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IGCSE Edexcel Business Studies > 1 Business Activity and Influences on Business > Flashcards

1 Business Activity and Influences on Business Flashcards

1
Q

What are the financial aims and objectives of a business?

A
  • Survival
  • Profit
  • Sales
  • Market Share
  • Financial Security
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2
Q

What are objectives?

A

goals set by a business to achieve their aims. These goals are usually short term.

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3
Q

What are aims?

A

What a business wants to achieve. These are usually long term.

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4
Q

What are the non-financial aims and objectives of a business?

A
  • Social objectives
  • Personal satisfaction
  • Challenge
  • Independence
  • Control
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5
Q

What are the 5 reasons as to why business objectives change over time?

A
  • Market Conditions
    Competition or other changes in market.
  • Technology
    New technology can affect production process
  • Performance
    A business can aim further if it is going well.
  • Legislation
    New trade laws, minimum wage, consumer law etc.
  • Internal Reasons
    Personal goals of the owner.
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6
Q

Why is it important to have clear objectives?

A
  • Employees need something to work towards
  • Objectives motivate people
  • Makes it easier to assess performance of business
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7
Q

What is an unincorporated business?

A

No legal distinction between the owner and the business.

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8
Q

What is an incorporated business?

A

A business that has a seperate legal identity from that of its owners.

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9
Q

What is a sole trader?

A

A person that starts and runs a business who is the only owner. They may have employees that work for them but there is only 1 owner.

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10
Q

What are the benefits and drawbacks to a sole trader?

A

Advantages:
* Easy and inexpensive to set up.
* All profits are kept by the owner and don’t need to be shared
* complete control over the business and can make all decisions.

Disadvantages:
* Difficult to raise money, might be seen as risk by banks.
* No one to share workload with.
* Only one set of skills.
* Unlimited liability. Owner is personally responsible for debts the business incurs

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11
Q

What is a partnership?

A

Partners are all joint owners of the business. There are 2-20 people in a partnerhsip.

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12
Q

What is the benefits and drawbacks to partnerships?

A

Advantages:
* Easier to raise extra capital than sole trader
* Increased access to finance and capital.
* Partners contribute with range of skills
* Work load and decision making is split making it less stressful.

Disadvantages:
* Partners have unlimited liability
* Profit is split
* May be difficult to decision make as disagreements may occur
* Partners’ decisions are legally binding on all owners.

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13
Q

What is a Private Limited Company?

A

A private limited company is a small to medium sized business, that can raise finance by selling shares to friends and family. It is known as a Ltd company for short.

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14
Q

What are the benefits and drawbacks to Ltds?

A

Benefit:
* Limited liability
Personal assets not at risk
* Easy to raise capital
Can raise funds by selling shares to a limited group of investors
* Business contuinity
The business does not die with its orginal owner

Drawbacks:
* Complex and expensive setup and maintenance
More bureaucracy and legal fees compared to simple structures
* Restricted share ownership
Limited flexibility in selling shares compared to PLCs
* Increased public disclosure
* Financial information needs to be publicly accessible to some extent which can serve as a cost and also give information to competitiors

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15
Q

What is a public limited company?

A

Public Limited Companies are listed on the stock exchange. This means that anyone can buy shares in the company. These are usually very large companies e.g. Sainsbury’s. These are known as PLCs for short.

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16
Q

What are the benefits and drawbacks to a PLC?

A

Benefits:
* Greater access to capital
Public offering of shares on the stock exchange opens up wider pool of potential investors.
* Enchanced prestige and reputation:
Listing on a stock exchange can boost a company’s profile and attract talented employees and business partners
* Limited liability:
Personal assets are protected even if company goes bankrupt.

Drawbacks:
* Complex, expensive setup and maintenance
More complex regulations and public scrutiny leads to higher costs.
* Loss of control
* Original owners can lose control of the business if some shareholders get a majority share 51%
* Has to publish annual accounts
Which means public and competitors can see all their financial information

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17
Q

What is a public corporation?

