Chapter 1- Nature of Business

Topic 1 Role of Business

The nature of a business
- A business is an organization that attempts to satisfy the needs and wants of the community
by providing good and/or services.
o To do this a business owner must be able to combine a variety of resources to
produce goods and/or services. These resources are known as input.
o Inputs are resources, such as labour, finance, and equipment, that a firm uses to
create outputs.
o Outputs the goods and/or services produced using various inputs.

For example, a firm that creates an output of a Coca-Cola uses a variety of inputs such as sugar,
water, syrup, and aluminium cans.

Creating and adding value to business processes

Businesses add value by combining inputs such as raw materials with human skill and equipment.

The process of value adding is when business take resources and combine them into a product that
is of more importance to the consumer than the individual resources.

Producing goods and services

Businesses play a key role in our society:

- They are a driving force (a force that pushes towards the need for change) in our lives.
- They provide us with a diverse range of goods and/or services that improve our quality of
life.
- They employ millions of Australians each year.

Key terms:

Management: The people responsible for running the business

Accountability: The process whereby managers are accountable/answerable to particular groups

affected by the activities of the business.

Ethics: What is seen as morally right or wrong for a business based on the values of management,
employees and the community.

Economic and Social Roles of business

 The economic role of a business is concerned with the financial impact that the activities on
the business have on various groups in the business environment.
 The social role of a business is focused primarily on the impact of the business on the
community.

Profit
The profitability of a business is a key consideration for its long-term survival and it is essential if a
business is to meet day-to-day expenses such as production costs, wages, electricity, insurance.

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A business operating in a very competitive market and located near many of its competitors would
be unlikely to achieve the same level of profit as a business with a few competitors spread across a
particular market.

- As a general rule, the level of profitability within a business is measured by the return on
investment.

The return on investment is the level of profit an investor receives based on the amount
that the investor has invested in the business. For example, Don invested $100 000 in a children’s
clothing store and earned a net profit of $50 000. The return on investment is 50%.

Profit = Revenue - Expenses

Business Example:
Overall, Apple is an excellent example of a business that has been successful in generating significant
profits through innovation, quality, and a strong brand identity.

Employment
Owners of a business will employ other people to perform various activities within the business.

Redundancy occurs when a business needs to get rid of employees as the jobs they are doing are no
longer required.

- Business could also downsize to maintain their competitiveness. This can be done through
retrenchment which is firing excess employees for a reduction of costs from wages in
response to an economic difficulty.

Business Example:
Amazon provides a wide range of job opportunities, including roles in operations, fulfillment,
customer service, marketing, engineering, and many others. The company's vast network of
warehouses, distribution centers, and delivery services also provides employment opportunities for
truck drivers, warehouse workers, and delivery drivers.

As of 2021, Amazon is reported to employ over 1.3 million people globally, including full-time, part-
time, and seasonal employees.

Incomes
Another key role of a business is to provide incomes, to workers in return for their services and this
allows the workforce to spend part of their income on satisfying their needs and wants.

Business Example:
Etsy, an e-commerce website that allows individuals to sell handmade or vintage items, as well as
craft supplies and unique factory-manufactured items.

Etsy provides a platform for small business owners and independent creators to showcase their
unique products to a global market, enabling them to earn a living doing what they love.

Choice
Most Australian businesses operate in a competitive market meaning that there are a large number
of competitors providing similar goods and services.

- The choice presented to consumers encourages businesses to provides goods and services at
the lowest possible price with the highest quality.

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 (The way in which products are promoted will also influence the brand that consumers will
buy and where they will choose to purchase the product)

Business example:
Coles and Woolworths provide similar range of goods providing greater choices for consumers
satisfying individual needs and wants through the diversity in their products.

Innovation
Innovation can be defined as the process of improving the features of a product. Innovation is
crucial for businesses to maintain their competitive advantage.

- A business will seek to develop new products, improve product features and/or use different
marketing strategies.

Innovation can also be applied to the production process, where improved methods of production
are implemented which may make use of few resources and result in increased output.

- Technology has played a key role in developing new methods of production that require less
labour e.g. Automated machinery such as assembly line robots.

