BAFS NOTES

1.1 – Business Activity

The Economic Problem

● Need→ a good or service essential for living. Examples include water and food and
shelter.
● Want→ a good or service that people would like to have, but is not required for living.
Examples include cars and watching movies.
● Scarcity is the basic economic problem. It is a situation that exists when there are
unlimited wants and limited resources to produce the goods and services to satisfy those
wants. For example, we have a limited amount of money but there are a lot of things we
would like to buy, using the money.
Opportunity cost

● Opportunity cost is the next best alternative forgone by choosing another item. Due to
scarcity, people are often forced to make choices. When choices are made it leads to an
opportunity cost
● SCARCITY → CHOICE → OPPORTUNITY COST
● Example→ the government has a limited amount of money (scarcity) and must decide
on whether to use it to build a road or construct a hospital (choice). The government
chooses to construct the hospital instead of the road. The opportunity cost here is the
benefits from the road that they have sacrificed (opportunity cost).

Factors of Production

● Factors of Production are resources required to produce goods or services. They are
classified into four categories.

● Land→ is a natural resource that can be obtained from nature. This includes minerals,
forests, oil and gas. The reward for land is rent.
● Labour→ is the physical and mental efforts put in by the workers in the production
process. The reward for labour is wage/salary
● Capital→ is the finance, machinery and equipment needed for the production of goods
and services. The reward for capital is interest received on the capital
● Enterprise→ is the risk-taking ability of the person who brings the other factors of
production together to produce a good or service. The reward for enterprise is profit from
the business.
Specialization
● Specialization occurs when a person or organisation concentrates on a task at which
they are best. Instead of everyone doing every job, the tasks are divided among people
who are skilled and efficient at them.

Advantages:

● Workers are trained to do a particular task and specialise in this, thus increasing
efficiency
● Saves time and energy: production is faster by specialising
● Quicker to train labourers: workers only concentrate on a task, they do not have to be
trained in all aspects of the production process
● Skill development: workers can develop their skills as they do the same tasks repeatedly,
mastering them.

Disadvantages:

● It can get monotonous/boring for workers, doing the same tasks repeatedly
● Higher labour turnover as the workers may demand higher salaries and the company is
unable to keep up with their demands
● Over-dependency: if the worker(s) responsible for a particular task is absent, the entire
production process may halt since nobody else may be able to do the task.

Purpose of Business Activity

● A business is any organization that uses all the factors of production (resources) to
create goods and services to satisfy human wants and needs.

● Businesses attempt to solve the problem of scarcity, by using scarce resources, to

produce and sell those goods and services that consumers need and want.

Added Value
● Added value is the difference between the cost of materials bought in and the selling
price of the product.
Which is, the amount of value the business has added to the raw materials by turning
them into finished products. Every business wants to add value to its products so it may
charge a higher price for its products and gain more profits.
 ● For example, logs of wood may not appeal to us as consumers and so we won’t buy
them or would pay a low price for them. But when a carpenter can use these logs to
transform them into a chair we can use, we will buy them at a higher cost because the
carpenter has added value to those logs of wood.

How to increase added value?

● Reducing the cost of production. The added value of a product is its price less the cost of
production. Reducing the cost of production will increase the added value.
● Raising prices. By increasing prices, they can raise the added value, in the same way as
described above.
But there will be problems that rise from both these measures. To lower the cost of
production, cheap labour, raw materials etc. may have to be employed, which will create
poor-quality products and only lowers the value of the product. People may not buy it.
And when prices are raised, the high price may result in customer loss, as they will turn
to cheaper products.

In a practical sense, you can add value by:

● Branding→Products that have a reputation for ‘quality’ will be able to charge a
higher price than competitors. Even if the production costs are similar
● Convenience→Customers will pay more for a product which they can have
straight away or saves them time.
● Product Features→The more product features a product has, the higher the price
consumers are willing to pay because more of their needs are being met. Special
editions or variations to the product can also create value
● Excellent customer service→High quality, personalised service can allow a
business to charge a higher price. Think of the difference in price for a portion of
fries in Mcdonald's and a fine dining restaurant.