A

A public corporation is owned and operated by a government. It exists to provide essential services rather than to maximise profit.

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18
Q

What are the benefits and drawbacks to a public corporation?

A

Benefits:
* Government Control
Enables direct government influence over service delivery and quality.
* Social benefits:
Can prioritize social equity and affordability in service provision
* Long-term focus
Less pressure to maximise short-term profits, allowing for long-term investment in infrastructure and development

Drawbacks:
* Bureaucracy and inefficieny:
Can be vulnerable to government bureaucracy and political interference, potentially impacting efficiency
* Limited innovation
Lack of motive for profit might hinder innovation and efficiency
* Accountability challenges
Accountability can be complex due to multiple stakeholders and government involvment

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19
Q

What is a franchise?

A

A structure in which a business allows another operator to trader under their name.

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20
Q

What does the franchisor offer the franchisee?

A
  • license to trade under the recognized brand name of the franchisor.
  • Start-up packaging including help, advice and essential equipment, usually including branding materials.
  • Materials, equipment and support services that are needed to run the business.
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21
Q

What does the franchisee give to the franchisor?

A
  • a one-off start-up fee
  • An ongoing fee
  • contribution to marketing costs
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22
Q

What are advantages of franchises to the franchisor?

A
  • fast method of growth
  • cheaper method of growth
  • franchisees are more motivated than employees
  • Franchisees take some of the risk
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23
Q

What are disadvantages of franchises to the franchisor?

A
  • Potential profit is shared with the franchisee.
  • Poor franchisees may damage brand’s reputation.
  • Cost of support for franchisees may be high
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24
Q

What are advantages of franchises to the franchisee?

A
  • Less risk- tried and tested idea is used
  • Back-up support is given
  • Set-up costs are predictable
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25
Q

What are disadvantages of franchises to franchisees?

A
  • profit is shared with the franchisor
  • Lack of independence- strict operating rules apply
  • Can be an expensive way to start a business
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26
Q

What is a multinational?

A

A multinational company is a business that is registed in one country but has manufacturing operations/outlets in different countries.

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27
Q

What is the primary sector?

A

Production involving the extraction of raw materials from the earth.

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28
Q

What is the secondary sector?

A

production involving the conversion of raw materials into finished and semi-finished goods.

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29
Q

What is the tertiary sector?

A

It is the production and provision of services in the economy.

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30
Q

What are the 4 factors influencing on decisions on location?

A
  • Proximity to: Market, labour, materials and competitors.
  • nature of the business activity
  • impact of the internet on location decisions
  • legal controls and trade blocs
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31
Q

How is a business affected by their proximity to the market?

A

Business that make large of heavy products may be located close to their customers to keep transportation costs down.

Business also have to be located close to customers because many services are sold directly such as cafes, hair salons, taxis. All have to be located in cities/populated areas.

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32
Q

How is a business affected by their proximity to labour?

A

Businesses needing large number of employees have to consider wage costs and labour skills. Large companies tend to locate in areas where there is cheap labour.

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33
Q

How is a business affected by their proximity to materials?

A

Business that may use large amount of raw materials (that hard hard to transport) may locate close to their source. A company with high water usage may locate close to a river.

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34
Q

How is a business affected by their proximity to competitors?

A
  • Some business may choose to locate away from competitors to minimise competition.
  • Some businesses such as shopping centres, resturants etc might purposely locate close to competitors to catch excess demand.
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35
Q

How does nature of business activitiy influence the location of a business?

A

Businesses have carying space, infrastructure and accessibility needs.

For example business that sell products to other business are less likely to need prominent locations than businesses that sell to consumers.

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36
Q

What is e-commerce?

A

involves the buying and selling of goods and services online.

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37
Q

What are the factors for E-commernce stores to consider location?

A
  • Lower Business Costs
  • Cost and Availability of Labour
  • Proximity to Transport Infrastructure
  • Reliable IT infrastructure and power.
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38
Q

Why should e-commerce stores consider ‘lower business costs’ as a factor for location?

