1

THE PURPOSE OF BUSINESS ACTIVITY

Meaning and Definition for important terms

Capital : The amount which the proprietor has invested in the firm or can claim
From the firm.

Profit: A surplus of revenues of a business over its costs.

Need: a need is a good or service essential for living.

Want: A want is a good or service which people would like to have, but not essential for living.

Economic problem: Economic problem arises because of unlimited wants and limited resources to
produce goods and services.

Opportunity cost: It is the next best alternative given up by choosing another one.

Factors of production: All those resources needed to produce goods or services.

There are four factors of production and they are in limited supply
They are : Land , Labour, Capital and organization

Division of labour: When the production process is split up into different tasks and
Each worker performs one of these task. It is called division of labor

Specialisation: When a task is done by a worker for sometime he becomes specialist in the task. It is
called as specialization.

Business objectives : aims or targets that a business works towards.

Value addition: It is the difference between the selling price of a product or service and the cost of raw
materials.

Stakeholder: A stakeholder is any person or group with a direct interest in the performance and activities
of a business: Employer, Government, owners etc.,

TYPES OF BUSINESS ACTIVITY – chapter - 2

1. Primary sector: Primary sector extracts and uses the natural resources of the earth.

2. Secondary sector: Manufactures goods using the raw materials provided by the primary sector.

3. Tertiary sector: Tertiary sector provides services to consumers and the other sectors of industry.

4. De-industrialisation: De-industrialisation occurs where there is a decline in the importance of the

secondary, manufacturing sector of industry in a country.
 2

5. Free market economy: A free market economy has no government control over factors of
production. It is also known as a market economy.

6. Most developed economy : The output of the tertiary sector is often higher than the other two
sectors combined.

7. Command economy : command economy does not have a private sector as all resources are
owned by the state.

8. Mixed economy: Mixed economy has both a private sector and public sector.

9. Monopoly: A monopoly is a business which controls all of the market for a product.

10. Capital : The money invested in to a business by the owners.

11. Profit: It is the surplus after total costs have been subtracted from sales revenue

12. Comparing the size of business: by No. of employees, by value of output and sales by profit. and
capital employed.

13. Capital intensive firms: a firm which uses the latest technology and the production is done
through the use of machines.

14. Labour intensive firm: A company employing many workers for production purpose.

15. Growth: A business often controls a large share of its market when compared with market sales.

16. Internal growth: a business expands its existing operations.

17. External growth: when a business takes over or merges with another business. It is often called
integration as one firm is integrated into another one.

18. Merger: A merger is when the owners of two businesses agree to join their forms together to make
one business.

19. Takeover or acquisition: when one business buys out the another one.

20. Horizontal integration: when one firm merges with or takes over another one in the same
industry at the same stage of production.

21. Vertical integration: when one firm merges with or takes over another one in the same industry
but at a different stage of production.

22. Forward vertical integration: When a firm integrates with another firm which is at a later stage
of production, that is closer to the consumer. [copper wire maker with electrical contractor]
 3

23. Backward vertical integration: When a firm integrates with another firm at an earlier stage of
production that closer to the raw material supplies in case of manufacturing firm. [copper wire
maker merges with a copper mine]

24. Conglomerate Integration: when one firm merges with or takes over a firm in a completely
different industry. This is also known as diversification.
[car maker merges with Textile industry]

Chapter 3 - FORMS OF BUSINESS ORGANISATION

Types of Business organisation:

1. Sole traders
2. Partnerships
3. Private limited companies
4. Public limited companies
5. Co-operatives

1. Sole trader: It is a business owned and operated by just one person-although the sole trader can
employ others, the owner is the sole-proprietor.

2. Partnership : A partnership is a group or association between 2 and 20 people who agree to own
and run a business together.

3. Limited liability: The liability is limited to the extent of investment made in buying the shares.

4. Unlimited liability: The liability is not only limited to the extent of capital contributed by the
individual, his or her personal property will be taken if the business assets are not sufficient to
meet the liabilities of the business.

5. Partnership agreement: it is the written and legal agreement between business partners, it is not
essential for partners to have such an agreement but it is recommended.

6. Unincorporated business: it is the one that does not have a separate legal identity. Soletraders and
partnerships are unincorporated businesses.

7. Limited partnership : This is a type of partnership in which the liability of the partners is limited
and the business continues even after the death of a partner unlike ordinary partnership that end the
business with the death of a partner[s].

8. Company: A company is an artificial person in the eyes of law with a separate legal identity
having a perpetual succession and a common seal.

9. Private limited company: A private limited company is the which restricts

1. the numbers of members to 50

 4

2. any invitation [prospectus] to subscribe for shares

3. transfer or selling of shares to public

10. Public limited company: A public limited company [ not owned or run by government] does not
restrict [with more than 50 members & $1.4 million, capital and $ 0.7 million turnover]
1. any invitation to public
2. number of members [past and present employees]
3. transfer or selling of shares.

11. Prospectus: A Prospectus is a detailed document issued by the directors of a company when they
are converting it to a public limited company status. It is an invitation to the general public to buy
shares in the newly formed plc.

12. AGM: Annual general meeting is a legal requirement for all companies. All shareholders may
attend. They vote on who they want to be on the board of directors for the coming year.

13. Dividends: Dividends are payments made to shareholders from the profits of a company after it
has paid corporation tax.

14. co-operatives : cooperatives are groups of people who agree to work together and pool their
resources.

15. Producer co-operatives: It is a group of workers who design and produce products in just the
same way as other manufacturing businesses.

16. Retail co-operatives: The aim of providing the members good quality consumer goods and
services at reasonable prices.

17. Close corporations: This is a type of business which is run like a private limited company and
exists only in other countries like South Africa[not in U.K.]

