lifestyle E.g. Single person ⇒ Enjoy traveling or shopping

Married with three children ⇒ Spend on education

Advantages Disadvantages

• Company can serve the specific • High cost of investment

demand of customer to increase
sale (Zara:Man,Woman,Kids)
• Diversify risks

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Chapter 11: Market Research

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Key terms

1. Product orientated business: is one whose main focus of activity is on the

product itself.
2. Market orientated business: is one which carries out market research to find
out consumer wants before a product is developed and produced.
3. Marketing budget: is a financial plan for the marketing of a product or product
range for some specified period of time. It specifies how much money is
available to market the product or range, so that the marketing department
knows how much they may spend.
4. Market research: is the process of gathering, analysing and interpreting
information about a market.
5. Primary research: is the collection and collation of original data via direct
contact with potential or existing customers. Also called field research.
6. Secondary research: is information that has already been collected and
available for use by others. Also called desk research.
7. Questionnaire: is a set of questions to be answered as means of collecting
data for market research.
8. Sample: is the group of people who are selected to respond to a market
research exercise, such as a questionnaire.
9. Random sample: is when people are selected at random as a source of
information for market research.
10. Quota sample: is when people are selected on the basis of certain
characteristics(such as age, gender, or income) as a source of information for
market research.
11. Focus group: is a group of people who are representative of the target market.

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1. The role of market research and methods used

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1.1 Product-oriented and Market-oriented

• Product-oriented : business is one whose main focus of activity is on the

product itself. It is often basic necessities required for living, such as
agricultural foods. These products generally do not have a brand.
• Market-oriented : Business is one which carries out market research to find
out consumer wants before a product is developed and produced. This is better
to survive since it adapts based on changes in customer tastes.

Why is market research needed?

Market research : is the process of gathering, analysing and interpreting information

about a market. There are 2 types which are

• Quantitative information : which answers questions about the quantity of

something. Eg. How many people in the family drink coffee?
• Qualitative information : which answers questions where an opinion or
judgement is necessary. Eg. What do you think about “Toffee Nut latte”.

1.2 Primary research and secondary research

1.2.1 Primary research : is the collection and collation of original data via direct
contact with potential or existing customers.

• There are many types of primary research ,which are Questionnaire, Interview,
Observation and Focus group.

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The process of primary research

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Methods of primary research

Methods Advantages Disadvantages

1. Questionnaire • Detailed qualitative • It takes time and

: It is mainly made information can be money for carrying
up of lists of the gathered about the out, collating and
questions. product and analysing.
: Face-to face, service. • If the questions are
online etc. • Customers’ not well thought
• Set purpose opinions can be out, answers to
• Writing obtained. then will be
Questions • It can be carried inaccurate.
• Carry out out online which is
questionnaire cheaper and easier
to collate and
present the
results.
• They can be linked
to prize draws to
encourage people
to do
questionnaires .

2. Interview • The interviewer is • It might be

: When interviews able to explain inaccurate due to
are used, the questions. interviewer bias.

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interviewer (the • Detailed • It is time-consuming

m
person asking the information can be to carry-out.
questions) will gathered. • It is also expensive
have ready- to gather
prepared information.
questions for the
interviewee ( the
person answering
the questions)

3. Focus group • They can provide • They can be time-

: Where groups of detailed consuming,
people (focus information about expensive.
groups) agree to customers' • They can be biased
provide information opinions. if some people are
about a specific influenced by the
product or general opinion of others.
spending patterns
over the period of
time.

4. Observation • It is quite an • The information

: This can take the inexpensive way of only gives a basic
form of recording, gathering data. figure.
watching, auditing

Samples: A group of people who are selected to respond to the market research.

• Random Sample : Every member has an equal chance of being selected.

• Quota Sample : People are selected on the basis of certain characteristics /
age / gender and income.

1.2.2 Secondary research : is the use of information that has already been
collected and is available for use by others.

• Internal sources of information : it’s from the firm’s own records. It is cheap
and ready to use. E.g. the record from sales department, opinion from
distribution, finance department, and customer service department
• External sources of information : information is obtained from outside the
company. E.g. government statistics, newspapers, market research agencies,
and the internet.

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Advantages Disadvantages

m
• It is less time consuming. • It is expensive.
• It can get information that primary
cannot provide.
E.g. Economic forecast

Factors influencing the accuracy of market research data

The accuracy of data that has been collected depends on

• How carefully the sample was drawn up

• The way in which the question in the questionnaire were phrased to
ensure honest responses
• The sample selected
• The size of sample : The larger the sample, the more accurate the results
are likely to be
• Well-phrased questions
• Bias : articles in newspapers sometimes have a bias.
• Age of information : Statistics can quickly become out of date and they are
no longer related to current trends in consumers’ buying habits.

2. Presentation and use of market research results

: The raw data will need to be converted into a form which is easy to understand.
Information can be displayed in the form of:

2.1 A table or tally chart - Usually used to record the data in its original form,
however, it is often better to convert the data into a chart or graph.

Time Coffee Tea Bakery

7.00-12.00 IIII IIII IIII IIII IIII IIII IIII IIII II

12.01-18.00 IIII IIII IIII IIII II

18.01-20.00 II I IIII IIII IIII

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2.2 A chart - Shows the total figures for each piece of data or the proportion of each

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piece of data in terms of the total number

25

20

15
Unit
10

0
Coffee Tea Bakery

7.00-12.00 12.01-18.00 18.01-20.00

2.3 A Graph - used to show the relationship between two sets of data. Eg. Line
graph
25

20 20

15 15 15
12
10 10

5 5
2 2
1
0
Coffee Tea Bakery

7.00-12.00 12.01-18.00 18.01-20.00

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Chapter 12 : The marketing mix - Product

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Key terms

1. Marketing mix: is a term which is used to describe all the activities which go
into marketing a product or service. These activities are often summarized as
the four Ps- product, price, place, and promotion.
2. Unique Selling Point(UPS): the special feature of a product that differentiates
it from the products of competitors.
3. Brand name: the unique name of a product that distinguishes it from other
brands.
4. Brand loyalty: when consumers keep buying the same brand again and again
instead of choosing a competitor’s brand.
5. Brand image: an image or identity given to a product which gives it a
personality of its own and distinguishes it from its competitors’ brands.
6. Packaging: the physical container or wrapping for a product. It is also used for
promotion and selling appeal.
7. The product life cycle: the stages a product will pass through from its
introduction, through its growth until it is mature and then finally its decline.

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1. Marketing strategy: a plan to combine the right combination of the four

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elements of the marketing mix for a product or service to achieve a particular
marketing objective.
Marketing mix: describe all activities involving selling products and services.
It involves products, price, place and promotion.
2. The costs and benefits of developing new products

Process of developing new products

Costs and benefits of developing new products

Advantages Disadvantages

• The business will be first into the • The costs of carrying out market
market by developing Unique research and analysing the
Selling Point (USP) [the special finding
feature of a product that • The costs of producing trail
differentiates it from the products products including cost of wasted
of competitors] material
• Business can sell a broader • Lack of sales if the target market
range of products to diversify is wrong.
risks. • Loss of company image if a new
• Business can expand into new product fails to meet customer
markets. needs and wants.
• It may allow the business to
expand into existing markets

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3. Brand image; impact on sales and customer loyalty

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Product : what to produce in order to respond demand

• Brand name: the unique name of the products that distinguishes it

from others in order to be easy to remember. It creates perception to
customers that the product has high quality and standard.
• Brand image: is an image or identify given to a product which gives it
a personality of its own and distinguishes it from competitors.
• Brand Identity: company created to reflect value of the company e.g.
color/slogan etc.
• Brand loyalty: keep buying products even if they have competitors.

The importance of brand image

• Branded products normally have higher quality and they can be sold at
a higher price than unbranded products.
• Branded products are assurance of a standard quality that makes
consumers confident in buying brand products.
• This can be used to keep customers buying by developing brand
loyalty.
• This might have unique packaging which will attract more consumers.

4. The role of packaging

Packaging : is the physical container or wrapping for a product. It is also used

for promotion and selling appeal.

Role of packaging:

• Given protection to the product

• Easy to transport
• Easy to open and use
• Promote the products
• Eye-catching to attract customers
• Contain information about the products
• Suitable for the product to fit in

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5. The product life cycle : products do not last forever. A typical cycle for a

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product is as follows :

5.1 Development Stage : The prototype will be tested and market research
carried out before the product is launched on the market.

5.2 Introduction Stage: just launch products in the market.

• Sales revenue will grow slowly at first.

• Informative advertising is used until the product becomes known.
• Price skimming might be used if a product is new to the market.
• No profit since development costs have not yet been covered.

5.3 Growing Stage

• Sales start to grow rapidly because of better reputation.
• Persuasive advertising is used to encourage customers to buy.
• Prices are reduced since there are higher competitors.
• Profits are made because development costs are covered.

5.4 Maturity Stage

• Sales growth increases at a declining rate.
• Intense competition.
• Using competitive or promotional pricing strategies.
• Profits are at the highest.
• A lot of advertising is used to maintain sales growth.
• Firm needs to develop new products.
5.5 Saturation Stage

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• Sales is at the highest point.

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• Competition is high but no new competitors.
• Using competitive pricing.
• Profit starts to fall because of a drop in sales and a fall in selling price.

