1.

1 – Business Activity

The word ‘business’ is very familiar to us. We are surrounded by businesses and we
could not imagine our life without the products we buy from them. So what is a
business, or what is business studies? Here’s the very posh definition for it: “the
study of economics and management”
Not clear? Don’t worry, by the end of this chapter, you should be getting a clear
picture of what a business is.

The Economic Problem

Need: a good or service essential for living. Examples include water and food and
shelter.

Want: a good or service that people would like to have, but is not required for living.
Examples include cars and watching movies.

Scarcity is the basic economic problem. It is a situation that exists when there are
unlimited wants and limited resources to produce the goods and services to
satisfy those wants. For example, we have a limited amount of money but there are
a lot of things we would like to buy, using the money.

Opportunity cost
Opportunity cost is the next best alternative forgone by choosing another item. Due
to scarcity, people are often forced to make choices. When choices are made it leads
to an opportunity cost

SCARCITY → CHOICE → OPPORTUNITY COST

Example: the government has a limited amount of money (scarcity) and must decide
on whether to use it to build a road, or construct a hospital (choice). The government
chooses to construct the hospital instead of the road. The opportunity cost here are
the benefits from the road that they have sacrificed (opportunity cost).
Factors of Production
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Factors of Production are resources required to produce goods or services. They are
classified into four categories.

● Land: the natural resources that can be obtained from nature. This includes
minerals, forests, oil and gas. The reward for land is rent.
● Labour: the physical and mental efforts put in by the workers in the
production process. The reward for labour is wage/salary
● Capital: the finance, machinery and equipment needed for the production of
goods and services. The reward for capital is interest received on the capital
● Enterprise: the risk taking ability of the person who brings the other factors of
production together to produce a good or service. The reward for enterprise is
profit from the business.

Specialization
Specialization occurs when a person or organisation concentrates on a task at
which they are best at. Instead of everyone doing every job, the tasks are divided
among people who are skilled and efficient at them.

Advantages:

● Workers are trained to do a particular task and specialise in this, thus

increasing efficiency
● Saves time and energy: production is faster by specialising
● Quicker to train labourers: workers only concentrate on a task, they do not
have to be trained in all aspects of the production process
● Skill development: workers can develop their skills as they do the same
tasks repeatedly, mastering it.

Disadvantages:

● It can get monotonous/boring for workers, doing the same tasks repeatedly
● Higher labour turnover as the workers may demand for higher salaries and
company is unable to keep up with their demands
 ● Over-dependency: if worker(s) responsible for a particular task is absent, the
entire production process may halt since nobody else may be able to do the
task.

Purpose of Business Activity

So we’ve gone through factors of production, the problem of scarcity and
specialization, but what is business?

Business is any organization that uses all the factors of production

(resources) to create goods and services to satisfy human wants and needs.

Businesses attempt to solve the problem of scarcity, using scarce resources, to

produce and sell those goods and services that consumers need and want.

Added Value
Added value is the difference between the cost of materials bought in and the
selling price of the product.
Which is, the amount of value the business has added to the raw materials by
turning it into finished products. Every business wants to add value to their products
so they may charge a higher price for their products and gain more profits.
For example, logs of wood may not appeal to us as consumers and so we won’t buy
it or would pay a low price for it. But when a carpenter can use these logs to
transform it into a chair we can use, we will buy it at a higher cost because the
carpenter has added value to those logs of wood.

How to increase added value?

● Reducing the cost of production. Added value of a product is its price less
the cost of production. Reducing cost of production will increase the added
value.
● Raising prices. By increasing prices they can raise added value, in the same
way as described above.
But there will be problems that rise from both these measures. To lower cost of
production, cheap labour, raw materials etc. may have to be employed, which will
create poor quality products and only lowers the value of the product. People may
not buy it. And when prices are raised, the high price may result in customer loss, as
they will turn to cheaper products.

In a practical sense, you can add value by:

● Branding
● Adding special features
● Provide premium services etc.