Business Example:
Smart watches. – eg. The Apple Watch

They use Bluetooth to connect to a person’s phone, allowing the wearer to access email, make and
answer calls, check and reply to messages, track their fitness and of course tell the time.

Entrepreneurship and Risk

An entrepreneur is an individual who has developed certain ideas and is willing to take a risk to
implement these ideas through a business.

Business Example:
SpaceX (By Elon Musk) is an excellent example of a business that has taken significant risks in
pursuit of innovation and success. The company's focus on developing new technologies and
reducing the cost of space travel has the potential to revolutionize the space industry and open up
new opportunities for exploration and discovery.

Wealth Creation
Wealth refers to the total value of all assets owned by a person or a business. The production and
provision of goods and services are the means by which the business fulfills this goal.

The management of a business hopes to increase the value of the organisation which will increase
the value of the funds that owners have invested in the business.

Ways in which businesses can create wealth for the society:

- In cases of public companies, which are listed on the ASX, a business may see its share price
rise and this creates wealth for the shareholders, who can convert those shares to cash by
selling them at a higher price or by keeping them and receiving the dividends from them.
- Businesses also generate wealth for the community, as their profits are taxed by the
government which in turn uses that taxation to fund essential services, improve educational,
health and transport facilities and employ emergency stuff such as police and ambulance
officers.

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Business Example:
Pokemon Go, owned by Niantic and the Pokemon company. Due to its popularity (which was
relatively short lived) investors bought stock in Nintendo, the creator of most Pokemon-related
games, causing the value of Nintendo’s stock value increase by 24.52%.

- This increased the value of the company, receiving increased funds.

- Making more profit- taxed by government to be used for funding essential services etc.
- Provided shareholders with wealth creation through dividends and selling shares.

Quality of Life
Through the variety of products and services provided by businesses, the quality of life of almost all
Australians has been improved.

Research and development has contributed to significant improvement in our quality of life as
research organisation and pharmaceutical companies spends million each year, which is used to
develop products that will help consumers maintain a healthy lifestyle.

For example, different types of bread catering to consumers’ diverse range of health issues and
concerns, such as the need for gluten-free products. (Abbott’s Gluten Free White Bread)

Key terms:

Net Profit: The final amount of revenue remaining after all expenses have been paid.

Economy: A system where governments, businesses, consumers and other relevant associations
interact to satisfy the needs of society.

Brand: Name, design or symbol that distinguishes a particular product form the product of another
business.

Competitive Advantage: Features of a product or business that provide it with an advantage over its
competitors.

Takeover: One business buying a controlling interest in another business, such as by becoming a
majority shareholder

Topic 2 Types of Businesses

Classification of business
A business can be classified based on:

1. Size
2. The industry/sector in which it is located.
3. Its legal structure
4. Its geographic locations

Businesses are classified based on the type of industry they’re in and the size of the business’ labour
force/ or the number of employees.

Size
1. Micro Business: A business that employees less than 5 (1-4)

2. Small Business: A business that employees less than 20 (5-20)

3. Medium-Sized Business: A business that employees 21-199 employees (21-199)

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4. Large Business: A business that employees 200 or more people. (200+)

Some reasons why small businesses are important playing a key role in the commercial environment:

 Small business serve the interests of many local communities.

 Employ thousands of people in the Australian workforce each year
 Often, they act as a vital supplier of materials to the better-known large businesses.

- Construction, property, and business services, with retail trade, are 3 key areas of small businesses
in NSW.

Business Examples:
Micro Business- Personalized services like pet grooming, cleaning, and handyman services. For
example, The Grooming Emporium in North Sydney

Small Business: Specialty wine and liquor stores, like Dan Murphy's

Medium-sized business: Travel agencies, like Flight Centre.

Large Businesses: Financial Services like, Commonwealth Bank

Where do small business locate and why?

The majority of Small business choose to locate in the Sydney and Central Coast region. The obvious
reason why these small businesses choose to locate there is the high population of those geographic
areas.

