No 106 SDS Jayasinghe Mawatha

Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
What is a business?

We all have needs and wants. For many people in the world their needs are for food, drink
and basic shelter. Others, who already have their basic needs met, may want to purchase
consumer items such as DVD players, cars, holidays and meals out. A need is for basic
goods: a want is for non-essential item.

Businesses exist to meet these needs and wants by producing goods and services.

A good is a physical object that can be purchased. Eg: flour, a CD player, oil, a laptop
computer.

A service is a non physical item that can be purchased. Eg: baking, a rock concert, tourism,
education, healthcare etc...

Definition; A business is an organization which provides goods and services. . Eg: Unilever
started as a business in 1872 and initially produced margarines. Today it is third largest
consumer goods company. It earned revenue of €51.3 billion in 2012.

Features of a business activity

• Business activity produces goods and services. Unilever produces margarine.

• Goods and services are consumed by customers. Unilever products are consumed by
nearly 2 billion people every day.
• Resources are used. Unilever spends a lot of money to produce its products
• Businesses can be affected by external factors.
• Businesses aim to make a profit.

1
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
THE ECONOMIC PROBLEM

Limited resources to fulfil the unlimited wants of people. Creates scarcity and leads to
OPPORTUNITY COST, which is the next best alternative given up in choosing another
item.

FACTORS OF PRODUCTION resources needed to produce goods and services. They are
of limited supply.
- LAND all the natural resources provided by nature.
- LABOUR number of people available to make products.
- CAPITAL finance, machinery and equipment needed for manufacturing goods.
- ENTERPRISE the skill and risk taking ability of a person who combines the factors
of production together.

SCARCITY is the lack of sufficient products to fulfil the total wants of the population.

Specialization – this occurs when people and businesses concentrate on what they are best at

Division of labour – this is when the production process is split up into different tasks and
each worker performs one of these tasks.

Advantages

Disadvantages

2
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
Added value

The concept of added value

Definition: the difference between the cost incurred in purchasing raw materials and the
price the finished good was sold for.

Please note that added value is not the same as profit. Value is added by

a) Brand name.
b) Packaging.
c) Advertising.(celebrity used in Ads usually helps firms charge higher
price)
d) Machinery etc..
e) Increasing selling price
f) Reducing cost

Eg; Nike ____________________

3
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
Business Stakeholders

Definition:

a) A stakeholder is a person who is affected by a person’s activity.

b) A stakeholder is an individual or a group that has a vested interest in
organizations activity.

Stakeholders can be divided into 2 groups.

Internal (person within organization) External (person outside the

organization)

• Directors. - Customer.
• Employees. - Suppliers.
o Creditors
o Pressure groups.
o Banks.
o Government/ EU.
o Community.
o Shareholders.

4
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
Stakeholder objectives.

a) Shareholders-

i. Attractive dividends.
ii. Increase in share price.
iii. Increase in capital gains.
b) Employees-

i. Job security.
ii. Fair pay.
iii. Good working conditions.
iv. Social environment and a friendly culture.
c) Customers-
i. Good quality products at affordable products.
ii. Good customer care.

Levels of Economic Activity

Primary Sector – This sector is involved in using the earth natural resource. Eg: Fishing,
farming, extracting Oil and Copper etc.

Secondary sector – This stage is involved in taking the materials and resources provided by
primary sector and converting them into manufactured or processed goods. Eg: baking,
clothing, construction etc.

Tertiary Sector – This is a stage which provides services to both consumers and other
businesses. Eg: banking, insurance, hotels, transportation etc.

DE-INDUSRTIALISATION occurs when there is a decline in the importance of secondary,

manufacturing sector of industry in a country.

MIXED ECONOMY consists of a private sector (owned by private individuals- profit

motivated) and of a public sector (owned by the government- service motivated) selling of
government property to the private sector is called nationalization.

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Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
Business Size and Growth

Different measures of size

• Number of employees: Firm X employees 200 people to make 200,000 litres

of drinks a week. Firm y employees only 20 people and is fully automated &
produces 1 million litres a week. If you check based on no. of employees firm
X is bigger but based on output firm y is bigger.
• Sales turnover: Based on the sales value of a firm. But make sure not to
consider only sales value as profit is a very important determinant in Size. Eg:
a firm may have very high sales value.
• Capital employed: the amount of finance invested into the business. But
remember different business have different amount of capital requirement. Eg:
if you want to start up an oil company initial investment would be millions of
dollars where as a restaurant can be started up with around $10000 or even
less.