In a practical example, how would you add value to a jewellery store?

● Design an attractive package to put the jewellery items in.

● An attractive shop-window-display.
● Well-dressed and knowledgeable shop assistants.

All of this will help the jewellery store to raise prices above the additional costs
involved.

1.2 – Classification of Businesses

Primary, Secondary and Tertiary Sector

Businesses can be classified into three sectors:

Primary sector: this involves the use/extraction of natural resources. Examples

include agricultural activities, mining, fishing, wood-cutting, oil drilling etc.

Secondary sector: this involves the manufacture of goods using the resources
from the primary sector. Examples include auto-mobile manufacturing, steel
industries, cloth production etc.
Tertiary sector: this consist of all the services provided in an economy. This
includes hotels, travel agencies, hair salons, banks etc.

Up until the mid 18th century, the primary sector was the largest sector in the world,
as agriculture was the main profession. After the industrial revolution, more countries
began to become more industrialized and urban, leading to a rapid increase in the
manufacturing sector (industrialization).

Nowadays, as countries are becoming more developed, the importance of tertiary

sector is increasing, while the primary sector is diminishing. The secondary sector is
also slightly reducing in size (de-industrialization) compared to the growth of the
tertiary sector . This is due to the growing incomes of consumers which raises their
demand for more services like travel, hotels etc.

Private and Public Sector

Private sector: where private individuals own and run business ventures. Their
aim is to make a profit, and all costs and risks of the business is undertaken by the
individual. Examples, Nike, McDonald’s, Virgin Airlines etc.

Public sector: where the government owns and runs business ventures. Their
aim is to provide essential public goods and services (schools, hospitals, police etc.)
in order to increase the welfare of their citizens, they don’t work to earn a profit. It is
funded by the taxpaying citizens’ money, so they work in the interest of these citizens
to provide them with services.

Example: the Indian Railways is a public sector organization owned by the govt. of
India.

In a mixed economy, both the public and private sector exists.

1.3 – Enterprise, Business Growth and Size

Entrepreneurship
An entrepreneur is a person who organizes, operates and takes risks for a new
business venture. The entrepreneur brings together the various factors of
production to produce goods or services. Check below to see whether you have
what it takes to be a successful entrepreneur!

● Risk taker
● Creative
● Optimistic
● Self-confident
● Innovative
● Independent
● Effective communicator
● Hard working

Business plan
A business plan is a document containing the business objectives and
important details about the operations, finance and owners of the new
business.

It provides a complete description of a business and its plans for the first few years;
explains what the business does, who will buy the product or service and why;
provides financial forecasts demonstrating overall viability; indicates the finance
available and explains the financial requirements to start and operate the business.

Some of the content of a regular business plan are:

● Executive summary: brief summary of the key features of the business and
the business plan
● The owner: educational background and what any previous experience in
doing previously
● The business: name and address of the business and detailed description of
the product or service being produced and sold; how and where it will be
produced, who is likely to buy it, and in what quantities
● The market: describe the market research that has been carried out, what it
has revealed and details of prospective customers and competitors
● Advertising and promotion: how the business will be advertised to potential
customers and details of estimated costs of marketing
● Premises and equipment: details of planning regulations, costs of premises
and the need for equipment and buildings
 ● Business organisation: whether the enterprise will take the form of sole trader,
partnership, company or cooperative
● Costs: indication of the cost of producing the product or service, the prices it
proposes to charge for the products
● Finance: how much of the capital will come from savings and how much will
come from borrowings
● Cash flow: forecast income (revenue) and outgoings (expenditures) over the
first year
● Expansion: brief explanation of future plans

Making a business plan before actually starting the business can be very helpful. By
documenting the various details about the business, the owners will find it much
easier to run it. There is a lesser chance of losing sight of the missionand vision
of the business as the objectives have been written down. Moreover, having the
objectives of the business set down clearly will help motivate the employees. A
new entrepreneur will find it easier to get a loan or overdraftfrom the bank if they
have a business plan.

