Business and its
Environment
1.1. Enterprise
Syllabus
The foundation of Business is to understand what happens within a business. At AS Level candidates develop an understanding of
what a business is, what it wants to achieve and who is involved. Candidates develop the vocabulary to understand how a business
operates and learn how to analyze what the business does. Every business is different, understanding its context is important to be able
to understand the decisions that it makes and the motivations of those involved
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1.1 Enterprise
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1.1.1 The nature of business activity • the purpose of business activity • the factors of production needed for business activity:
land, labour, capital and enterprise • the concept of adding value • the nature of economic activity, the problem of choice and
opportunity cost • the dynamic business environment • why businesses succeed or fail • differences between local, national,
international and multinational businesses
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1.1.2 The role of entrepreneurs and intrapreneurs ,• the qualities entrepreneurs and intrapreneurs need for success, • the role of
entrepreneurship in creating and starting up a business, • the role of intrapreneurship in the ongoing success of a business, •
barriers to entrepreneurship ,• business risk and uncertainty ,• the role of business enterprise in the development of a country
1.1 Enterprise continued
1.1.3 Business plans • the meaning and purpose of business plans • the key elements of business plans • the benefits and limitations of
business plans
What is a business?
• An activity undertaken with a view to satisfy consumer needs and earning
profit
• OR
• People working in an organized way to achieve a set target
Limited Resources/ Factors of Production
• Land: all the natural resources (Reward?)
• Labor: Human effort (Reward?)
• Capital: all the man made resources (Reward?)
• Entrepreneur: risk taking ability and who combines all other factors of
production (Reward?)
Added Value
• Added value = Selling Price – Cost of Bought in Material
• How can you achieve Added Value?
How added value can be achieved?
• By building a brand image
• By providing better customer service
• By adding more/ new features in product
• By effective distribution
• By effective promotion
• By targeting an environmental issue and resolving it through your product
• By adding a USP
Benefits of adding value
• Business might be able to charge high price for its products
• It might be able to increase its market share
• It might be able to increase profitability
• It might be able to get a competitive advantage over its competitors
• It might be able to create brand loyalty
Economic activity
• Purpose of economic activity ; production of goods and services to satisfy
consumer needs and wants
• Input --- production process (adding value) --- ouput (Good or a service)
Economic Problem and Opportunity Cost
• Needs: essential for survival
• Wants: Desires but not essential for survival
• Wants are Unlimited but the resources to fulfill these wants are limited
creating a problem called Basic Economic Problem.
• The only solution to basic economic problem is choice and whenever you
choose one thing you let go another i.e. Opportunity Cost
• Opportunity Cost is the next best alternative forgone for present choice
Dynamic business environment
• New competitors
• Legal changes
• Economic changes
• Technological changes
What a business needs to be successful?
• Must have a competent entrepreneur
• Must have strong financial resources
• Must have highly qualified and competent management
• Must have a well trained and highly skilled workforce
• Must be able to design appropriate business plan after considering both internal and external
environmental factors
• Must be flexible in its approach and willing to adapt according to changing market trends
• Must be able to analyze competitor’s strategies effectively and respond to them strongly
Continued…..
• Must have qualified financial and management accountants to manage
business’s financial resources
• Must be innovative
• Must offer a large variety of goods which will suit requirements of different
consumer segments
• Must target multiple markets, in order to spread risk factor
• Must be able to identify market gap and exploit it profitably
Why businesses fail? / Challenges to
entreprenure
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Lack of market research / Identifying successful business opportunites
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Might not have considered external influences
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Unable to analyze competitor’s strategies effectively
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Artificial barriers to entry created by competitors
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Cash flow problems
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Lack of financial resources
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Economic conditions
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Unable to distribute effectively
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Determination of entrepreneur
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Lack of clear focus/ corporate objective
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Unable to find a competent team
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Poor Location
Who is Entrepreneur?
• Risk taking abilities and be able to combine all other factors of production
• Has the idea to start a business
• Reward – profit
Qualities of an Entrepreneur
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Disciplined
Confident
Innovative
Flexible in approach
Open minded
Ready to take initiative
Competitive
Determined
Strong communication skills
Strong work ethic
Passionate about his business
Common Types of Entrepreneurial Businesses
• Primary
• Secondary
• Tertiary
• quaternary
Intrapreneur
• Developing an innovative products or project within an existing business
• Risk is taken by the business
• Reward is for the business in terms of profit
• Intrapreneur injects creativity
• Creates a competitive advantage
• Encouraging original thinkers and innovators to continue the grind
Differences Between Entrepreneur and
intrapreneurship
entrepreneur
intrapreneur
Main activity
Starting up a new business
Developing an innovative product
or project within an existing
business
risk
Taken by the entrepreneur
Taken by the business
rewards
To the entrepreneur
To the business
Barriers to entrepreneurship
• Lack of business opportunity.
• Obtaining sufficient capital
• Cost of good location
• Competition
• Lack of customer base
Business risk and uncertainty
• Risk can be calculated or assessed
• Example of Risk could be that last year 30% restaurants closed in Faisalabad
so that could be the risk of a new restaurant failing
• Uncertainty is difficult to predict or calculate for example Covid’19
Impact of an enterprise on a country’s
economy
• Economic Growth
• Employment Creation
• Innovation and technological change
• Exports
• Personal Development
• Increased Social Cohesion
Purpose and key elements of business plan
• Executive summary-an overview of the new business and its strategies
• Description of the business opportunity-details of the entrepreneur’s skills and
experience, nature of product, the target market.
• Marketing and sales strategy-details of why the entrepreneur thinks customers will
buy the product and how the business will sell to them.
• Operations-premises to be used, production facilities, IT systems.
• Financial forecasts is the future projection of sales,profit and cash flow for atleast
one year ahead.
Benefits of business plans
forces the owner to think seriously about the proposal ,its strengths and
potential weaknesses.
Gives the owner and manager clear plan of action to guide their actions and
decisions in the early months and years of the business.
Limitations of business plans
• Depending on forecasts and predications
• The plan must be detailed and supported by evidence as market research,if it
is not than prospective creditors and investors can delay in making a finance
decision until the plan is brought up to required standard.
• The plan might lead entrepreneurs to be inflexible
• The best business plan allows for some flexibility and adaption as external
events change