UNIT 1: BUSINESS AND ITS ENVIRONMENT

ENTERPRISE MY NOTES
Business Activity can be defined as the production of goods and services
needed by people in this world to meet their basic needs. Its purpose is to
identify and satisfy the needs and wants of the people with the overall aim
of earning profit.

FACTORS OF PRODUCTION
Business enterprises are established where entrepreneurs combine
productive resources (factors of production) to produce an output. These
four factors can be categorised as

 Land: All natural resources provided by nature

such as fields, forests, oil, gas and other mineral
resources. The reward for land is rent
 Labour: The people who are used produce
goods and services. Labour is rewarded with a
wage/salary
 Capital: Finance, machinery and equipment needed to
produce goods and services. Intellectual Capital refers to the
intelligence of the workforce and the ability of the workforce to
develop new ideas. The reward for capital is interest
 Enterprise: The skill and risk taking ability of the Entrepreneur
who brings together all the other factors of production together to
produce goods and services. Usually the owner or founder of a
business. In return the entrepreneur will make a profit (or a loss)

VALLUE ADDED
Refers to the difference between the selling price of a product and the cost
of the raw materials used to make it. There are different ways through
which businesses can add value to their products and services:

- Creating a brand - Providing additional features

- Advertising - Customer-care service

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MY NOTES
BENEFITS TO A BUSINESS OF ADDING VALUE
 Can charge more to its customers. This leads to more profitability
for the business in the long run.
 A business can differentiate itself from its competitors and stand
out as the producer providing superior or premium quality.
 A business can save the cost on advertising and other promotional
activities once it has created a perception of high quality and
brand loyalty among its customers.

ECONOMIC PROBLEM

The nature of economic activity is that there are limited resources to

satisfy unlimited wants. Due to the Scarcity individuals, businesses &
governments have to make Choices. Choice leads to Opportunity Cost.
Opportunity Cost is the next best choice given up in favour of the
alternative chosen.

DYNAMIC BUSINESS ENVIRONMENT:

Business environment is dynamic (ever changing) and the businesses

must adapt to the challenges and formulate strategies to cope with these
challenges. Changes in the business environment include:

 New competitors
 Legal changes
 Economic changes
 Technological changes

WHY DO SOME BUSINESS SUCCEED?

I. Good understanding of customer needs

II. Efficient operations management
III. Flexile decision making
IV. Appropriate and sufficient sources of finance

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MY NOTES
WHY BUSINESS FAIL?

I. Poor Record Keeping – can lead to conflicts with customers or

suppliers
II. Lack of Cash – cash flow forecast not up to-date; or inefficient
credit control over customers’ accounts.
III. Poor Management Skills – lack of planning and coordination
IV. Insufficient Capital
V. Lack of Experience – can be a problem faced by new businesses

LOCAL, NATIONAL & INTERNATIONAL BUSINESSES

 Local Businesses operate in small parts of a country and do not

aim to operate all over the country
 National Businesses have branches or operations
all across a country
 International Businesses have customers in
foreign countries too but their operations are
based in the domestic country. They may sell
through agents or E-commerce
 Multi-Nationals operate in more than one country

ENTREPRENEURS & INTRAPRENEURS

An entrepreneur is an individual who organizes and operates a business,

taking on financial risk to do so. Intrapreneur is an employee within a
company who promotes innovative product development and marketing.
Characteristics of successful entrepreneurs:

- Self motivation - Positive attitude

- Excellent leadership qualities - Communicators

- Committed - Risk taker

- Achievement oriented - Innovator

BARRIERS TO ENREPRENEURSHIP:

 Identifying successful business opportunities

 Sourcing capital
 Determining suitable location
 Competition from established firms
 Building customer base

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MY NOTES
ROLE OF BUSINESS ENTERPRISES IN THE DEVELOPMENT OF A
COUNTRY

 Provide employment
 Increase the GDP of the country
 Innovation and Technological change
 Exports
 Increased Social Cohesion

ROLE OF INTRAPRENEURSHIP:

• Injecting creativity and innovation into the business

• Developing new ways of doing
• Driving innovation and change within the business
• Creating a competitive advantage - by developing more innovative
products.
• Encouraging original thinkers and innovators to stay in the
business

ENTREPRENEURS VS INTRAPRENEURS:

ENTREPRENEUR INTRAPRENEUR
Main Activity Starting up a new Developing an innovative
business product or project within
an existing business
Risk Taken by the Taken by the business
entrepreneur
Rewards To the entrepreneur To the business

BUSINESS PLAN

A documented strategy for a business that highlights its goals and its
plans for achieving them. It outlines:

 executive summary - an overview of the new business and its

strategies
 description of the business opportunity
 marketing and sales strategy
 management team and personnel
 operations
 financial

BENEFITS OF BUSINESS PLANS

 obtain finance for the start-up

 forces the owner to think seriously about the proposal, its
strengths and any potential weaknesses

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MY NOTES
 gives the owner and managers a clear plan of action to guide their
actions and decisions in the early months and years of the
business.

LIMITATIONS OF BUSINESS PLAN:

 It could create a false sense of certainty in business owners.

 It is based on forecasts and predictions.
 The plan might lead entrepreneurs to be inflexible
 A poorly produced business plan fails to convince potential
investors
 Business plans do not guarantee the success of a new business
proposal

KEY TERMS:

Business Plan A written document that describes a business, its

objectives and strategies
Adding Value Changing existing products to make them more
valuable than their cost
Opportunity Cost The next best alternative forgone
Want A product that is desired but is not essential for
survival
Need A product essential for survival
Innovation Translating a new idea or invention into a product or
service
Social Cohesion refers to the extent of connectedness and solidarity
among groups in society
Scarcity Refers to the fact that people do not and cannot have
enough income, time or other resources to satisfy
every desire

POINTS TO REMEMBER

 Innovation is important for the success of a new business, as it helps

stand out among competitors and survive in the market.
 Business Risk VS Uncertainty: all decisions involve risk and can be
foreseen so businesses can take appropriate measures to minimise the
risk. While uncertainty cannot be foreseen or measured e.g. covid-19.
 Enterprise consists of land, labour, capital and entrepreneurship
 Not all ‘consumers’ who want a product are ‘customers’ as some
cannot afford to buy it.
 Opportunity Cost is a concept, there is no actual cost incurred by not
choosing an option.
 Don’t confuse ‘Intrapreneur’ with an ‘Entrepreneur’!

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ACTIVITY
MULTIPLE CHOICE QUESTIONS

1. Which of the following is not one of the factors of production?

A) Labour C) Enterprise

B) Finance D) Capital

2. A fast-food pizza company makes and sells 250 pizzas per week. The selling price is $12 per
unit. Ingredients cost $1.50 per pizza and the weekly cost of wages is $1000. What is the added
value on one pizza?

A) $12.00 C) $8.00

B) $6.50 D) $10.50

3. You bought a computer for $500 one year ago. You installed software and games at a total cost
of $120. You could now sell the computer for $240. What is your opportunity cost for keeping the
computer?

A) $500 C) $260

B) $620 D) $240

4. An advertising agency encourages intrapreneurship among its employees. The team of

developers put together social media campaign ideas and try to sell them to new business
customers. Who takes the business risk?

A) The advertising agency C) The risk is shared

B) The developers D) There is no risk involved

5. Which of the following would not usually be included in a business plan?

A) Cash-flow forecast C) Statement of tax paid

B) Marketing plan D) Executive summary