Government support for business startups

According to startup.com, “a startup is a company typically in the early stages of its
development. These entrepreneurial ventures are typically started by 1-3 founders
who focus on capitalizing upon a perceived market demand by developing a viable
product, service, or platform”.

Why do governments want to help new start-ups?

● They provide employment to a lot of people

● They contribute to the growth of the economy
● They can also, if they grow to be successful, contribute to the exports of the
country
● Start-ups often introduce fresh ideas and technologies into business and
industry

How do governments support businesses?

● Organise advice: provide business advice to potential entrepreneurs, giving

them information useful in staring a venture, including legal and bureaucratic
ones
 ● Provide low cost premises: provide land at low cost or low rent for new
firms
● Provide loans at low interest rates
● Give grants for capital: provide financial aid to new firms for investment
● Give grants for training: provide financial aid for workforce training
● Give tax breaks/ holidays: high taxes are a disincentive for new firms to set
up. Governments can thus withdraw or lower taxation for new firms for a
certain period of time

Measuring business size

Businesses come in many sizes. They can be owned by a single individual or have
up to 50 shareholders. They can employ thousands of workers or have a mere
handful. But how can we classify a business as big or small?

Business size can be measured in the following ways:

● Number of employees: larger firms have larger workforce employed

● Value of output: larger firms are likely to produce more than smaller ones
● Value of capital employed: larger businesses are likely to employ much
more capital than smaller ones

However, these methods have their limitations and are not always accurate.
Example: When using the ‘number of employees’ method to compare business size
is not accurate as a capital intensive firm ( one that employs a large amount of
capital equipment) can produce large output by employing very little labour
(workers). Similarly, value of capital employed is not a reliable measure when
comparing a capital-intensive firm with a labour-intensive firm. Output value is also
unreliable because some different types of products are valued differently, and the
size of the firm doesn’t depend on this.

Business growth
Businesses want to grow because growth helps reduce their average costs in the
long-run, help develop increased market share, and helps them produce and sell to
them to new markets.
There are two ways in which a business can grow- internally and externally.

Internal growth

This occurs when a business expands its existing operations. For example, when
a fast food chain opens a new branch in another country. This is a slow means of
growth but easier to manage than external growth.

External growth

This is when a business takes over or merges with another business. It is

sometimes called integration as one firm is ‘integrated’ into the other.

A merger is when the owner of two businesses agree to join their firms together to
make one business.

A takeover occurs when one business buys out the owners of another business ,
which then becomes a part of the ‘predator’ business.

External growth can largely be classified into three types:

○ Horizontal merger/integration: This is when one firm merges with

or takes over another one in the same industry at the same stage
of production. For example, when a firm that manufactures
furniture merges with another firm that also manufacturers furniture.
Benefits:
■ Reduces number of competitors in the market, since two
firms become one.
■ Opportunities of economies of scale.
■ Merging will allow the businesses to have a bigger share
of the total market.
○ Vertical merger/integration: This is when one firm merges with or
takes over
another firm in the same industry but at a different stage of
production. Therefore, vertical integration can be of two types:
■ Backward vertical integration: When one firm merges
with or takes over another firm in the same industry but at
a stage of production that is behind the ‘predator’
firm. For example, when a firm that manufactures
furniture merges with a firm that supplies wood for
manufacturing furniture.
Benefits:
 ■ Merger gives assured supply of essential
components.
■ The profit margin of the supplying firm is now
absorbed by the expanded firm.
■ The supplying firm can be prevented from
supplying to competitors.
■ Forward vertical integration: When one firm merges
with or takes over another firm in the same industry but at
a stage of production that is ahead of the ‘predator’
firm. For example, when a firm that manufactures
furniture merges with a furniture retail store.
Benefits:
■ Merger gives assured outlet for their product.
■ The profit margin of the retailer is now
absorbed by the expanded firm.
■ The retailer can be prevented from selling the
goods of competitors.
● Conglomerate merger/integration: This is when one firm merges with or
takes over a firm in a completely different industry. This is also known as
‘diversification’. For example, when a firm that manufactures furniture merges
with a firm that produces clothing.
Benefits:
○ Conglomerate integration allows businesses to have activities in
more than one country. This allows the firms to spread its risks.
○ There could be a transfer of ideas between the two businesses
even though they are in different industries. This transfer o ideas
could help improve the quality and demand for the two products.

