What is a Business ??

Learning
Outcome –
• The nature of business
• Primary, secondary, tertiary and quaternary
sectors
• Entrepreneurship
• Challenges and opportunities for starting up a
business
 A business can be defined as a decision-making
organization established to produce goods and/or
provide services. Goods are physical products, e.g., food,
clothes, furniture, cars and smartphones. Services are
intangible products, e.g., haircuts, tourism, public
transport, banking, insurance education, and healthcare.

Goods and services differ in four ways. Specifically, services are:

Intangible – Unlike goods, services are not physical in their nature.

Inseparable – The service received is attached to the people who

deliver the service and the processes used to deliver the service.

Perishable – Services do not last but are usually consumed at the time
of purchase.

Variable – services are heterogeneous, i.e., each customer experience is

unique.
To produce goods and services, businesses need to combine human, physical and
financial resources in an effective way. Economists call these resources factors of
production, which are comprised of:

• Land – These are natural resources needed to produce goods and services.
Examples include water, timber, sand, minerals, metal ores, plants and
animals. Hence, these are sometimes referred to as physical resources.
• Labour – This refers to human effort used to produce goods and services. Hence,
this is often referred to as human resources.
• Capital – This refers to non-natural (or manufactured) resources used in the
production process. Examples include tools, machinery, motor vehicles, physical
premises, and infrastructure. As these are all funded by money, capital resources
are sometimes referred to as financial resources.
• Entrepreneurship – This refers to the knowledge, skills and experiences of
individuals who have the capability to manage the overall production process.
Entrepreneurs have the ability and willingness to take risks in order to produce
goods and provide services to customers, profitably.
In order to provide goods and
services, businesses carry out a
number of functions. In large
organizations, there is scope for
these functions to be split into
departments (or functional areas):

•Human resources
•Finance and accounts
•Marketing, and
•Operations management
Human Resources
• Human resources (HR) is the function that handles all
aspects relate to the workforce. It involves all aspects of
business operations related to staff (personnel) within
an organization. Examples include the: recruitment,
induction, training, development, appraisal, promotion,
remunerating (rewarding) and dismissal of staff.
• The HR Department must also comply with legal
aspects of the external business environment
business environment. In particular, it must observe
different labour laws in all the countries it operates in.
Examples include laws about: minimum wages, working
hours, gender equality, equal opportunities, and anti-
discrimination.
Finance and accounts
• The finance and accounts function of an
organization refers to the responsibility
for ensuring that the business has
sufficient funds in order to conduct its
daily operations. Essentially, the finance
and accounts department is responsible
for managing the organization’s money
and maintaining accurate accounts
(financial records) of the firm’s funds.
 Marketing
Marketing is about identifying the needs and wants of
customers so that the business can provide goods and
services to meet these requirements and desires, usually
in a profitable way.
Marketing activities include:
• Market research to discover the products that customers
want, in an ever-changing and dynamic business
environment
• Determining appropriate pricing methods to sell the
products
• Promotion to inform and persuade customers about
buying the products
• Distributing the products to customers efficiently.
 Operations Management (Production)
• Operations (also known as operations
management or production) is the process of making goods
and providing services from the available resources of a
business to meet the needs and wants of its customers. It
involves ensuring that goods and services meet production
targets, deadlines and certain quality standards.
• All four of these functions of a business are interdependent,
i.e. depend and are reliant upon one another. For example, the
marketing department cannot determine an appropriate
marketing campaign without necessary discussions and
approval from the finance and accounts department.
• Production of a certain good may need to change if recent
market research shows changes in consumer habits, fashions
and tastes. All business decisions have implications on the
human resources department as people are needed to carry
out the other three functions.
 EXAM STYLE QUESTION

(a) Describe the meaning of adding value. [2 marks]

Explain the nature of businesses in combining factors

(b) [4 marks]
of production to create goods and services.
 ANSWER
(a) Describe the meaning of adding value. [2 marks]

Adding value (in the production process) is about creating value for
customers. It can be measured by the difference between a product’s
selling price and the material or direct costs of production.