5.6 Decline Stage

• Sales and price decrease.
• Advertising is reduced and then stopped.
• The product will usually be withdrawn from the market.

6. How stages of the product life cycle can influence marketing decisions,

Stages Product Price Promotion Place

Introduction Newly launched Skimming or Informative Limited range

product penetration Advertising of exclusive
pricing shops if
skimming
pricing is used

Growth Raise price if Establish Increase range

penetration strong brand of outlets / E-
pricing was used image by commerce
initially promotional
activities

Maturity/ Plan for product Lower price to Sales Full range of

Saturation changes or start remain promotion distribution
development of competitive and techniques to channels used
new product to extend this encourage
stage for longer repeat
purchases

Decline Adapt product to Lower price as Relaunch the Sell mainly

extend its life customers will be product as a through lower
attracted by form of cost
competitors’ extension distribution
newer products strategy outlets

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7.Extending the product life cycle

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• When a product reaches the maturity, the business may adopt extension
strategies to boost sales again.
• Extension strategies includes
1. Introducing new version of the original product
2. Creating a new advertising campaign
3. Selling in new market
4. Changing products’ design
5. Selling in different retail shops

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Chapter 13 : The marketing mix : Price

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Key terms

1. Cost-plus pricing: the cost of manufacturing the product plus a profit mark-up.
2. Competitive pricing: when the product is priced in line with or just below
competitors’ prices to try to capture more of the market.
3. Penetration pricing: when the price is set lower than the competitors’ prices in
order to be able to enter a new market.
4. Price skimming: where a high price is set for a new product on the market.
5. Promotional pricing: when a product is sold at a very low price for a short
period of time.
6. Price elasticity of demand: a measure of the responsiveness of demand to
change in price.

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1. Pricing Method and an appropriate pricing method

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Pricing Explanation Example Advantages Justification
Method

Cost-plus Is the cost of Single product Easy to If there are

pricing manufacturing business calculate few
products competitors, it
plus profit mark- is possible for
up the business
to set a
eg. Cost 100 markup price.
profit 10%
therefore,
setting price at
110.-

Competitive Is when the E.g. gold Demand is -Consumers

pricing product is priced which is likely to be may not buy
in line with or difficult to price elastic, if at a higher
just below make product the business price unless
competitors’ differentiation sells products they think it is
prices to try to and branding. at low price, better quality.
capture more of they will gain - Companies
the market. higher need to do
revenue. research
about
competitor
prices which
is costly.

Penetration Is when the Low price for a It is likely to Profit might be

Pricing price is set lower new product in achieve high low.
than the a competitive market share
competitors in market quickly.
order to enter
the new market.

Price Is where a high High price for - This can

skimming price is set for newly earn high
new innovation developed profit and help
or new product products to cover
in the market. development
costs.
- This can help
to establish
the product as
being of a
good quality.

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Promotional Is when a Low price to - Reduce -The sale

m
Pricing product is sold sell unwanted stock revenue will
at a very low inventories - It can help to be lower
price for a short renew interest because the
period. in a business price of each
if sales are item will be
falling low

Psychological Is an approach • Setting a -It ensures -The

pricing when particular high price that sales are competitors
attention is paid for a made by may do the
to the effect that quality reinforcing same and it
the price of a branded consumers’ reduces the
product will have product perceptions of effect.
upon • Charging the product
consumers' 99$ - It increases
perceptions of brand image
the product. when the price
is set high

Dynamic charging E.g. airline -Increase -It increases

pricing different passengers revenue and in cost as
consumer are charged profit prices are
groups different different prices constantly
prices for the depending on changing.
same product. date of
purchase.

2. Understand the significance of price elasticity: difference between price

elastic demand and price inelastic demand

• Price elastic of demand : The responsiveness of demand to a change in

price. Or % change in quantity demand / % change in price
• Price-elastic demand : the percentage change in quantity demanded is
greater than the percentage change in price. (PED >1) eg. Fashion cloth,
Unnecessary goods

To raise total revenue : Business should decrease price as demand will

increase by the larger proportion.

• Price-inelastic demand :the percentage change in quantity demanded is

less than the percentage change in price. (0<PED <1) eg. necessary goods,
addictive products.

To raise total revenue : Business should increase price as demand will

decrease by the smaller proportion.

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Chapter 14 : The marketing mix - Promotion and technology marketing

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Key terms

1. Informative advertising: where the emphasis of advertising or sales promotion

is to give full information about the product.
2. Persuasive advertising: advertising or promotion which is trying to persuade
the consumer that they really need the product and should buy it.
3. Target audience: people who are potential buyers of a product or service.
4. Sales promotion: incentives such as special offers or special deals aimed at
consumers to achieve short-term increases in sales.
5. Marketing budget: a financial plan for the marketing of a product or product
range for a specified period of time.

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1. Promotion and the aims of promotion :

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Promotion

The aims of promotion

• To inform people about particular issues, often used by a government.

• To introduce new products on to the market
• To compete with competitors’s products
• To create a brand image
• To increase sales
• To improve the company image

The process of promotion

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2. Different forms of promotion and how they influence sales

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There are two main different forms of promotion, which are advertising
(Above-the line promotion) and sale promotion (below-the line promotion).
2.1 Advertising ( Above-the-line)
: to give product information and to persuade people to buy
• Informative advertising: is where the emphasis of advertising is to
give full information of the product.
• Persuasive advertising: is advertising or promotion which is trying to
persuade the consumer that they really need the product and should
buy it.

Advertising Media

Advertising Media Advantages Disadvantages

Television • Get more audience • Very expensive

(eg. household • The product can be
products) shown in an
attractive way.

Radio • Cheaper than TV • Cannot put visual

(eg. Local services) • Usually reach large message.
audience • Quite expensive
relative to other
methods.
• It cannot look back
at a hard copy.

Newspapers • Can be selected to • It is often black and

(eg. local events) target a particular white, so not very
group of people. eye-catching.
• Relatively cheap
• Adverts are
permanent and can
be cut and kept.
• A lot of information
can be put in the
advert.

Magazines • It is a very effective • Magazines are often

(e.g. golf) way to reach a published once a
specific target group. month or a week.
• Magazine adverts • It’s more expensive
are in color and than newspapers.
therefore more
attractive.

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Poster/Billboards • Permanent • Not detailed

m
(eg. Local event / • Relatively cheap information can be
Airlines) • Potential seen by included.
everyone • Can easily be
missed as people go
past them.

Cinemas, DVD • Can give visual • Seen by a limited

image of product number of people.
• Relatively low cost
• Can be very
effective if your
target audience goes
to see a particular
film.

Leaflets • Cheap • May not be read

• Given out on the • Direct email could
street can reachout be delivered door to
a wide range of door or mail to large
people. people.
• Advert can be • Annoying some of
permanent and can the consumers.
be kept for future
reference.

Internet • Order can be made • Internet access is

• It is cheaper TV limited in some
• A large amount of areas.
information can be • There is a lot of
placed on websites competition from
which can be seen other websites.
by large people. • Security issues may
• Can select a group discourage
of customers. customers from
buying online.

Other forms of publicity • Very cheap form of • May not be seen by

advertising eg T- customers in the
shirt, Delivery target market
vehicles

Product placement • Products are • Can be expensive to

(When brand goods associated with the pay for the
and services are image in the placement of the
featured in television, programme or movie product.
music video) • Can target a specific • May have negative
audience who view effects on the
or music video. customer if the

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image is not

m
attractive to them.

2.2 Sale promotion: incentive aims at consumers to achieve short-term

increases in sales. This can encourage new, existing consumers to buy the product.
· Price reduction: reduce price in shops at specific times of the year and
money-off coupons to be used when a product is next purchased. E.g. discount
20 percent after spending 10,000.-
· Gift : is placed in the packaging of a product to encourage the consumer to
buy it.
· BOGOF (Buy one get one free)
· Point of sale: is the place where the products are displayed and
demonstrated.
· After sale service e.g. Warranty 1 years.
· Free sample : can be handed out in the shop to encourage the consumer to
try the product and hopefully buy it.

The advantages of sales promotion

• It can promote sales at times in the year when sales are traditionally low.
• It encourages new customers to try existing products.
• It encourages consumers to try new products.
• It encourages existing customers to buy a product more often or in greater
quantities.
• It encourages customers to buy your product instead of a competing brand.

3. The need for cost-effectiveness in spending the marketing budget on

promotion

A marketing budget : is a financial plan for the marketing of a product or

product range for a specific period of time.
This needs to consider “ cost-effectiveness “ : the relationship between
monetary units input and desired outcome e.g. sales revenue vs expenditure on
advertising.
4. What type of promotion should be used?
4.1 State of product life
• Introduction : Informative advertising
• Growth : Persuasive advertising
4.2 The nature of product itself
• Producer goods : e.g. discount
• Consumer goods : e.g. free sample, coupon
4.3 The cultural issues involved in international marketing
• In the UK, online advertising is more popular than Laos.

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Chapter 15 : The marketing mix : place

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Key terms

1. Distribution channel: the means by which a product is passed from the place
of production to the customer or retailer.
2. Agent : an independent person or business that is appointed to deal with the
sales and distribution of a product or products.
3. E-commerce: the buying and selling of goods and services using computer
systems linked to the internet.