Drawbacks of growth

● Difficult to control staff: as a business grows, the business organisation in

terms of departments and divisions will grow, along with the number of
employees, making it harder to control, co-ordinate and communicate with
everyone
● Lack of funds: growth requires a lot of capital.
● Lack of expertise: growth is a long and difficult process that will require people
with expertise in the field to manage and coordinate activities
● Diseconomies of scale: this is the term used to describe how average costs of
a firm tends to increase as it grows beyond a point, reducing profitability. This
is explored more deeply in a later section.
Why businesses stay small
Not all businesses grow.Some stay small, employ a handful of workers and have
little output. Here are the reasons why.

● Type of industry: some firms remain small due to the industry they operate
in. Examples of these are hairdressers, car repairs, catering, etc, which give
personal services and therefore cannot grow.
● Market size: if the firm operates in areas where the total number of customers
is small, such as in rural areas, there is no need for the firm to grow and thus
stays small.
● Owners’ objectives: not all owners want to increase the size of their firms
and profits. Some of them prefer keeping their businesses small and having a
personal contact with all of their employees and customers, having
flexibility in controlling and running the business, having more control over
decision-making, and to keep it less stressful.

Why businesses fail

Not all businesses are successful. The main reasons why they fail are:

● Poor management: this is a common cause of business failure for new firms.
The main reason is lack of experience and planning which could lead to
bad decision making. New entrepreneurs could make mistakes when
choosing the location of the firm, the raw materials to be used for production,
etc, all resulting in failure
● Over-expansion: this could lead to diseconomies of scale and greatly
increase costs, if a firms expands too quickly or over their optimum level
● Failure to plan for change: the demands of customers keep changing with
change in tastes and fashion. Due to this, firms must always be ready to
change their products to meet the demand of their customers. Failure to do
so could result in losing customers and loss. They also won’t be ready to
quickly keep up with changes the competitors are making, and changes in
laws and regulations
● Poor financial management: if the owner of the firm does not manage his
finances properly, it could result in cash shortages. This will mean that the
employees cannot be paid and enough goods cannot be produced. Poor cash
flow can therefore also cause businesses to fail
Why new businesses are at a greater risk of failure

● Less experience: a lack of experience in the market or in business gets a lot

of firms easily pushed out of the market
● New to the market: they may still not understand the nuances and trends of
the market, that existing competitors will have mastered
● Don’t a lot of sales yet: only by increasing sales, can new firms grow and
find their foothold in the market. At a stage when they’re not selling much,
they are at a greater risk of failing
● Don’t have a lot of money to support the business yet: financial issues
can quickly get the better of new firms if they aren’t very careful with their
cash flows. It is only after they make considerable sales and start making a
profit, can they reinvest in the business and support it

1.4 – Types of Business Organizations

Sole Trader/Sole Proprietorship

A business organization owned and controlled by one person. Sole traders can
employ other workers, but only he/she invests and owns the business.