A

Business costs are likely to be reduced as smaller premises in lower-profile areas are usually cheaper to rent or buy.

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39
Q

Why should e-commerce stores consider ‘Cost and Availability of labour’ as a factor for location?

A

Businesses with small workers may only require a small hub, with workers requiring online access.

Experienced call centre and sales staff may be needed.

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40
Q

Why should e-commerce stores consider ‘Proximity to transport infrastructure’ as a factor for location?

A

Products ordered online need to be delivered efficiently to customers.

Location close to highways, rail networks or logistics partners is a key consideration.

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41
Q

Why should e-commerce stores consider ‘Reliable IT infrastructure and power’ as a factor for location?

A

Remote workers need to have access to good communications infrastructure, such as high-speed broadband, in their homes.

Businesses in areas prone to power outrages may struggle to mantain their online services.

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42
Q

What are Laws?

A

rules created by the government of a country with the aim of reulating the actions of its citizens and businesses.

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43
Q

What is regulation?

A

It is the process of enforcing the laws that have been created and ensuring that businesses abide by them.

44
Q

What is the impact of law on business location?

A
  • Governments and local authorities can incentivise businesses to lcoate in particular areas.
    In areas of high unemployment or industrial decline, grants or reduced tax rate may be offered to businesses.
  • In some cases, businesses are deterred from locating in particular areas.
    A country with strict environmental laws may not be an attractive location for a manufacturing company with a lot of waste production.
45
Q

What 2 ways can the absence or presence of law affect a business?

A
  1. Less economically developed countries
    Often have fewer laws and less enforcment of their existing laws, which is likely to be attractive to some businesses.
  2. More economy developed countries
    Developed countries with extensive laws can be attractive to businesses who desire to locate in region with:
    * good infrastructure
    * highly-skilled workers
    * high standards of living
46
Q

What is a trade bloc?

A

A group of countries that come together and agree to reduce or eliminate any barriers to trade thate exist between them.

47
Q

What are some examples of trade blocs?

A
  • EU (European Union)
  • NAFTA (North American Free Trade Agreement)
  • ASEAN (Association of Southeast Asian Nations)
48
Q

What is a free trade bloc?

A

is a bloc in which countries agree to abolish trade restrictions between themselves but mantain their own restrictions with other countries.

49
Q

Why would a country want to locate in a trade bloc country?

A

In order to avoid paying tariffs or other restrictions such as quotas.

50
Q

What is a tariff?

A

A tax on imports

51
Q

What are quotas?

A

A physical limit on imports of certain products in order to protect domestic firms from foreign competition.

52
Q

What is globalization?

A

The business and economic integration of different countries through increasing freedoms in the cross-border movement of people, goods, services, technology and finance.

53
Q

What are the reasons for globalization?

A
  • Developments in technology
    Easier communication and transfer of data.
  • Improved Transport Networks:
    Allows international business travel and improved distribution of products.
  • Deregulation:
    Such as the removal of trade barriers as well as simpler financial systems.
54
Q

What are the opportunities of globalization for businesses?

A
  • Large Markets:
    Global markets have many more customers than domestic markets. Higher Sales=Higher Revenue=Higher Profit
  • EOS:
    Higher output as a result of increased sales can reduce business csots. EOS increases profits and improves business competitiveness.
  • Labour:
    Doemstic staff shortages can be overcome by employing workers from other countries.
    Labour intensive businesses can locate in areas with low wage costs to reduce costs.
    High-quality specials can be employed from anywhere in the world.
  • Taxation
    Headquarters and other business functions can be located in regions with favourable tax regimes to reduce costs.
55
Q

What are the Threats of Globalization to businesses?