18. Joint ventures: when two or more businesses agree to start a new project together, sharing the
capital, the risks and the profits.
19. Franchise: it is a business based upon the use of brand names, promotional logos and trading
methods of an existing successful business. The franchisee buys the license to operate this
business from the franchisor.

20. Public corporations: :Public corporations are owned by the government but the government does
not directly operate the businesses. These are business owned by private people taken over by
government [nationalized.]

21. Municipal enterprises: type of business run by government authorities or municipalities[local

government] usually operate some trading activities. Some of these are free to the user and are paid
from local taxes.
 5

Chapter – 4 GOVERNMENT AND ECONOMIC INFLUENCES ON BUSINESS

1. Inflation: Increase in the average price level of goods and services over
time.
2. Employment: people are qualified and willing to work where work is
available.
3. Unemployment : when people are willing and able to work cannot find a job.
4. Economic growth: When a country’s gross domestic product increase more
goods and service are produced than in the previous year.
5. Balance of payments: records the difference between a country’s exports
and imports.
6. Real income: the value of income and falls when prices rise faster than
money income.
7. disposable income: Salary – Income tax , The take home pay after the tax
has been deducted is called as disposable income.
8. Gross domestic product: It is the total value of output of goods and
services in a country in one year.
9. Trade cycle Stages:
Growth: GDP rises, unemployment generally falls, Standard of living
rises.
Boom: Prices rise quickly, shortages of skilled labourers, business
costs
Rise and firms will become uncertain about future
Recession: result of too little spending, GDP falls, business will
experience fall in Demand and workers lose their jobs.
Slump: Extension of recession. Unemployment will be high and prices
fall and Survival will become difficult for factories.
 6

10. Exports: Goods and services and sold from one country to other
country.
11. Imports: goods and services bought by one country by another
country.
12. Exchange rate: Exchange rate is the price of one currency in terms of
another.
For example: 1$ = 45 INR
13. Exchange rate depreciation: fall in the value of a currency compared with
other
currencies.
14. Exchange rate appreciation : Rise in the value of a currency
compared with other
Currencies.
15. Balance of payments: The difference between a country’s exports and
imports, a
deficit in balance of payments can lead to major
problems for a country.

16. Fiscal policy: Any change by the government in tax rates or public sector
spending.
17. Direct taxes : Direct taxes are paid directly from incomes -
for example income tax profits tax.

18. Indirect taxes: indirect taxes are added to the prices of goods and taxpayers pay the
tax as they purchase the goods. For example VAT [Value Added Tax]

19. Import tariff: Import tariff is a tax on an imported product.

20. Import Quota: An import quota is a physical limit to the quantity of a product that can be
imported.

21. Monetary policy: Monetary policy is a change in interest rates by the government
or central bank. E.g the European Central Bank or central Bank.

22. Supply side policies: Policies used by the Governments to improve the efficient
supply of goods and services in their country.
 7

23, Government controls over business activity: Production decisions, responsibilities to

employees, responsibilities to consumers, responsibilities to natural
environment. Location decisions.

24. The most important laws: 1951-Weights and measures act

1968-Trade descriptions act
1974-Consumer credit act
1979-Sale of goods act
1987-Consumer protection act
1975-Sex Discrimination act
1976-Race Relations act
1994-Disabilitiy Discrimination act
25. Ethical decision: Ethical decision is a decision taken by a manager because of the
moral code observed in that firm. For example: improving working
conditions for staff, not producing dangerous or polluting goods etc.,

26. Industrial Tribunal: Industrial tribunal is a legal meeting which considers workers’
complaints of unfair dismissal or discrimination at work.
27. Contract of employment: contract of employment is a legal agreement between
employer and employee listing the rights and
responsibilities of workers.
28. Planning permission: It is given by a government body to allow a business to build a
factory or office in a particular location. Permission can be refused if the
site is not suitable.

29. Development area: Development area is a region of a country where businesses

will received financial support to establish there. High
unemployment is often a problem in these areas.

CHAPTER – 5
OTHER EXTERNAL INFLUENCES ON BUSINESS
1. Constraint: A constraint on a business is something that limits or controls its actions or decisions.
[producing goods that does not pollute, new product production]

2. External constraint : Those constraints over which business has no direct control.
[economic policies, legal controls etc .,]

3. Social responsibility: When a business takes decisions that may benefit stakeholders other than
shareholders. [protecting the environment by producing eco-friendly products, adopting a village
from the locality where the business is located, greening the area]

4. ENVIRONMENTAL CONSTRAINTS ON BUSINESS ACTIVITY

 8

ARGUMENT – FOR POLLUTION ARGUMENT – AGAINST POLLUTION

Jacob argues that he wants to produce Daniel argues that he recently invested
Cheap products using inexpensive $ 10 mn. And produce non polluting
technology and make profits products, which consumers prefer when a
firm is socially responsible.
1. Reducing waste, recycling waste and 1. Global warming and global pollution
producing non polluting goods cost affects, we should be socially responsible
business and reduce profits and not add to it.
2. Increase products price, if we produce 2. Use of scarce resources leaves less scope
eco-friendly products for future and prices raise.
3. Other countries which are not eco- 3. consumers are becoming more aware
friendly might get benefit. and they want more eco-friendly products.
4. Higher prices means less sales 4. If business damages the environment,
pressure groups will take action.
5. If pollution is problem, its 5. we’re part of the government, we should
government’s headache. be responsible.
5. Pressure groups: pressure groups are formed by people who share a common interest and who will
take action to try to change government policy or business decisions.[[Link] peace, WWF
[world wide fund for nature] blue cross society, Society for Prevention and Cruelty to Animals
[SPCA]

6. Cost – Benefit Analysis: It is the valuation by a government agency of all external and private
costs and benefits resulting from a business decision.