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1. Distribution Channels & Advantages and disadvantages of different

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channels

Distribution channel: the means by which a product is passed from the place of
production to the customer or retailer.

Distribution Channel Advantages Disadvantages

Distribution Channel 1 • It is simple. • Impractical for most

• It is suitable for products as
products e.g. customers do not
agriculture products live near the
• There is a lower factory.
price if sold directly • It may be very
to customers. (cut expensive to send
out wholesaler / products by post
retailer) and therefore not
• Products can be cost effective.
sold by mail order.

Distribution Channel 2 • Producers sells • Cannot direct

Eg. supermarket large quantities to contact with
retailers customers
• Reduce distribution
cost comparing
distribution channel
1

Distribution Channel 3 • Wholesaler saves • May be more

(Wholesaler : performs the space for small expensive for a
function of breaking bulk⇒ retailers and small shop to buy

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wholesalers buy products reduces storage from a wholesaler

m
from manufacturing in cost. than bought straight
large quantities and then • Small retailers can from the
divided up into smaller purchase products manufacturer.
quantities for retailers to
in small quantities • Wholesalers may
buys )
from wholesalers. not have the full
• May give credit to range of products to
customers and be sell.
able to pay later. • Take longer for fresh
• Wholesalers may produce to reach the
deliver to the small shops and may not
retailer thus saving be as good quality.
on transport costs. • Wholesaler may be
• Wholesalers can a long way from the
give advice to the small shops.
small retailer.

Distribution Channel 4 • Manufacturers may • Less control over

(Agent : is an independent not know the best the way the products
person or business that is way to sell the sold to consumers
appointed to deal with the product in other
sales and distribution of markets.
product or range of
• Agents know local
products)
conditions well and
able to select the
most effective
places in which to
sell.

Methods of distribution

Method of Description
distribution

Department stores A large store sells a variety of products from a wide range of
suppliers.

Chain Stores Two or more stores which have the same name and
characteristics.

Discount Stores Retail stores offering a wide range of products at discount

price.

Superstores New very large-out-of-the town which sell wide range of

products

Supermarkets Retail grocery stores with dairy products, fresh meat ,

packages food and non-food departments

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Direct Sales Products are sold directly from the manufacturing to

m
consumers (Distribution Channel 1)

Mail order Customers look through catalogs or magazines and order via
post.

Internet / e- Businesses can sell products through websites or online

commerce channels.
E-commerce

: is buying and selling of goods and services using computer systems linked to the
internet.

Opportunities of e-commerce to Opportunities of e-commerce to

business consumers

• Website can be used to promote • It is more convenient for

company and products consumers, they can purchase
worldwide ⇒ Cheaper method products from anywhere and
• Order can be taken from anytime.
overseas ⇒ increase market • Can compare price and products
share, revenue and profit between websites.
• Business can also easily make • Payment can occur easily by
online purchase of supplies and using a credit card.
material from other business • Consumers can access more
variety of products
• Less fixed cost eg. rent fee /
wage

Threats of e-commerce to business Threats of e-commerce to consumers

• Competition is high since other • Some customers cannot access

businesses can easily do the the internet.
same. • Computer systems failure or weak
• Website design must be internet connection can interrupt
attractive ⇒ increasing cost process purchasing products.
• Transportation costs per product • Products cannot be seen, touched
sold are likely to be higher than or tired on.
selling through traditional • There is no face-to-face contact
shops. with sales staff so consumers may
• There is no face-to-face contact lack some data.
with consumers which can • Many consumers are concerned
provide useful market research about identity theft or fraudulent
feedback. use of credit cards if they buy
• “ Return” goods can increase goods online.
cost to firms.

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• A large warehouse and efficient

m
stock control system will be
essential to meet consumers’
orders accurately and efficiently
• E-commerce is not suitable for
some products eg. hairdressing

2. Recommend and justify an appropriate distribution channel in given

circumstances

Factors affecting distribution channels

2.1 What type of product is it?
Eg. Agricultural products ⇒ distribution channel 1
2.2 Is the product very technical?
: If products need technical knowledge eg. aeroplane engine, direct selling
from the manufacturer will probably be selected.
2.3 How often is the product purchased?
: If it is bought every day ⇒ retail outlets could be used.
2.4 How expensive is the product?
: If the products are expensive ⇒ it will probably be sold through only a limited
number of outlets.
2.5 How perishable is the product?
: If the product goes rotten quickly eg. fruit /bread ⇒ it will need to be widely
available in many shops so that it can be sold quickly.
2.6 Where are the consumers located ?
2.7 Where do competitors sell their products?
: Each manufacturer will probably sell their products in the same outlets as
their competitors so that they can compete directly for customers.

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Chapter 16 : Marketing Strategy

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Key terms

1. Marketing strategy: a plan to combine the right combination of the four

elements of the marketing mix for a product or service to achieve a particular
marketing objective.

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1. Justify marketing strategies appropriate to a given situation

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Eg. Chanel bag

Product • Bags with brand “Chanel”

• Luxury handbags

Price • Price skimming

Promotion • Above - the - line advertising via magazine, billboard

Place • Retails
• Department stores
• E-commerce

2. The nature and impact of legal controls related to marketing:

: Consumers need protection against businesses which could, unfortunately,

take advantage of the consumers lack of knowledge and lack of accurate product
information.

There are some forms of consumer protection.

• Weights and measures : Retailers commit an offence if they sell
underweight goods.
• Trade descriptions: It is illegal to give the consumer a deliberately
misleading impression about a product. Advertisements must be truthful.
• Sales of goods : It is illegal to sell products which have flaws or problems.
• Supply of goods and services Act : A service has been provided with
reasonable skills and care.
• The distance selling regulation : allow customers a cooling-off period of
seven working days, this means they can change their mind about purchasing
goods or services.

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3. The opportunities and problems of entering new foreign markets:

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Opportunities Problems

1. Potential growth of new markets 1. Lack of knowledge in new foreign

in other countries to gain higher markets.
income. 2. Cultural differences - Some
2. Home markets might be products will not sell in another
saturated. market.
3. Businesses can sell and produce 3. Exchange rate changes can
in other countries. cause an uncertainty in purchase.
4. Trade barriers have been lower. 4. Increasing risk of non-payment as
the methods of payment may be
different.
5. Increasing transport cost.

Methods to overcome the problems of entering new markets abroad

• Joint venture : This helps business to gain local knowledge so culture and
customs can be adapted to enable a more successful entry into new markets.
• Licensing : this is where the business gives permission for another firm in the
new market being entered to produce the branded or “patented” products.
• International franchising : foreigner franchises are used to operate a
business’s franchise abroad.
• Localising existing brands. It means that there is still a common brand
image for the business but it has adapted to local tastes and culture therefore
increased in sales revenue.

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Section4: Operation Management

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Chapter 17: Production of goods and services
Key terms

1. Productivity: the output measured against the input used to create it.
2. Buffer inventory level: the inventory held to deal with uncertainty in customer
demand and deliveries of supplies.
3. Lean production: a term for those techniques used by businesses to cut down
on waste and therefore increase efficiency, for example, by reducing the time
it takes for a product to be developed and become available for sale.
4. Kaizen: a japanese term meaning “ continuous improvement ” through the
elimination of waste.
5. Just-in-time(JIT): a production method that involves reducing or virtually
eliminating the need to hold inventories of raw materials or unsold inventories
of the finished product. Supplies arrive just at the time they are needed.
6. Job production: is where a single product is made at a time.
7. Batch production: where a quantity of one product is made, then a quantity of
another item will be produced.
8. Flow production: where large quantities of a product are produced in a
continuous process. It is sometimes referred to as mass production.

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1.The meaning of production

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1.1 Production: the process transforms input into goods and services (output)

1.2 Productivity: is the output per an input. It also measures efficiency.

Productivity = Output Input

Method to improve productivity

• Improving the layout of the machines in the factory ⇒ reduce wasted time and
therefore increase efficiency.
• Improving labour skills by training workers ⇒ increase productivity
• Introducing automation

Benefits of increasing efficiency / productivity

• Increased output relative to the input required.

• Lower costs per unit.
• Fewer workers may be needed and lower labour cost.
• Higher wages for workers increase motivation.

Why does a business hold inventories (Stock) ; Inventories need to be controlled

to ensure that there is always enough inventory to satisfy demand.

The buffer inventory level : is the inventory held to deal with uncertainty in
customer demand and deliveries of supplies.

The forms of inventory includes raw materials, components and finished goods.

If inventory level is too high ⇒ this costs a lot of money, the business has bought
the goods but they are not being used and the money could be put to better use.

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3. The concept of lean production

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Lean production : is a term for those techniques used by businesses to cut down
on waste and therefore increase efficiency.

There are 7 types of waste that can occur in production and they are :

• Overproduction - this results in high storage cost and damaged goods.

• Waiting - when goods are not moving in any way then waste is occurring.
• Transportation - moving goods around unnecessarily causes waste.
• Unnecessary inventory - Too much inventory takes up space and is costly.
• Motion - moving machines unnecessarily.
• Over-processing - Using a complex machine to perform simple tasks is
wasteful.
• Defects - any faults take time to fix and inspect them.

Benefits of lean production

• Less storage of raw materials or components.