In a practical example, how would you add value to a jewellery store?

● Design an attractive package to put the jewellery items in.
● An attractive shop-window-display.
● Well-dressed and knowledgeable shop assistants.

1.2 – Classification of Businesses

Primary, Secondary and Tertiary Sector

Businesses can be classified into three sectors:

● Primary sector→ this involves the use/extraction of natural resources. Examples include
agricultural activities, mining, fishing, wood-cutting, oil drilling etc.
 ● Secondary sector→ this involves the manufacture of goods using the resources from the
primary sector. Examples include automobile manufacturing, steel industries, cloth
production etc.
● Tertiary sector→ this consist of all the services provided in an economy. This includes
hotels, travel agencies, hair salons, banks etc.
● Industrialisation→ is the growing importance of the secondary sector and reduced
importance of primary sector business activity.
● De-industrialisation→ the growing importance of the tertiary sector and reduced
importance of the secondary sector
● Up until the mid-18th century, the primary sector was the largest in the world, as
agriculture was the main profession. After the industrial revolution, more countries began
to become more industrialized and urban, leading to a rapid increase in the
manufacturing sector (industrialization).
● Nowadays, as countries are becoming more developed, the importance of the tertiary
sector is increasing, while the primary sector is diminishing. The secondary sector is also
slightly reducing in size (de-industrialization) compared to the growth of the tertiary
sector. This is due to the growing incomes of consumers which raises their demand for
more services like travel, hotels etc.

Private and Public Sector

● The private sector→ is where private individuals own and run business ventures. They
aim to make a profit, and all costs and risks of the business are undertaken by the
individual. Examples, are Nike, McDonald’s, Virgin Airlines etc.
● Public sector→ where the government owns and runs business ventures. They aim to
provide essential public goods and services (schools, hospitals, police etc.) to increase
the welfare of their citizens, they don’t work to earn a profit. It is funded by the taxpaying
citizens’ money, so they work in the interest of these citizens to provide them with
services.

1.3 – Enterprise, Business Growth and

Size
Entrepreneurship

An entrepreneur is a person who organizes, operates and takes risks for a new business
venture. The entrepreneur brings together the various factors of production to produce goods or
services. Check below to see whether you have what it takes to be a successful entrepreneur!

● Risk taker
● Creative
 ● Optimistic
● Self-confident
● Innovative
● Independent
● Effective communicator
● Hard-working

Business plan
● A business plan→ is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
● It provides a complete description of a business and its plans for the first few years;
explains what the business does, who will buy the product or service and why; provides
financial forecasts demonstrating overall viability; indicates the finance available and
explains the financial requirements to start and operate the business.

Some of the content of a regular business plan are:

● Executive summary: summary of the key features of the business and the business plan
● The owner: educational background and what any previous experience in doing
previously
● The business: name and address of the business and detailed description of the product
or service being produced and sold; how and where it will be produced, who is likely to
buy it, and in what quantities
● The market: describe the market research that has been carried out, what it has
revealed and details of prospective customers and competitors
● Advertising and promotion: how the business will be advertised to potential customers
and details of estimated costs of marketing
● Premises and equipment: details of planning regulations, costs of premises and the
need for equipment and buildings
● Business organisation: whether the enterprise will take the form of a sole trader,
partnership, company or cooperative
● Costs: indication of the cost of producing the product or service, the prices it proposes to
charge for the products
● Finance: how much of the capital will come from savings and how much will come from
borrowings
● Cash flow: forecast income (revenue) and outgoings (expenditures) over the first year
● Expansion: a brief explanation of plans

Making a business plan before actually starting the business can be very helpful. By
documenting the various details about the business, the owners will find it much easier to run it.
There is a lesser chance of losing sight of the mission and vision of the business as the
objectives have been written down. Moreover, having the objectives of the business set down
clearly will help motivate the employees. A new entrepreneur will find it easier to get a loan or
overdraft from the bank if they have a business plan.
Government support for business startups

According to startup.com, “a startup is a company typically in the early stages of its

development. These entrepreneurial ventures are typically started by 1-3 founders who focus on
capitalizing upon a perceived market demand by developing a viable product, service, or
platform”

Why do governments want to help new start-ups?

