9781316611692 Houghton: Cambridge IGCSE and OLevel Business Studies Revision Guide Cover.

C M Y K

Cambridge IGCSE® and O Level

Business Studies
Revision Guide
Second edition

Cambridge IGCSE® and O Level Business Studies Revision Guide

Medi Houghton
Build confidence during your exam preparation with Cambridge IGCSE®
and O Level Business Studies Revision Guide, a comprehensive resource
packed with specially designed guidance to help you apply your
knowledge and skills.
This guide is endorsed for revision and supports study for syllabuses

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0450 and 7115 from 2015.
Key Features
• Concise and straightforward coverage of the syllabus content to aid
revision.
• Progress Check questions to help you check your knowledge and
understanding as you work your way through the book.

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• Revision tips to help you avoid common pitfalls.
• Chapter summaries review each chapter and allow you to track your
revision.
• Exam-style questions at the end of every chapter help you apply your
knowledge and skills at the end of the course.

Accompanying titles:
Coursebook (Third edition) 978-1-107-68025-8
Teacher’s Resource 978-1-107-42535-4

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 Cambridge IGCSE® and O Level

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Business
Studies PL
Revision Guide
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Second edition

Medi Houghton
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 Table of contents

How to use this book iv

Introductionvi
Section 1: Understanding business activity 1
1: Business activity 2
2: Classification of business 5

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3: Enterprise, business growth and size 8
4: Types of business organisation 14
5: Business objectives and stakeholder objectives 20
Section 2: People in business 25
6: Motivating workers 26

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7: Organisation and management 32
8: Recruitment, selection and training of workers 39
9: Internal and external communication 45
Section 3: Marketing 51
10: Marketing, competition and the customer 52
11: Market research 57
12: Marketing mix: product and price 64
13: Marketing mix: place and promotion 70
14: Marketing strategy 77
Section 4: Operations management 81
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15: Production of goods and services 82
16: Costs, scales of production and break even analysis 87
17: Achieving quality production 93
18: Location decisions 96
Section 5: Financial information and decisions 101
19: Business finance: needs and sources 102
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20: Cash flow forecasting and working capital 108

21: Income statements 112
22: Balance sheets 116
23: Analysis of accounts 120
Section 6: External influences on business activity 127
24: Government economic policies and objectives 128
25: Environmental and ethical issues 132
26: Business and the international economy 137

Answers to progress check and examination-style questions 141

Sample case studies 151

Index161

iii
Original material © Cambridge University Press 2017
 How to use
Business this book
activity
Unit 1

Ways for a business to increase added value include:

Capital has many meanings in business.

1 Business activity
TIP

• make raw materials into finished goods

unts Make sure you understand what it refers
Learning summary
to in a given situation. • branding

By for
theaend of thistounit you should understand: • packaging
Ways business increase added value include:
ss.

1 Business activity
• add extra features to products
efers
• makethe
raw materials
Aconcepts into
businessofcan finished
needs,
be goods
wants,
one scarcity
person, and
a large the purpose of business activity
TIP

• improve customer service.

E
global company
opportunity
• branding cost employing thousands of the concept of added value and ways to increase
people or even a charity.
• packaging
the importance of specialisation added value.
and: TERM
• add extra features to products
ge
y the concept of liquidity
s of •1.05
improve
Learning Adding
customer
summary –value summary list of key topics and concepts Added
service.
A that youvalue: the difference between the selling
how and why accounts are used. price of a product and the cost of raw materials
1.01 Needs
will be looking at inand wants
this chapter, to help with navigation through 1.03 Importance
the book of specialisation

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Most businesses buyofresources to make products. These used to make it.
and TERM
give a reminder
raw materials arethat altered
what’s important
to make
about each topic for your revision.
Needs are things we must havethem worth such
to survive more Most production involves more than one person or
money,
as shelter, so the
clothing business
and can
food. sell
Wants them at
are a higher
things thatprice.
we piece of equipment. People and businesses specialise,
al Added value: the difference between the selling
Worked example
would like to have to make our
price of a product and the cost of raw materials lives more enjoyable. Sample question
to try not to waste limited resources. This can involve
cts. These Worked example
used to make
People
For Zcan Foods
it.
live without
in 2016,satisfying
gross profi their wants,
t was $90m, but not
division of labour where workers are given a specific
jobJian owns
to do. Thisa should
restaurant leadinto:
the city centre. His
more without meeting their needs.
revenue
Tickers was $150m.
make watches. The materials cost $50 and menu changes daily, depending on what meat and
r price. • less wastageare of available.
scarce resources
Tickers sell the vegetables All ingredients are bought
To calculate the figross
nished profiwatches
t margin: for $150. Tickers