Advantages:

● Easy to set up: there are very few legal formalities involved in starting and
running a sole proprietorship. A less amount of capital is enough by sole
traders to start the business. There is no need to publish annual financial
accounts.
● Full control: the sole trader has full control over the business.
Decision-making is quick and easy, since there are no other owners to
discuss matters with.
● Sole trader receives all profit: Since there is only one owner, he/she will
receive all of the profits the company generates.
● Personal: since it is a small form of business, the owner can easily create
and maintain contact with customers, which will increase customer loyalty to
the business and also let the owner know about consumer wants and
preferences.
Disadvantages:

● Unlimited liability: if the business has bills/debts left unpaid, legal actions will
be taken against the investors, where their even personal property can be
seized, if their investments don’t meet the unpaid amount. This is because the
business and the investors are the legally not separate (unincorporated).
● Full responsibility: Since there is only one owner, the sole owner has to
undertake all running activities. He/she doesn’t have anyone to share his
responsibilities with. This workload and risks are fully concentrated on
him/her.
● Lack of capital: As only one owner/investor is there, the amount of capital
invested in the business will be very low. This can restrict growth and
expansion of the business. Their only sources of finance will be personal
savings or borrowing or bank loans (though banks will be reluctant to lend to
sole traders since it is risky).
● Lack of continuity: If the owner dies or retires, the business dies with
him/her.

Partnerships
A partnership is a legal agreement between two or more (usually, up to
twenty)people to own, finance and run a business jointly and to share all profits.

Advantages:

● Easy to set up: Similar to sole traders, very few legal formalities are required
to start a partnership business. A partnership agreement/ partnership deed
is a legal document that all partners have to sign, which forms the partnership.
There is no need to publish annual financial accounts.
● Partners can provide new skills and ideas: The partners may have some
skills and ideas that can be used by the business to improve business profits.
● More capital investments: Partners can invest more capital than what a sole
trade only by himself could.

Disadvantages:

● Conflicts: arguments may occur between partners while making decisions.

This will delay decision-making.
● Unlimited liability: similar to sole traders, partners too have unlimited liability-
their personal items are at risk if business goes bankrupt
● Lack of capital: smaller capital investments as compared to large companies.
 ● No continuity: if an owner retires or dies, the business also dies with them.

Joint-stock companies
These companies can sell shares, unlike partnerships and sole traders, to raise
capital. Other people can buy these shares (stocks) and become a
shareholder(owner) of the company. Therefore they are jointly owned by the people
who have bough it’s stocks. These shareholders then receive dividends (part of the
profit; a return on investment).

The shareholders in companies have limited liabilities. That is, only their individual
investments are at risk if the business fails or leaves debts. If the company owes
money, it can be sued and taken to court, but it’s shareholders cannot. The
companies have a separate legal identity from their owners, which is why the
owners have a limited liability. These companies are incorporated.
(When they’re unincorporated, shareholders have unlimited liability and don’t have a
separate legal identity from their business).

Companies also enjoys continuity, unlike partnerships and sole traders. That is, the
business will continue even if one of it’s owners retire or die.

Shareholders will elect a board of directors to manage and run the company in it’s
day-to-day activities. In small companies, the shareholders with the highest
percentage of shares invested are directors, but directors don’t have to be
shareholders. The more shares a shareholder has, the more their voting power.

These are two types of companies:

Private Limited Companies: One or more owners who can sell its’ shares to only
the people known by the existing shareholders (family and friends). Example: Ikea.
Public Limited Companies: Two or more owners who can sell its’ shares to any
individual/organization in the general public through stock exchanges (see
Economics: topic 3.1 – Money and Banking). Example: Verizon Communications.

Advantages:

● Limited Liability: this is because, the company and the shareholders have
separate legal identities.
● Raise huge amounts of capital: selling shares to other people (especially in
Public Ltd. Co.s), raises a huge amount of capital, which is why companies
are large.
● Public Ltd. Companies can advertise their shares, in the form of a
prospectus, which tells interested individuals about the business, it’s
 activities, profits, board of directors, shares on sale, share prices etc. This will
attract investors.