7. External costs: External costs are the costs paid by the rest of the society, other than the business,
as a result of a business decision. [Ex. Waste products, smoke and fumes from factories]

8. External Benefits: External benefits are the gains to the rest of society, other than the business,
resulting from a business decision. [ex. Jobs, products etc.,]

9. Private costs: The costs of a business decision actually paid for by the business.
[Ex. Cost of land, labor etc.,]

10. Private benefits: The financial gains made by a business as a result of a business decision.[ex.
Money earned by sale of products by business]

11. Social cost: The addition of the private and external costs of a business decision.
[Private cost + External cost]

12. Social benefit: The addition of private and external benefits of a decision.
[Private benefit +External benefit]

Chapter 6-BUSINESS COSTS AND REVENUE

1. Business costs: Costs involved in the activities of the business.

 9

2. Type of Business costs: Variable, Fixed, Total, Marginal, direct, indirect etc.,
3. Fixed costs: costs which do not vary with the number of items sold or produced in the short term.
They have to be paid whether the business is making any sales or not. They are also known as
OVERHEAD costs.
4. Variable costs: Costs which vary with the number of items sold or produced . They are often
called direct costs as they can do directly related to or identified with a particular product.
5. Total costs = Fixed costs + Variable costs.
6. Break even chart: these are graphs which show how costs and revenues of a business change with
sales. They show the level of sales the business must make.
7. Revenue: revenue of a business is the income during a period of time from the sale of goods and
services.
8. Total revenue: Quantity sold X price of the product.
9. Break even point: The level of sales at which total cost = total revenue.
10. Contribution : Selling price – Variable cost
11. Direct costs: Direct costs are those that can be directly related to or identified with a particular
product or department.
12. Marginal costs: Marginal costs are the extra costs a business will incur by producing one more
unit of output
13. Indirect cost: Indirect costs are those costs which cannot be directly related to a particular
product. They are overheads or overhead costs.
14. Average cost: Total cost of production
-------------------------------
Total output of production
15. Economies of scale: Economies of scale are the factors that lead to a reduction in average costs as
business increases in size.
16. Types of economies of scale: Purchasing economies, marketing economies, financial economies,
managerial economies and technical economies.
17. Diseconomies of scale: the factors that lead to an increase in average costs as a business grows
beyond a certain size.
18. Budgets: budgets are plans for the future containing numerical or financial targets.
19. Forecasts: predictions for the future : ex. Likely future changes in the size of the market.
 10

20. Trend : Trend is an underlying movement or direction or data over time, ex. Sales data increase
21. line of best fit: it is a line drawn through a series of points ex. Sales data, which best shows the
trend of the data. It can be used to forecast results in the future
22. uses of budget: 1. reviewing past activities 2. controlling current business activity and keeping to
targets, 3. planning for the future.

BUSINESS ACCOUNTING – CHAPTER – 7

1. Accounts: Accounts are the financial records of a firm’s transactions.

2. Accounting: Accounting is the process of recording the financial transactions of the firm.
3. Accountants: Accountants are the professionally qualified people who have responsibility
For keeping accurate accounts and for producing the final accounts.
4. Final accounts: Final accounts are produced at the end of the financial year and give
Details of the profit or loss made over the year and the worth of the business.
5. Financial year: The period comprising 12 months of a year commencing 1/4/ of any year
To the 31/3 of next year.
6. Trading account: Trading account shows how the gross profit of a business is calculated.
7. Cost of goods sold: cost of goods sold is the cost of producing or buying in the goods actually
Sold by the business during a time period.
8. Sales Revenue: it is the income to a business during a period of time from the sale of goods or
Services.
9. Gross profit : Gross profit is made when sales revenue is greater than the cost of goods sold.
10. Net profit: it is the profit made by a business after all costs have been deducted from sales revenue.
It is calculated by subtracting overhead costs from gross profits.
11. The profit and loss: which shows how the net profit of a business and the retained profit of a
company.
12. Retained profit : it is the net profit reinvested back in to a company, after deducting tax and
payments to owners, such as dividends.
13. Depreciation: it is the fall in the value of a fixed asset over time.
14. Profit and loss appropriation account: It is that part of the profit and loss account which shows
how the profit after tax is distributed-either as dividends or kept in the company as retained profit.
15. Balance sheet: which shows the value of a business’s assets and liabilities at a particular time.
 11

16. Assets : Assets are those items of value which are owned by the business. They may be long-term
[Fixed] or short term [current]
17. Liabilities: which are items owed by the business [obligations business has to meet]
18. Working capital : Used for the day to day running of the business.
19. Net assets : Fixed assets + working capital [ current assets – current liabilities]
20. Capital employed : Shareholders funds + Long term liabilities
21. Liquidity : It is the ability of a business to pay back its shortterm debts.

CALCULATION OF RATIOS & FORMULAES

1. GROSS PROFIT RATIO : Gross profit / Net sales x 100

Net sales = Sales – Sales returns or return inwards
Gross profit = sales – cost of goods sold or [sales + closing stock] – [opening stock
+ net purchases+direct expenses]

2. Net profit ratio : Net profit / Net sales x 100

Net profit = Gross profit – Indirect expenses

3. Return on capital employed : Operating profit / capital employed x 100

Operating profit = Net profit + non operating expenses – non operating income
Capital employed = shareholders funds + long term liabilities
Shareholders funds = Equity shares + Preference shares + undistributed profit and loss All
types of reserves.
Long term liabilities: Long term loans from banks + debentures.