1.02Sample question
pay workers $60. Other costs including rent are
Scarcity 90 and x 100 opportunity
= 60 % cost
locally which helps
• lower production costs to keep
trying to increase added value.
costs low. Jian is always
$15. What is the added value? The answer is: $100.
Jian owns a restaurant 150 in the city centre. His • greater output from same amount of resources.
0 and This is
Scarcity
menu not
ofchanges all profi
resources t.depending
daily,createsOnly the a basicamountwhatleft
on economic meat afterand
all Identify and explain two ways that Jian could
What
the doeshave
costs thisbeenmean?covered It shows is the business
profi t: $25. increase added value. [6]
M
ckers problem.
vegetablesResources are limited
are available. but people’s
All ingredients are wants
bought
are
made 60 cents in gross profit for every dollar of
arelocally
not. Choices
which helps mustto bekeep
made. Resources
costs low. Jianused to
is always TERM
Sample answer:
revenue in 2016.
$100. make onetothing
trying cannot
increase added be usedvalue.for another purpose. Way 1: Jian can buy in the meat and vegetables
cus on Is this
TheIdentify good?
value of Remember
the You would
option that
not need
added to value
selected compare
is is NOT
known theasthethe Specialisation:
at low cost andwhen peopleinto
turn them andfinished
businesses
dishesfocus
TIP

er all and explain two ways that Jian could

result
opportunity withsame 2015
cost.asvalue. to see
profit. if this has improved or on activities they are best at.
for the customers, so there is a greater difference
increase added [6]
not: between the cost to make the dishes and price
Sample answer: charged for them. [3]
2015 data:
T the
Worked example
Way 1: Jian can buy in the meat and vegetables
1.04Way The purpose
2: Provide of business
a good customer service toactivity
Gross
at low cost profi
andt margin
turn them = 60/120 x 100 dishes
into finished = 50%
SA

Business
$ 150 A is
for thevscustomers, a retailer. Next
so there to the shop the
is a greaterindicating
difference customers in the restaurant. This adds to the
2016
business 2015:
owns the
a ratio
large hasofimproved
plot land. The Profit
business $ 25 experience, so customers are willing to pay more
between All businesses use factors of production to make goods
the marginthe hascost to make the dishes and price
increased. for a meal rather than go to cheaper places. [3]
ess can either use
charged for them. [3] the space
Added
to extend the shop or or provide services, in order satisfy people’s needs
Labour and
sector turn it into a customer valuecar park. It decides to
other
$ 75 and wants.
Way 2: Provide
extend a goodopportunity
customer service ist to
se. There are the
twoshop. waysThe to improve grosscost profi the
costsmargin:
customers
Worked example in the restaurant.
- Guidance onThis how adds to the a
to answer These factors
Sample questionof production
and answer can beexample
classifiedofinto
–context.
an a four
car park. Always look at the Suitable
TIP

$ 25 • increase
experience,
particular revenue
$ 50 question, (sell more
so customers
emphasising areor
the increase
willing prices)
to pay
different more
stages but main groups:
question with a suggested answer.
maintain cost of sales options will vary with the type of product.
for a meal rather than go to
you will need to work through to get to your answer. cheaper places. [3]
after $ 75
nd Use the context to improve your answer.
• cut cost of sales by Cost lowering wages or material costs. Type of factor Description of factor
of Remember: for application, you must link
TERMS bought-in Land the point includes
to theallscenario.
natural resources as well as
s: Always look materials
at the context. Suitable the space used for production
TIP

Always remember to include the formula

TIP

Opportunity options
for cost:
ratios will
used.varycost
the withofthe
Check type
you of
something
that haveproduct.
in terms
used Labour the workers
of the next Use the
best context
option.
the figures for the right year. to improve your answer. Capital the finance, machinery and buildings
Remember: for application, you must link Simply using the name of the and
business is
TIP

Figure 1.01 limited

Summary chart: added value atto Tickers. used to produce goods services
Scarcity: availability of resources meet not classed as application.
the point to the scenario. Tip – quick suggestions
Enterprise to remind
the people you about
who organise key
the land,
the unlimited wants of people.
facts and highlight labour
important points.
and capital
Table 1.01 The four factors of production.
Simply using the name of the business is
TIP

ers. iv
2
not classed as application. Original material © Cambridge University Press 2017 3
 • less wastageSpecialisation
production. of scarce resources
can help. A business will The th

anding business activity

try to add value at every
• lower production costs stage of production as such a
1.02 Scarcity and opportunity cost this canoutput
help make
• greater froma same
profit.amount of resources.
Scarcity of resources creates a basic economic Examp
problem. Resources are limited but people’s wants TGA i
are not. Choices must be made. Resources used to TERM
Identif
Summary Sample
Progress questions
check
Section 1: Understanding business activity

How2 to
make one thing cannot be used for another purpose.
Specialisation: when people and businesses focus increa
Progress check
The value of the option not selected is known as the
This unit covers
cost. a number of basic ideas. The fact
Sample
Example
1 activities
What question
1: is they
meantarebybest
scarcity?