Geographic: Local, National, Global

1. A local business is an organization that operates within 1 area. Eg. Banksia Bakehouse
2. National Business is a business that operates across an entire country. These tend to be
(Australian-based businesses) trusted bands such as Myer, Coles, and Woolworths for
Australia.
3. In a Global business production is based on 1 country, while its sales are global, meaning it
exports goods and/or services it produces to many other countries. For example, Tesla as it
only manufactures in California.
4. A transnational business operates in many countries as its goods and/or services are
produced and sold in a number of different countries. For example, Toyota and Ford have
facilities in different counties.

Industry
1. Primary industry: Businesses involved in the acquisition of raw materials, including natural
resources such as wheat sugar etc. For example, Agricultural, fishing and farming businesses.
2. Secondary Industries: Businesses using raw materials, combined with labour and capital
equipment to create finished products. For example, Manufacturing and construction
business.
3. Tertiary Business: Businesses whose prime function is to provide a service. E.g. Hairdressers,
doctors engineers etc.
a. Quaternary Sector: Consists of those businesses that provide information services to
their customers. Eg. Banks and media.
b. Quinary Sector: Consists of those businesses that provide services traditionally
performed in the home. Eg. Home-cleaning businesses, childcare centres.

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Business Examples:
Primary industry: Agriculture- Sundrop Farms (sustainable farming practices)

Secondary Industries: Manufacturing- Tesla Inc. (specializes in electric vehicles, energy storage
systems, and solar panels.)

Tertiary Business: Retail- Woolworths, Kmart

Quaternary Sector: Accounting firm- PwC (PricewaterhouseCoopers)

Quinary Sector: Cleaning service franchise- Merry Maids

Legal Structure
2 issues raised when a business decides on its most appropriate legal structure:
- Is the Business controlled by a select group of individuals or is ownership open to public?
- If the Business is unable to meet its financial obligations, are the owners or investors
responsible for covering all debt?
1. Sole Trader
An unincorporated business with one owner, who is responsible for all decisions made within the
business as well as all the profits and loss.

Liability is an important issue for sole traders as they have unlimited liability.

- In the event that the business is unable to meet its financial obligations the owner must take
responsibility for finding funds to pay his debt, in many instances this could involve selling
the owner’s personal assets.
- The law recognises that the business and its owner are one and the same, and this causes a
sole trader who loses his business being at risk of losing their personal assets.

2. Partnership
An unincorporated business that has more than one owner (2-20), with each owner working
together to achieve the goals of the business.

- There may be exceptions in the amount of owners in certain circumstances for example
pharmacies can have up to 100 owners.

The Partnership agreement required due to the Partnership Act (stating a partnership should have
at least 2 owners and places limitations on the total number of partners that may be involved),
should cover areas such as:

- Name and place of residence for each partner

- The percentage owned of the total business by each partner involved
- How profits will be distributed
- The process of selling a partner’s share within the business
- Conflict-resolution procedures (in case the partnership has trouble due to different ideas,
personalities and directions wanted by each partner)

Advantages of Partnerships:

1. Partnerships allow businesses an opportunity to access the specialist skills and knowledge of
possible investors

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2. Responsibility is spread with the decision-making process.

3. Additional funds are allowed to be brought into the business, which could be used to fund
business growth and expansion.

Disadvantages of partnerships:

1. Partnerships are unincorporated businesses and have unlimited liability.

2. If the business is unable to meet its financial obligations, each partner will be required to
contribute a portion of their own money to the business.

3. Problems may arise in the join decision-making process which could have a negative impact on its
long-term survival.

3. Private Company
A business that has between 1 and 50 owners, commonly referred to as shareholders.

- As with partnerships, increasing the number of owners of the business allows the
organisation to access increased funds for future use.

Private companies are legal entities separate from their owners, meaning that although
shareholders are the owners and responsible for the day-to-day organisation of the business, the
company itself is legally recognised as a separate organisation. Therefore, having limited liability
and being an incorporated business.

- Shareholders of private companies appoint directors managing the long-term operations of

the business, and these individuals can also be a shareholder themselves.

Consequences if private companies fail to fulfil financial obligations:

The directors can be fined or imprisoned if during the course of running the business they were
found to be doing something illegal such as using fraudulent accounting practices.

Shareholders will only lose the portion of the funds they invested, and not their personal assets.

(This is a reason why small business owners register their business as a private company.)

