1.1 The Nature of Business Activity
Learning Goal
I can understand what business activity involves.
What is Business?
A business is any organization that uses resources to meet the needs of customers by providing a product or service that they demand.
Business activity at all stages involves adding value to resources such as raw materials and semi-finished goods and making them more desirable to – and thus valued by – the final purchaser.
Without business activity we would all still be entirely dependent on the goods that we could make or grow ourselves.
What do businesses do?
Businesses identify the needs of consumers or other firms. They then purchase resources, which are the inputs of the business, or factors of production, in order to produce output. The ‘outputs’ of a business are the goods and services that satisfy consumers’ needs, usually with the aim of making a profit.
1.1 ESSENTIALS
KEY TERMS
consumer goods
consumer services
capital goods
primary sector
secondary sector
tertiary sector
CASE STUDIES
Goods and Services
Business activity exists to produce goods or services, which can be classified as: consumer goods, consumer services and capital goods.
Consumer goods are the physical and tangible goods sold to the general public. They include cars and washing machines, which are referred to as durable consumer goods. Non-durable consumer goods include food, drinks and sweets that can only be used once.
Consumer services are non-tangible products that are sold to the general public and include hotel accommodation, insurance services and train journeys.
Capital goods are physical goods that are used by industry to aid in the production of other goods and services, such as machines and commercial vehicles.
CAN YOU...
Explain what is a business is?
Learning Goal
I can identify inputs, outputs and processes of a business.
What are business inputs?
Business inputs, sometimes referred to as factors of production, are the resources needed by business to produce goods or services. Businesses use different combinations of inputs, depending on the product being produced and the size of the business.
There are four main inputs:
Land
Includes land itself but also the renewable and non-renewable resources of nature, such as coal, crude oil and timber.
Labor
Manual and skilled workers make up the workforce of the business. Some businesses are labor intensive, meaning they have a high proportion of labor inputs to other factors of production.
Capital
The finance needed to set up a business and pay for its continuing operations as well as all of the man-made resources used in production.
Enterprise
The driving force of business, provided by risk-taking individuals. Combines the factors of production into a unit capable of producing goods and services by providing a managing, decision-making and co-ordinating role.
CAN YOU...
Identify what business inputs are?
Learning Goal
I can identify and explain the main business functions.
Business functions
Most businesses have four main functional departments staffed by people with specific qualifications and experience in the work of the functional areas.
Marketing
This department is responsible for market research and for analyzing the results to accurately identify consumer wants. Once a product is available for sale, the marketing function makes decisions concerning its pricing, how and where to promote it and how to sell it and distribute it for sale.
Finance
Has responsibility for monitoring the flow of finance into and out of the business, keeping and analyzing accounts and providing financial information to management and other departments.
Human Resource Management
Human resource (HR) management identifies the workforce needs of the business, recruits, selects and trains staff and provides motivational systems to help retain staff and encourage them to work productively.
Operations Management
Operations management has responsibility for ensuring adequate resources are available for production, maintaining production and quality levels and achieving high levels of productive efficiency.
Identify and explain the main business functions?
CAN YOU...
Learning Goal
I can identify and explain the main sectors of industry.
Sectors of Industry
Primary sector business activity involves firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms.
Secondary sector firms manufacture and process products from natural resources, including computers, brewing, baking, clothing and construction.
Tertiary sector firms provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism and telecommunications
The balance of the sectors varies from country to country depending on the level of industrialization. The importance of each sector changes over time. Movement from primary to secondary sector has benefits and problems.
Benefits
• Increases in Gross Domestic Product and average standards of living
• Lower imports and higher exports
• Expanding manufacture leads to job creation
• Profitable firms pay more in taxes
• Value added to output of raw materials
Problems
• Movement of people to city leading to housing and social problems
• Difficulty recruiting and retaining workers
• Increased import costs for raw materials
• Pollution leading to environmental problems
• Expansion of multinational companies
In developed countries, there is movement from the secondary to the tertiary sector. This is known as deindustrialization. This leads to rising incomes and consumers spending more money on services than on more goods. Examples include growth in tourism, hotels, restaurants etc. Spending on goods rises more slowly.
Identify and explain the main sectors of industry.
CAN YOU...