Classification
opportunity on at. Sampl

use this book

that
1 In resources are limited
which sector wouldmeans thata businesses
you find public What is meant by ‘factor of production’? [2]
Example:
2 What is the difference between a need and a Way 1
havecorporation?
to decide how best to use the factors of Postwant?
Sample Now
answer:is a private
Give an example limitedofcompany.
each. It is a camer
Worked example
production.
2 Give two Specialisation
examples ofcan help. A business
a secondary sectorwill
The
1.04letter
3 as
delivery
things
The
Explain
needed service
purpose
what
to make
is
in the
the[1]main
private
goods
of purposeand sector.
business services [1]Its
activity Way 2
main
such competitor,
land and MPO,
labour. is in the publicof business
sector.

of businesses
try to
Businessadd A is a retailer. Next to the shop the as
value
business. at every stage of production activity. people
this can help
business owns make a profit.
a large plot of land. The business All Identify
businessesanduse explain
factors twoofdifferences
productionbetween
to makethe goods
3 Using a ring as an example of a product, show 4 State two factors of production for a market
can either use the space to extend the shop or two
orExample businesses.
provide services,
2: [6]
in order to satisfy people’s needs
the link between the three sectors. trader.

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turn it into a customer car park. It decides to and
TGA wants.
is a leading
Sample answer:manufacturer of mobile phones.
4 What
extend
Summary Aisshop.
–the the difference between
The opportunity
summary of what you costpublic
have and
islearned
the
Difference
These
Identifyfactors 1: Post
of
and explain Nowways
production
two iscan
owned
in be byTGA
individuals
classifi
which ed could
into four
Progress check
car private sector businesses?
park.
within the chapter. Progress
main check
[1]groups:
increasewho bought
added –value.
check
shares[4]your
in the own knowledge
private limitedand
1 What is meant by scarcity? seecompany
how well[1], youwhile
are getting
MPO isonowned by answering
by the
Sample answer:[1]
2 What is the difference between a need and a Examination-style questions
government.
regular
Type questions.
of factor Description of factor
Way 1: add new features [1] such as better
b Ident
TERMS
Summary
want? Give an example of each. Land
Difference
camera zoom.2:a[1] includes
Post Now’s all natural
objectiveresources
is to make as well as Facto
NSN makes range of luxury cars. People like

PL
the space used for production Facto
profit
its [1]
handmade from delivering
seats and letters [1] while MPO’s
Businesses
Explain can
3Opportunity whatbeis grouped
cost: the cost into
the main threeofsectors.
purpose
of something The
business
in terms Way 2: create a strong
Labour the brand image [1] so thata
workers
car warranty. This is
c Ident
priority
competitive will be to
market. provide
Themore a service.
Finance [1] knows
Director
of activity.
importance of each
the next best sector for an economy can
option. people
Capital are willing to fipay
the nance, for its
machinery phones.
anduse [1]
buildings incre
that –resources
Terms clear andare scarce, and he must
straightforward factors
change. Goods and services used to produce goods and services
4Scarcity: two factors
State limited availability ofcan
of productionbe for
provided
resources ato by
market
meet of production
explanations are carefully. He
provided for believes
the mostthat for every
Bene
trader.
either
the public or
unlimited private
wants sector businesses.
of people. Enterprise
decision he the people who organise the land,
makes, there will be an opportunity cost. Bene
important words in eachand
labour topic. Key
capital terms
appear in bold within the main text. ways to increase
The Finance Director is looking for d Ident
Table
added1.01value.
The four factors of production. incre
a What is meant by ‘opportunity cost’? [2] Way
Way
2
Examination-style questions
Examination-style questions b • primary
Identify
Factor 1:
sector of production.
two factors

Question 1 a range of luxury cars. People like • secondary sector. [2]

NSN makes Factor 2: [2]
its handmade seats and car warranty. This is a b Calculate the number of people employed
M
Ravel is a farmer
competitive market.in The
country A. He
Finance has been
Director looking
knows c Identify and explain two benefits to NSN of
in the tertiary sector in country A. [2]
at some data, shown in Table 2.02. He cannot
that resources are scarce, and he must use factors increasing added value.
understand why there Heis a believes
difference c Benefit
Identify1: and explain two possible reasons for the
of production carefully. thatin for
employment
every
between countries. Both countries have a mixed difference
Benefit 2: in the percentage of labour employed
[4]
decision he makes, there will be an opportunity cost.
economy.
The Finance Director is looking for ways to increase
in different sectors in each country. [8]
d Identify and explain two ways that NSN could
added value. increase added value.
Country A Country B Question
Way 1: 2
a What is meant by ‘opportunity cost’? [2]
Primary sector 45 10 Way
SRT 2: a wide range of paints. These are sold[8]to
makes
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Secondary sector 20 20 businesses and customers in many countries. Market

Tertiary 35 70 research is important. The Managing Director said,
‘Different countries have different legal standards for
Table 2.02 Percentage of labour force employed in
paint. Customers want different colours and sizes of
each country. 4 tins.’ SRT uses the services of many businesses from
the tertiary sector.
NOTe: Population of each country is 60 million.
Suggest three important businesses SRT might use
a Identify one type of business that could be found from the tertiary sector. Justify your choices. [12]
in the:

Examination-style questions – Exam-style questions for you to

4 test your knowledge and understanding at the end of each chapter.
The answers are provided at the back of the book.
7
v
Original material © Cambridge University Press 2017
 Introduction

This revision guide has been written to help students studying for Cambridge International
Examinations IGCSE and O Level Business Studies.
Each chapter includes:
• definitions and explanations of key concepts
• summary charts or diagrams to highlight important ideas

E
• tips and notes to provide helpful guidance on key points
• progress checks to allow you to test your understanding
• sample questions and answers to highlight common mistakes or misunderstandings
• sample examination-style questions for your practice.