 They are governed by the Corporations Act 2001, which states that prior to the companies
starting to trade, a document must be set up that covers:
how the business will operate,
the number of owners within the business and,
issues relating to the sale of shareholdings within the company.
- This document is lodged with the Australian Securities and Investments Commission (ASIC)
and is commonly referred to as a company constitution.

Pty Ltd- ‘Pty’ or Proprietary, means the company is private and ownership is based on the wishes of
its current shareholders. ‘Ltd’ or Limited, means the company has limited liability.

4. Public Company
A business listed on the Australian Stock Exchange (ASX) and has ownership open to all members of
the public. However, it must have a minimum of 5 shareholders.

- Owners buy shares in the business and in return they receive a portion of the profits for
each share they own. This is called a dividend. Usually paid every 3 or 6 months.

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For a business to be listed on the ASX its existing owners must first issue a prospectus.

- A prospectus is a document describing the nature of the business, its financial performance
and possible risks that the business may face. The prospectus must be approved by ASIC and
ASX.
- The ASX acts as the market where shares can be traded. Stockbrokers are used by the
public to buy and sell shares on their clients’ behalf.

Consequences/ Requirements if public companies fail to fulfil financial obligations:

Each shareholder has limited liability and can only lose the amount of money invested in the
firm/business.

- The shareholders elect directors, who manage long-term operations of the business and a
senior management team is appointed by the board of directors to assist the organisation
and day-to-day running of the business.

ASIC requires public companies to release an annual report outlining the performance of the
business in the past year.

In case it being in the test- The difference between public and public-sector companies:

Public sector businesses are owned by the government whereas public companies are owned by
private individuals.

In case it being in the test- The difference between public and public-sector companies:

Demutualisation: The process of offering shares in a business to members where the organisation
becomes a shareholder-based organisation rather than an organisation controlled by its members.

Basically, changing a company limited by guarantee or a non-for-profit organisation to a public

company. (Highly unlikely and would be met by considerable resistance from its members)

5. Government Enterprise
Essentially a business that acts for on behalf of the government.

- They generally have the purpose of executing government policies and this may be in the
form of the community service or it may involve commercial activity with the aim of making
a profit.

Some organisations that were originally government enterprises have now been privatized and have
become public companies.

- Privatisation is a process transferring the ownership of a government business to the private

sector (all for-profit businesses that are not owned or operated by the government) by
issuing a prospectus and listing the business on the ASX as a public company.

Business Examples:
1. Sole Traders: Freelance writers/designers, electricians (Mr. Electric), plumbers (Sydney Plumbing
Hot Water and Gas)

2. Partnerships: Law firms (Latham and Watkins- Global), accounting firms (Deloitte, PwC)

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3. Private Companies: Coles Group Limited (retail), Woolworths Group Limited (retail)

4. Public Companies: Telstra Corporation Limited (telecommunications). Commonwealth Bank of

Australia

5. Government Enterprises: Australia Post (postal services), Defence Housing Australia (provides
housing and support services to Australian Defence Force members and their families.)

Factors Influencing choice of legal structure.

The business owner must consider issues of responsibility and decision-making, debt management
and regulatory controls. When choosing legal structure the 3 factors are:

1. Size: (as mentioned above on the sizes)

Benefits that come with the size of the business and the phases it goes through for example:

In the earlisest stages of the business an entrepreneur will often start as a sole trader.

As the business enters the growth phase, investors may be brought it to form a partnership and to
provide additional funds and expertise.

- Given the fact that the business is growing in size and more funds are involved, the owners
may move to a private company structure, which protects investors through limited liability.

Then shareholders may decide to give up part of their ownership of the business and the business
moving towards a public company which would allow it to access easier funds through the ASX.

2. Ownership
- People may seek the freedom of being self-employed and enjoy the responsibility of making all the
decisions.

- Others look to the satisfaction of providing a valued and much-needed service to the community.

- Some individuals are able to work well with others recognizing that a team of investors who utilize
their strengths will assist in the success of the business.

However, some organisation for practical reasons, cannot change their legal structure. E.g. Imagine
a local community theatre organisations having the service provided as their primary concern, being
sold to a group of private investors for profit.