● They employ a lot of people

● They contribute to the growth of the economy
● They can also, if they grow to be successful, contribute to the exports of the country
● Start-ups often introduce fresh ideas and technologies into business and industry

How do governments support businesses?

● Organize advice: provide business advice to potential entrepreneurs, giving them

information useful in starting a venture, including legal and bureaucratic ones
● Provide low-cost premises: provide land at low cost or low rent for new firms
● Provide loans at low-interest rates
● Give grants for capital: provide financial aid to new firms for investment
● Give grants for training: provide financial aid for workforce training
● Give tax breaks/ holidays: high taxes are a disincentive for new firms to set up.
Governments can thus withdraw or lower taxation for new firms for a certain period

Measuring business size

● Businesses come in many sizes. They can be owned by a single individual or have up to
50 shareholders. They can employ thousands of workers or have a mere handful. But
how can we classify a business as big or small?

Business size can be measured in the following ways:

● Number of employees: larger firms have a larger workforce employed

● Value of output: larger firms are likely to produce more than smaller ones
● Value of capital employed: larger businesses are likely to employ much more capital than
smaller ones
However, these methods have their limitations and are not always accurate. Example: When
using the ‘number of employees’ method to compare business size is not accurate as a
capital-intensive firm ( one that employs a large amount of capital equipment) can produce large
output by employing very little labour (workers). Similarly, the value of capital employed is not a
reliable measure when comparing a capital-intensive firm with a labour-intensive firm. The
output value is also unreliable because some different types of products are valued differently,
and the size of the firm doesn’t depend on this.

Business growth
● Businesses want to grow because growth helps reduce their average costs in the long
run, helps develop increased market share, and helps them produce and sell to them to
new markets.

There are two ways in which a business can grow- internally and
externally.

● Internal growth→This occurs when a business expands its existing operations. For
example, when a fast food chain opens a new branch in another country. This is a slow
means of growth but easier to manage than external growth.
● External growth→This is when a business takes over or merges with another business. It
is sometimes called integration as one firm is ‘integrated’ into the other.
● A merger→ is when the owner of two businesses agree to join their firms together to
make one business.
● A takeover→ occurs when one business buys out the owners of another business, which
then becomes a part of the ‘predator’ business.

External growth can largely be classified into three types:

● Horizontal merger/integration→ This is when one firm merges with or takes over another
one in the same industry at the same stage of production. For example, when a firm that
manufactures furniture merges with another firm that also manufactures furniture.
Benefits:
● Reduces the number of competitors in the market, since two firms become one.
● Opportunities of economies of scale.
● Merging will allow businesses to have a bigger share of the total market.

● Vertical merger/integration: This is when one firm merges with or takes over another firm
in the same industry but at a different stage of production.
Therefore, vertical integration can be of two types:
● Backward vertical integration→ When one firm merges with or takes over another firm in
the same industry but at a stage of production that is behind the ‘predator’ firm. For
example, when a firm that manufactures furniture merges with a firm that supplies wood
for manufacturing furniture.
Benefits:
● The merger gives an assured outlet for their product.
● The profit margin of the retailer is now absorbed by the expanded firm.
● The retailer can be prevented from selling the goods of competitors.

● Conglomerate merger/integration→ This is when one firm merges with or takes over a
firm in a completely different industry. This is also known as ‘diversification’. For
example, when a firm that manufactures furniture merges with a firm that produces
clothing.