• Quicker production of goods and services.
• No need to repair defects or provide replacement services.
• Better use of equipment.
• Cutting out some processes to speed up production.
• Less money tied up in inventories.
• Improved health and safety leading to less time off work due to injury

The concept of lean production

1. Kaizen: meaning continuous movement and focusing to eliminate waste from

ideas of workers who discuss together (not from technology) .
Advantages:
• Increasing productivity.
• Reducing the amount of space needed for the production process.
• Reducing work-in-progress.
• Improving the layout of the factory floor may allow some jobs to be combined,
other areas can do other jobs.

2. Just in time: is a production method that involves in reducing or eliminating

the need to hold inventory of raw materials or unsold material.
Advantages:
• Reducing cost e.g. Inventory cost and storage cost
• Requiring smaller warehouse space.
• Selling the finished product quickly and improving cash flow.

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3. Cell production: is where the production line separates each identifiable part

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of finished goods instead of having a flow or mass production line.
Advantages:

• Employees feel more value to produce finished goods.

2.*The main methods of production

2.1 Job production is where a single product is made at a time.

Advantages Disadvantages

• It is most suitable for personal • Skilled labour is often used

services or one-off products. • Costs are higher since often labour
• The product meets the exact intensive.
requirements of customers • Production often takes a long time.
• The workers often have more • Products are specially made to
varied jobs. order and any errors can be
• Often high quality products can expensive.
charge higher prices. • Material may have to be specially
purchased leading to higher cost.

2.2 Batch production: is where quantity one product is made then quantity another
items are produced (however, produce in similar products)

Advantages Disadvantages

• It is a flexible way of working and • It can be expensive as semi-

production can easily be changed finished or finished products will
from one product to another. need moving.
• It still gives some variety to • Machines have to be reset
workers' jobs. between production batches →
• It allows more variety to products waste time and output lost
which are identical. • Warehouse space will be
• Production may not be affected needed for stock material.
greatly if machinery breaks down.

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2.3 Flow production: is where large quantities of products are produced

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in continuous process. (For mass production)

Advantages Disadvantages

• Higher output and standardize • It is boring system ⇒ little job

• Costs are kept low. satisfaction
• Capital-intensive ⇒ reduce • There are significant storage
labour cost and increase in requirements.
efficiency. • Higher cost of capital.
• Economies of scales ⇒ • If one machine breaks down the
average cost will be lower. whole production line will have to be
• Automated production lines halted.
can operate 24 hours a day.
• Goods are produced quickly
and cheaply.
• No need to move from one part
to another area. ⇒ save time

Factors affecting which method of production to use

• The nature of product
: Individual services ⇒ Job production will be used
: Mass production ⇒ Flow production
• The size of the market
: If demand is higher and more products can be sold but not very large
quantities ⇒ batch production will be used.
: If demand is small or niche market ⇒ batch or job production will be used
• The natural of demand
: If there is a large, steady demand of the product eg. water ⇒ flow production
will be used.
: If demand is less frequent, such as furniture ⇒ batch or job production will be
used.
• The size of the business
: If size of business is small , less funding for capital ⇒ job or batch production
will be used.

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3. How technology has changed production methods

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3.1 Automation : is where the equipment used in the factory is controlled by
computer to carry out mechanical processes.
3.2 Mechanisation : is where the production is done by machines but operated by
people eg. printing press
3.3 CAD (computer aided design) : is computer software that draws items from all
designed quickly and allows them to be rotated to see the items from all sides
instead of having to draw it several times.
3.4 CAM (computer aided manufacture) : is where computers monitor the production
process and control machines or robots on the factory floor.
3.5 CIM (computer integrated manufacturing) is the total integration of computer
aided design (CAD) and computer aided manufacturing (CAM) .
3.6 EPOS ( Electronic point of sales) : This is used at checkers where the operator
scans the barcode of each item individually.
3.7 EFTPOS (electronic funds transfer at point of sales) : where an electronic cash
register is connected to the retailer’s main computer and also to banks over a wide
area computer network.

Advantages and disadvantages of new technology

Advantages Disadvantages

• Greater productivity • Increasing unemployment.

• Greater job satisfaction as routine • Requiring a higher fund from
and boring jobs are now done by keeping updated technology.
machines. • Low job satisfaction to
• Increasing skills for labour since employees.
labour need to work with capital.
• Better quality of products.
• More accurate from using
computers to monitor demand
and inventory.
• Quicker communication and
reduced paperwork
• Better and quicker making
decisions from more information
available.

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Chapter 18: Cost /scale of production and break-even points

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Key terms

1. Fixed costs: costs which do not vary with the number of items sold or
produced in the short run. They have to be paid whether the business is
making any sales or not. They are also known as overhead costs.
2. Variable costs: costs which vary directly with the number of items sold or
produced.
3. Total costs: fixed and variable costs combined.
4. Average cost per unit(unit cost): the total cost of production divided by total
output
5. Economies of scale: the factors that lead to a reduction in average costs as a
business increases in size.
6. Diseconomies of scale: the factors that lead to an increase in average costs
as a business grows beyond a certain size.
7. Break-even level of output(Break-even point): the quantity that must be
produced/sold for total revenue to equal total costs.
8. Break-even charts: graphs which show how costs and revenues of a business
change with sales. They show the level of sales the business must make in
order to break even.
9. Revenue: income during a period of time from the sale of goods and services.
10. Total revenue = quantity sold x price.
11. Break-even point: the level of sales at which total cost = total revenue.
12. Contribution: its selling price less its variable cost.

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1.Identify and classify costs

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1.1 Cost : expense from producing goods.
• Fixed costs: are costs which do not vary with the number of items sold
or produced in the short run.
Eg. Rent / Water supplies / Electricity / Insurance / Interest
• Variable cost: are costs which vary directly with the number of items
sold or produced.
Eg. Raw material / Packaging
• Total cost: Fixed cost + Variable cost
• Average cost: Total cost / Total output, cost per unit
Using cost data
• Setting prices : if business does not know the average cost, the business
could charge a price which leads to a loss.
• Deciding whether to stop production : if making a loss, it may stop
production.
• Deciding on the best ___location : Costs are not the only factor to consider-
there might be pointless in choosing a low-cost ___location for a new shop if it is
the worst part of town.

2. Economics and diseconomies of scale

2.1 Economies of scale : are the factors that lead to a reduction in average cost per
unit as a business increases in size.
• Purchasing economies: When businesses buy large numbers of raw
material, they are able to gain discounts from buying in bulk.
• Financial economies: Large firms means more reliable and therefore lower
risk for delay repayment and hence receive lower cost of borrowing.
• Marketing economies : Advertising rates in papers and on television do not
go up in the same proportion as the size of an advertisement ordered by the
business.
• Technical economies: Big firm means high budget investment on high
technology which brings to high standard quality of products and lower
average cost.
• Managerial economies: Large firms can afford specialists and this increases
their efficiency and helps to reduce their average cost.
2.2 Diseconomies of scale: are the factors that lead to an increase in the average
cost as a business grows beyond a certain size.
• Poor communication: Large organisation makes slow or inaccurate
communication. As a result, this leads to higher average cost.
• Low morale: Lots worker means rarely to contact with head manager/ feel
unimportant/lower efficiency ; all in all, bring to higher average cost
• Slow making decisions: because lots people / longer step when deciding
something therefore bring to higher average cost.
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3. Break-even point find quantity that must be produced in order to cover total cost
but not generate profit (total revenue = total cost)

Break-even charts : are graphs which show how costs and revenues of a business
change of sales. They show the level of sales the business must make in order to
break even.

Margin of safety : the amount by which sales exceed the break-even point.

Eg. Mr.A produces motorcycle. The following information about the business has
been obtained.

• Fixed costs are 30,000 Baht per year

• Variable costs 5 Baht per unit
• Total selling output 2,000 types

Find out the selling price to meet the break-even point.

Step1 : Formula Total cost = Total revenue

Step2 : Fixed cost + Variable cost = Total revenue

30,000 + 5 (2,000) = 2,000 x Selling price

Step3 : Find out selling price

30,000+10,000 = 2,000 x Selling price

40,000/2,000 = Selling price

Selling price = 20 Baht

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Advantages Limitation

1. Able to find the expected profit 1. The graph does not show the
or loss to be made at any level possibility that inventories may build
of output. up if not all goods are sold.
2. Able to show the safety 2. Fixed costs only remain constant if
margin. the scale of production does not
change.
3. Break even point does not include
other factors eg. wastages.
4. The simple charts used in this
section have assumed costs and
revenues can be drawn with straight
lines. In reality, variable cost lines
slope more steeply upwards as
output expands.

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Chapter 19: Achieve quality production

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Key terms

1. Quality : to produce a good or a service which meets customer expectations.

2. Quality control: the checking for quality at the end of the production process,
whether it is production of a product or service.
3. Quality assurance: the checking for the quality standards throughout the
production process, whether it is the production of a product or service.
4. Total Quality Management(TQM): the continuous improvement of products
and processes by focusing on quality at each stage of production.

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1. Why quality is important and how quality production might be achieved

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Quality : to produce a good or a service which meets customer expectations.

This will ensure that the business :

• Establishing a brand image
• Building brand loyalty
• Maintaining a good reputation
• Helping increasing sales
• Attracting new customers
BUT If quality is not maintained the business wil :
• Losing customers to other brands
• Having to replace faulty products or repeat poor services which raise cost.
• Creating a bad reputation.

