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IGCSE Business Paper 2:
Factors of a process, Advantage, Disadvantages, Methods, Considerations
 Added Value:
o Decrease cost of materials:
 Use a cheaper supplier
o Increase selling price:
 Offer additional features
 Improve quality of materials
 Branding – positive reputation, build brand image
 Specialisation
o Advantage:
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 Workers trained to do one task, high productivity and
efficiency
 better quality output
 economies of scale with high efficiency
 less time and resources wasted as workers more skilled
o Disadvantages:
 Boredom, reduce motivation
 If one worker absent, production disrupted
 May have to pay higher wages and train employees
 Reasons for changing importance (deindustrialization)
o Primary gets smaller and secondary/tertiary gets bigger as
economy grows
o Except countries with large Natural Resource reserves
o Primary resources may become depleted
o Rise in living standards, more spending on tertiary then
secondary or primary sector
 Privatisation
o Advantages:
 Costs controlled as it aims to make profit
 More efficient use of capital
 Competition will lead to improving quality of product
o Disadvantage:
 Increase unemployment as they may cut costs
 Less likely to focus on social objectives
 Entrepreneur
o Advantages:
 Independent
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 Keep all the profits as no need to share with anyone
 Can put own ideas into practice
o Disadvantages:
 Have to risk all their savings and likely to fail
 Lose income from job (Opportunity cost)
 Lack of knowledge or experience
 Have to find other sources of finance, time-consuming
 Business plans
o Why they are needed:
 Helps raise capital, Banks will require plan to trust
business
 Has to plan carefully, reduces risk of failure
 Government support
o Why?
 Reduce unemployment
 Increase competition
 Increase output
 Economy growth
o How?
 Business ideas
 Training
 Low interest loans, grants, low cost premises
 Research facilities
 Measurements of business size
o Number of employees
 Capital intensive firm uses less employees but more output
o Value of output
 Not all goods produced may be sold
o Value of sales
 Different businesses sell different products
o Value of capital employed
 Some businesses may use labor intensive methods, which
requires less capital and more workers
 Growth
o Benefits
 Higher profits
 More status and prestige
 Economies of scale
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 Larger market share
o Ways
 Horizontal:
o Same industry same production level
o Reduce competition
o Economies of scale
o Larger market share
 Vertical:
o Same industry, different production level
o Forward
 Guaranteed outlet for manufactured
goods
 Take over profit margin from other
business
 Customer needs and wants obtained
o Backward
 Guaranteed supply
 Take over profit margin
 Prevent supply to other competitors
 Control supply costs
 Diversification
o Different industry
o Spread risk
o Many different ideas can help business
o Disadvantages
 Hard to control and manage
o Operate in smaller units
o Change management style
 Poor communication
o Stronger communication channel
 High expansion cost
o Expand slowly, business plan
 Conflicts
o Change management style, make
compromise
o Why might business stay small
 Industry type
 Market share
 Owner’s objective
o Business failure
 Lack of magement skills
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Failure to plan for change
Diseconomies of scale
High competition drives away new businesses with low
prices
Lack of finance
 Sole Trader
o Advantages:
 Less legal requirements so easy to setup
 Complete control so they can make all the decisions
 Keep all the profit as no partners
o Disadvantages
 Difficult to make decisions
 Unlimited liability
 Difficult to raise funds to expand
 Hard to compete with large firms
 Partnership
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More capital available then sole trader
Shared decision making so quicker to make
Shared workload, more efficiency
Unlimited liability
Share profit
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o
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Raise large amounts of capital
Limited liability
Limited capital as no public shareholders
Many legal requirements
Limited Accounts published
o
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Public shareholders
Rapid expansion
Specialist mangers can be appointed
Limited liability
Many legal requirements
Expensive to become public
 Private Limited
 Public Limited
 Franchise
o Franchisor:
 Paid large fee by franchisee, source of finance
 Receive royalty
 Fast expansion
 Does not have to suffer from diseconomies in scale
 Bad repuation if any mistakes are made
 Do not receive 100% of profits
 Have to provide training and advertisement
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o Franchisee
 Less risk of business failure as franchisor already
established
 Paid for advertisement and training
 Easy to raise capital from banks
 Less independence, permit can be revoked
 Less flexibility on decisions
 Joint venture
o Shared costs
o Knowledge and experience can be shared, better decisions being
made
o Risks shared
o Profits shared
o Conflict of interest
 Public corporation
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o
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o
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Do not take advantage of consumers
Can stabilize failing businesses
Create jobs
Public services
Making profit not important objective
Unfair if only these companies are subsidized
 Business objective
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o Clear target to work towards, Motivating
o Helps in decision making, more efficiency and less time wasted
Private business
o Survival – change prices if necessary
o Make profits – return to owners and retained profits
o Return to shareholders - discourage shareholders from leaving
o Growth – economies of scale
o Market share – good publicity and influence over suppliers
Social Enterprise
o Social – provide jobs to public
o Protect environment
o Make profit to reinvest
Public business:
o Meet profit targets from government
o Provide service to public
Stakeholder objectives
o Customers
 Reliable product, value for money, high quality, good
service
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o Government
 Receive taxes, reduce unemployment, increase gdp
o Bank
 Get paid interest
o Suppliers
 Receive payments for supplies on time and consistent
orders
o Employees
 Opportunities for promotion
 Increase pay
 Motivation
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Increase productivity, increased efficiency.
