Business and entrepreneurship quiz

• Businesses exist to fulfill the needs and wants of people, organizations, and governments.

Business Activity Chart

• Resource inputs are processed to add value, resulting in product output.

Resource Inputs

• Physical resources include natural resources, machinery, and land.
• Human resources consist of workers.
• Financial resources are cash and other forms of money.
• Enterprise is the idea and will to combine the above, embodying entrepreneurship.

Production Processes

• Production processes can be either labor-intensive or capital-intensive.
• Value is added through the difference between the cost of input and the value of output.
• Example: A car costing €6,000 to make is sold for €15,000, adding a value of €9,000.

Product Output

• Product outputs can be tangible goods (e.g., a laptop) or intangible services (e.g., healthcare).

Business Functions

• The four main business functions include Finance and Accounting, Operations Management/Production, Marketing, and Human Resources (HR).
• These functions are interdependent; marketing success can increase cash flow, impacting the financial sector.

Economic Sectors

• The primary sector involves natural resource extraction.
• The secondary sector involves manufacturing.
• The tertiary sector is service-focused, emphasizing knowledge.

Sector Examples

• Coca-Cola operates in the tertiary sector by selling soda.
• HSBC operates in the tertiary sector as a bank.
• FAW (China) operates in the secondary sector by making cars.
• RTZ may operate in the secondary sector by making parts.

Reasons to Start a Business

• Potential rewards and profits are primary motivators.
• Necessity, due to lack of job opportunities, can drive entrepreneurship.
• Independence, challenge, and personal interest are key factors.
• Identifying a gap in the market or sharing an idea can initiate a business.
• Businesses also create work opportunities.

Necessary Elements to Start a Business

• Starting a business from scratch requires:
  • Supplies/suppliers
  • Financial support/finance
  • Location (land, rent)
  • Trained employees (including a head of operations)
  • Marketing resources
  • A logo/name
  • Defined work hours
  • Health and safety permit
  • Insurance
  • A business plan
  • Legal structure
  • Understanding the gap in the market
  • Meeting tax requirements
  • A unique selling point (USP) to stand out from competitors

Franchises

• Franchises involve an agreement where a business owner licenses operations, products, branding, and knowledge in exchange for a franchise cost.
• Examples include McDonald's, Burger King, Dunkin' Donuts, and Pizza Hut.

Potential Problems for Businesses

• Business plans may face issues.
• Market changes can pose challenges.
• Legal issues and lawsuits can arise.
• Reputation loss can occur due to issues, especially affecting franchises.
• Pandemics, like COVID-19, can disrupt business operations.

Business Entities

• The private sector is managed by individuals and companies not owned by the government, such as supermarkets.
• The public sector includes businesses run and owned by the government, such as public transport, hospitals, schools, and the army.

Organization Types

• Profit-based organizations
  • Sole traders
  • Partnerships
  • Privately held companies and corporations
  • Publicly-held companies and corporations
  • For-profit social enterprises
• Private sector companies
• Public sector companies
• Corporations
• NGOs (Non-Governmental Organizations)
• Charities, which are nonprofit organizations that aim to help others

Sole Traders

• Sole traders are businesses owned and operated by one person, with no legal distinction between the business and the owner.
• They have unlimited liability, where the owner is responsible for all debts.
• Finance is usually limited.

Unlimited Liability

• In businesses with unlimited liability, owners must cover debts, even if it requires selling personal assets.

Partnerships

• Partnerships are businesses owned and operated by two or more people.
• Decisions are made jointly by the partners.
• There is no legal distinction between the business and the partners.
• More finance is available compared to sole traders.
• A sleeping partner may exist.
• A deed of partnership outlines business rules, including partner details, contributions, profit sharing, voting rights, and procedures for partner departure or addition.
• Partnerships offer greater accountability and more varied services.
• Profits are not necessarily shared equally.