Disadvantages:

● Required to disclose financial information: Sometimes, private limited

companies are required by law to publish their financial statements annually,
while for public limited companies, it is legally compulsory to publish all
accounts and reports. All the writing, printing and publishing of such details
can prove to be very expensive, and other competing companies could use it
to learn the company secrets.
● Private Limited Companies cannot sell shares to the public. Their shares
can only be sold to people they know with the agreement of other
shareholders. Transfer of shares is restricted here. This will raise lesser
capital than Public Ltd. Companies.
● Public Ltd. Companies require a lot of legal documents and investigations
before it can be listed on the stock exchange.
● Public and Private Limited Companies must also hold an Annual General
Meeting (AGM), where all shareholders are informed about the performance
of the company and company decisions, vote on strategic decisions and elect
board of directors. This is very expensive to set up, especially if there are
thousands of shareholders.
● Public Ltd. Companies may have managerial problems: since they are
very large, they become very difficult to manage. Communication problems
may occur which will slow down decision-making.
● In Public Ltd. Companies, there may be a divorce of ownership and
control: The shareholders can lose control of the company when other large
shareholders outvote them or when board of directors control company
decisions.

A summary of everything learned until now, in this section, in case you’re getting
confused:
Franchises
The owner of a business (the franchisor) grants a licence to another person or
business (the franchisee) to use their business idea – often in a specific
geographical area. Fast food companies such as McDonald’s and Subway operate
around the globe through lots of franchises in different countries.

ADVANTAGES DISADVANTAGES

Rapid, low cost method

of business expansion Profits from the
franchise needs to be
Gets and income from shared with the
franchisee in the form of franchisee
franchise fees and
royalties Loss of control over
TO FRANCHISOR running of business

Franchisee will better

understand the local If one franchise fails, it
tastes and so can can affect the reputation
advertise and sell of the entire brand
appropriately
 Can access ideas and Franchisee may not be
suggestions from as skilled
franchisee

Need to supply raw

Franchisee will run the material/product and
operations provide support and
training

Cost of setting up
business

No full control over

business- need to
An established brand strictly follow
and trademark, so franchisor’s standards
chance of business and rules
failing is low

Franchisor will give

Profits have to be
technical and
TO FRANCHISEE shared with franchisor
managerial support

Need to pay franchisor

Franchisor will supply
franchise fees and
the raw
royalties
materials/products

Need to advertise and

promote the business in
the region themselves

Joint Ventures
Joint venture is an agreement between two or more businesses to work together
on a project. The foreign business will work with a domestic business in the same
industry. Eg: Google Earth is a joint venture/project between Google and NASA.
Advantages

● Reduces risks and cuts costs

● Each business brings different expertise to the joint venture
● The market potential for all the businesses in the joint venture is increased
● Market and product knowledge can be shared to the benefit of the businesses

Disadvantages

● Any mistakes made will reflect on all parties in the joint venture, which may
damage their reputations
● The decision-making process may be ineffective due to different business
culture or different styles of leadership

Public Sector Corporations

Public sector corporations are businesses owned by the government and run by
directors appointed by the government. They usually provide essentials services like
water, electricity, health services etc. The government provides the capital to run
these corporations in the form of subsidies (grants). The UK’s National Health
Service (NHS) is an example. Public corporations aim to:
● to keep prices low so everybody can afford the service.
● to keep people employed.
● to offer a service to the public everywhere.

Advantages:
● Some businesses are considered too important to be owned by an
individual. (electricity, water, airline)
● Other businesses, considered natural monopolies, are controlled by the
government. (electricity, water)
● Reduces waste in an industry. (e.g. two railway lines in one city)
● Rescue important businesses when they are failing through nationalisation
● Provide essential services to the people

Drawbacks:
● Motivation might not be as high because profit is not an objective
● Subsidies lead to inefficiency. It is also considered unfair for private
businesses
 ● There is normally no competition to public corporations, so there is no
incentive to improve
● Businesses could be run for government popularity

1.5 – Business Objectives and Stakeholder

Objectives

Business objectives
Business objectives are the aims and targets that a business works towards to help it
run successfully. Although the setting of these objectives does not always guarantee
the business success, it has its benefits.