Benefits:
● Conglomerate integration allows businesses to have activities in more than one country.
This allows the firms to spread their risks.
● There could be a transfer of ideas between the two businesses even though they are in
different industries. This transfer o ideas could help improve the quality and demand for
the two products.

Drawbacks of growth
● Difficult to control staff: as a business grows, the business organisation in terms of
departments and divisions will grow, along with the number of employees, making it
harder to control, coordinate and communicate with everyone
● Lack of funds: growth requires a lot of capital.
● Lack of expertise: growth is a long and difficult process that will require people with
expertise in the field to manage and coordinate activities
● Diseconomies of scale: this is the term used to describe how the average costs of a firm
tend to increase as it grows beyond a point, reducing profitability. This is explored more
deeply in a later section.

Why businesses stay small

Not all businesses grow. Some stay small, employ a handful of workers and have little output.
Here are the reasons why.
● Type of industry→ some firms remain small due to the industry they operate in.
Examples of these are hairdressers, car repairs, catering, etc, which give personal
services and therefore cannot grow.
● Market size→ if the firm operates in areas where the total number of customers is small,
such as in rural areas, there is no need for the firm to grow and thus stay small.
 ● Owners’ objectives→, not all owners want to increase the size of their firms and profits.
Some of them prefer keeping their businesses small and having personal contact with all
of their employees and customers, having flexibility in controlling and running the
business, having more control over decision-making, and keeping it less stressful.

Why businesses fail

● Poor management: this is a common cause of business failure for new firms. The main
reason is a lack of experience and planning which could lead to bad decision-making.
New entrepreneurs could make mistakes when choosing the location of the firm, the raw
materials to be used for production, etc, all resulting in failure
● Over-expansion: this could lead to diseconomies of scale and greatly increase costs if a
firm expands too quickly or over their optimum level
● Failure to plan for change: the demands of customers keep changing with changes in
tastes and fashion. Due to this, firms must always be ready to change their products to
meet the demand of their customers. Failure to do so could result in losing customers
and loss. They also won’t be ready to quickly keep up with changes the competitors are
making, and changes in laws and regulations
● Poor financial management: if the owner of the firm does not manage his finances
properly, it could result in cash shortages. This will mean that the employees cannot be
paid and enough goods cannot be produced. Poor cash flow can therefore also cause
businesses to fail.

Why new businesses are at a greater risk of failure?

● Less experience: a lack of experience in the market or business gets a lot of firms easily
pushed out of the market
● New to the market: they may still not understand the nuances and trends of the market,
that existing competitors will have mastered
● Don’t have a lot of sales yet: only by increasing sales, can new firms grow and find their
foothold in the market. At a stage when they’re not selling much, they are at a greater
risk of failing
● Don’t have a lot of money to support the business yet: financial issues can quickly get
the better of new firms if they aren’t very careful with their cash flows. It is only after they
make considerable sales and start making a profit, can they reinvest in the business and
support it.
 1.4 – Types of Business Organizations
Sole Trader/Sole Proprietorship
● A business organization owned and controlled by one person. Sole traders can employ
other workers, but only he/she invests and owns the business.

Advantages:
● Easy to set up: there are very few legal formalities involved in starting and running a sole
proprietorship. A less amount of capital is enough for sole traders to start the business.
There is no need to publish annual financial accounts.
● Full control: the sole trader has full control over the business. Decision-making is quick
and easy since there are no other owners to discuss matters with.
● Sole trader receives all profit: Since there is only one owner, he/she will receive all of the
profits the company generates.
● Personal: since it is a small form of business, the owner can easily create and maintain
contact with customers, which will increase customer loyalty to the business and also let
the owner know about consumer wants and preferences.