Deed of Partnership Contents

• Who the partners are
• How much each partner has contributed
• How profits are shared
• How many votes each partner has
• Procedures for partner departure
• Procedures for new partner addition

Sole Trader: Advantages

• Easy to set up
• Close customer relationships
• Complete control
• Private financial records
• Flexibility in hours, products, and services
• No profit sharing

Sole Trader: Disadvantages

• Competition
• Stress
• Limited scope for expansion
• Limited capital/finance
• Lack of continuity due to sickness, holidays, or death
• Unlimited liability

Partnership Advantages

• Greater stability
• Private financial records
• More expertise
• Continuity in case of sickness
• Different skills and qualities

Partnership Disadvantages

• No complete control
• Unlimited liabilities
• Disagreement in decision-making
• Limited capital/access to finance
• Profit arrangements

Shareholder: Pros

• Share price may increase
• Dividends may be issued
• Limited liability

Shareholder: Cons

• Share price may decrease
• No dividend issued
• Small shareholding means little say in decisions

Dividends

• Dividends are portions of profit given to each shareholder, with some profits retained for business growth.

Practice Question: Sole Trader Definition

• A sole trader is a business owned and operated by one person.

Practice Question: Flower Shop as Sole Trader - Advantage

• Not needing to share profits results in more cash, which is beneficial during difficult times like COVID-19.

Practice Question: Flower Shop as Sole Trader - Disadvantage

• Unlimited liability means personal assets like a house or car can be lost to cover business debts, especially during crises like COVID-19 when business is poor.

Companies and Corporations

• Business organizations established for a specific purpose and registered according to local or national legislation.

Company/Corporation Features

• The business is owned by someone, but decisions are made by a board of directors.
• Shareholders own but do not run the business.
• Records are public; must have memorandum and articles of association.
• Greater finance is available.
• There is a high degree of accountability.
• Greater stability and a high chance of continuity.

Public vs. Private Companies

• Public companies can be purchased on the stock market and are available to everyone.
• Private companies maintain control and require company acceptance for stock purchases, often bought by friends and families of the owners.
• IPO (Initial Public Offering) is when a private company goes public.

For-Profit Social Enterprise

• A business with a social purpose, aiming to improve human, social, or environmental well-being.

Social Enterprises

• Some social enterprises take the form of previously mentioned entities (sole traders, partnerships, or companies).
• Some work in the public sector, such as providing meals for older people unable to prepare their own.

Cooperatives

• Cooperatives are a form of partnership run by all members.
• Can have more than 20 members.

Cooperative Types

• Financial cooperative
• Housing cooperative
• Workers' cooperative
• Producer cooperative
• Consumer cooperative

Business Aims and Objectives

• Cost cutting
• Innovation
• Profit maximization
• Growth
• Survival
• Market standing

Definitions

• Aims are overall intents, strategic directions, and purposes.
• Objectives are specific targets broken down from aims to facilitate evaluation, such as increasing customers by 15%.
• Example: Aiming to be the most successful car dealership in the city.

Objective Timeframes

• Day-to-day objectives are to be done on a daily basis.
• Tactical objectives are medium to short-term for business segments/departments.
• Strategic objectives are targets for the next few years (medium to long term).

Business Strategy

• A plan to achieve a strategic objective to work towards business aims.

Business Tactics

• Specific steps taken to actualize goals in the short and long term.
• Objectives often need to be changed.

Internal Business Environment

• Changes within the business, such as business functions.

External Business Environment

• Consists of STEEPLE factors: Social, Technological, Economic, Environmental, Political, Legal, Ethical.

STEEPLE Trends

• AI
• Inflation
• Emissions
• Conflicts
• Regulations
• Child labor
• Lifestyle
• Automation
• Employment rate
• Sustainability
• Change of political system
• Safety
• Working conditions

STEEPLE Analysis

• A Business Management situational and planning tool used to study the factors in the external business environment that impact its operations.

STEEPLE Advantages

• Helps promote strategic thinking among managers.
• Simple to create.
• Enables businesses to identify threats and opportunities.

STEEPLE Disadvantages

• Time-consuming.
• Does not assess internal influences.

Answering a Defined Question (2 Marks)

• Define
• Explain
• Provide an example

STEEPLE Example

• A STEEPLE analysis is a Business Management tool used to study external factors impacting operations.
• It comprises seven categories affecting business decisions.
• Useful for companies planning international expansion, helping identify suitable nations and their pros and threats.
• McDonald's is an example of a company that could use it.

Internal Environment

• HR
• Marketing
• Finance and account
• Operation

CSR Definition

• Corporate Social Responsibility (CSR) is broader than ethical objectives.