2. The concept of quality control and how businesses implement quality

control

Quality: means produce goods and services to meet customer expectation

(no fault+ high quality)
Quality control: is the checking for quality at the end of the production
process, whether it is the production of a product or services.

Advantages Disadvantages

• Tries to eliminate faults or errors • Expensive as employees need to

before the customer receives the be paid to check product or
products or services. services
• Less training required for the • It doesn't find why the fault has
workers. occurred and therefore is difficult
to remove the problem.
• Increased cost if products have to
be scrapped or reworked or
service repeated.

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3. The concept of quality assurance and how this can be implemented

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Quality assurance: is the checking for the quality standards throughout the
production process, whether it is the production of a product or services.

Advantages Disadvantages

• To eliminate faults or errors • Expensive to train employees to

before customers receive the check the product.
product or services. • Rely on employees following
• Fewer customer complaints instruction of standards set.
• Reduce costs if products do not
have to be scrapped or reworked
or service repeated.

3.1 Total Quality Management (TQM)

: is the continuous improvement of products and processes by focusing on

quality at each stage of production.

Advantages Disadvantages

• Building quality into every part of • Expensive to train employees to

the production. check the product or services
• Eliminating all faults before the • Relies on employees following
customer receives the product or TQM ideology
services as it has a “ right first
time” approach.
• No customer complaints,
improving brand image and
increasing sales.
• Reducing cost as products do not
have to be scrapped or reworked
or service repeated
• Removing waste and increasing
efficiency.

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How can a customer be assured of a quality product or services?

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The business can apply to have this quality mark on their goods or services and
they will have to follow certain rules to be able to keep this quality mark. E.g. ISO
(International Organisation for Standardization)
However, they may not usually use a quality mark to show they provide a good
service, but by having a good reputation and recommendation by satisfied
customers they will keep repeat customers as well as gain new ones. E.g. Trip
Advisor

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Chapter 20: Location services

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Key terms
-

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1. Factors relevant to the ___location decision of manufacturing businesses

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and service businesses

1.1 Factors affecting the ___location of a manufacturing business

1.1.1 Production methods and ___location decisions : Job production is used, the
business is likely to be small and so the influence of the nearness of components will
be of less importance to the business than if the flow production is used.

1.1.2 Market : E.g. Locating a factory near to the market for its products which is
heavier and more expensive to transport than the raw materials.

1.1.3 Raw material / components : The raw materials may be considerably heavier
or more expensive to transport than the finished product. Manufacture should be
located near suppliers of material.

1.1.4 External economies of scales: locating near support businesses which install
and maintain equipment may be better as they can respond quickly to breakdown.

1.1.5 Availability of labor

1.1.6 Government influence : If an area has high unemployment, the government

might give money to businesses which locate in that area.

1.1.7 Transportation and communications : Businesses usually need to be near

transport such as rail and airport.

1.1.8 Power and water supply : Some industries having a reliable source of power.

1.1.9 Climate

1.2 Factors affecting the ___location of a service sector business

1.2.1 Customers : locating close to the customer enables a quick response
demand.

1.2.2 Personal preference of the owners : locating business near to where the
owners live.

1.2.3 Technology : Some service businesses do not need to be near to customers

e.g website designer, they can locate anywhere.

1.2.4 Availability of labour : If a service business requires a large number of

employees then it need to be located in a large town or city.
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1.2.5 Climate : are linked to tourism. E.g. Hotels often need to locate themselves

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where the climate is good and near to a beach.

1.2.6 Near to other business : Some services serve the needs of large businesses,
e.g. service equipment. Therefore, they will need to be nearby to respond quickly to
a call to repair equipment.

1.2.7 Rent/Taxes : If the services do not need to be on main streets in town e.g.
doctor and lawyer then business will locate on the outskirts.

1.3 Factors affecting the ___location of a retailing business

1.3.1 Shoppers : E.g. businesses selling expensive goods ⇒ need to locate
businesses where people on high income might visit.

1.3.2 Nearby shops : Businesses should locate shops near competitors. Since this
can encourage customers to visit as a wide range of choice.

1.3.3 Customer parking available / nearby : Where parking is convenient and near
to the shops, this will encourage shoppers to that area and increase sales.

1.3.4 Availability of suitable vacant premises : If a suitable vacant shop or

premises is not available for purchase or rent, the business cannot be located

1.3.5 Rent/Taxes

1.3.6 Access for delivery vehicles : Access for delivery vehicles might be a
consideration if it is very difficult for them to gain access to the premises.

1.3.7 Security

1.3.8 Legislation : In some countries there may be laws restricting the trading or
marketing of goods in particular areas.

2. Factors that a business could consider when deciding which country to

locate operations in

2.1 New market overseas : locating in the countries with high economic growth or
opportunity to expand business to get higher market share and revenue.

2.2 Cheaper or new sources of material : it might be cheaper to use the raw
materials at their sources rather than transport then to another country.

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2.3 Difficulties with the labour force and wage costs : the labour-intensive

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business may be more profitable to relocate overseas with cheap wages.

2.4 Rent / taxes consideration : relocating to countries with lower rents or taxes.

2.5 Availability of government grants and other incentives : locating in countries

with proving grants and tax incentives for MNCs investing in their country.

2.6 Trade and tariff barriers : locating in that country there will be no restriction.

3. The role of legal controls on ___location decisions

Why does the government try to influence these ___location decisions? Usually
for two main reasons.

• To encourage businesses to set up in areas of high unemployment - in some

countries these are called development areas.
• To discourage firms from locating in overcrowded areas or natural beauty.

Two types of measures are often used by government to influence where firms
locate

• Planning regulations : it legally restricts the business activities that can be

undertaken in certain areas.
• Providing grants or subsidies to businesses: it encourages them to locate in
undeveloped parts of the country.

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Section5: Financial information and financial decisions

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Chapter 21: Business Finance: needs and resource
Key terms

1. Start up capital: the finance needed by a new business to pay for essential
fixed and current assets before it can begin trading.
2. Working capital: the finance needed by a business to pay its day-to-day costs.
3. Capital expenditure: money spent on fixed assets which will last for more than
one year.
4. Revenue expenditure: money spent on day-to-day expenses which do not
involve the purchase of a long-term asset, for example wages or rent.
5. Internal finance: obtained from within the business itself.
6. External finance: obtained from sources outside of and separate from the
business.
7. Micro-finance: providing financial services- including small loans- to poor
people not served by traditional banks.

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1. The main reasons why businesses need finance

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• To start up business
• To expanding an existing business: expanding shops in other areas
• To increase working capital: to pay for all their day-to-day activities such as
wages, raw materials, and electricity bills.
• To pay capital expenditure ( is money spent on fixed assets such as building
which will last for more than one year)
• To pay Revenue expenditure ( is money spent on day-to-day expenses eg.
wages or rent.

2. Source of finance:

2.1 Internal VS external sources of finance

• Internal source of finance: is obtained from within the business itself.

• External source of finance: is obtained from sources outside of and
separate from the business.

Internal source of finance External source of finance

1. Retained profit 1. Issue of shares

: Profit kept in business after the : Only possible for limited
owners have taken their share of the companies
profits. Advantages :
Advantages : • Permanent source of capital which
• Retained profit does not have to does not have to be repaid to
be repaid. shareholders.
• No interest rate payment • No interest rate payment
Disadvantages : Disadvantages :
• A new business will not have • Dividends are paid after tax
any retained profit. whereas interest on loan is paid
• Small firm’s profits might be too before tax is deducted.
low to finance the expansion. • Dividends will be expected by
• Keeping more profits in the shareholders.
business reduces payments to • The ownership of the company
owners. could change hands if many
shares are sold.

2. Sales of existing assets 2. Bank loan

: e.g. redundant building or : is a sum of money obtained from
surplus equipment. a bank which must be repaid and on
Advantages : which interest is payable.
• This makes better use of capital Advantages :
tied up in the business. • It is usually quick to arrange.
• It does not increase the debts of • It can be long term borrowing.
the business.

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Disadvantages : •Large companies can get low

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• It may take time to sell these rates of interest by banks.
assets and the amount raised is Disadvantages :
never certain until the asset is • Bank loans need to be repaid and
sold. interest must be paid.
• It cannot be practical for new • Security or collateral is usually
business since there is no required.
surplus equipment.

3. Sales of inventories to reduce 3. Selling debentures

inventory level : There are long-term loan
Advantages : certificates issued by limited companies
• This reduces the opportunity Advantages :
cost and storage cost of high • It can raise very long-term finance
inventory. 25 years.
Disadvantages : Disadvantages :
• It must be done carefully to • Loan must be repaid and interest
avoid disappointing customers if must be paid.
there are not enough goods for
them.

4. Owner’s saving 4. Factoring of debts

Advantages : : A debtor is a customer who owes
• It is available to the firm quickly. a firm money for goods bought. Debt
• No interest is paid. factors are specialist agencies that “ buy”
Disadvantages : the claims on debtors of firms for
• Saving may be too low. immediate cash.
• It increases the risk taken by the Advantages :
owners. • Immediate cash is made available
to the business.
• The risk of collecting the debt is
owned by the factor.
Disadvantages :
• The firm does not receive 100 %
of the total value of its debt.