This however is possible as discussed in p.8 through demutualisation.

Business Example of Demutualisation: NRMA formerly National Roads and Motorists' Association
and now MyNRMA, provides roadside assistance, car servicing, car loans, driver training, batteries,
and windscreen replacement.

3. Finance
The businesses successful management of financial issues is crucial.

The growth of a business is often accompanied by an increase in demand for financial resources.
This may be achieved by:

- Offering a partnership
- Providing increased protection, by initiating the development to a private company

Moving the business to a public company has both positives and negatives:

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Positives:

By offering shares to the public provides the business with access to a considerable amount of funds,
which the original owners may decide to keep or reinvest in the operations of the business.

Negatives:

- There is a high level of risk involved in moving your business to a public company:

1. Increased regulatory requirements: Must comply with a range of reporting and disclosure
requirements, such as publishing financial statements and holding shareholder meetings.

2. Loss of Control: Ownership is spread across a large number of shareholders, which can weaken
the control of the founders and key executives who originally owned the company.

3. Higher costs: Going public can be an expensive process, as companies typically need to hire
investment bankers, lawyers, and accountants to help with the initial public offering (IPO) process
(offering shares of a private corporation to the public in a new stock issuance for the first time).
Public companies also have ongoing costs associated with regulatory compliance and shareholder
communication.

4. Greater scrutiny: More exposed to reputational risks if they make mistakes or face negative
publicity.

5. Market volatility (instability): Subject to fluctuations (shifts- rising and falling) in the stock market,
which can be affected by a wide range of factors such as economic conditions, industry trends, and
investor sentiment

Topic 3 Influences in the Business Environment

- The business environment refers to the surroundings within which a business must operate.
A business cant act alone as it is influenced by stakeholders that make up the business
environment. Change is inevitable.

External Influences
- Influences outside the control and operations of a business that can influence both the long-
term and day-to-day operations of the business.

Economic: (Economic Cycle, Employment, Inflation, Government policies)

An economy is a system where governments, businesses, consumers, and other relevant
associations interact to satisfy the needs of society.
1. The economic cycle referring to the changes in consumer and business spending
over a period of time. It influences:
 The level of employment and investment in an economy
 The profitability of a business
 The amount of goods and services produced.
o Gross Domestic Product (GDP) is the measure of the total value of all goods
produced and services provided within a country’s domestic economy in 1 year.
- The higher the GDP the stronger the business is-
The different parts of the economic cycle (very brief):
Upswing Boom Downswing Depression
Increased spending, High level of spending, Reduced Spending, level Low level of spending,
level of business employment, business of business investment, business investment,

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investment and investment, business sales GDP, profit at lowest
consumer demand, profit expectations levels
hence greater business
profit
Decreased High level of imports, Increasing High unemployment and
unemployment. new businesses entering unemployment unsold stock
the market

2. Employment, being an important foundation of any economy.

 If employees believe they have job security, they are likely to spend more of their
income on consumer goods. If there is a high level of unemployment, then there is less
consumer spending.
 An increase in consumer demand (due to increased spending) is the main reason
why more goods and services are provided. This is known as economic growth.

3. Inflation is the rate at which the cost of goods and services is rising which affects the
value of currency: as prices go up the same amount of money will buy less.
 Inflation has negative impacts on business which are as such:
o When prices rise, the cost-of-living increases
o In response to this employees will seek high wages.
o Higher wages increase the cost of production.
o Therefore to avoid a higher cost of production to a degree, businesses may
need to reduce their workforce and the remaining employees may need to
accept a greater workload.
4. Government Polices- The commonwealth government make use of 3 key polices to
influence the level of economic activity in Australia:

1. The fiscal Policy: Refers to the use of taxation (on revenue) and expenditure to influence the level
of economic activity.
2. The monetary policy: Refers to the actions taken by the Reserve Bank of Australia to control the
level of interest rates in the Australian economy.
- This has similar effects to that of inflation as consumers use more of their income to fund
the higher interest charges on their mortgage and that applicable to their credit cards.
3. Microeconomic reform: Refers to policies developed by the government to promote greater
competition within a particular industry, to provide consumers with greater choice and lower prices.