The benefits of Business Growth

• Can earn higher sales and profits.

• Fall in average cost – Economies Of Scale
• More status and prestige for the owner and the manager.
• Large businesses can exercise bargaining power with their suppliers than a small
business. Eg: Wal-Mart

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Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels
How can businesses grow?

Business growth

Internal growth external growth.

(Organic growth) mergers

Takeover

Internal growth

• Internal growth means expansion of a business by means of opening new

branches.

Eg: if Cargill’s food city opens new branches it is known as internal growth.

• Internal growth can be finances by bank loans, share capital and retained profit.
• Internal growth is not done in a rush; it is done stage by stage and well planned.
However it is slow.
• The owner has full control over the business activity.
• Rapid growth can lead to business collapse- overtrading.

External growth

• This can be done through mergers and takeover,

• Merger involves the integration of two companies to form one.
• Takeover involves one company taking controlling interest in another. To have a
controlling interest one company must buy more than 50% of the shares.
Eg: adidas bought controlling stake in Reebok and now it has a controlling interest.
• Also note that during merger or takeover there will be synergy taking place. When
two big firms are integrated it will be more efficient, effective and profitable
• Growth is fast but if the growth is too fast it is not good- management cannot control
operation. Sometimes it is difficult for two companies to work together because they
have different cultures. They find it difficult to work together.

7
Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels

Why do some businesses stay small?

• The type of industry the business operates in – Firms in certain industries provide
personal services or specialised product eg: hair dressing, plumbers, car repair etc, if
these businesses grew too large they would find it difficult to offer the close and
personal services demanded by consumers.
• Market size – If the total no of customers in a particular industry is small then the
business cannot grow large. Eg: luxurious cars, expensive fashion clothing and
jewellery, often remain small.
• Owner’s objectives – Some owners prefer to keep the business small.

BUSINESS ORGANIZATIONS IN THE PUBLIC SECTOR

PUBLIC CORPORATIONS - are owned and controlled by the government. They are
usually businesses which have been nationalized.th governments appoints ministers who
would appoint a board of directors who will be given the responsibility of managing the
business.
✓ Government owns important industries such as electricity
✓ Prevents wasteful competition and certain industries to create monopoly.
✓ If important businesses fail government can take a step further and nationalize such
industries.
✓ Important public services, such as TV and radio broadcasting are often on the public
sector.
 No private shareholders to encourage on high profits and efficiency.
 Government subsidies can lead to business inefficiencies.
 No competition to the public cooperation firms once again lead to business
inefficiency.
 Government can use the business for political reasons.
Other public sector enterprises include local public authorities or municipalities who operate
some trading activity. Some services are free. Example: street lighting

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Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)
No 106 SDS Jayasinghe Mawatha
Kohuwela, Nugegoda
337/1 Negombo Road, Wattala Ordinary Levels

BUSINESS OBJECTIVES AND STAKEHOLDER OBJECTIVES

BUSINESS OBJECTIVES are the aims or targets that a business works towards. They give
workers a clear target to work towards and also motivate them.

Following are the objectives that businesses are likely to work towards:

BUSINESS SURVIVAL- A recently set up business will want their business to survive
before making profits.
PROFIT- Profit is the total income of a business (sales revenue) less total costs.
RETURNS TO SHAREHOLDERS- Returns to the shareholders are increased by
increasing share prices.
GROWTH- To make jobs more secure, to increase salaries, to enter new markets and
develop new products, to obtain higher market share and achieve economies of scale.
PROVIDIDNG a SERVICE OT THE SOCIETY- a Social Enterprise has social objectives
as well as aim to make a profit to reinvest back into the business.
The people operating the social enterprise often set three objectives for their business: Social,
Environmental, and Financial.

Following are the objectives of a public-sector business:

Financial- Meet profit targets set by government.

Service- Provide a service to the public.
Social- Protect or create employment in

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Sameer Anis
CIMA Passed Finalist, Post Graduate Diploma (University of West London)