PL
The difference between paper 1 and paper 2
Both papers assess all four skills. Each paper is marked out of 80. All questions are
compulsory.
Paper 1 contains short answer/structured response questions. Each of the four questions is
based on a different scenario. There are five parts to each question, and each part is worth
2, 4 or 6 marks.
Paper 2 is based on a case study scenario. All the information is provided in a separate
insert. There is a short introduction to the business and three appendices. There are fewer
questions, but each question is worth more, either 8 or 12 marks. This means you will need
M
to develop points in more detail to access the additional marks available.

Assessment objectives (AOs)

This is the technical term for the skills that will be tested in the examination. Business
Studies is a skills-based subject so you must demonstrate more than knowledge to do well.
1 Knowledge – showing your knowledge and understanding of terms, concepts, theories
SA

and techniques.
• Be precise with any definitions.
• Learn the main facts and issues.
2 Application – using knowledge and understanding of terms, concepts, theories and
techniques for a variety of business problems or issues.
• Avoid making general statements.
• Not all points may be relevant, so focus your answer on the given scenario.
3 Analysis – selecting, explaining or interpreting information to show good understanding
of terms and effects of decision.
• Do not just list points.
• Try to develop your answer to show the consequences of what the points might
mean for the business.

vi
Original material © Cambridge University Press 2017
 4 Evaluation – presenting developed arguments or reasoned explanations, and being able

Introduction
to make judgements and decisions.
• Make a decision, and explain how or why you hold this view.
• Focus on developing relevant points (for and/or against) to support what YOU are
saying. Remember: a decision on its own is not enough.

Command words
These phrases act as a guide to help you answer the question. Each will tell you which skills

E
are being tested in each question.

Assessment objective Typical command words include:

AO1: knowledge What is meant by
Identify
AO2: application Calculate

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Using the information in Appendix 1, identify two
factors that ABC ...
AO3: analysis Identify and explain
Explain why or how
AO4: evaluation Do you think
Recommend
Do you agree
Justify
Assessment objectives and their command words.

Use the marks as a guide to how much you should write. More marks available for a
question means that a wider range of skills is likely to be assessed.
M
Let’s look at a sample answer to highlight how each skill could be shown:

knowledge

Sample question Sample answer

With internal recruitment the owners will know
KOKO has ten seafood restaurants in the city. The
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what the person is like so will know that the person

Human Resources manager is looking to recruit a has the relevant experience and is suitable for the
new manager for one restaurant. He cannot decide job. If the person has worked for them in the kitchen
whether to use internal or external recruitment. for several years, it will be clear whether they will be
Do you think KOKO should use internal or external able to do the job of restaurant manager. Recruiting
recruitment? Justify your answer. [6] someone from outside could be a risk. They might
have new ideas but these might not be appropriate
for this type of restaurant, so damaging its reputation.
analysis So I think it is better to use internal recruitment to
ensure the standards are maintained.

evaluation application

vii
Original material © Cambridge University Press 2017
 Preparing for the examination
Introduction

1 Know what you need to learn. Ask your teacher for a copy of the syllabus. This outlines
all the content you need to focus on when you revise.
2 Make a revision timetable. Set aside time every week for study. If you have examinations
in more than one subject, allow time to revise for everything.
3 Revise effectively. Split up your time into smaller revision periods, say 30 to 40 minutes.
Breaks can give you time to reflect on what you have learnt.
4 Make your revision active. Make notes, summary charts, mnemonics, think of picture

E
associations for key themes so you can remember ideas later.
5 Test yourself regularly to check that you have understood.
6 Practise past or sample questions so you are familiar with examination-style questions.
It will also help you to time your answers accordingly.

PL
Five things to remember in the examination
1 Read each question carefully. Look for the command words.
2 Always show your workings for calculations.
3 Develop points to show how or why they might matter.
4 Try to base your answers on the scenario given.
5 If a question asks for a decision, make one, and support it.
M
SA

viii
Original material © Cambridge University Press 2017
 Section 1
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Section 1:

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Understanding
business activity
M
SA

1
Original material © Cambridge University Press 2017
 Business activity
Unit 1

Learning summary
By the end of this unit you should understand:
the concepts of needs, wants, scarcity and the purpose of business activity
opportunity cost the concept of added value and ways to increase

E
the importance of specialisation added value.