Disadvantages:
● Unlimited liability: if the business has bills/debts left unpaid, legal actions will be taken
against the investors, where their even personal property can be seized if their
investments don’t meet the unpaid amount. This is because the business and the
investors are legally not separate (unincorporated).
● Full responsibility: Since there is only one owner, the sole owner has to undertake all
running activities. He/she doesn’t have anyone to share his responsibilities with. This
workload and risks are fully concentrated on him/her.
● Lack of capital: As only one owner/investor is there, the amount of capital invested in the
business will be very low. This can restrict the growth and expansion of the business.
Their only sources of finance will be personal savings or borrowing or bank loans
(though banks will be reluctant to lend to sole traders since it is risky).
● Lack of continuity: If the owner dies or retires, the business dies with him/her.
Partnerships
● A partnership is a legal agreement between two or more (usually, up to twenty)people to
own, finance and run a business jointly and to share all profit.

Advantages:
● Easy to set up: Similar to sole traders, very few legal formalities are required to start a
partnership business. A partnership agreement/ partnership deed is a legal document
that all partners have to sign, which forms the partnership. There is no need to publish
annual financial accounts.
● Partners can provide new skills and ideas: The partners may have some skills and ideas
that can be used by the business to improve business profits.
● More capital investments: Partners can invest more capital than what a sole trader only
by himself could.

Disadvantages:
● Conflicts: arguments may occur between partners while making decisions. This will delay
decision-making.
● Unlimited liability: similar to sole traders, partners have unlimited liability- their items are
at risk if the business goes bankrupt
● Lack of capital: smaller capital investments as compared to large companies.
● No continuity: if an owner retires or dies, the business also dies with them.

Joint-stock companies
● These companies can sell shares, unlike partnerships and sole traders, to raise capital.
Other people can buy these shares (stocks) and become a shareholder (owners) of the
company. Therefore they are jointly owned by the people who have bought its stocks.
These shareholders then receive dividends (part of the profit; a return on investment).
●
● The shareholders in companies have limited liabilities. That is, only their investments are
at risk if the business fails or leaves debt. If the company owes money, it can be sued
and taken to court, but its shareholders cannot. The companies have a separate legal
identity from their owners, which is why the owners have limited liability. These
companies are incorporated.
● (When they’re unincorporated, shareholders have unlimited liability and don’t have a
separate legal identity from their business).
 ● Companies also enjoy continuity, unlike partnerships and sole traders. That is, the
business will continue even if one of its owners retires or die.
● Shareholders will elect a board of directors to manage and run the company in its
day-to-day activities. In small companies, the shareholders with the highest percentage
of shares invested are directors, but directors don’t have to be shareholders. The more
shares a shareholder has, the more their voting power.
These are two types of companies:
● Private Limited Companies→ One or more owners who can sell their shares to only the
people known by the existing shareholders (family and friends). Example: Ikea.
● Public Limited Companies→ Two or more owners who can sell their shares to any
individual/organization in the general public through stock exchanges. Example: Verizon
Communications.

Advantages:
● Limited Liability: this is because the company and the shareholders have separate legal
identities.
● Raise huge amounts of capital→ selling shares to other people (especially in Public Ltd.
Co.s), raises a huge amount of capital, which is why companies are large.
● Public Ltd. Companies can advertise their shares, in the form of a prospectus, which tells
interested individuals about the business, its activities, profits, board of directors, shares
on sale, share prices etc. This will attract investors.

Disadvantages
● Disadvantages:
●
● Required to disclose financial information: Sometimes, private limited companies are
required by law to publish their financial statements annually, while for public limited
companies, it is legally compulsory to publish all accounts and reports. All the writing,
printing and publishing of such details can prove to be very expensive, and other
competing companies could use it to learn the company secrets.
● Private Limited Companies cannot sell shares to the public. Their shares can only be
sold to people they know with the agreement of other shareholders. Transfer of shares is
restricted here. This will raise lesser capital than Public Ltd. Companies.
● Public Ltd. Companies require a lot of legal documents and investigations before they
can be listed on the stock exchange.
● Public and Private Limited Companies must also hold an Annual General Meeting
(AGM), where all shareholders are informed about the performance of the company and
company decisions, vote on strategic decisions and elect board of directors. This is very
expensive to set up, especially if there are thousands of shareholders.
 ● Public Ltd. Companies may have managerial problems: since they are very large, they
become very difficult to manage. Communication problems may occur which will slow
down decision-making.
● In Public Ltd. Companies, there may be a divorce of ownership and control: The
shareholders can lose control of the company when other large shareholders outvote
them or when a board of directors controls company decisions.