Business Example:
Apple's business can be impacted by a variety of economic factors, such as changes in consumer
spending (due to a specific phase in the economic cycle), inflation, and government policies that
affect taxes and tariffs (tax to be paid on a particular class of import/export) on its products. For
example, tariffs on imported goods can increase the cost of Apple's products, which may lead to
lower demand from consumers.
Financial: (Debt Finance and Equity Finance)
 Deregulation: The government’s removal of or reduction in controls and regulations
on an industry or sector of the economy or market in order to achieve greater
competition.
o Deregulation allowed market forces of supply and demand to determine the
price for finance. This also allowed international factors to have a greater
influence of Australia’s money market as foreign financial institutions entered
the marketplace.
The 2 main sources of finance for businesses are:

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1. Debt Finance: Funds borrowed from a bank, an investor or another firm.
- It involves of an agreement that specifies the need to repay the principal
(original amount borrowed) as well as interest, and states the set period of
time over which the debt must be repaid.
2. Equity Finance: Finance provided by the owners, who can give the business capital or can
contribute cash by buying shares. It can also refer to any net profit reinvested in the business.

Higher interest rates= Decreased Debt (as it involves borrowing money) and Equity (as it involves
selling part of the business to new owners) finance

Business Example of Debt/Equity Finance:

One popular business example that has used equity finance is Facebook. The company was started
by Mark Zuckerberg in 2004 and initially funded by his personal savings and contributions from
family and friends.

Tesla, the electric car maker, has used debt finance to fund its operations and growth initiatives. In
2021, Tesla raised $5 billion through a combination of convertible notes and common stock
offerings. The convertible notes allowed investors to exchange their debt for Tesla stock at a future
date, while the common stock offerings gave investors the opportunity to purchase shares of Tesla
stock.

Geographic:
Geographic influences for businesses in Australia include:

- Population shifts from rural to urban areas.

- Located close its suppliers

- Demographics: age, gender, sex, income, and cultural background.

Business Example:
Farms located closer to major transportation hubs or urban areas may have a competitive advantage
in terms of distribution and access to markets.

Social:
Society expects business to contribute to the community’s quality of life.

- This can be done by:

o Businesses sponsoring teams.
o Businesses making donations to worthy causes.
o Businesses assisting in community projects.

Businesses need to be aware of their community’s needs, opinions and attitudes.

CSR (Corporate social responsibility)- Society expects businesses to behave ethically and responsibly.

Business Example:
McDonald’s supports the community through its Ronald McDonald House Charities (RMHC), which
are attached to major children’s and women’s hospitals and provide sick children with the chance to
have their parents nearby during hospital treatment.

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Legal:
The aim of government regulation of businesses is to promote fair conduct, including regulations
covering environmental and customer protection, competition, occupational health and safety and
industrial relations.

Business Example:
Uber: The ride-hailing service has faced legal challenges in many cities around the world due to
regulatory concerns about safety, insurance, and driver screening. Uber has had to work with local
governments and regulatory bodies to establish legal frameworks for operating in different
jurisdictions.

Political:
Major political change can result from an election and this leads to business uncertainty or business
confidence.

- This is because political influences can affect competition in the market as governments
undertake trade negotiations and enter into trade agreements such as China-Australia Free
Trade agreement in December 2015.
- The government can privatise its businesses. Privatisation is a process transferring the
ownership of a government business to the private sector by issuing a prospectus and listing
the business on the ASX.

Business Example:
Telstra formerly known as Telecom was privatised and is now a public company that provides
telecommunications services across Australia.

Commonwealth Bank of Australia was privatised and is now a public company that offers banking,
financial, and insurance services.

Institutional:
1. Environmental Protection Policy (EPA): The main role of EPA is to enforce NSW government laws
regarding protection of the environment.

2. Australian Taxation Office (ATO): Its primary role is to enforce and administer federal
government taxation policies and laws.

3. Australian Securities and Investments Commission (ASIC): The primary roles of ASIC is to monitor
the operations of financial institutions, including banks investment companies and stockbroking
firms.

- It requires businesses to release an annual report detailing the financial performance of the
business over the past year.