1.01 needs and wants 1.03 Importance of specialisation

PL
Needs are things that we must have to survive such Most production involves more than one person or
as shelter, clothing and food. Wants are things that we piece of equipment. People and businesses specialise,
would like to have to make our lives more enjoyable. to try not to waste limited resources. This can involve
division of labour where workers are given a specifi c
People can live without satisfying their wants, but not
job to do. This should lead to:
without meeting their needs.
• less wastage of scarce resources
• lower production costs
1.02 Scarcity and opportunity cost
• greater output from same amount of resources.
Scarcity of resources creates a basic economic
problem. Resources are limited but people’s wants
TERM
M
are not. Choices must be made. Resources used to
make one thing cannot be used for another purpose.
The value of the option not selected is known as the Specialisation: when people and businesses focus
opportunity cost. on activities they are best at.

Worked example 1.04 The purpose of business activity

Business A is a retailer. Next to the shop the
SA

business owns a large plot of land. The business All businesses use factors of production to make goods
can either use the space to extend the shop or or provide services, in order to satisfy people’s needs
turn it into a customer car park. It decides to and wants.
extend the shop. The opportunity cost is the
These factors of production can be classifi ed into four
car park.
main groups:

Type of factor Description of factor

TERMS Land includes all natural resources as well as
the space used for production
Opportunity cost: the cost of something in terms Labour the workers
of the next best option. Capital the fi nance, machinery and buildings
used to produce goods and services
Scarcity: limited availability of resources to meet
the unlimited wants of people. Enterprise the people who organise the land,
labour and capital
Table 1.01 The four factors of production.

2
Original material © Cambridge University Press 2017
 Ways for a business to increase added value include:
Capital has many meanings in business.

1 Business activity
TIP Make sure you understand what it refers
• make raw materials into fi nished goods
to in a given situation. • branding
• packaging
• add extra features to products
A business can be one person, a large
TIP

global company employing thousands of • improve customer service.

people or even a charity.
TERM

E
1.05 Adding value Added value: the difference between the selling
price of a product and the cost of raw materials
Most businesses buy resources to make products. These used to make it.
raw materials are altered to make them worth more

PL
money, so the business can sell them at a higher price.

Sample question
Worked example Jian owns a restaurant in the city centre. His
Tickers make watches. The materials cost $50 and menu changes daily, depending on what meat and
Tickers sell the fi nished watches for $150. Tickers vegetables are available. All ingredients are bought
pay workers $60. Other costs including rent are locally which helps to keep costs low. Jian is always
$15. What is the added value? The answer is: $100. trying to increase added value.
This is not all profi t. Only the amount left after all Identify and explain two ways that Jian could
the costs have been covered is profi t: $25. increase added value. [6]
Sample answer:
M
Way 1: Jian can buy in the meat and vegetables
Remember that added value is NOT the at low cost and turn them into fi nished dishes
TIP

same as profi t. for the customers, so there is a greater difference

between the cost to make the dishes and price
charged for them. [3]
Way 2: Provide a good customer service to
$ 150 customers in the restaurant. This adds to the
SA

Profit $ 25 experience, so customers are willing to pay more

for a meal rather than go to cheaper places. [3]
Added
Labour and $ 75
value
other
costs
Always look at the context. Suitable
TIP

$ 50
options will vary with the type of product.
Use the context to improve your answer.
Cost of Remember: for application, you must link
bought-in
materials the point to the scenario.

Simply using the name of the business is

TIP

Figure 1.01 Summary chart: added value at Tickers.

not classed as application.

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Original material © Cambridge University Press 2017
 Summary Sample questions
Section 1: Understanding business activity

This unit covers a number of basic ideas. The fact Example 1:

that resources are limited means that businesses What is meant by ‘factor of production’? [2]
have to decide how best to use the factors of Sample answer:
production. Specialisation can help. A business will The things needed to make goods and services [1]
try to add value at every stage of production as such as land and labour. [1]
this can help make a profit.

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Example 2:
TGA is a leading manufacturer of mobile phones.
Identify and explain two ways in which TGA could
Progress check increase added value. [4]
1 What is meant by scarcity? Sample answer:
Way 1: add new features [1] such as better

PL
2 What is the difference between a need and a
want? Give an example of each. camera zoom. [1]
3 Explain what is the main purpose of business Way 2: create a strong brand image [1] so that
activity. people are willing to pay more for its phones. [1]
4 State two factors of production for a market
trader.

Examination-style questions b Identify two factors of production.

Factor 1:
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NSN makes a range of luxury cars. People like Factor 2:  [2]
its handmade seats and car warranty. This is a
competitive market. The Finance Director knows c Identify and explain two benefits to NSN of
that resources are scarce, and he must use factors increasing added value.
of production carefully. He believes that for every Benefit 1:
decision he makes, there will be an opportunity cost. Benefit 2:  [4]
The Finance Director is looking for ways to increase d Identify and explain two ways that NSN could
added value.
SA

increase added value.

a What is meant by ‘opportunity cost’? [2] Way 1:
Way 2:  [8]

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Original material © Cambridge University Press 2017
 Classification of businesses

Unit 2
Learning summary
By the end of this unit you should understand:
the difference between primary, secondary and the difference between the private sector and
tertiary sectors public sector.