5. Grants and subsidies form

outside agencies
Advantages :
• Grants or subsidies usually do not
have to be repaid.
Disadvantages :
• They are often given with “strings
attached”. (Conditions)

6. Micro-finance
: is providing financial services -
including small loans to poor people who
cannot served by traditional banks.

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Short term and Long term finance

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Short term source of finance Long term source of finance

1. Overdraft 1. Bank loans

: Spend more money than is : is a sum of money obtained from a
currently in the account. bank which must be repaid and on which
Advantages : interest is payable.
• The firm could use this finance Advantages :
to pay wages or supplies • It is usually quick to arrange.
immediately. • It can be long term borrowing.
• It is a flexible form of borrowing • Large companies can get low
since overdraft can vary each rates of interest by banks.
month. Disadvantages :
• Interest will be paid only on the • Bank loans need to be repaid and
amount overdrawn. interest must be paid.
• Overdrafts can turn out to be • Security or collateral is usually
cheaper than loans in the short required.
term.
Disadvantages :
• Interest rates are variable,
unlike most loans which have
fixed interest rates.
• The bank can ask for the
overdraft to be repaid at very
short notice.

2. Trade credit 2. Hire purchase

: Business delays paying its : This allows a business to buy
suppliers, which leaves the fixed assets over a long period of time
business in a better cash with monthly payments which include an
position. interest charge.
Advantages : Advantages :
• It is almost an interest-free loan • The firm does not have to find a
to the business for the length of large cash sum to purchase the
time that payment is delayed asset.
for. Disadvantages :
Disadvantages : • A cash deposit is paid at the start
• The supplier may refuse to give of the period.
discounts or refuse to supply if • Interest payments can be quite
payment is not made quickly. high.

3. Factoring of debt 3. Leasing

: A debtor is a customer who owes a : Leasing an asset allows the firm
firm money for goods bought. Debt to use an asset but it does not have to
factors are specialist agencies that “ purchase it. Monthly leasing payments
buy” the claims on debtors of firms for are made.
immediate cash.

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Advantages : Advantages :

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• Immediate cash is made • The firm does not have to find a
available to the business. large cash sum to purchase the
• The risk of collecting the debt is asset to start with.
owned by the factor. • The care and maintenance of the
Disadvantages : asset are carried out by the
• The firm does not receive 100 % leasing company.
of the total value of its debt. Disadvantages :
• The total cost of the leasing
charges will be higher than
purchasing the asset.

4. Issue of share
----- See under “External Finance----

5. Debenture
----- See under “External Finance----

3. Sources of finance : How business makes the choice

3.1 Purpose and time period
: If the use is long term e.g. fixed asset, the source should be long term.
: If the use is short term e.g. purchase inventory, the source should be short term.
3.2 Amount needed
: If a public firm would like huge funding, business should raise funding by issuing
shares.
3.3 Legal form and size
: Companies, especially public limited companies, have a greater choice of sources
of finance. Issuing shares or debentures is not an option for sole traders and
partnerships.
3.4 Control
: Owners of businesses may lose control of that business if they ask other people to
invest in their firm.
3.5 Risk and gearing - does the business already have loans?
: The gearing of a business measures the proportion of total capital raised from long-
term loans. If this proportion is very high - more than 50 % - the business is said to
be highly geared. This is said to be a risky way of financing a business.

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4. Will banks lend and shareholders invest

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A business owners will increase the chances of obtaining loan finance if the
following is available:
• A cash flow forecast which shows why the finance is needed and how it will
be used.
• An income statement for the last time period and a forecast one. These
should show the chances of the business making a profit in future.
• Details of existing loans and sources of finance being used.
• Evidence that “security” is available to reduce the bank’s risk if it lends.
• A business plan to explain clearly what the business hopes to achieve in the
future and why finance is important to these plans.
Shareholders are most likely to buy additional shares when :
• The company’s share price has been increasing.
• Dividends are high or profits are rising so dividends might increase in the
future.
• Other companies do not seem such a good investment.
• The company has a good reputation and has plans for future growth.

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Chapter 22: Cash flow forecasting and working capital

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Key terms

1. Cash flow: the cash inflows and outflows over a period of time.
2. Cash inflows: are the sums of money received by a business during a period
of time.
3. Cash outflows: are the sums of money paid out by a business during a period
of time.
4. Cash flow cycle: shows the stages between paying out cash for labour,
materials etc. and receiving cash from the sale of goods.
5. Profit: the surplus after total costs have been subtracted from sales revenue.
6. Cash flow forecast: an estimate of future cash flows and outflows of a
business, usually on a month-by-month basis. This then shows the expected
cash balance at the end of each month.
7. Opening cash balance: the amount of cash held by the business at the start of
the month.
8. Net cash flow: the difference between cash inflows and cash outflows each
month.
9. Closing cash balance: the amount of cash held by the business at the end of
month, this becomes next month’s opening cash balance.
10. Working capital: the capital available to a business in the short term to pay for
day-to-day expenses.

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1. Why cash is important to a business

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Cash: immediate available for spending on goods and services i.e. cash inflow and
outflow

2. Why cash is important to a business:

If a business has too little cash, it will face problems...

• Unable to pay for worker/ supplier/government

• Stop production : no money for buying materials
• Lack of liquidity

Cash inflows: are the sums of money received by a business during a period of time
such as sale of product on cash and payment made by debtors.

Cash outflows: are the sums of money paid out by a business during a period of
time such as purchasing materials on cash and paying wage.
Cash flow cycle: shows the stages between paying out cash for labour, materials
etc. and receiving cash from the sale of goods.

3.Cash flow forecasts:

• Cash flow forecast: an estimate of future cash flows and outflows of a
business, usually on a month-by-month basis. This then shows the expected
cash balance at the end of each month.
• Net cash flow = Cash inflow - cash outflow
• Closing bank balance = Opening bank balance + Net cash flow

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January (Baht)

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Cash inflow (Baht) 45,000

Cash outflow 20,000

Net cash flow 25,000

(Cash inflow - cash outflow)

Opening bank balance 10,000

Closing bank balance 35,000

(Opening bank balance + Net cash flow)

Uses of cash flow forecast:

• Planning to start up a business

• Informing the bank manager to get loans
• Managing existing a business
• Managing cash flow

4. How short-term cash flow problem overcome:

Methods Limitations

1.Borrowing money from banks. • It needs to pay interest on loan.

• It causes money outflow from
repayment in the future.

2.Delay paying off supplier • The business may get a lower

discount.
• Suppliers reject supply goods.

3.Asking trade receivable of • Customers may buy products from

customers to repay earlier rival firms.

4.Delaying or cancelling the purchase • It may reduce efficiency in the

of capital equipment production.

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4. Working capital: capital available for short term to pay day-to-day expenses. It

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refers to the amount of money available to run a business.

Working capital = Current assets - Current liabilities

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Chapter 23: Income Statement

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Key terms

1. Accounts: the financial records of a firm’s transactions.

2. Accountants: the professionally qualified people who have responsibility for
keeping accurate accounts and for producing the final accounts.
3. Final accounts: produced at the end of the financial year and give details of
the profit or loss made over the year and the worth of the business.
4. Income statement: a document that records the income of a business and all
costs incurred to earn that income over a period of time. It is also known as a
profit and loss account.
5. Gross profit: when sales revenue is greater than the cost of goods sold.
6. Sales revenue: the income to business during a period of time from the sales
of goods or services.
7. Cost of goods sold: the cost of producing or buying in the goods actually sold
by the business during a time period.
8. Trading account: shows how the gross profit of business is calculated.
9. Net profit: the profit made by a business after all costs have been deducted
from sales revenue. It is calculated by subtracting overhead costs from gross
profits.
10. Depreciation: the fall in the value of a fixed asset over time.
11. Retained profit: the net profit reinvested back into a company, after deducting
tax and payments to owners such as dividends.

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1. What profit is and why it is important:

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How a profit is made:

Profit = sales revenue - cost of making products

Why is profit important:

• Reward for owners or shareholders
• Reward for risk taking
• Source of fund for reinvestment
• Indicator of success
Difference between profit and cash:

Profit ≠ Cash
• Profit = sales revenue - cost of making products
• Sales revenue includes selling on cash and credit and cost includes cost of
production already paid by cash or bought on credit.
• Higher profits do not mean higher cash gained if the business sells on credit.

2. Income statement:
Income statement: record income and expense over the period and it shows
performance of the business.
Main features of an income statement

Sales revenue $55,000

Opening inventories $10,000

Purchases $25,000

Total inventory available $35,000

(Opening inventories + Purchases)

Less closing inventories $12,000

Cost of goods sold $23,000

(Total inventory available - Closing inventories)

Gross profit $32,000

(Sales revenue - Cost of goods sold)

Other income $5,000

$37,000

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Less expense:

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Wages and salaries $12,000

Electricity $6,000

Rent $3,000

Depreciation $5,000

Selling and advertising expense $5,000

$31,000

Net profit $6,000

(Gross profit + Other income - Expense/overhead)

Corporate tax $500

Profit after tax $5,500

(Net profit - Corporate tax)

Dividend $2,000

Retained profit for the year $3,500

(Net profit after tax - Dividend)

Summary
• Total inventory available = Opening inventories + Purchases
• Cost of goods sold = Total inventory available - Closing inventories
• Gross profit = Sales revenue - Cost of goods sold
• Net profit = Gross profit + Other income - Expense/overhead
• Profit after tax = Net profit - Corporate tax
• Retained profit for the year = Net profit after tax - Dividend

3. How to use income statement:

• Comparing performance with last year/industry average/competitors
• Predicting short and long problems.