A
  • Increased comp
    competition from international rivals may put domestic firms out of business.
  • Increased need to develop a profitable niche
    Businesses risk losing sales and market share as a result of globalization unless they can adapt or exploit a profitable market niche.
  • Vulnerability to international takeovers:
    Domestic PLCs risk being taken over by foreign rivals in a hostile takeover.
  • Greater risk from external shocks:
    Interconnected financial systems allow economic difficulities in one part of the world to be felt by businesses operating in another.
    (Example: UK leaving EU affected stock exchanges in many places.)
56
Q

What are multinational companies?

A

Multinational (MNCs) is a business that is registered in one country but has manufactuering operations or sales outlets in different countries.

57
Q

What are the benefits of operating as a multinational company?

A
  • Low Costs
    MNCS can access lower-cost labour and/or raw materials by moving to cheaper locations or exploiting EOS.
  • Potential for high sales
    They have access to a large customer base with potential for high levels of sales.
  • High profile
    MNCS are well-known businesses whose products have a greater chance of becoming household names and achieving market dominance.
  • Bypass Trade barriers
    MNCS can set up operations inside trade blocks or in countries that don’t impose import tariffs or quotas.
  • Low tax liabilities
    Locating HQ in countries with low tax rates. This allows them to maximise profits.
58
Q

How have multinationals developed?

A
  • Economies of Scale
    Many companies have developed into multinationals because larger companies enjoy lower costs
  • Marketing
    Effective marketing has led to more sales= more revenue= more profit.
59
Q

What are the benefits of MNCs to a country/economy?

A
  • Increase in income and employment
  • Increase in tax revenue
  • Increase in exports
  • Improvement in quality of human capital
60
Q

What are the possible drawbacks of MNCS to a country/economy?

A
  • Environmental damage
  • Exploitation of labour
  • Taxes paid to host nation are often minimal
  • Lack of accountability.
61
Q

What are the benefits of international trade?

A
  • allows countries to obtain goods that cannot be produced domestically.
  • allows countries to obtain goods that can be bought more cheaply from overseas.
  • helps to improve consumer choice.
  • provides opportunities for countries to sell of surplus commodities.
62
Q

What are exchange rates?

A

The value of one currency in terms of another.

63
Q

What are exports?

A

goods and services sold overseas.

64
Q

What are imports?

A

Goods and services bought from overseas.

65
Q

What is visible trade?

A

Trade in physical goods.

66
Q

What is invisible trade?

A

Trade in services.

67
Q

What is balance of trade (visible balance)?

A

difference between visible exports and visible imports.

68
Q

What is the impact on exporting and importing businesses of an appreciation in the currency?

A
  • Exports:
    Sales are likely to fall as products become expensive and therefore exports are less attractive for overseas consumers.
  • Imports: Demand for imports rise as they become cheaper. Costs are lowed as supply/imports are cheaper.
69
Q

What is the impact on exporting and importing businesses of an depreciation in the currency?

A
  • Exports:
    Sales are likely to rise as exports become attractive for overseas consumers due to lower prices.
  • Imports:
    Imports become less attractive due to their higher prices. This will result in higher costs for importing businesses therefore they will look for domestic suppliers.
70
Q

What is the impact of a fall in exchange rate on international competitiveness?

A

A fall in exchange rate will mean exports will rise as exporters in a country can sell their goods more cheaply abroad.

Higher export sales means more employment, income and tax revenue.

71
Q

What is the impact of a rise in exchange rate on international competitiveness?

A

Imports become more common as they will be cheaper. Exports will be more expensive therefore less common.

This can lead to higher rates of unemployment, lower tax revenue and income in that country.

72
Q

How does the government spend to provide public service?

A

Governments spend tax revenue they have collected to provide a range of public services such as :
* Education
* Healthcare
* Emergency services
* Judicial systems
* Defence

They also spend money on social services such as state pensions and unemployment benefits.

73
Q

What is income tax?

A

percentage of monthly income that a employed person has to pay the government when they receive their salary every month.

74
Q

What is corporation tax?

A

Tax paid yearly to the government from a limited company’s net profits.

75
Q

What is the impact of change in tax rates for consumers?