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reasons for the changing importance of business
classifi cation

2.01 Classification of business All three sectors are linked together. If any part of

PL
the chain breaks down, the customer will not get the
Businesses are grouped into three main types of fi nished products.
business activity (sectors):

Primary sector
TERMS
This involves the extraction, growing or collecting of
raw materials. Examples include mining, farming and
Primary sector: businesses that extract or collect
fi shing.
raw materials.
Secondary sector Secondary sector: businesses that take raw
This includes any business involved in assembly, materials and turn them into fi nished goods.
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processing or construction. Businesses will either make Tertiary sector: businesses that provide services
a fi nished product or make parts for another business to other businesses and individuals.
to use. Examples include manufacturing and refi ning.

Tertiary sector
Other businesses need to use services such as
transport, retailing, warehousing and fi nance to get
Sample question
products to consumers. Examples of services for PVN is a printing business in the secondary sector.
SA

individuals include health care, education and restaurants. What is meant by ‘secondary sector’? [2]

Name of sector Primary Secondary Tertiary Sample answer:

It is where things are made. For example, PVN will
Main activity Extract Make Service
take wood pulp and use it to make paper.
Example Cotton Clothing Transport
farmer factory company
or retailer
You do not need to use a textbook
TIP

Table 2.01 Summary of the three sectors. defi nition as long as you can clearly explain
what the term means.
Some businesses can be involved in more
TIP

than one stage of production.

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Original material © Cambridge University Press 2017
 2.02 The changing importance
Section 1: Understanding business activity

Sample answer:
of business classification Change 1: Fall in primary sector by 20%. People
may have moved to tertiary sector in search of
The size of each sector varies between different
higher wages. [3]
countries. It can also change over time. Reasons for this
include: Change 2: Fall in secondary sector by 15%. This
could be due to the fact that some goods can be
• Deindustrialisation – there is a decline in
made cheaper in other countries. [3]
manufacturing while the tertiary sector increases.
• Raw materials are discovered/depleted in different

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countries.
If you are asked to interpret charts or

TIP
• Specialisation – some countries are good at making tables, use the numbers to support your
certain products or services. answer.
• Some countries have large workforces so can make
products at a lower cost.

PL 2.03 The public and private sectors

• Rising living standards – people have more time and
money for leisure activities.
Most countries have both a public sector and private
sector: this is called a mixed economy. Examples
Sample question of public sector organisations include health care,
The employment minister in country C has been education, defence, public transport and energy. Sole
looking at some employment data, as shown in traders and limited companies are examples of private
Figure 2.01. He said, ‘We used to be a country sector businesses (see 4.01 and 4.04).
known for growing sugar. Now it’s all hotels and
shops. What has happened?’ All public and private sector organisations
TIP

are involved in some form of business

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70
2000 2015 activity – it is only the objectives (what,
60
for whom and why they produce goods
% of GDP by sector

50 and services) that differ.

40
30
20
TERMS
10
SA

0 Public sector: any business owned, run or

Primary sector Secondary sector Tertiary sector
controlled by the government.
Figure 2.01 Country C percentage of Gross
Domestic Product (GDP) by sector. Private sector: any business owned, run or
controlled by private individuals.
NOTe: GDP has risen from $500m in 2000 to Public corporation: a business organisation
$700m in 2015. owned and controlled by the government.
Identify two changes shown by the data in
Figure 2.01. For each one, explain a possible
reason for the change. [6]

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Original material © Cambridge University Press 2017
 Progress check Sample question

2 Classification of businesses
1 In which sector would you find a public Example:
corporation? Post Now is a private limited company. It is a
letter delivery service in the private sector. Its
2 Give two examples of a secondary sector
main competitor, MPO, is in the public sector.
business.
Identify and explain two differences between the
3 Using a ring as an example of a product, show
two businesses. [6]
the link between the three secto rs.
Sample answer:

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4 What is the difference between public and
Difference 1: Post Now is owned by individuals
private sector businesses?
[1] who bought shares in the private limited
company [1], while MPO is owned by the
government. [1]
Summary Difference 2: Post Now’s objective is to make

PL
profit [1] from delivering letters [1] while MPO’s
Businesses can be grouped into three sectors. The
priority will be to provide a service. [1]
importance of each sector for an economy can
change. Goods and services can be provided by
either public or private sector businesses.