Ethical vs. Unethical

• Reducing pollution is ethical.
• Financial dishonesty and workplace discrimination are unethical.

Reasons for Ethical Company

• Customer loyalty
• Positive image
• Positive work environment
• Increasing profit
• Reducing legal risks
• High customer expectations
• Competitive edge

Short vs. Long Term

• Short-term involves additional costs.
• Long-term brings a better customer base and loyalty.
• Ethical companies may need to change unethical suppliers.

Reasons to Implement CSR

• Pressure from media or pressure groups
• Principles and beliefs of employees and consumers
• Objectives
  • Short vs long-term
• Change in legislation
• Cost/profits

Ansoff Matrix

• Shows a business what type of growth strategy they could take.
• Example: Market and project development by expanding geographically and product portfolio.

Stakeholder Definition

• A stakeholder is any person, group, or organization that affects or is affected by a business.

Stakeholder Categories

• Market and non-market
• Primary and secondary
• Internal and external

Internal Stakeholders

• Shareholders: interested in maximizing dividends and increasing share price.
• Managing Directors: interested in bonuses, profit maximization, pleasing shareholders, growing the business
• Employees: interested in pay, working conditions, job security, training, and development.
• Supervisors: Focus on organizing tactical objectives and formulating operational objectives.

External Stakeholders

• Suppliers: interested in getting paid on time, maintaining relationships, and getting orders.
• Government: interested in business practices, health and safety, tax, and consumer protection.
• Customers: interested in value for money, quality, choice, and ethical stance.
• Financiers: interested in return on investments.
• Media: interested in news stories.
• Pressure Groups: interested in ethical behavior.
• Local Community: Interested in environment and job.

Stakeholder Conflict

• Occurs when two or more stakeholder groups disagree, usually during a decision or change.
• Resolving involves categorizing stakeholders by importance.

Stakeholder Analysis

• Determines how close each stakeholder is to decision-making.

Stakeholder Mapping

• Involves assessing the level of interest and power of each stakeholder.

Practice Question: Alumbre Project Stakeholder Conflict

• Ongoing conflict between the Peruvian government and the company shareholders.

Stakeholder Conflicts Example

• Spanish firm agreed to maintain electricity but considered not honoring the deal due to the 2008 financial crisis.
• Employees vs. Shareholders: Workers rely on their jobs but have few alternatives in the area.

Joint Venture

• An organization created, owned, and operated by two or more other organizations that is legally distinct from its creators.

Franchises

• Franchises are another form of economic growth becoming popular for businesses wanting to expand globally.

Franchise Details

• A franchisor develops the concept.
• Franchisees buy the right to offer the concept/sell the product.

Economic Growth

• Differentiated between External vs Internal Growth.

Economies of Scale

• Scale of sale is the size/volume of output.
• Efficiency is the cost of production per unit.
• As scale increases, unit cost decreases.
• Total cost = Fixed cost + Variable cost.

Fixed Costs (FC)

• FC does not change with changes in production (e.g., rent).

Variable Costs (VC)

• VC varies with changes in production (e.g., raw materials).

Average Cost (AC)

• AC = Total Cost / Quantity Produced.

Average Total Cost

• ATC = Average Fixed Cost + Average Variable Cost.

Diseconomies of Scale: Technical

• Physical limits are placed on handling and combining inputs and goods in the process.

Diseconomies of Scale: Managerial

• Companies can become overly complex and less effective, leading to communication issues.

Diseconomies of Scale: Financial

• Investment decisions can lead to significant losses.

Diseconomies of Scale: Marketing

• Multiple campaigns at the same time, not tailored to the language in each region.

Diseconomies of Scale: Purchasing

• Buying too much that you can't sell removes the benefit of economies of scale.

Diseconomies of Scale: Risk Bearing

• An over-diversified portfolio can lead to a lack of expertise in any market.

Economies of Scale: Technical

• Larger businesses can invest in new tech and transport larger quantities at a lower price.

Economies of Scale: Managerial

• Specialized people in each area.

Economies of Scale: Financial

• Banks provide more loans and lower interest rates to bigger businesses.

Economies of Scale: Marketing

• Global campaigns (e.g., sport events).

Economies of Scale: Purchasing

• Bulk buying.

Economies of Scale: Risk Bearing

• Cost advantages due to diversification.