4. Current assets ratio: current assets / current liabilities

Current assets : Cash, Bank, Stock, Debtors, Bills receivable, prepaid expenses
Current liabilities: creditors, bills payable, outstanding expenses, liabilities, bank overdraft.

5. Liquidity ratio or acid test ratio: Liquid assets / current liabilities

Liquid assets: Current assets – stock.
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CHAPTER – 8
CASH FLOW PLANNING

1. Cash flow : the cash flow of a business is the cash inflows and outflows over a period of time.

2. Cash inflow: the sums of money received by a business during a period of time.
3. Cash outflow: The sums of money paid out by a business during a period of time.

4. Cash inflow : examples: 1. sale of goods for cash

2. payments made by debtors [cr. Sales]
3. by borrowing money from external source.
4. through sale of assets
5. from investors [shareholders]

5. cash outflow: examples 1. purchase of goods for cash

2. payment of wages, salaries, and other expenses
3. purchase of fixed assets
4. by repaying loans
5. by payment to creditors [cr. Purchases]
6. Cash flow cycle: cash flow cycle shows the stages between paying out cash
for labour, materials, etc and receiving cash from the sale of goods.

7. Profit: Profit is the surplus after total costs have been subtracted from sales revenue.
The Cash flow cycle

Cash Materials,
Goods
needed wages,
produce
to pay rent etc.
d
for

Cash Goods
payment sold
received for
goods sold

8. Cash flow forecast: cash flow forecast is an estimate of future cash inflows and outflows of a
business, usually on a month by month basis. This will then show the expected cash balance at
 13

end of each month.

9. Opening cash balance: The amount of cash held by the business at the start of the month.
10. Net cash flow: The difference between inflow and outflow every month.
11. Closing cash balance: The amount held by the business at the end of every month, this becomes the
opening balance of cash for next month.

CHAPTER – 9 FINANCING BUSINESS ACTIVITY

1. Start up Capital: It is the finance needed by a new business to pay for essential fixed and current
assets before it can begin trading.
2. Capital Expenditure: The money spent on fixed assets which will last for more than one year.
3. Revenue Expenditure: The money spent on day to day expenses which do not involve the
purchase of a long term asset, for example wages or rent.
4. Internal finance: Money generated from within the business EX. Retained profit, Sale of existing
assets, Running down stocks to raise cash & Owners’ savings.
5. External finance: Money obtained from individuals or institutions outside of the business. Ex.
Issue of Shares, Bank loans, Selling debentures, Factoring of debts,
Grants and subsidies from outside agencies.
6. Shares: The total capital of a company divided in to varied portions, Each portion represents a
share, people who invests in to the shares of a company is
Called shareholder.
7. Debenture: A debenture is a certificate that acknowledges the debt of a company.
8. Rights issue: If a company wishes to raise additional capital it offers new shares, This new shares
must be offered to existing shareholders, which means existing shareholders have a pre-emptive
right to buy the shares.
9. Factoring of debts: Debt factors are specialist agencies that buy the debts of firms for immediate
cash. Maximum of 90% is offered.

Organisational Structure

1. Organisational structure: It refers to the levels of management and division of

responsibilities with in an organization
 14

Hierarchy of Management

2. Job Description: A job description outlines the responsibilities and duties to be carried out by someone
employed to do a specific job.

3. Delegation : Delegation means giving a subordinate the authority to perform particular tasks. It is very
important to remember that it is the authority to perform a task which being delegated not the final
responsibility.

4. Chain of command : Chain of command is the structure in an organization which allows instructions to
be passed down from senior management to lower levels of management.

5. Span of control: The span of control is the number of subordinates working directly under a manager.

6. Line managers: Line managers have direct authority over subordinates in their department. They are
able to take decisions in their departmental area.

7. Staff manager: Staff managers are specialist advisers who provide support to line managers and to the
board of directors.

8. Decentralisation: A decentralized management structure means that systematic delegation is followed

at all the levels of management in the organization.

9. Centralisation: A centralized management structure means that most decisions are taken at the centre,
or higher levels of management.

10. De-layering: If in an organizational structure a whole level of management is removed in order to

shorten the chain of command, it is called de-layering.

CHAPTER 11

MANAGING A BUSINESS

1. Planning: Planning is deciding in advance what to do, how to do it, when to do it, and who is to
do it.

2. Organising : Organising is the process of defining and grouping the activities of the enterprise and
establishing the authority relationship among them.
 15

3. Coordinating : it means balancing the various activities of the business [purchase, sale, finance,
personnel, etc., ] so as to achieve the objective of the organization in an efficient manner.

4. Commanding : The task of management is more concerned with guiding, inspiring, leading,
supervising to keep the targets and deadlines.

5. Controlling: Checking the actual performance against standard performance and taking a
corrective action.

6. Strategic decisions: strategic decisions are very important decisions which can affect the overall
success of the business. Ex. Staff level, Stock level.

7. Tactical decisions: Tactical decisions are decisions which are taken more frequently and which
are less important. Ex. Long term investments, Takeovers, Going public

8. Operational decisions: Operational decisions are day to day decisions which will be taken by a
lower level of manager. Ex. Training new staff, Methods of advertising, Types of machine.

9. Human resources Department: Planning and hiring staff for the organization, it is important for
the HR manager to manage people firmly and fairly.

10. Marketing Department: Finding wants and filling them, and it continues even after the delivery
of the product. [market research, new product development etc.,]

11. Finance department: Maintaining all transactions of financial nature till controlling the finance of
the business.

12. Production department: Ordering stock, maintaining production, developing, designing, till the
methods and launch to the marketing area.

CHAPTER 12

COMMUNICATION IN BUSINESS

1. Communication : Communication is the transferring of a message from the sender to the receiver,
who understands the message.