Lower absenteeism, lower waste of money in wages
Lower labour turnover, lower costs of recruitment
Higher quality goods and services, more competitive
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Wages
o Regularly received
o Paid more for working longer
o May not work effectively, as its based on time worked, less output
o Easy to calculate
Salary
o Have to wait a long time before receiving
o Do not have to pay overtime
Piece rate
o May increase output workers become more efficiency
o May disregard quality
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Commission
o Encourage workers to sell more
o Creates competition between employees
Bonus
o Encourages them to meet targets
o Feel recognised
o May expect them on a regular basis
o Increase costs
Profit sharing
o Work harder to guarantee high performance of business
o May not get paid if business does not perform well
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o Less return to shareholders
 Fringe benefits
o Easier to recruit
o Does not increase performance
 Job rotation
 Job enrichment
 teamworking
 delegation
o Job enrichment
o May train employees
o Feel recognized
o Less workload
o Less mistakes
o Lose control
o Employee may not know how to do the task and will make
mistakes
 Role of management
o Directors –
 lead particular department, long term plans, review
performance of managers, leadership, makes sure
resources available
o Line managers
 Manage employees, responsible for performance
o Staff managers
 Provide info and support line managers
o Supervisors
 Responsible for employees working under
 Report to line managers
o Planning – plan for resources required and decide objectives
o Organising – decide best and cost-effective method to complete
tasks
o Commanding – guide, lead and supervise employees
o Coordination – make sure each department is working effectively
together to achieve targets
o Controlling - asses and evaluate performance
 Organisational chart
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o Shows how everyone is linked together, easy to choose
communication channel
o Sense of belonging, motivating
Long chain of command:
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o Slow communication
o Easy to manage as fewer subordinates
Short chain of command:
o Quick communication
o Large span of control so can delegate more
 Autocratic
o Fast decision making
o More efficient
o Demotivate workers
 Democratic
o Better decisions as experience of employees consulted
o Motivate workers
o Cannot make decisions against employees interests
 Laissez-faire
o Encourage creativity
o Workers may become relaxed and produce little output
o Difficult communication as clear direction not given
 Trade union
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Improve conditions of employment
Improve working conditions
Financial support
Costs money to be a member
May be asked to go on strike even if they don’t agree
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Cheaper and quicker
Already known to business
No new ideas and skills
Jealousy
May not have skills required
 Internal Recruitment
 External Recruitment
o More ideas
o More expensive
 Induction training
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Settle in quickly
Less mistakes
Time consuming
Delay start of job
 On the job
o Some production whilst training
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o Cheap
o Trainer produces less output
o Trainer may pass on bad habits
 Off the job
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New skills can be taught
Specialist trainers used have latest business knowledge
High cost
Additional qualifications make it easier to leave
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Automation
Falling demand
Closing shop/factory
No longer required
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Unfair dismissal
Discrimination
Health and safety
Legal minimum wage
Contract of unemployment
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Flexible hours
Do not have to pay when not working
Can work at busy times
Less committed
Difficult to communicate, less experienced, less likely to be
trained
 Downsize
 Legal controls
 Part time
 Full time
o Loyal
o Committed
o Have fixed pay regardless of how long they work
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