Award [1 mark] for a limited response.

Award [2 marks] for a good response that shows a clear
understanding of adding value, similar to the example above.
(b) Explain the nature of businesses in combining factors of production to create goods and services. [4
marks]
The four factors of production are:
Land - natural resources / physical resources, Labour - human resources in the production process, Capital - non-
natural resources / manufactured resources / financial resources, Entrepreneurship - the business owner(s) who
take financial risks in return (usually) for profit.
These resources are needed to create (or to produce) goods and services. They are collectively needed to produce
any given good or service. For example, to produce a car, businesses will need:
Land - physical resources such as the raw materials needed to make the steel, rubber and glass to produce the car.
Labour - the employees who work at the car manufacturing plant.
Capital - such as mass production lines and robots used to make the cars.
Enterprise - such as the CEO and/or production director who oversees the whole operations of te cars being
manufactured and delivered to customers.

Award [1 - 2 marks] for an answer that shows some understanding of the demands of the question. There is some
understanding of how businesses combine factors of production to generate production but the answer lacks
sufficient depth.
Award [3 - 4 marks] for an answer that shows a good understanding of the demands of the question. There is a
detailed explanation of how businesses combine factors of production to generate production. The answer makes
effective use of business management terminology.
Primary, secondary, tertiary, & quaternary sectors
 Primary Sector
The primary sector refers to business activity involved with the
extraction of natural resources. For example, metal ores and coal have to
be mined, oil and natural gas have to be drilled from the ground, rubber
needs to be extracted from trees, foodstuffs need to be farmed, livestock
need to be managed by farmers, and fish need to be trawled. Hence,
primary sector production is also known as extractive production.
Examples of primary sector output include:
• Agricultural farming (crops)
• Animal husbandry (animals and livestock)
• Extraction of oil and gas
• Fishing
• Forestry and logging
• Hunting
• Mining
• Quarrying
 Secondary Sector
The secondary sector refers to business activity involved with the
manufacturing or construction of finished products. It encompasses
transforming primary sector output into finished goods, ready for sale or
use by the consumer.
For instance, plastics need to be made from using oil. It also includes businesses
that are involved in transforming other secondary sector output into finished
goods, such as assembling the component parts of motor vehicles, laptops, or
smartphones.
Examples of secondary sector production include:
• Car manufacturing
• Carpentry
• Construction
• Engineering
• Energy production
• Food processing
• Oil refining
 Tertiary Sector
The tertiary sector refers business activity that involves providing services to
customers, i.e., consumers and business clients. Tertiary sector output is the
predominant sector in economically developed countries (or high-income
economies). The tertiary sector of the economy accounts for the majority of
gross domestic product (GDP) and employment in these countries.
Examples of tertiary sector business activities include:
• Advertising
• Banking
• Catering
• Cinemas
• Communications (telecommunications and Internet)
• Distribution and delivery services
• Education (teaching)
• Health care
• Insurance
• Legal services
Proportions of
economic
sectors in the
gross domestic
product (GDP)
in selected
countries
(2020)
 Watch this 4-minute video clip that demonstrates the potato growing process, from planting
to harvesting (in the primary sector), processing 24/7 at the potato factory (in the secondary
sector), and how the potatoes end up on the supermarket shelf (in the tertiary sector).
 Quaternary Sector
The quaternary sector (often referred to as the knowledge economy) refers to business
activity involving the creation or sharing of knowledge and information. It involves the
generation and exploitation of knowledge in wealth creation of the economy, rather than
traditional industries that use natural resources or physical labour. Businesses operating
in these knowledge-based industries deal with digital information and communications
technology (ICT), research and development (R&D), and other high-level services.
Examples of production activities in the quaternary sector include:
• Biotechnology
• Further and higher education, including educational research
• Information and communications technology (ICT)
• Management consultancy
• Management information systems (MIS)
• Market research firms
• Medical research
• Online educational providers, such as InThinking and Pamoja Education (which
includes teacher training and consultancy solutions)
• Research and development (R&D), e.g., biotechnology and pharmaceutical companies
• Software and ‘app’ developers.
Entrepren
eurship &
Entrepren
eur
Entrepreneurship describes the A visionary is an entrepreneur
traits of individuals who run their who has the foresight and driving
own business(es). force behind an organization’s
The entrepreneur is both willing growth and development. S/he
and able to take calculated risks can see market changes and
by investing in a business start-up trends before they actually
or commercial initiative. They are happen or materialise, or even set
often described as visionaries. the trends themselves.
Characteristics of Entrepreneur