Franchises
● The owner of a business (the
franchisor) grants a licence to
another person or business (the
franchisee) to use their business
idea – often in a specific
geographical area. Fast food
companies such as McDonald’s
and Subway operate around the
globe through lots of franchises in
different countries.
 Joint Ventures
● Joint venture is an agreement between two or more businesses to work together on a
project. The foreign business will work with a domestic business in the same industry.
Eg: Google Earth is a joint venture/project between Google and NASA.

Advantages

● Reduce risks and cuts costs

● Each business brings different expertise to the joint venture
● The market potential for all the businesses in the joint venture is increased
● Market and product knowledge can be shared to the benefit of the businesses

Disadvantages

● Any mistakes made will reflect on all parties in the joint venture, which may damage their
reputations
● The decision-making process may be ineffective due to different business culture or
different styles of leadership

Public Sector Corporations..

are businesses owned by the government and run by directors appointed by the government.
They usually provide essential services like water, electricity, health services etc. The
government provides the capital to run these corporations in the form of subsidies (grants). The
UK’s National Health Service (NHS) is an example. Public corporations aim to:
● to keep prices low so everybody can afford the service.
● to keep people employed.
● to offer a service to the public everywhere.

Advantages:

● Some businesses are considered too important to be owned by an individual. (electricity,

water, airline)
● Other businesses, considered natural monopolies, are controlled by the government.
(electricity, water)
● Reduces waste in the industry. (e.g. two railway lines in one city)
● Rescue important businesses when they are failing through nationalisation
● Provide essential services to the people
Drawbacks:
● Motivation might not be as high because profit is not an objective
● Subsidies lead to inefficiency. It is also considered unfair for private businesses
● There is normally no competition to public corporations, so there is no incentive to
improve
● Businesses could be run for government popularity

1.5 – Business Objectives and

Stakeholder Objectives
Business objectives
Business objectives are the aims and targets that a business works towards to help it run
successfully. Although the setting of these objectives does not always guarantee business
success, it has its benefits.

● Setting objectives increases motivation as employees and managers now have clear
targets to work towards.
● Decision-making will be easier and less time-consuming as there are set targets to base
decisions on. i.e., decisions will be taken in order to achieve business objectives.
● Setting objectives reduces conflicts and helps unite the business towards reaching the
same goal.
● Managers can compare the business’ performance to its objectives and make any
changes in its activities if required.

● Survival: new or small firms usually have survival as a primary objective. Firms in a
highly competitive market will also be more concerned with survival rather than any other
objective. To achieve this, firms could decide to lower prices, which would mean
forsaking other objectives such as profit maximization.
● Profit: this is the income of a business from its activities after deducting total costs.
Private sector firms usually have profit making as a primary objective. This is because
profits are required for further investment into the business as well as for the payment of
return to the shareholders/owners of the business.
● Growth: once a business has passed its survival stage it will aim for growth and
expansion. This is usually measured by the value of sales or output. Aiming for business
growth can be very beneficial. A larger business can ensure greater job security and
salaries for employees. The business can also benefit from higher market share and
economies of scale.
 ● Market share: this can be defined as the proportion of total market sales achieved by
one business. Increased market share can bring about many benefits to the business
such as increased customer loyalty, setting up of the brand image, etc.
● Service to the society: some operations in the private sectors such as social enterprises
do not aim for profits and prefer to set more economical objectives. They aim to better
society by providing social, environmental and financial aid. They help those in need, the
underprivileged, the unemployed, the economy and the government.

