Sample Notes: Enterprise: The Nature Of Business Activity

1.1.1 The Nature Of Business Activity

The Purpose Of Business Activity

• Definition: Business activity refers to all actions undertaken by individuals or organisations to provide goods and services to satisfy human wants and needs.
• Human Needs And Wants:
  • Needs: Basic requirements for survival such as food, shelter, water, clothing.
  • Wants: Desires that go beyond basic survival, e.g. smartphones, luxury cars, branded clothes.
• Purpose:
  • To identify and satisfy consumer needs and wants.
  • To allocate scarce resources (factors of production) efficiently.
  • To generate profits and ensure survival and growth of the enterprise.
  • To provide employment and contribute to economic development.
• Example:
  • A bakery exists to meet the community’s need for bread (need) but may also sell designer cakes for weddings (want).
  • A mobile company provides basic communication (need) and advanced smartphones with features (want).

The Factors Of Production Needed For Business Activity: Land, Labour, Capital And Enterprise

• Land:
  • Includes natural resources such as minerals, forests, water, oil, agricultural land.
  • Businesses use these resources as raw materials or as locations for production.
  • Example: A clothing company uses cotton fields (land) to source raw materials.
• Labour:
  • Refers to human effort, both physical and mental, used in production.
  • Includes skilled, semi-skilled, and unskilled workers.
  • Example: Factory workers, accountants, managers.
• Capital:
  • Man-made resources used to produce other goods and services.
  • Includes machinery, tools, factories, computers, money for investment.
  • Example: Delivery vans in a logistics company.
• Enterprise:
  • The organising skill of entrepreneurs who combine land, labour, and capital to produce goods/services.
  • Involves taking risks, making decisions, innovating, and managing resources.
  • Example: Elon Musk organising resources to produce Tesla cars.

The Concept Of Adding Value

• Definition: The process of increasing the worth of a product by transforming inputs into outputs that are more desirable to customers.
• Methods Of Adding Value:
  • Branding: Creating recognition (e.g., Nike logo increases shoe price).
  • Quality: Higher quality allows premium pricing.
  • Convenience: Offering home delivery services.
  • Unique Features: Offering designs, styles, or technology others lack.
• Formula:
  • Added Value = Selling Price – Cost Of Inputs
• Importance:
  • Enables businesses to charge higher prices and earn profits.
  • Improves competitiveness.
• Example:
  • Apple iPhones cost around $500 to make but sell for $1000+ because of brand, design, and features.

The Nature Of Economic Activity, The Problem Of Choice And Opportunity Cost

• Economic Activity:
  • Any activity concerned with the production, distribution, and consumption of goods/services.
  • Businesses are part of this system by providing goods and services in exchange for money.
• The Problem Of Choice:
  • Resources are limited, but human wants are unlimited.
  • Individuals, businesses, and governments must make choices about what to produce, how, and for whom.
• Opportunity Cost:
  • The next best alternative forgone when a choice is made.
  • Important in decision-making as resources cannot be used for everything.
• Examples:
  • A farmer must choose whether to grow wheat or rice. If rice is grown, the opportunity cost is the wheat not produced.
  • A government choosing between building a new hospital or a new motorway faces opportunity cost.
  • A student deciding between studying business or law at university — the course not chosen is the opportunity cost.

The Dynamic Business Environment

• Definition: Business operates in a constantly changing environment due to external influences.
• Examples Of Change:
  • Technological: Emergence of e-commerce, AI, robotics.
  • Social: Changing consumer preferences (e.g., eco-friendly products).
  • Political: Changes in government policies, trade agreements.
  • Economic: Recession, inflation, exchange rate fluctuations.
  • Environmental: Sustainability concerns, climate change.
• Implications:
  • Businesses must be flexible and adaptive to survive and grow.
  • Failure to adapt can lead to decline.
• Example:
  • Nokia was once the world’s leading phone brand but failed to adapt to the smartphone revolution, losing its market share to Apple and Samsung.
  • Netflix adapted from DVD rentals to online streaming, succeeding in a dynamic environment.

Why Businesses Succeed Or Fail

• Reasons For Success:
  • Strong leadership and vision (e.g., Jeff Bezos at Amazon).
  • Clear business plan and effective strategy.
  • Sufficient financial resources and capital.
  • Adaptability to market changes.
  • Customer focus and high-quality products.
  • Effective marketing and brand reputation.
  • Skilled and motivated workforce.
• Reasons For Failure:
  • Poor financial management (cash flow problems, high debts).
  • Lack of planning or weak business model.
  • Failure to adapt to changing environment.
  • Poor customer service leading to loss of loyalty.
  • Over-expansion or uncontrolled growth.
  • Strong competition overpowering weaker businesses.
  • External shocks (economic downturns, pandemics, political instability).
• Examples:
  • Success: Apple’s innovation-driven strategy.
  • Failure: Blockbuster’s collapse due to not adapting to digital streaming.

Differences Between Local, National, International And Multinational Businesses

• Local Businesses:
  • Operate in a small, specific area.
  • Limited target market, e.g., a bakery in one town.
  • Often rely on personal relationships and reputation.
• National Businesses:
  • Operate across a whole country.
  • Wider market reach, often with branches in many cities.
  • Example: Khaadi clothing chain in Pakistan.
• International Businesses:
  • Operate in more than one country, but with limited presence abroad.
  • Example: A Pakistani textile company exporting to Dubai and UK.
• Multinational Businesses (MNCs):
  • Operate in many countries with headquarters usually in one country.
  • Large-scale operations, significant market share.
  • Examples: Coca-Cola, McDonald’s, Toyota.
• Key Differences:
  • Scale of operations (local → global).
  • Market coverage.
  • Resource needs and capital investment.
  • Legal and regulatory environments