2. Message: Message is the information or instructions being passed by the sender to the receiver.
The process of communication
 16

Sender medium

feedback receiver

3. Sender : He/She is the person who starts the process by sending the message

4. Medium: The method used to send the message. Ex. Letters, Memo’s circulars, Meetings,
discussion.

5. Receiver : The person who receives the message.

6. Feedback: Reply from the receiver which shows whether the message has arrived, understood and
acted upon if necessary.

7. One way communication: Involves a message which does not call for a response or feedback

8. Two way communication: When the receiver gives a response to the message and there is a
discussion about it.

9. Internal communication: The messages sent between people working within the same
organization

10. External communication: When messages are sent between one organization and another
organization or outside individual

11. Ways of communicating – media : Verbal – one to one talk, telephone, video conferencing,
meetings. Written – letters, memos, reports, notices, faxes, e mail, visual – films, posters, charts
and diagrams.

12. Formal communication: The communication made with in the official channels and to the
employees, stakeholders etc is called formal communication.

13. Informal communication: Communication among the people working in the organization to
satisfy the personal, cultural interests. This is often termed as grapevine. Sometimes the managers
use this medium to try out new ideas and to know the reaction. At times this can be dangerous too,
because it can spread Rumours and gossip.

14. Communication nets: Chain network – Company policy

Wheel network – Messages to different regional offices

Connected network – New ideas or solutions to problem where

 17

Group Discussion may be effective.

15. Direction of communication :

Down ward communication: Messages that flow from Managers to subordinates
[ mostly one way] orders, policies etc.

Upward communication: Messages that flow from those lower down the organization
[two way communication where feed back is important]

Horizontal communication or lateral communication:

Communication between people at the same level of an organization.
[Marketing manager to production manager.]

16. Barriers to communication : The failure to communication can take place at any level in the
process of communication, this is called as barriers.

17. Barriers to communication:

Sender: Poor attitude/ wrong body language, unclear message, message too
long, sent to wrong person.

Medium: Too many people pass on message, message may be lost, wrong
channel used, technical breakdown.

Receiver: lack of trust, poor attitude, does not listen

Feedback: not sent, unclear not asked for.

18. How to over come barriers:

Sender: ensure language and too technical be avoided
message should be clear and feedback asked for,
ensure it goes to the right person, brief message to be sent.

Medium: Insist on feedback, correct & short channel,

meetings in place of circulars, other forms of communication if possible.

Receiver: feedback to be emphasized to ensure

understanding, Trust should be there.

Feedback: No feedback asked for, Direct communication more effective.

Chapter – 13
MOTIVATION AT WORK
 18

1. Motivation: It is the reason why employees want to work hard and work effectively for the
business.

2. Motivation Theories: Maslow – Hierarchy of needs- basic needs, safety, social, esteem, self-
actualisation needs.
F.W. Taylor – Scientific management, more pay
Herzberg – Two factor – Motivators, Hygiene factors
McGregor – Theory X and Theory Y or external or internal

3. Wage: A wage is a payment for work, usually paid weekly and which is measurable.

4. Salary: A Salary is a payment for work normally paid for staff on a monthly basis
And work is not measurable.

5. Type of wage system: Time rate and piece rate

6. Time rate: Wage is paid on the hourly basis the employee have worked.
For ex. If 1 hr = $10 for 8 hrs = $ 80

7. piece rate: The employees are paid on the basis of no. of pieces produced.
For ex. If 1 piece = $5 for 20 pieces = 20 x 5 = $100.

8. Overtime wages: Employees work for longer time than the normal time/working hours and they
are paid double the wages.

9. The following are paid normally part of Salary: Basic salary – a fixed amount depending up on the
type of work.

10. Commission: Payment relating to the number of sales made.

11. Profit sharing: It is a system whereby a proportion of the company’s profits is paid out to
employees.

12. Bonus: It is an additional amount of payment above basic pay as a reward for good work.

13. Performance related pay: A pay which is related o the effectiveness of the employee.

14. Share ownership: Employees are given some shares in the company which will help them work
hard to earn dividends.

15. Appraisal: Method of assessing the effectiveness of the employees.

16. Fringe benefits: Non financial rewards given to employees.

17. Job Satisfaction: It is the enjoyment derived from feeling that you have done a good job.
 19

18. Job rotation: It involves workers swapping round and doing each specific task for only a limited
time and then changing round again.

19. Job enlargement: It is where extra tasks of a similar level of work are added to a worker’s job
description.

20. Job enrichment: It involves looking at jobs and adding tasks that require more skill and or
responsibility.

21. Team work: Involves group of workers who decide as a group how to complete the tasks or
organize the jobs, workers get involved in decision making and take responsibility.

22. Leadership styles: The different approaches to dealing with people when in a position of
authority.

23. Types of leadership: Autocratic: Where the manager is in charge of the business and expects to
follow his order, mostly one way communication takes place
24. Laissez-faire leader: This leader tends to give broad objective of the business and allows the
employee to make their own decisions and organize their work. The flow of communication is not
clear.

25. Democratic leadership: Involves other employees in the decision making process and employees
are consulted about the future work and decision is taken by the leader, the communication is
topdown & bottomup approach followed.

26. Formal group: It is a group designated to carry out specific tasks within a business.

27. Informal group: A group of people who form independently of any official groups set up by the
business and who have similar interests or something else in common.

Chapter - 14
RECRUITMENT, TRAINING AND HUMAN RESOURCES

Responsibilities of HR: 1. Recruitment and selection: involves attracting and selecting the best
candidates for vacancies that arise.