External Economies of Scale (EoS)

• Labor concentration means having lots of employees in the one area.
• Customer concentration means the customers are also located in the same area, too.

Diseconomical Scale (DoS)

• Labor concentration leads to higher wages due to a shortage of skills.
• Comparing small a large business, you can look at... Market share, efficiency, status, the capital available.

Pros of a Large Business

• Easier to survive due to customer base, capital, EoS, higher status, and market share
• Pros of small business
• Greater focus, motivation, competitive advantages, lower competition.

Matrof

• Risk
• External and internal growth

Multinational Companies

• MNC/Multinational Company: A business that operates in two or more countries or is legally registered in more than one country.

MNC - Headquarters/Production

• May have headquarters in a rich country while production is in a country with lower wage requirements

MNC: Pros

• Optimization of law, utilizing skilled workers in an income country while setting up productions in, e.g., China, minimizes their production cost.
• More opportunities for growth

MNC: Advantages in Developing Countries

• Limited competition against locals with less capital.
• Boost of the local economy by creating work opportunities.
• Procurement of land is cheaper in less attractive areas.
• Limitations for a customer base.

MNC: Disadvantages

• Damage of company image
• Huge financial risk
• Environmental risk increases
• Lack of market - customer base limited

UNIT FOUR: Marketing

• 4.1 Importance of Market Share and Market Leadership (HL)

Market Share Definition

• A measure of the size of a business compared to others in the same industry by calculating its proportion of the total value of sales revenue in the industry.
• The most important way for marketers to measure their marketing effectiveness

Benefits of Market Leadership

• Allows firms to shape the industry trends
• Attracts more investors and skilled employees
• High brand loyalty justifies higher prices

Disadvantages of Market Leadership

• Leader gains from economies of scale by being the biggest in the industry, lowering unit costs, and generating higher profit margins.
• It can also weaken the competitiveness of existing rivals in the market due to the strategic superiority of the market leader. 4.2

Marketing Segmentation

• Market segment Definition
• Individual subgroups of a large market consisting of customers who share common or similar characteristics
• Market segmentation describes the process
• It can meet their specific desired needs and wants.

Segment Groups

• Age
• Income
• Lifestyle
• Geographical location
• Gender
• Family size
• Religion
• Education
• Occupation

Broad Ways

Demographic segmentation

• Involves splitting consumers based on statistical characteristics of the population, such as age, gender, family size, religion, ethnicity, and income.
• Geographic segmentation
• Splits consumers according to their different geographical locations. Psychographic segmentation
• People are divided based on their lifestyle choices and personal values, Moral beliefs held by particular market segments, Personal interests, such as their hobbies. Socio-economic segmentation
• Splitting consumers based on their income.

Positioning

• Product position map Graphical illustration of customer perception of a business, its products, or brands compared to other firms in the industry. -Contrast is based on two predetermined criteria: price and quality.

Product Categories

• Identified from a normal positioning map
  • Premium products - High-quality & high price
  • Cowboy products - Poor quality but expensive= not sustainable.
  • Bargain products - High quality but low selling price
  • Economy brands - Low quality, sold at low prices

Marketing Plan Definition

• An operational document outlines an advertising strategy and generates leads

Marketing Plan: Pros

• Help identify customers to better approach them & inform them why they need it
• Increase in sales: A marketing informs potential consumers

Marketing Plan: Cons

• It is time-consuming
• There is no guarantee of success meaning it can be a waste of time

Types of Marketing

• Niche Marketing - precise marketing focusing on a small market segment
• Mass marketing involves- all customers in the market for a product
• USP- A unique selling point and exclusive feature of a business

Product Differentiation

• How businesses try to make their goods and services different through quality, branding, physical appearance, colors, packaging, and after-sales services

Types of Differentiation

• Product - differentiate it such as features
• Price - A brand can target different socioeconomic groups, whereas a cheap one will attract more
• Place - Geographical distribution: Coca-Cola purchased everywhere which consumers will be more likely to buy
• Promotion - How to appeal to consumers through advertisement strategies

4.3 Sale Forecasting

• Definition: A quantitative technique firms use to predict their sales and revenue over a period.