Examination-style questions • primary sector

Question 1 • secondary sector. [2]

b Calculate the number of people employed
M
Ravel is a farmer in country A. He has been looking
in the tertiary sector in country A. [2]
at some data, shown in Table 2.02. He cannot
understand why there is a difference in employment c Identify and explain two possible reasons for the
between countries. Both countries have a mixed difference in the percentage of labour employed
economy. in different sectors in each country. [8]

Country A Country B Question 2

Primary sector 45 10
SA

SRT makes a wide range of paints. These are sold to

Secondary sector 20 20 businesses and customers in many countries. Market
Tertiary 35 70 research is important. The Managing Director said,
‘Different countries have different legal standards for
Table 2.02 Percentage of labour force employed in
paint. Customers want different colours and sizes of
each country.
tins.’ SRT uses the services of many businesses from
the tertiary sector.
Note: Population of each country is 60 million.
Suggest three important businesses SRT might use
a Identify one type of business that could be found from the tertiary sector. Justify your choices. [12]
in the:

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Original material © Cambridge University Press 2017
 Enterprise, business growth and size
Unit 3

Learning summary
By the end of this unit you should understand:
the characteristics of successful entrepreneurs why some businesses grow and others
remain small
the contents and importance of a business plan

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why some businesses fail.
the different methods and problems of
measuring business size

3.01 Characteristics of successful 3.02 How business plans assist

entrepreneurs

Strong leader
Risk-taker
PL
Entrepreneurs invest their time, skill and money to set
up a business. Anyone can be an entrepreneur if they
have the necessary qualities.

Creative
entrepreneurs
A business plan can help a business. It can:
• support loan applications (for example, a bank is
more willing to lend if can see it is likely to be repaid)
• give a sense of purpose and direction so the
employees know what to do to achieve the plan
• help decision-making so time and resources are not
wasted
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• help understand possible risks, especially if it is a
Innovative Characteristics new business.

A business plan is not just for new

TIP

Effective
businesses.
Motivated/
communicator determined
Initiative
SA

Figure 3.01 Characteristics of an entrepreneur.

TERMS
An entrepreneur can be categorised
TIP

Entrepreneur: someone who organises, operates

under ‘enterprise’ in the factors of and takes the risk for a new business venture.
production (see 1.04).
Business plan: this contains the aims and
objectives of a business, and important details
about its operations, fi nance and owners.

8
Original material © Cambridge University Press 2017
 Measure How it is Possible problems with

3 Enterprise, business growth and size

measured using this measure
– Aims and objectives Number of Number of What happens if a business
employees workers in the uses a lot of machinery?
– Details about the product
business
What if it has lots of part-
– Market information, for example size of market,
time employees?
customer information, competitors Capital Amount of Any business can have a lot
employed money invested of expensive machinery, so
– How and where product is to be made
by owners/ capital employed is high.
– Number and type of employees borrowed from

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lenders
– Finance required, cash flow forecasts
Value of Amount of How can this be compared
output output over a if different types of
given period products are made?

Figure 3.02 Main sections of a business plan. What if not all of the
products are sold?

PL
Value of Value of sales A fi rm might sell a few high
sales over a given value items while another
3.03 How and why governments period fi rm may sell many cheap
items.
support business start-ups
Table 3.01 Measuring the size of a business organisation.
New businesses can offer many benefi ts to the
economy and consumers.
Profi t is NOT classed as a measure of size.
TIP
• Jobs create lower unemployment.
This is because too many factors influence
• Increased competition could lead to more choice or the amount of profi t made.
lower prices.
• They can provide specialist or new services.
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• Start-up businesses, if successful, could grow into 3.05 Why owners may want to
large businesses.
expand the business
Governments provide a range of support including:
• fi nancial – grants and subsidies, lower tax rates Growth is an objective for some businesses. Advantages
include:
• information, advice and support
• Economies of scale – leading to lower average/unit
• location – enterprise zones, rent-free spaces
SA

costs.
• training courses for entrepreneurs and/or workers. • Diversification/spread risk – so the business is less
reliant on one market or product.
3.04 Methods and problems • Financial reasons – higher profi ts, or able to borrow
money more easily.
of measuring business size
• Personal objectives – power and status.
Small, medium or large business? Size can matter. Being
• Market domination – increased power or market
large could indicate business growth or a lower risk for
share in existing markets, so the business can gain
lenders. There is no perfect way to measure size.
more influence with suppliers and customers.
• Access to new markets.

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Original material © Cambridge University Press 2017
 3.06 Different ways a business
Sample question
Section 1: Understanding business activity

can grow
Rafa owns a successful jam-making business. He
There are two ways a business can grow: internally and started ten years ago and has made a profi t every
externally. year. All the jam is sold at local markets. Rafa
wants to grow his business. He cannot decide
Method Internal External whether to start making sweets or try to fi nd a
By expanding its By taking over or new market for his jam.
own activities joining with another
business Recommend to Rafa which way he should choose

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Advantages ✔ Able to keep ✔ Much quicker to grow his business. Justify your answer. [6]
control so gain benefi ts of Sample answer:
growth faster Rafa has no experience of sweet-making [1] so it
✔ Relatively
inexpensive as will take time to learn these skills [1], and even if
business can use he does there is no guarantee of success [1]. He
own resources
is known for his jam so this reputation can help

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Disadvantages ✗ Very slow process ✗ Harder to control attract new customers. [1] While sweets might
✗ Change of help to spread risk, as he is already successful [1]
ownership? it would be safer to try to broaden his target
market [1].
Table 3.02 Advantages and disadvantages of internal
and external growth.

TinPot makes metal cans for drinks. Let’s look at the

different ways it might grow in Figure 3.03.