A
  • Rise in tax rates:
    Consumers will have less disposable income to spend on goods and services.
  • Fall in tax rates:
    Consumers will have more disposable income to spend on goods and services.
76
Q

What is the impact of change in tax rates on businesses?

A
  • Rise in Tax Rates:
    businesses will have less money to invest, expand or hire new workers.
  • Fall in Tax Rates:
    businesses will have more money to invest, increase product range, expand or hire new workers.
77
Q

What is the impact of change in government spending for businesses?

A
  • Government spending increase:
    Rise in demand for goods and services, profit may rise for businesses.
  • Government spending decreases:
    Fall in demand for goods and services, profits may fall for businesses.
78
Q

What are 3 ways governments can affect business activity?

A
  • Infrastructure provision
  • legislation
  • trade policy- membership of trading blocs, tariffs
79
Q

How can infrastructure provision from governments affect businesses?

A
  • Government Contracts:
    Businesses are paid to carry out construction and maintenance of infrastructure on behalf of the govt.
  • Higher consumer spending:
    Government spending generates income in an economy. This leads to higher levels of spending, which leads to more demand for goods and services.
  • Greater efficieny and productivity:
    Improved networks can improve business performance.
    -transport networks can improve logistics
    -faster communication networks make online platforms more efficient.
80
Q

What is legislation?

A

refers to the laws and regulations created by governments.

81
Q

How does legislation affect business activity?

A
  • Consumer Protection:
    Unfair selling practices are not allowed such as : false claims about product capabilities, selling goods unfit for purpose, selling short measures of goods.
  • Competition Policy:
    Competition is encouraged and trade barriers are reduced or removed.
    Mergers and takeovers are prevented.
  • Environmental Protection:
    Reducing negateive environmental impacts of business activity such as water, air, waste, noise pollution.
82
Q

Why would a government enforce trade barriers (trade policy)?

A
  • Protect new industries from overseas competition.
  • Achieve a healthy balalance of payment (reducing imports)
  • Protect jobs in industries that are major employees.
  • Raise revenue from tariffs.
83
Q

What are examples of trade barriers?

A
  • Tarrifs
  • Quota
  • Subsidy
  • Administrative barriers
84
Q

What are tariffs?

A

a tax on imports, which makes them more expensive.

85
Q

What are Quotas?

A

A physical limit on the amount allowed in the country.

86
Q

What are subsidies (Trade Policy) ?

A

The giving of financial support, such as grants or tax breaks, to exporters or domestic producers that face fierce competition from imports.

87
Q

What are administrative barriers (Trade Policy)?

A

The use of strict health and safety or environmental regulations and specifications to make importing more awkward.

88
Q

What are the benefits of trade blocs to a business?

A
  • access to wider markets
  • lower costs if EOS can be exploited when sales and output rise.
  • Protection from large predatory multinationals from outside the bloc.
89
Q

What is interest?

A

It is the price of borrowing money and the reward for saving.

90
Q

What is monetary policy?

A

Using changes in interest rates and the money supply to manage the economy.

91
Q

What is the impact on businesses of higher interest rates?

A
  • Higher loan repayments
  • Fall in exports
    -This is due to the domestic exchange rate rising.
  • Credit Sales fall
    -Customers are less likely to buy on credit, leads to fall in sales
  • Saving becomes more attractive than investing
    Businesses may be less willing to make capital investements.
92
Q

What is the impact of interest rates on consumer spending?

A

Lower interest rates:
* Increase in consumer spending as borrowing becomes more attractive and saving becomes less attractive.
* Household payments on mortgages and short-term credit borrowing is likely to reduce.

Higher interest rates:
* Decrease in consumer spending as borrowing becomes less attractive and saving becomes more attractive.
* Household payments on mortgages and short-term credits will increase.

93
Q

What are the 4 external factors affecting businesses?

A
  • Social
  • Technological
  • Environmental
  • Political
94
Q

What are the external social factors affecting businesses?