2. Wages and salaries: These must attract and retain the right people and be sufficiently high to motivate
employees.

3. Industrial relations: Effect communication between representatives of the management and of the
workforce. This may be to resolve grievances and disputes but also to put forward ideas and suggestions
for improvements.

4. Training programmes: involves assessing and fulfilling the training needs of employees. This should
be linked to the future plans of the business.
 20

5. Health and safety: business needs to make sure that it complies with all the laws on health and safety.

6. Redundancy: involves shedding employees either because the business changes in some way or
because the employee is not satifactory. The business must be sure to comply with all the laws on
redundancy, dismissal and disciplinary matters.

7. Job Analysis: Identifies and records the responsibilities and tasks relating to a job.

8. Job Description: Outlines the responsibilities and duties to be carried out by someone employed to do
a specific job.

9. Job Specification: A document which outlines the requirements, qualifications, expertise, physical
characteristics, etc., for a specified job.

10. Internal recruitment : When a vacancy is filled by someone who is an existing employee of the
business thro’ promotion, transfers, or thro’ company internal communication.

11. External recruitment: When a vacancy is filled by someone who is not an existing employee and will
be new to the business thro’ Local newspapers, national newspapers, specialist magazines, recruitment
agencies job centres.

12. Induction training: An introduction given to a new employee, explaining the firm’s activities,
customs and procedures and introducing them to their fellow workers.

13. On the job training: A person is trained by watching a more experienced worker doing the job, this is
suitable for unskilled and semi-skilled jobs.

14. Off the job training: A person is trained away from the workplace, such as a college or specialist
training centre. It involves variation and more complex tasks. It is done through classroom learning,
lecture, role play, case studies or computer simulations.
A broad range skills are learnt through this technique.

15. Workforce planning: Establishing the workforce needed by the business for the foreseeable future in
terms of the number and skills of employees required.
It is done thro’ 1. Finding out the skills of all the present employees
2. Checking any one is retiring, 3. consulting with existing employees who needs to be trained or
retrained, 4. recruitment plan for checking how may new faces will be required internally or externally.

16. Redundancy: When an employee is no longer needed and so loses their job, It is not due to any aspect
of their work being unsatisfactory.

17. Dismissal: When a worker is removed because of his unsatisfactory performance, or behaviour. Ex.
Habitual latecoming, stealing the goods, disclosing confidential matters.

Chapter - 15
EMPLOYER AND EMPLOYEE ASSOCIATIONS
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1. Trade unions : Group of workers who have joined together to ensure their interests are protected.

2. Craft union: A trade union which represents a particular type of skilled worker.

3. General union: Trade union which represents workers from a variety of trades and industry,
mostly unskilled but includes semi-skilled workers.

4. Industrial union: trade union which represents all types of workers in a particular industry.

5. White collar union: Trade union which represents non-manual workers. Ex; office staff,
management and professionals.

6. Trade unions exist in any organisation to improve the pay, conditions of employment, and the
working conditions.

7. Trade unions help employees in their pay, environment, equal and fair treatment, proper training
and try to provide safe working conditions.

8. Shop steward: an unpaid representative of a trade union at office level/factory level.

9. Closed shop: An employee must be a member of the same trade union.

10. Single union agreement: Where a firm deals with only one union and no others.

11. Employer associations are the groups of employers who join together to give benefits to their
members; also known as employer federations or Trade associations.

12. Negotiation is another name for collective bargaining. It is when there is joint decision
making involving bargaining between responsibilities of the management and of the
workforce within a firm. The idea is arrive at a consensus.

13. Collective bargaining is negotiations between one or more trade unions and one or more
employees for employer associations on pay and conditions of employment.

14. A Productivity agreement is where workers and management agree on increase in benefits,
in return for an increase in productiviy

15. Industrial action is action taken by the trade unions to decrease or halt production.

16. A strike is when employees refuse to work.

Types of strike

Token strike/Flash strike: A short stoppage of work for an hour/half a day/a day to show
their solidarity of feeling about their claim
 22

Selective strike: A few selected workers identified by the trade union will walk out of the
work to cause a lot of disruption.

All-out strike: All members of the trade union stop working and walk till the dispute/claim
is settled

17. Picketing is when employees who are taking industrial action stand outside their place of work o
prevent or protest at the delivery of goods, arrival and departure of other employees etc.,

18. A work to rule is when rules are strictly obeyed so that work is slowed down.

19. A go slow is when employees do their normal tasks but more slowly than usual.

20. Non-cooperation is when employees refuse to comply with new working practices.

21. An overtime ban is when employees refuse to work longer than their normal working hours.

22. A no strike agreement is reached when trade unions and management agree to have pay disputes
settled by an independent arbitrator instead of taking strike action.

23. An arbitrator listens to both sides in the industrial dispute [trade union and management] and
then gives a ruling on what they think is fair to both sides.

24. In a lock out employees are locked out of their workplace by the employers.

25. Worker participation occurs when employees contribute to decision making in the business.

26. Work councils are committees of workers who are consulted or informed on matters that affect
employees.

CHAPTER 16

THE MARKET AND MARKETING

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1. Market : A market is where buyers and sellers come together to exchange products for money;
this will not usually be a single location, it includes face to face selling, ordering products over
telephone, internet or post.
2. Product oriented business: product oriented business is one whose main focus of activity is on
the product itself.
3. Market oriented business : one which carries out market research to find out consumer wants
before a product is developed and produced.
4. Marketing budget: a financial plan for the marketing of a product or product range for some
specified period of time. It specifies how much money is available to market the product or range,
so that Marketing department can plan how much they can spend.
5. Marketing: the management process which identifies customer wants, anticipates their future
wants and then goes about satisfying them profitably.
6. Market share: The percentage of total market sales held by one brand or business
Sales of a business/Total sale of a industry x 100
7. SWOT
Strengths Weakness Opportunity Threat
Good brand Necessary New markets competition
image updates to
products
Sales in market New technology Merge with Loss of brand image
at home rising to be updated competitor
High profits Rising costs Increase market Saturation
share

8. Market segmentation is where the market has been divided up in to groups of consumers who
have similar needs.

9. Mass market is where there is a very large number of sales of a product.

10. Niche market is a small, usually specialized, segment of a much larger market.

11. Ways of segmentation: By income group, by age, by region, by gender, by use of the product, by
lifestyle.
 24

12. Market gap: Out of different segments in a market, a business sometimes identify a segment
whose needs are not being met

13. Marketing mix is a term which is used to describe all the activities which go in to marketing a
product, goods and services, maily 4 ps , Product, Price, Place and Promotion.