- It regulates the reporting of financial data by companies to their shareholders seeking to

ensure that a company’s investors are provided with an honest, accurate record of the
company’s financial position.

4.Australian Competitions and Consumer Commission (ACCC): It aims to promote fair and ethical
behaviour by businesses towards their competitors and allows businesses to lodge complaints
against competitors regarding behaviour that they deem to be unfair the Consumer Act.

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- The ACCC is able to penalise businesses that engage in deceptive and misleading conduct and those
that engage in price-fixing with competitors. Price-fixing occurs when 2 or more business
competitors conspire to set a high price within the market.

5. NSW Fair Trading: Established to protect the rights of the customers, while also regulating the
registration of business names and licensing applications.

6. Trade Unions: Organisations that aim to protect and promote the interests, pay and working
conditions of employees.

7. Employer Associations: They lobby, guide, advise governments to develop policies that benefit
employers.

8. Australian Securities Exchange: Organisation responsible for acting as a market where investors
may buy and sell shares in public companies.

9. Consumer Associations: Organisations that are developed to provide informative opinions to

consumers on a wide range of issues, such as product quality and pricing.

Business Examples:
Trade Unions:

The Australian Council of Trade Unions (ACTU) representing and advocating for the rights and
interests of workers and their families.

The NSW Nurses and Midwives’ association.

Employer Associations:

Employers First, National Farmers’ Federation.

Technological:
Developments in technology result in increased efficiency and productivity.

- Increased Awareness of what other countries and societies develop has resulted in
changes to consumer demand, production methods, and government rules and
regulations.

Effects of Accelerating Technology:

Additional costs for training staff in the usage of new technological aspects of the company.

E-commerce refers to the use of electronic communications to carry out business.

- These are online trade facilities that improve business-to-business (B2B) communications and offer
savings in time and money.

- E-commerce has extended business to consumer (B2C) use and allows such services as banking,
payment of accounts and the purchase of goods to take place.

Business Examples:

Airbnb: Like Uber, Airbnb has taken advantage of technological advancements to create a new
market for short-term accommodation rentals.

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Competitive Situation:
The competitive situation is influenced by the number of competitors and the ease with which a
business can enter a particular market.

- Some business may operate in an environment with a few competitors. This is known an
oligopoly, whereby there are only a limited number of suppliers to the market, and so there
is less pressure on businesses to offer low prices.
- A monopoly is a situation where there is only one firm in the marketplace. This may be due
to either high entry costs or government regulations.

Ease of entry refers to the ease with which a business can enter a particular market. This is dictated
by 2 critical issues:

1. Cost of establishing the business

2. Access to materials: Easy access to inputs.

Effective Marketing Strategies is another factor to consider.

Business Examples:
Oligopolies: Woolworths and Coles, as they account for 85% of the Australian grocery market.

Monopoly: Sydney Water Supply, which is the only org. from which Sydney’s residents are able to
purchase their water supply.

Markets:
Australia has become an active part in the global marketplace as its movements towards free trade
agreements, allowing the export (exports- the sold/ selling of goods and services to other countries)
and import (imports- the purchased goods and services from other countries to use domestically) of
goods and services between ‘member’ countries to proceed without restrictions, making the world a
smaller place.

Outsourcing occurs when a firm makes a commercial arrangement with another firm to provide
services that it originally would have undertaken itself, for example cleaning, security and
advertising.

Business Example:
Qantas has faced numerous challenges in recent years due to the changing market conditions in the
airline industry, such as increased competition from low-cost carriers and fluctuating fuel prices.

Internal Influences
- Influences within the business itself.

Products:
Goods and Services to cater for the many types of customers within the commercial environment.

Consideration for selling Goods:

- How will the business produce the product?

- How far the business is located form its supplier?
- Most cost-effective methods of maintaining the quality of unused stock.
- Are storage facilities needed for its suppliers?

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Considerations for selling Services:

- How far the business is located from its main customer group?
- What training and development must be provided to staff to ensure they are updated with
the latest issues in their area of service?

Location:
Factors influencing the decision of locating your business:

- Whether high visibility is required to attract passing customers

- The cost of renting or leasing the factory premises or shop
- Where suppliers are located

The most appropriate location for a retailer or service business will be where its target market lives,
works, and shops.