•Creativity •Decisiveness •Drive (motivation)

•Flexibility and open-

•Effective communicator •Leadership
mindedness

•Planner •Risk tolerance •Risk management

•Teamwork •Time management •Vision

Name the
famous
entreprene
ur who
 • Risk taker (willing to take calculated
business risks)
A successful entrepreneur • Innovative (creative / original
needs to be a RISER. One thinking)
way that might be useful
to remember the • Strategist (strategic thinking)
important traits of a
successful entrepreneur is
• Enthusiastic (passion / energetic /
that the acronym "RISER": drive)
• Resilient (ability to accept constructive
feedback and setbacks).
 ATL Activity - Famous
Entrepreneurs posters
Students should investigate an entrepreneur of their choice, and report
back on the main achievements / accomplishments of the person. Students
should include reference to how the entrepreneur impacts the nature of the
business in question. They could gather information such as:
• Line(s) of business
• Leadership / management style
• Historical perspective – how did s/he get involved in business?
• What makes them successful in business?
• Net wealth at the time of writing
• Fun facts - for example, Jack Ma (Founder of Alibaba) was once an English
teacher, having failed his English proficiency three times as well as being
the only applicant during a recruitment round not to be hired by KFC
Challenges &
opportunitie
s for starting
a business
 Challenges that new businesses may
encounter
• Lack of finance
• Lack of market research
• Poor marketing
• Limited human
resources
• Long hours
• Lack of knowledge,
skills, and experiences
Discussion
questions
Q1. What are the possible reasons for
the challenges faced by McDonald's in Iceland?

Q2. What are the positive economic prospects

for businesses operating in Iceland?
1. Possible reasons for the challenges faced by McDonald's in Iceland include:
• The global financial crisis of 2008 that caused major banks in Iceland to collapse, thereby causing major
economic challenges in the country
• The fall in the exchange rate led to a huge increase in import prices (such as the imported onions from
Germany)
• A small population (of only around 300,000 people), i.e. a limited customer base
• To remain profitable, franchise owners would have had to raise the price of the Big Mac by 20%, but this would
also mean the priciest Big Macs in the world
• Mismanagement of the company; the company was highly indebted with loans from foreign banks
• Iceland is ranked the second most expensive country in the world to live in; McDonald's was not able to control
its costs or to keep its prices competitive in Iceland - unlike its rival KFC.
2. The positive economic prospects for businesses operating in Iceland (mentioned at the end of the
video) include:
• The economy has bounced back from the global financial crisis (although this video was produced before the
coronavirus pandemic of 2019 / 2020!)
• Iceland is proving to be an inviting place to do business - it is ranked 5th in Europe in terms of the Economic
Freedom Index
• Icelanders eat out regularly, and the average young person eats fast food every other day (spending around
$220 per person per month)
• The country has been become an attractive destination for foreign tourists; the number quadrupled between
2010 and 2017.
Opportunities for starting up a business
• Money
• Autonomy
• Challenges
• Passions
• Family ties
• Unfilled market opportunities
• Making a difference
• Not being able to find
employment
 Opportunities and challenges of different business
ventures

• Form groups of 3-5 students.

• Picks up a chit
• Discuss the challenges and
opportunities that they are likely to
experience while starting the
business on their chit.
• Create a list with a
minimum four challenges
and four opportunities.
References
• DP Business Management: Unit 1 - Intro to
BM.” Subscription Websites for IB Teachers &
Their
Classes, www.thinkib.net/businessmanagement/pag
e/43522/unit-1-intro-to-bm.

• Hoang. Business Management 4th Edition. 2018.