Purpose and types of business acitvity

Unit-1.             THE PURPOSE OF BUSINESS ACTIVITY

Definitions with examples

1.      Specialisation:- Where resources are used to concentrate on producing one particular product.

Example:- Countries specialise, eg Qatar in oil production. Labour within a firm can specialise, too.

2.      Division of labour:- Each worker does one specialised job.

Example:- In a computer assembly factory each worker will perform a specialist task.

3.      Business objectives:- The target or aims that a business is working towards.

Example:- Increase profits, increase sales, survive. Objectives can differ between businesses. The objectives of any one business can change over time. Eg. Survival at start-up and profits once it is established.

4.      Value added:- The difference between the selling price of a product and the cost of the bought-in materials needed to make it.

Example:- If a firm sells a product for £15, but the materials that were bought- in from other firms only cost £6, then the value added is£9

5.      Stake holders:- Groups of people with a direct interest in the performance of a business.

Example:- Workers, customers, consumers, shareholders, government, banks etc.

6.      Primary production:-Industries that extract and exploit the natural resources of the earth.

Examples: Mining, agriculture, forestry and fishing

7.     Secondary production:- Industries that manufactures goods made from the raw materials provided by the primary sector.

Examples: Car production, computer assembly, food canning and steel making.

8.      Tertiary production:- Industries that provide services to consumers and other sectors of industry.

Examples: Travel agents, banking, insurance, health services and transport.

9.      De-industrialisation:- Relative decline in the importance of a country’s secondary sector.

10.      Public sector:- The sector of the economy in which organisations are owned and controlled by the state (government).

Examples: In most mixed economies, health services and railway services are in the public sector.

11.      Private sector:- The sector of the economy in which organisations are owned and controlled by individuals.

Examples: In most mixed economies, retailing and farming businesses are in the private sector.

12.      Free market economy:- All resources are privately owned. Prices are determined by supply and demand.

13.     Planned economy or command economy:-An economic system in which the state is responsible for resource allocation.

14.      Mixed economy:- An economic system which allows both the state and the market mechanism to allocate resource.

15.      Privatisation:- The sale of state owned assets such as public corporations to the private sector.

16.      Capital intensive business:- Use a high proportion of capital equipment to produce their output.

17.      Labour intensive business:- Use a high proportion of labour to produce their output.

18.      Internal growth:- Business growth achieved by expanding the existing business.

19.      External growth:- Business growth achieved by merging with or taking over other business.