External ways to grow

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Merge with supplier:
TinPot’s factory metal mine

Merge with competitor:

tin-making business
SA

Internal ways to grow

Unrelated merger:
• make more of current products clothing business
• find new markets for current products
• develop new products.
Merge with customer:
soft drinks business

Figure 3.03 Ways TinPot could grow

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Original material © Cambridge University Press 2017
 3.07 The problems of growth

3 Enterprise, business growth and size

Sample answer:
Growth (internal or external) does not guarantee success. Advantage: Spread risk. As it is in a competitive
market, ARG’s food sales might decline as
Problems of Different options to customers choose rival products. This way, ARG
growth overcome problems has another market to rely on for revenue. [4]
Harder to manage Hire specialist managers
and control Disadvantage: Harder for ARG’s management to
Review organisational structure control.The new business will have 2000 shops and
Communication Use two-way communication 207 000 employees, so it could take much longer for
problems methods (see 9.03) decisions to reach all employees, if at all. As customer

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Delegate and involve employees demands are constantly changing, ARG might be too
in decision-making slow to react and lose sales to rivals. [4]
Financial problems Use long-term sources of finance
(see 19.02)
Grow at steady rate 3.08 Reasons why some businesses
Lack of focus Set clear objectives
remain small

Sample question
PL
Table 3.03 How to overcome problems of growth.

ARG is a large food retailer. It has 1200 shops

and has 160 000 employees across country A.
The Managing Director of ARG plans to take
over HBC, which sells electrical goods such as
televisions. She said, ‘The food market is very
competitive. Customer demands and technology
• Demand in market may not be large enough so it is
not possible to grow.
• The business offers specialist goods or services
(niche markets).
• Owners want to be their own boss.
• A small business can be more flexible, and able to
react to market changes quickly.

3.09 Why some businesses fail

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are constantly changing. I know many of our
stakeholder groups will be affected.’ HBC has 800 Not all businesses will be successful. Both established
shops and 47 000 employees. and new businesses can and do fail.

Identify and explain one advantage and one New businesses are at higher risk, as they are not
disadvantage for ARG’s business of taking over established in the market. It can be difficult to persuade
HBC. [8] customers to try a new product. Owners may lack
experience to make the right decisions. Raising finance
and cash flow are common problems.
SA

Lack of finance or poor

financial management

Lack of effective marketing Changes in technology

Competition Why businesses fail Economic factors

Poor planning Changing market conditions

Overexpansion

Figure 3.04 Reasons why some businesses fail.

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Original material © Cambridge University Press 2017
 Progress check Sample questions
Section 1: Understanding business activity

1 What does the word ‘entrepreneur’ mean? Example 2:

Identify and explain two characteristics Grace
2 Outline one problem of using employees as a
needs to be a successful entrepreneur. [6]
measure of business size.
Sample answer:
3 State two ways a business can grow internally.
Characteristic 1: Risk-taker [1]: 80% of new
4 Identify two reasons why a business might businesses fail; [1] so she must be prepared to
remain small. lose all her savings [1].

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Characteristic 2: Effective communicator [1]:
as beauty salon is a service; [1] she needs to
encourage people to return [1].
Summary
Example 3:
Entrepreneurs are people who start up new Identify and explain two ways in which a
businesses. Governments try to support such

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government might help Grace’s business. [6]
businesses. The size of business can be measured
Sample answer:
in many ways. Many businesses will want to grow Way 1: Financial support [1]: Grace only has $400
while others remain small. [1] and is likely to have high start-up costs [1].
Way 2: Advice [1] to help make better decisions
[1] as only has some experience[1].
Sample question
Grace is an entrepreneur. She wants to open a
beauty salon in town. She has $400 in savings and If a question asks for a decision, make
TIP

some experience from a part-time job. She has one. Either viewpoint is acceptable as long
as it is then supported by your answer.
M
read that 80% of new businesses fail. She believes
the government will help new business start-ups.
Example 1:
Identify two reasons why new businesses might
fail. [2]
Sample answer:
Reason 1: Lack of cash flow. [1]
SA

Reason 2: Wrong location. [1]

This is a generic question so a simple list

TIP

of possible reasons is acceptable for this

type of question.

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Original material © Cambridge University Press 2017
 Examination-style questions

3 Enterprise, business growth and size

b Identify and explain two possible benefits to GB
of having a business plan.
Glass Brothers (GB) is a successful small glass-making Benefit 1:
business. It is a business partnership owned by two Benefit 2:  [4]
brothers, Kai and Kit. GB makes a range of products
from windows to bottles, in an old factory near the c Identify and explain two possible problems for
city centre. Kai has been looking at GB’s business plan. GB’s business if it grows too large.
He wants to grow the business but cannot decide Problem 1:
the best method to use. Kit, the Production manager, Problem 2:  [8]
wants to develop new products. A local window- d Do you think joining with the other business

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fitting business has offered to join the two businesses is the best way for GB to grow? Justify your
together. answer. [12]
a Identify two ways to measure the size of a
business.
Way 1:

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Way 2: [2]
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SA

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Original material © Cambridge University Press 2017