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Chapter 24: Statement of financial position

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Key terms

1. Balance sheet(Statement of financial position): shows the value of a

business’s assets and liabilities at a particular time.
2. Asset: items of value which are owned by the business. They may be
fixed(non-current) or short-term current assets.
3. Liabilities: debts owed by the business.
4. Non-current assets: items owned by the business for more than one year.
5. Current assets: owned by a business and used within one year.
6. Non-current liabilities: long term debts owed by the business.
7. Current liabilities: short-term debts owed by the business.

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1. Statement of financial position (Balance sheet):

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Statement of financial position (Balance sheet): shows the value of a business’s
assets and liabilities at a particular time.

2.The main elements of a statement of financial position:

2.1 Asset: items owned by business
· Non-current asset: owned by the business for more than 1 year; such as
land, building and machines.
· Current asset: owned by the business less than 1 year or in the short-term
period; such as cash, account receivable and debtor.

2.1 Liability: debts owed by the business

· Non-current liability: long-term borrowing which does not need to repay
within one year; such as bank overdraft and account payable to suppliers.
· Current liability: Short term borrowing which must be repaid within one
year; such as long term loans.

2.3 Equity: Shareholder fund and reserve money in business

Total asset = Total liabilities + Shareholders’ equity

3. Interpreting a statement of financial position(Balance sheet)

• Shareholders can check the value of total equity.

• Shareholders can analyse how expansion by the business has been
paid for.
• To calculate working capital from balance sheet data.

Working capital = Current assets - Current liability

• To calculate capital employed from balance sheet data.

Capital employed = Shareholders’ funds + Non current liability

• To calculate financial ratio including liquidity ratio from balance sheet

data.

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Chapter 25: Analysis account

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Key terms

1. Liquidity: the ability of a business to pay back its short-term debts

2. Capital employed: shareholders’ equity plus non-current liabilities. It is the
total long-term and permanent capital invested in a business.
3. Illiquid: that assets are not easily convertible into cash.

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1. Ration analysis of accounts

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1. Profitability ratio: assess how well company generate profit

Return on capital
Profitability Gross Profit (%) Net profit(%) employed (ROCE)(%)
ratio

Formular 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡

x 100 x 100 x 100
𝑆𝑎𝑙𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑆𝑎𝑙𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Gross profit = sales Net profit = Gross Capital employed =

revenue - cost of profit - operating shareholders’ equity +
goods sold expense non-current liability

Analysis • It shows how • It shows how • It shows how

successful a successful a efficient a business
business can business can can net profit from
convert sales convert sales into capital used in the
into profit. net profit. business.
• It shows the • It shows the ability • It shows the ability
ability to control to control the to generate net
the cost of overhead cost profit by the
goods sold. such as amount of
advertising and investment.
marketing.

2) Liquidity ratio: assess ability to pay its short-term debt.

Liquidity Current Ratio Acid test ratio or Quick Ratio

ratio

Formular Current assets Current assets −Inventory

x 100 x 100
Current Liabilities Current Liabilities

Save ratio 1.5 - 2.0 1

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Analysis If current ratio < 1; it cannot If acid test ratio < 1; it cannot pay off its

m
pay off its short term debt short term debt from its most liquid
from current assets. assets. It needs to reduce inventories
and increase cash.
If current ratio > 2 ; it has
opportunity cost from holding The great difference between current
too much liquid asset or ratio and acid test ratio means the
working capital. business holds a relatively high level of
inventories.

2. Uses and users of accounts

Users of accounts What they use the account for

1.Managers • To control and assess the performance in

controlling cost and generating profit

2.Shareholders • To decide whether to invest in the

business or not from profitability ratio

3.Creditors; suppliers that sell • To assess the liquidity problems and

goods on credit to the ability of the business to repay its creditor
business. from liquidity ratio

4.Banks • To decide whether to issue a loan to the

business or not from liquidity ratio

5.Government • To check the profit tax paid by the

company

6.Workers and trade union • To assess whether the future of the

business is insecure or not.

7.Other businesses • To decide whether to take over the

business or not
• To compare its business’s performance
with other rival businesses.

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3. Limitations of using accounts and ratio analysis:

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• External users can use only published accounts.
• Rations are based on historical data therefore they cannot predict future
performance.
• Accounting data over time can be misleading by the reason for inflation.
• Different companies have different accounting policies so it is difficult to
compare performance.

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Section 5: External influences on business activity

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Chapter 26: Government and Policy

Key terms

1. Inflation: the increase in the average price level of goods and services over
time.
2. Unemployment: exist when people who are willing and able to work cannot
find a job.
3. Economic growth: when a country’s Gross Domestic Product increases- more
goods and services are produced than in the previous year.
4. Balance of payments: records the difference between a country’s exports and
imports.
5. Real income: the value of income, and it falls when prices rise faster than
money income.
6. Gross Domestic Product (GDP): the total value of output of goods and
services in a country in one year.
7. Recession: a period of a fall in Gross Domestic Product.
8. Exports: goods and services sold from one country to other countries.
9. Imports: goods and services bought in by one country from other countries.
10. Exchange rate: the price of one currency in terms of another, for example
1$=38฿
11. Exchange rate depreciation: the fall in the value of a currency compared with
other currencies.
12. Fiscal policy: any changes by the government in tax rates or public sector
spending.
13. Direct taxes: paid directly from incomes - for example, income tax or profit tax.
14. Indirect taxes: added to the prices of goods and taxpayers pay the tax as they
purchase the goods - for example, VAT.
15. Disposable income: the level of income a taxpayer has after paying income
tax.
16. Import tariff: a tax on imported product,
17. Import quota: a physical limit to the quantity of a product that can be imported.
18. Monetary policy: a change in interest rates by the government or central bank,
for example the European Central Bank.
19. Exchange rate appreciation: the rise in the value of a currency compared to
other currencies.

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1. Government economic objective

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1. Low inflation

Inflation: an increase in the average price level of goods and services over time.

Reason why government aims for low inflation

• Low inflation can encourage business to expand.

• Low inflation increases export competitiveness in the world market.

2. Low unemployment

Unemployment : when people who are willing and able to work cannot find a job.

Reason why government aims for low unemployment

• Employed workers can generate goods and service to a country.

• Governments can gain high tax revenue and have lower expenses on
unemployed benefits.

3. High economic growth

Economic growth : a country’s Gross Domestic Product increases or more goods

and services are produced than in the previous year.

Reason why government aims for high economic growth

• High economic growth means more outputs are produced, resulting in better
living standards.

4. Balance of payment stability

Exports: goods and services sold from one country to other countries.
Imports: goods and services bought in by one country from other countries.
Reason why government aims for balance between exports and imports

• Government avoids the balance of payment deficit as it means import

expenses are greater than export revenue. It causes money outflow and the
loss of foreign currency reserve.
• While if the country exports goods too much there will not be enough outputs
for people in the country.

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2. The business cycle

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Stages in business cycle Characteristics

1. Growth • GDP is rising.

• Unemployment is falling.
• Businesses get high profit.

2. Boom • Too much spending.

• Price is rising.
• Low unemployment and shortage of labour.
• Businesses face high cost.

3.Recession • Too little spending.

• GDP is falling.
• High unemployment.
• Business experience falls in demand and profit.

4.Slump • A long recession.

• Very high unemployment.
• Price may fall.
• Many businesses fail in this period

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3.* Government policy

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3.1* Fiscal policy: by changing tax and government spending
• Income tax: tax on people’s income which the tax mainly falls on high income
earners.
• Profit tax/corporate tax: tax profit of businesses
• Indirect tax: tax on spending e.g. VAT(Value added tax)
• Import tariff: tax on imported products
• Government spending

Fiscal policies to deal with economic recession

Fiscal policy Explanation

1) Increasing ⇒ An increase in government spending raises

government aggregate demand(AD=C+I+G+NX).
spending ⇒ It increases production and employment.
⇒ It increases national output and employment.

2) Cutting income tax ⇒ A cut in income tax increases disposable

income.
⇒ People have higher ability to spend and
aggregate demand increases.
⇒ Firms increase production and employment.
⇒ It increases national output and employment.

3) Cutting profit tax ⇒ A cut in income tax increases a firm's profit.

⇒ Businesses have more ability to invest
⇒ Firms increase production and employment.
⇒ It increases national output and employment.

4) Cutting indirect tax ⇒ A cut in indirect tax reduces the price of

products.
⇒ Consumers can afford more products.
⇒ Firms increase production and employment.
⇒ It increases national output and employment.

5) increasing tariff ⇒ Tariff increases price of imported goods.

