Notes on CAIE IGCSE Business Studies 0450 Theory

Understanding Business Activity

Business Activity

• Needs: Essential goods/services for survival.
• Wants: Desired but non-essential goods/services.
• Economic Problem: Unlimited wants vs. limited resources.
• Scarcity: Insufficient products to satisfy wants.
• Factors of Production:
  • Land: Natural resources.
  • Labour: Human effort (mental/physical).
  • Capital: Financial assets, machinery.
  • Enterprise: Management and risk-taking.
• Opportunity Cost: Next best alternative given up.

Importance of Specialisation

• Focus on strengths.
• Division of Labour: Splits production tasks, enhancing efficiency.
• Advantages:
  • Increases productivity and quality.
  • Economies of scale.
• Disadvantages:
  • Boredom and absenteeism.
  • Higher wages and training costs.

Purpose of Business Activity

• Combines production factors to meet needs/wants.
• Employs people and produces goods/services.

Added Value

• Difference between input costs and product selling price.
• Not equivalent to profit (doesn't include production expenses).

Classification of Businesses

Sectors

• Primary: Natural resource extraction.
• Secondary: Manufacturing.
• Tertiary: Services.

Economic Development

• Developing Countries: Primary sector dominant.
• Developed Countries: Tertiary sector dominant.
• De-industrialisation: Decline in secondary sector.

Mixed Economy

• Combination of private and public sectors.
• Privatisation: Transition from public to private sector.

Enterprise, Business Growth, and Size

Entrepreneurs

• Organise, operate, and risk manage businesses.
• Characteristics: Hard-working, creative, confident.

Business Plans

• Essential for securing finance and reducing risk.
• Contents: Product details, market analysis, financial info.

Government Support for Start-Ups

• Encourages job creation and economic growth.
• Offers training, financial assistance, and research access.

Measuring Business Size

• Metrics: Employees, capital, output, sales.
• No singular correct method.

Business Growth

Benefits of Growth

• Increased profits, market share, and efficiency.

Methods of Growth

• Internal Growth: Expansion of current operations.
• External Growth: Mergers and acquisitions.
• Types of Integration:
  • Horizontal: Same industry and stage.
  • Vertical: Different production stages.
  • Conglomerate: Different industries.

Challenges of Growth

• Management complexity, communication breakdowns.

Small Business Viability

• Limited market size, capital, and technology.

Business Failure

• Causes: Poor management, lack of adaptation, financial issues.

Legal Identity

Types

• Unincorporated: No separate identity, unlimited liability.
• Incorporated: Separate identity, limited liability.

Business Types

Sole Trader

• Single ownership, unlimited liability.
• Advantages: Simple setup, control, secrecy.
• Disadvantages: Limited capital, unlimited liability.

Partnerships

• Joint ownership with partnership agreement.
• Advantages: Shared management, more capital.
• Disadvantages: Shared profit, unlimited liability.

Private Limited Company (LTD)

• Shareholder-owned, not publicly tradable.
• Advantages: Limited liability, continuity.
• Disadvantages: Legal formalities, restricted shares.

Public Limited Company (PLC)

• Publicly tradable shares.
• Advantages: Capital access, limited liability.
• Disadvantages: Legal obligations, management control.

Other Business Forms

Franchises

• Agreement to operate under established brand.
• Advantages: Reduced failure risk, support.
• Disadvantages: Limited independence.

Joint Ventures

• Collaborative business ventures.
• Advantages: Shared risks and costs.
• Disadvantages: Profit sharing, potential conflicts.

Public Corporations

• Government-owned.
• Advantages: Essential service provision, consumer protection.
• Disadvantages: Inefficiency, political influence.

Business Objectives

Importance

• Provides targets and direction, aids motivation.

Types

• Private Sector: Survival, profit, growth, market share.
• Social Enterprise: Social, environmental, financial goals.

Stakeholder Objectives

• Diverse interests can lead to conflicts. Management must prioritize.

These notes cover key concepts in understanding business activities, classification, enterprise growth, and objectives, providing a comprehensive reference for CAIE IGCSE Business Studies.