Chapter – 17 Market Research

 Primary Research is the collection and collation of original data via direct contact with potential
or existing customers. Also called field research.

 Secondary Research is the information that has already been collected and is available for use by
others. Also called desk research.

 A Questionnaire is a set of questions to be answered as a means of collecting data for market

research.

 Consumer Panels are groups of people who agree to provide information about a specific product
or general spending patterns over a period of time.

 A Random Sample is when people are selected at random as a source of information for market
research.

 A quota sample is when people are selected on the basis of certain characteristics (e.g. age, gender
or income) as a source of information for market research.

Lesson 18 - Presentation of information:

*A table or tally chart is used to record the data in its original form, i.e., the raw data that has been
collected. Sometimes, if the data is brief and does not contain a lot of different information, a table or tally
chart may be a sufficient for of presentation. However, it is often better to convert the data into a chart or
graph.

 A chart is used to show the total figures for each piece of data or the proportion of each piece of
data in terms of the total number.

 A graph is used to show the relationship between two sets of data. For example, how total cost
changed over a number of years. The two variables are ‘total cost’ and ‘time’.

 Bar charts are eye-catching and enable information to be presented in a form which can be easily
understood. They allow information to be seen in a more meaningful way.

 A pictogram shows the data in a similar way, but instead of using columns, a symbol for the item
(or number of items) is used. A key must be included to explain what the symbol is showing.
 25

 A Pie chart can be used to show what proportion of the total figure is made up by each
component. Each slice of the pie chart represents a particular component’s contribution to the total
amount.

 A Line graph shows the relationship between two variables and can be drawn either as a straight
line or as a curve.

 Photographs can be used to illustrate the points you are making in your coursework.

 Diagrams can be used to simplify information.

 Maps are another way of presenting information in a different form of that in which it was
gathered.

Lesson 19 - The Marketing mix: Product and packaging:

 Consumer goods are goods which are consumed by people. The can be goods that do not last
long, such as food and cleaning materials. Some goods last a relatively long time and give
enjoyment over a long time, such as furniture and computers.

 Consumer services are services that are produced for people.

 Producer goods are goods that are produced for other businesses to use. They are bought to help
with the production process. E.g. machinery, lorries

 Producer services are services that are produced to help other business., accounting, insurance,
banking.

 The Brand Name is the unique name of a product that distinguishes it from other brands. [Rado,
Mercedes Benz, Bajaj, Toyota]

 Brand Loyalty is when consumers keep buying the same brand again and again instead of
choosing a competitor’s brand.

 Brand image is an image or identity given to a product which gives it a personality of its own and
distinguishes it from its competitor’s brands.

 Packaging is the physical container or wrapping for a product. It is also used for promotion and
selling appeal.

 The product life cycle describes the stages a product will pass through from its introduction,
through its growth until it is mature and then finally its decline.
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Lesson 20 - The Marketing Mix: Price

 Substitute products: These are products which are bought and used in place of another product. If
the price of a substitute product decreases, then more of the substitute product will be bought and
so demand for your original product will fall.

 Complementary products: These are products that tend to be bought and consumed together. If
the price of a complementary product increases, then less of that product will be purchased and
therefore less of your original product will be purchased.

 Cost-Plus Pricing is the cost of manufacturing the product plus a profit mark up.

 Penetration Pricing is when the price is set lower than the competitors’ prices in order to be able
to enter a new market.

 Price Skimming is where a high price is set for a new product on the market.

 Competitive pricing is when the product is priced in line with or just below competitors’ prices to
try to capture more of the market.

 Promotional Pricing is when a product is sold at a very low price for a short period of time.

 Psychological Pricing is when particular attention is paid to the effect that the price of a product
will have upon consumers’ perceptions of the product.

Lesson 21 - PROMOTION:

 Informative advertising is where the emphasis of advertising or sales promotion is to give full
information about the product.

 Persuasive advertising is advertising or promotion which is trying to persuade the consumer that
they really need the product and should buy it

 The Target audience refers to people who are potential buyers of a product or service.

 The AIDA model is a simple way of planning an advert’s design. It stands for attention, interest,
desire, action.

 AIDA: A – attention – consumers have to be made aware that the product exists.
I - interest – consumers need to be made interested in the product
D - desire – consumers need to be made to want to buy the product
A – action – consumers are prompted into action. They actually buy the product.

Lesson 22 - PLACE
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 A channel of distribution is the means by which a product is passed from the place of production
to the customer or retailer.

Manufacturer – Agent – wholesaler – Retailer – Consumer

Manufacturer Wholesaler Retailer Consumer

Manufacturer – Retailer – Consumer

Manufacturer – consumer

 An agent is an independent person or business that is appointed to deal with the sales and
distribution of a product or range of products. The agent will either put an additional amount on
the price to cover their expenses or will receive a commission on sales.