A business’ objectives do not remain the same forever. As market situations change and as the
business itself develops, its objectives will change to reflect its current market and economic
position. For example, a firm facing a serious economic recession could change its objective
from profit maximization to short-term survival.

Stakeholders
A stakeholder is any person or group that is interested in or directly affected by the performance
or activities of a business. These stakeholder groups can be external – groups that are outside
the business or they can be internal – those groups that work for or own the business.

Internal stakeholders:

● Shareholders/ Owners: these are the risk-takers of the business. They invest capital into
the business to set up and expand it. These shareholders are liable to a share of the
profits made by the business.
● Objectives:
● Shareholders are entitled to a rate of return on the capital they have invested into the
business and will therefore have profit maximization as an objective.
● Business growth will also be an important objective as this will ensure that the value of
the shares will increase.
● Workers: these are the people that are employed by the business and are directly
involved in its activities.
● Objectives:
● Contract of employment that states all the rights and responsibilities to any of the
employees.
● Regular payment for the work done by the employees.
● Workers will want to benefit from job satisfaction as well as motivation.
● The employees will want job security– the ability to be able to work without the fear of
being dismissed or made redundant.
● Managers: they are also employees but managers control the work of others. Managers
are in charge of making key business decisions.
● Objectives:
● Like regular employees, managers too will aim towards a secure job.
 ● Higher salaries due to their jobs requiring more skill and effort.
● Managers will also wish for business growth as a bigger business means that managers
can control a bigger and more well-known business.

External Stakeholders:
● Customers: they are a very important part of every business. They purchase and
consume the goods and services that the business produces/ provides. Successful
businesses use market research to find out customer preferences before producing their
goods.
Objectives:
● price that reflects the quality of the good.
● The products must be reliable and safe. i.e., there must not be any false advertisement
of the products.
● The products must be well-designed and of perceived quality.
● Government: the role of the government is to protect the workers and customers from
business activities and safeguard their interests.
Objectives:
● The government will want the business to grow and survive as they will bring a lot of
benefits to the economy. A successful business will help increase the total output of the
country, will improve employment as well as increase government revenue through the
payment of taxes.
● They will expect the firms to stay within the rules and regulations set by the government.
● Banks: these banks provide financial help for the business’ operations’
Objectives:
● The banks will expect the business to be able to repay the amount that has been lent
along with the interest on it. The bank will thus have business liquidity as its objective.
● Community: this consists of all the stakeholder groups, especially the third parties that
are affected by the business activities.
Objectives:
● The business must offer jobs and employ local employees.
● The production process of the business must in no way harm the environment.
● Products must be socially responsible and must not pose any harmful effects from
consumption.

Public-sector businesses
Government-owned and controlled businesses do not have the same objectives as those in the
private sector.
Objectives:
● Financial: although these businesses do not aim to maximize profits, they will have to
meet the profit target set by the government. This is so that it can be reinvested into the
business for meeting the needs of society
● Service: the main aim of this organization is to provide a service to the community that
must meet the quality target set by the government
● Social: most of these social enterprises are set up in order to aid the community. This
can be by providing employment to citizens, providing good quality goods and services
at an affordable rate, etc.
● They help the economy by contributing to GDP, decreasing the unemployment rate and
raising living standards.
● This is in total contrast to private sector aims like profit, growth, survival, market share
etc.

Conflicts of stakeholders’ objectives

As all stakeholders have their own aims they would like to achieve, it is natural that conflicts of
stakeholders’ interests could occur. Therefore, if a business tries to satisfy the objectives of one
stakeholder, it might mean that another stakeholder’s objectives could go unfulfilled.

For example, workers will aim towards earning higher salaries. Shareholders might not want this
to happen as paying higher salaries could mean that less profit will be left over for payment of
return to the shareholders.

Similarly, the business might want to grow by expanding operations to build new factories. But
this might conflict with the community’s want for clean and pollution-free localities.