Sale Forecasting: Pros

• Help companies plan for the future
• Mitigate risks
• Help to identify sales trends
• Sale Forecasting: Cons
• No guarantee
• Do not account for external factors
• Not accounting for competitor's actions, two-for-one sale

4.4 Market Research

• Definition: The range of activities, made to determine the opinions, beliefs, and feelings of existing and potential customers.

Carry out Market Research

• To discover patterns in consumer purchasing behavior
• Learn about new market trends
• Reduce the risk of product failure

Primary Market Research

• Also called field research gathering of first-hand data

Example of Market Research

• Interviews*
• Conducted on a basis or a specific group such as market trend followers and ask the opinions and preferences
• Surveys*
• A paper conducted in which individuals answer questions on paper.
• Observations*
• Is the researchers watching, monitoring, and recording how consumers behave or react in certain situations

Secondary Market Research

• Data collection and information previously conducted by another source.

Market Analysis

• Market Analysis* data and information about a particular product or industry that might include specific market size data.
• Academic Journal* Leading university academics often write publications
• Government publications* that do not have any specific format.

Ethics: Market Research

• Any action to gather market research data that is deceptive.

Research Methods

• A type of Market research based on research participants' opinions, perceptions, views, and preferences.
• Quantitative research based on the gathering of quantifiable data

Methods of sampling

• Random selection of the population

Examples of Market Research

• Quota sampling technique* is used where researchers select an identical
• Random sampling technique* is the selection of anyone in the population on a random basis
• Convenience sampling in an unplanned way* It is made for whoever is willing to participate

4.5 Marketing Mix

• 7ps
• Product Life Cycle
• Showing most products
• Planning and development:* Researching and identifying the needs of inventors
• Launch:* The first time it is available to the public for purchase
• Growth:* When it becomes more popular and demand increases
• Maturity:* Reached its full potential
• End of life: product starts to decline. this can be countered by extension strategy

Price Strategy

• Cost-Plus
• adding a profit margin to the cost of production, ensuring profitability.
• Penetration
• Offering a low price on their product to enter a new industry
• Loss leader
• Sold below the products cost of producing leads to costumers purchasing more
• Predatory
• Lowering customers prices with intention of damaging rivals.
• Premium pricing involves
• charging high prices for their products to make a profit
• Dynamic Pricing
• Continuously tries to determine the data and pricing is based on supply and demand.
• Competitive - Match the rivals prices on products and that are on demand
• Competition pricing is when businesses set prices based on their rival, This is used frequently for most products being sold.
• Contrubution Strategy- prices unit of production to help
• Selling to new customers and generate a high contribution

Elasticity of Demand

• Measures the demand of price changes on product

Branding

• Creates brand value and Awareness to know how the competitors prices match in value
• Boosts potential and current ability to recognize and remember prices and names.

Development

• Development of brand through marketing Conducting relevant market research
• Identification of the target market/market segments
• Creating and selecting an name, logo, and slogan
• Developing a distinctive or unique selling point (USP)
• Creating a focused marketing mix and marketing strategy for the brand.
• Brand loyalty consumers who continuously purchase one brand
• Promotion raising awareness and interest in the product is a marketing tactic

Advertisement Types

• Above the line (ATL) is where a company pays for promotion
• Below-the-line (BTL) is the type of advertising that is targeted,
• LLT Through-the-line promotion is the use of combining both above the line through the line and promotions

Place strategy

• Business and distribution channel of products and services
• People employees who interact with customers training the correct employees

Process

• Operational part of a service, managing queues, the process of receiving customer feedback

Tangible Evidence

• physical appearance of a store or general tangible aspects of a Hotel, school, or coffee shop.

BUSINESS PLANS:

• BMT An official document with an organization's details and proposals for achieving its aims and objectives (goals).

Elements Business Plans (BMT)
Executive Summary- Summary of the business plan
Introduction- Type of vision , type of organizations
Market/Product Financial Analysis

• Advantages

• An objective method to measure an organization's - performance

• Helps with strategic planning and decision-making Increases entrepreneur's chances of success Proposal relative strengths and weaknesses

• Disadvantages

• Time May not be accurate

Recommendations:
Stakeholders linked to a pros and cons

Test your knowledge of business operations, value-added processes, and the tertiary sector. Questions cover entrepreneurial motivations, pricing strategies, resource inputs, and franchise benefits. Review your understanding of business functions like finance and marketing.