 E-Commerce is the use of the internet and electronic communications to carry out business
transactions. Businesses also use e-mail to inform potential customers of new promotion or to
answer queries about products. E-Commerce can be used by manufacturers to sell straight to
customers or can be used by large or small retailers to sell to customers.

Lesson 23 – Factors affecting production:

 Production is the output measured against the inputs used to create it.

 Job production is where a single product is made at a time.

 Batch production is where a quantity of one product is made, then a quantity of another item will
be produced, i.e., batches, usually as orders come in.

 Flow production is where large quantities of a product are produced in a continuous process.
Sometimes referred to as mass production.

 Lead time is the margin of time between the date when stock is obtained and the date when it is
sold on.

 Lean production : Techniques used by businesses to cut down on waste and therefore increase
efficiency, for example, by reducing the time it takes for a product to be developed and become
available for sale.

 Kaizen is a Japanese term meaning ‘continuous improvement’ through the elimination of waste.

 JUST-IN-TIME is a production method that involves reducing or virtually eliminating the need to
hold stocks of raw materials or unsold stocks of the finished product. Supplies arrive just at the
time they are needed.
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 Cell production is where the production line is divided into separate, self-contained units, each
making an identifiable part of the finished product, instead of having a flow or mass production
line. This method of production improves the morale of the employees and makes them work
harder so they become more efficient. The employees feel more valued and are less likely to strike
or cause disruption.

 Kanban: It is a system of ordering that is used alongside JIT production. It often operates by
having two component bins, one on the production line and one being made ready.

 Automation is where the equipment used in the factory is controlled by a computer to carry out
mechanical processes such as paint spraying on a car assembly line. The production line will
consist mainly of machines and only a few people will be needed to ensure that everything
proceeds smoothly.

 Mechanization is where the production is done by machines but operated by people, for example,
a printing press. Robots are machines that are programmed to do tasks, and are particularly useful
for unpleasant, dangerous and difficult jobs. They are quick, very accurate and work non-stop 24
hours a day.

 CAD (computer aided design) is computer software that draws items being designed more
quickly and allows them to be rotated to see the item from all sides instead of having to draw it
several times. It is used to design new products or to restyle existing products. It is particularly
useful for detailed technical drawings.

 CAM (computer aided manufacture) is where computers monitor the production process and
control machines or robots on the factory floor. For example, on the production line of a car plant
computers will control the robots that spot-weld the car body together or the robots that spray paint
the car.

 CIM (computer integrated manufacturing) is the total integration of computer aided design and
computer aided manufacturing. The computers that design the products are linked directly to the
computers that aid the manufacturing process.

 EPOS (electronic point of sale) is used at checkouts where the operator scans the bar code of
each item individually. The price and description of the item is displayed on the checkout monitor
and printed on the till receipt. The stock record is automatically changed to show one item has
been sold and if stocks are low then more stock can be automatically ordered.

 EFTPOS (electronic funds transfer at point of sale) is where the electronic cash register is
connected to the retailer’s main computer and also to banks over a wide area computer network.
The shopper’s card will be swiped at the till and the bank information will automatically be read
from the card. The money will be directly debited from the customer’s account after they have
 29

signed for the debit to be made or have entered their PIN (personal identification number). A
receipt will be printed as confirmation that the payment has gone out of the customer’s account.

 Total Quality Management (TQM) is the continuous improvement of products and processes by
focusing on quality at each stage of production. Encourages everyone to think about quality.
Quality is the aim for all staff customer’s needs are paramount.
 Quality Assurance: Inspection during and after production. Aim is to stop faults from happening.
Aim is to ensure products attain a pre-set standard. Team working and responsibility.
 Quality control: Inspectors checking finished goods. Detection of components or products that
are faulty. Involves considerable waste.

Lesson 24: FACTORS AFFECTING LOCATION:

Factors affecting the location of a manufacturing business:

 Production methods and location decisions
 Market
 Raw materials/components
 External economies of scale
 Availability of labour
 Government influence
 Transport and communications
 Power
 Water supply
 Personal preferences of the owners
 Climate

Factors affecting the location of a retailing business:

 Shoppers
 Nearby shops
 Customer parking available/nearby
 Availability of suitable vacant premises
 Rent/taxes
 Access for delivery vehicles
 Security
 Legislation

Factors that influence a business to relocate either at home or abroad:

 The present site is not large enough for planned expansion
 Raw material source runs out
 Difficulties with the labour force
 Rents/taxes rising
 New markets open up overseas
 Government grants
 Tariff barriers
 30

Factors affecting the location of a service sector business:

 Customers
 Personal preference of the owners
 Technology
 Availability of labour
 Climate
 Near to other businesses
 Rent/taxes

Lesson 25: Business in the international community

 The exchange rate is the price of one currency in terms of another for example GBP 1: $1.5.

 Currency appreciation occurs when the value of a currency rises – it buys more of another
currency than before.

 Currency depreciation occurs when the value of a currency falls – it buys less of another
currency than before.

 Common currency is the result of an agreement between countries to use the same currency for
all business and other transactions – such as the euro in the European Union.

 The EU is an organization of 25 countries of Europe.

 A single market within Europe. This means that selling products anywhere in the member states
should be as easy as selling goods to the domestic market. There are no tariffs or controls over
trade between the 25 members.

 Free trade associations. These organizations have the aim of reducing all barriers and limits on
international trade. This is called free trade. Countries which sign free trade agreements have to
reduce and eventually remove all tariffs, quotas and other import restrictions. The agreements can
be between a few countries.

 Globalization is the term now widely used to describe the increased worldwide competition
between businesses.
 31

 Multinational businesses are those with factories, production or service operations in more than
one country. These are sometimes known as Transnational Businesses.

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