A
  • Education
    Can change the level of skills in economy. Knowledgeable, skilled employees help develop innovative products.
  • Increased consumer awareness
    More consumers have higher expectations due to increased awareness and social media.
  • Changing demand patterns
    Modern lifestyles have different needs e.g. home deliveries.
  • Increased number of women at work
    Increased supply of labour due to women working
95
Q

What are external technological factors affecting businesses?

A
  • Increased automation
    Reduces wage costs, increased productivity and improved worker safety
  • Shortage of workers fulfilled
    Helped to solve the problem of shortage of workers
  • Electronic banking
    Reduced the need for cash handling which has increased security and reduces time taken.
96
Q

What are external political factors affecting businesses?

A
  • Government stability and trading relationships
    In stable regions, businesses can plan ahead without worrying about political factors having an unexpected impact. Businesses can also benefit from trade blocs.
  • Tax Regulations
    Tax rates can be raised or lowered accordinng to government priorities.
    e.g carbon taxes encourage manufacturing and energy businesses to reduce emissions.
  • Trade Restrictions
    Governments restrict the sales of some products to buyers in other countries. e.g arms manufacteurers are prohibited from selling weapons to unstable foreign regimes
97
Q

What are external environmental factors affecting businesses?

A
  • Changing infrastructure
    Many governments are taking steps to make public transport more environmentally friendly, reduce vehicle usage and encourage use of electric vehicles.
  • Waste Disposal
    Strict regulations dictate the way businesses dispose of manufacturing waste to avoid pollution. Higher charges for disposabl, increase business costs.
  • Changes in climate and weather pattterns
    Businesses in high risk areas may face more frequent disruption due to floods or intense heat conditions.
98
Q

What are the financial measures of success in a business?

A
  • Revenue
    Increase in revenue=business is growing and its decision making is effective.
  • Market Share
    Growth in market share can help to improve a businesses market position and increase its competitiveness.
  • Profit
    High profit margin means that business can cover its costs, reinvest profits to grow and reward investors.
  • Business Growth/Expansion/Size
    Growing businesses can take advantage of EOS and are likely to become better known.
  • Shareholder satisfaction
    A rising share price occurs when a business is increasing profits or is considered to have potential to grow.
    Shareholders are most likely to be satisfied when share prices and dividends are increasing.
99
Q

What are dividends?

A

A sum of money paid regularly by a company to its shareholders out of its profits.

100
Q

What are non-financial ways to measure success in a business?

A
  • Customer Satisfaction
    Positive reviews, reccommendations and returning customers is an indication of customer satisfaction.
  • Employee Satisfaction
    Low levels of staff turnover, high labour productivity and large numbers of applications for vacancies indicates business is successful.
  • Owner Satisfaction
    If a business is providing good service, this allows an owner to earn a satisfactory income, or achieve recognition. Other personaly objectives may also be met.
101
Q

What are the main reasons why some businesses fail?

A
  • Financial Factors
  • Poor Management
  • External Factors
  • Overtrading
102
Q

What are the main financial factors that may lead to business failure?

A
  • A business may be unable to generate enough revenue to sustain operations.
  • Costs may rise sharply and eliminate profit margins
  • Cash shortages mean that creditors cannot be paid what they are owed.
103
Q

What are the main reasons for poor management leading to business failure?

A
  • Lack of experience can lead to poor decisions related to product range, pricing or promotional activity.
  • Innefective coordination or planning of business operations, such as stock purchasing or staffing, can increase costs.
104
Q

What are the main reasons for external factors leading to business failure?

A
  • Ineffective or delayed response to new technology, powerful new competitors and major economy change.
  • Changes in laws or taxation can increase pressure on businesses to make difficult choices.
105
Q

What are the main reasons for overtrading leading to business failure?

A
  • This occurs when a business expands too quickly
  • Poor coordination and planning of growth can lead to diseconomies of scale which increases costs.

IGCSE Edexcel Business Studies (2 decks)

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