⇒ Consumers switch to consume domestic goods
rather than imports.
⇒ Domestic firms increase production and
employment.
⇒ It increases national output and employment

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3.2* Monetary Policy: by changing interest rate

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Monetary policies to deal with economic recession

Monetary policy Explanation

1. Reducing ⇒ People increase spending rather than saving due to lower

interest rate return on saving. Consumption rises. (C⇧)
⇒ Businesses borrow more money to invest due to lower
cost of borrowing. Investment rises.(I⇧)
⇒ Hot money outflows to deposit money abroad, resulting
in currency depreciation and trade balance improved.(NX⇧)
⇒ Aggregate demand increases (AD = C+I+G+NX).
⇒ It results in higher production and employment.

3.3 Supply side policy: try to improve efficient of supply goods and services

Supply side policy Explanation

1.Education and training ⇒ It improves workers’ productivity of labour
⇒ National output increases.

2.Privatisation ⇒ Government sells public corporations to private

firms.
⇒ Private firms have a profit motive, they have
incentive to improve efficiency.

3.Increasing competition in all ⇒ by reducing business regulation which allows

industries. small firms to enter the market.
⇒ by preventing monopoly (only one seller)

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Chapter 27: Environmental and ethical issues

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Key terms

1. Social responsibility: when a business decision benefits stakeholder other

than shareholders, for example, a decision to protect the environment by
reducing pollution by using the latest abs greenest production equipment.
2. Environment: our natural world including, for example, pure air, clean water
and undeveloped countryside.
3. Private costs: costs of an activity paid by business.
4. Private benefits: benefits from an activity are the gains to a business.
5. External costs: costs paid for by the rest of society, other than the business,
as a result of business activity.
6. External benefits: the gains to the rest of society, other than the business,
resulting from business activity.
7. Social cost: = external cost + private cost.
8. Social Benefit: = external benefit + private benefit.
9. Sustainable development: development which does not put at risk the living
standards of future generations.
10. Sustainable production methods: those that do minimum damage to the
environment.
11. Pressure group: made up of people who want to change business (or
government) decisions and they take action such as organizing consumer
boycott.
12. Consumer boycott: when consumers decide not to buy products from
businesses that do not act in a socially responsible way.
13. Ethical decisions: based on moral code. Sometimes referred to as doing the
right thing.

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1. How business activity can impact on the environment, e.g. global warming

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• Example of how business activities impacts on the environment
: air pollution, water pollution, noise, and waste disposal.
• Social responsibility
: business decision benefit “stakeholder” than shareholder - decide to protect
environment by reducing pollution

Advantages and disadvantages of having a social responsibility towards

environment

Advantages of concerning Disadvantages of concerning

environment environment

1.It reduces impacts of global 1.Protecting the environment may increase

warming and pollution. cost to businesses and reduce profit.

2.To reserve scarce natural 2.Firms may have to increase prices to

resources for the next generation. compensate for the cost of protecting the
environment, which may reduce
competitiveness in the market.

3.Consumers are willing to pay a 3. Firms may face lower sales revenue if
high price for environmentally they increase price.
friendly products.

4.If business damages the

environment, it creates a bad
reputation and pressure groups
may take action.

2. Externalities: external costs and external benefits of business decisions

Externalities: consequence of economic activities that experience by unrelated third

parties; divided to negative and positive externality

• Private cost: Cost to businesses e.g. raw material / rent /equipment

• Private benefits: profit to businesses
• External cost: negative effects to the third party or the rest of society. E.g.
pollution
• External benefit: positive effects to the third party or the rest of society. E.g.
job creation, paying tax.

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Social benefit = private benefits + external benefits

• Businesses usually concern only private cost and private benefit in decision
making while the government takes into account social cost and social benefit
to select the project.

3. Sustainable development; how business activity can contribute to this

Sustainable development: economic growth which does not harm environment and
future generations (by using renewable energy/ recycling waste / using fewer
resources/ developing environmental friendly products)

4. Responding to environmental pressures and opportunities

4.1) Pressure group: made up of people who want to change business(or

government) decisions and they take action such as organising consumer boycotts.
⇒ If a business damages environment
⇒ Many consumers will stop buying its products to put pressure on the
business.
4.2) Laws pass by government:
Some business activities can be restricted by laws e.g. preventing businesses to
dump waste into the river.
4.3) Financial penalties / pollution permits:
Pollution permit : a licence to pollute up to a certain level.
⇒ If a business is highly polluer and polluted beyond the limit, they need to
pay for extra permits.
⇒ For low polluters, they can sell the leftover permit to high polluters.

5. Ethical issues a business might face: conflicts between profits and

ethics

Ethical decisions: based on moral code. Sometimes referred to as doing the right
thing.
Example of unethical decisions of business; employing child labour, providing
poor working condition, damaging environment.

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Benefits and limitations of ethical decisions

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Benefits of ethical decisions Limitations of ethical decisions

1. Consumers may not but products 1. It has a higher cost of employing

made by child labour. adult workers then child labour.

2. It creates a good reputation for 2. In the short run a business may

ethical businesses. face high cost and gain lower profit.

3. It contributes long term profit to 3. The business may increase price

the ethical businesses. and become less competitive in the
market.

4. Ethical businesses can attract 4. If consumers are sensitive to price,

many workers and are easier to raise it can cause a dramatic fall in demand and
funds. sale revenue.

5. There is less risk of legal action 5. If children are not employed, their
against unethical businesses. family’s income will fall a lot.

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Chapter 28: Business and international economy

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Key terms

1. Globalisation: the term now widely used to describe increases in worldwide

trade and movement of people and capital between countries.
2. Free trade agreements: exist when countries agree to trade imports/exports
with no barriers such as tariffs and quotas.
3. Import quota: a restriction on the quality of a product that can be imported.
4. Protectionism: when a government protects domestic firms from foreign
competition using tariffs and quotas.
5. Multinational businesses(transnational businesses): those with factories,
production, or service operations in more than one country.
6. Exchange rate: the price of one currency in terms of another, for example
1$=38฿
7. Currency depreciation: the fall in the value of a currency - it buys less of
another currency.
8. Currency appreciation: the rise in the value of a currency - it buys more of
another currency.

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1. Globalization: increase worldwide trade between countries

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Globalization: increase worldwide trade between countries

Reasons for globalization: increasing free trade agreement, improving

communication, industrialising of emerging market countries.

Globalization- opportunities and threats for businesses

Opportunities Threats

• Exporting good and services • Losing jobs for local people

• Increasing market share • Domestic firms cannot compete with
• Gaining cheap labour cost MNCs.
• Importing cheaper material • Labours leaving to countries with high
wages.
• Insufficient labours in some countries
causing high cost of recruitment and
training for businesses.

Why governments might introduce import tariffs and import quotas

Tariff: is tax on imported goods.

⇒ It increases the price of imported goods.
⇒ Consumers switch to consume domestic goods rather than imports.
⇒ It helps protect domestic firms and employment in the country.

Import quota: a restriction on the quality of a product that can be imported.

⇒ Reducing import quota decreases the consumption of imported goods.
⇒ Consumers are likely to consume domestic goods rather than imports.
⇒ It helps protect domestic firms and employment in the country.

2. Reasons for the importance and growth of multinational companies (MNCs):

Multinational business: businesses which operate in more one countries e.g.

Toyota/Exxon/Mc.

Why do firms become multinational companies?

• To produce products in the countries with low cost

• To access raw materials
• To reduce transport cost by producing products near the market

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• To avoid tariff, quote and other trade barriers

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• To expand into different market
• To remain competitive with rival firms which are selling products abroad

Advantages and disadvantages of MNCs operating in a country

Advantages of MNCs operating Disadvantages of MNCs operating in a

in a country country

1. More jobs created which 1. Resource depletion and environmental

reduces unemployment. damage

2. MNCs bring new 2. Profits are transferred back to their

technology and create outputs in home countries rather than reinvested in the
the country host country.

3. More outputs available to 3. Employing only low skilled workers in

consumers. the country

4. Tax revenue paid by MNCs 4. Domestic firms cannot compete and

may go bankrupt.

3. The impact of exchange rate changes:

Exchange rate: price one currency in term of another e.g. 1£ = 1.5$

Depreciation and appreciation of an exchange rate

• Appreciated currency: value a currency rises in term of another currency

• Depreciated currency: value a currency reduces in term of another currency

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How exchange rate changes can affect businesses

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A fall in exchange rate or currency depreciation

1. Benefiting exporting 2. Harming importing businesses

businesses ⇒ Price of import ↑ in domestic's view
⇒ Price of export ↓ in foreigners 'view ⇒ Importing businesses face higher
⇒ Demand for export ↑ cost of imported raw materials.
⇒ Exporting businesses gain higher ⇒ They gain lower profit.
revenue and profit.

A rise in exchange rate or currency appreciation

1. Benefiting importing 2. Harming exporting businesses

businesses ⇒ Price of export ↑ in foreigners’ view
⇒ Price of imports ↓ in domestic's view ⇒ Demand for export ↓
⇒ Importing businesses face lower cost ⇒ Exporting businesses gain lower
of imported raw materials. revenue and profit.
⇒ They gain higher profit.

4. Privatisation: Sell some/all public ownership to the private sector.

Advantages Disadvantages

• Privatisation increases competition • Private firms might reduce cost of

in the market which forces production by laying off some
businesses to improve in quality of workers, resulting in higher
product. unemployment.
• Private firms have profit motives • Private firms aim for profit might
and Private sector can better lower quality and set a higher
control the cost of production. price of product.
Then efficiency will be improved.

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