- Businesses may also need to consider the demographic factors of their target market. For
example, Exclusive fashion retailers will need to locate in high-income areas.

Manufacturer choice of location considerations:

Availability and cost of obtaining inputs.

Distance to markets and its effect on transport costs.

Access to power and water.

Visibility- Retailers need to have high visibility to attract new customers with their signs and window
displays.

Proximity to Competition- Due to may business of the same type located close together, more
potential customers will be attracted to that area. Eg. Fast food outlets, such as the one in the
Bankstown shopping centre.

Proximity to Support Services- Services that the firm will pay other business to provide, such as
deliveries, copying and printing, legal advice, IT support and computer repairs, cleaning, security,
banking and postal services.

Resources:
Businesses require many resources to operate their business and provide goods and services to their
customers. These include:

1. Financial Resources
Funds required by a business to access other resources and then produce and sell its goods and
services.

- Financial resources may be accessed from existing owners, new owners (equity finance) or
funds borrowed from a financial institution such as a bank.(debt finance)

2. Input Resources
Input resources are those goods and services that combine to produce a finished good or service
that can then be sold to consumers. Examples include machinery, raw materials and labour.

- The cost is a key consideration for businesses.

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3. Staff Resources
The most important part of any business, known as employees or human resources.

- Employees are responsible for providing the himan effort that transforms inputs into a
finished good or service. They use expertise, skills, and knowledge to pergorm this function.

Costs:
An entrepreneur must budget for:

- Costs of obtaining premises through leasing or purchasing.

- Costs of obtaining inputs and inventory (stock)
- Costs of employing staff
- Marketing costs
- Utility costs, such as water and electricity.
- The cost of interest on finance if it is borrowed.

Leasing VS Buying Premises

Leasing premises and assets, will free up capital (money) to purchase stock and other supplies and
finance is available to gelp the business survive the difficult establishment phase.

Buying Premises, such as a shop or a factory site, requires huge financial expenditure. The advantage
here is that the owner is not restricted by a lease contract and is free to change the building as
desired. If the business fails the assets can be sold to repay creditors. Creditors are financial
institutions or individuals to which a business owes money.

Other costs:
If the entrepreneur chooses to purchase an existing business, the additional cost of goodwill will
need to be considered. Goodwill is an intangible assets valued according to the image or reputation
a business has acquired over time.

If an entrepreneur chooses to purchase a franchise system, the cost may be much reater than
starting a business from scratch, however the advantage is that a franchise is a proven business
model. Franchise is an agreement where an existing business sells the legal right to another
entrepreneur or business to use its well-known products and its trade name, methods and
procedures.

Management and Business Culture:

Corporate or business culture refers to the culture within an organisation which is the informal rules
and procedures followed in a business eg. Dressing formally, and on business premises, conducting
yourself professionally.

- This related to the values and beliefs within a business and directly impacts the relationship
between management and employees. In essence, business culture becomes the way staff
perform their work.

Elements of a Strong Business Culture:

Business Culture has to be participative, where staff need to feel engaged in parts of any solution.

Business Culture should be democratic not autocratic.

Business culture needs to include teamwork and accommodate for diversity.

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Integrity (Doing what is right)- Being honest and ethical in everything that’s done.

Collaboration (Teamwork)- actively sharing ideas and information across the organisation for the
benefit of stakeholders.

Respect- Treating all people with respect and dignity, building trusted relationships with diverse
stakeholders.

Excellence- Pursue excellence and take pride in everything done.

Stakeholders
Stakeholders are people and/or organisations affected by the decisions or actions of a business.

There are these types of stakeholders:

Internal Stakeholders: Employees and others who work in a business who are affected by the
decisions or actions of a business.

For example: Employees, and Environment

External Stakeholders: Organisations and people outside the business or actions of a business.

For example: Employer Associations, Distributors, Consumers, Competitors, Community, Suppliers

External and Internal Stakeholders include: Unions, Financiers and Investors.

- It is inevitable that a businesses’ course of action will cause some conflict among its
stakeholders because not all stakeholders will have the same priorities.

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