● Setting objectives increases motivation as employees and managers now

have clear targets to work towards.
● Decision making will be easier and less time consuming as there are set
targets to base decisions on. i.e., decisions will be taken in order to achieve
business objectives.
● Setting objectives reduces conflicts and helps unite the business towards
reaching the same goal.
● Managers can compare the business’ performance to its objectives and
make any changes in its activities if required.

Objectives vary with different businesses due to size, sector and many other factors.
However, many business in the private sector aim to achieve the following
objectives.

● Survival: new or small firms usually have survival as a primary objective.

Firms in a highly competitive market will also be more concerned with survival
rather than any other objective. To achieve this, firms could decide to lower
prices, which would mean forsaking other objectives such as profit
maximization.
● Profit: this is the income of a business from its activities after deducting total
costs. Private sector firms usually have profit making as a primary objective.
This is because profits are required for further investment into the business
as well as for the payment of return to the shareholders/owners of the
business.
 ● Growth: once a business has passed its survival stage it will aim for growth
and expansion. This is usually measured by value of sales or output. Aiming
for business growth can be very beneficial. A larger business can ensure
greater jobsecurity and salaries for employees. The business can also
benefit from higher market share and economies of scale.
● Market share: this can be defined as the proportion of total market sales
achieved by one business. Increased market share can bring about many
benefits to the business such as increased customer loyalty, setting up of
brand image, etc.
● Service to the society: some operations in the private sectors such as social
enterprises do not aim for profits and prefer to set more economical
objectives. They aim to better the society by providing social, environmental
and financial aid. They help those in need, the underprivileged, the
unemployed, the economy and the government.

A business’ objectives do not remain the same forever. As market situations change
and as the business itself develops, its objectives will change to reflect its current
market and economic position. For example, a firm facing serious economic
recession could change its objective from profit maximization to short term survival.

Stakeholders
A stakeholder is any person or group that is interested in or directly affected
by the performance or activities of a business. These stakeholder groups can be
external – groups that are outside the business or they can be internal – those
groups that work for or own the business.

Internal stakeholders:

● Shareholder/ Owners: these are the risk takers of the business. They invest
capital into the business to set up and expand it. These shareholders are
liable to a share of the profits made by the business.
Objectives:
○ Shareholders are entitled to a rate of return on the capital they
have invested into the business and will therefore have profit
maximization as an objective.
○ Business growth will also be an important objective as this will
ensure that the value of the shares will increase.
 ● Workers: these are the people that are employed by the business and are
directly involved in its activities.
Objectives:
○ Contract of employment that states all the right and
responsibilities to and of the employees.
○ Regular payment for the work done by the employees.
○ Workers will want to benefit from job satisfaction as well as
motivation.
○ The employees will want job security– the ability to be able to work
without the fear of being dismissed or made redundant.
● Managers: they are also employees but managers control the work of
others. Managers are in charge of making key business decisions.
Objectives:
○ Like regular employees, managers too will aim towards a secure
job.
○ Higher salaries due to their jobs requiring more skill and effort.
○ Managers will also wish for business growth as a bigger business
means that managers can control a bigger and well known
business.

External Stakeholders:

● Customers: they are a very important part of every business. They purchase
and consume the goods and services that the business produces/
provides. Successful businesses use market research to find out customer
preferences before producing their goods.
Objectives:
○ Price that reflects the quality of the good.
○ The products must be reliable and safe. i.e., there must not be any
false advertisement of the products.
○ The products must be well designed and of a perceived quality.
● Government: the role of the government is to protect the workers and
customers from the business’ activities and safeguard their interests.
Objectives:
○ The government will want the business to grow and survive as they
will bring a lot of benefits to the economy. A successful business will
help increase the total output of the country, will improve
employment as well as increase government revenue through
payment of taxes.
○ They will expect the firms to stay within the rules and regulations
set by the government.
 ● Banks: these banks provide financial help for the business’ operations’
Objectives:
○ The banks will expect the business to be able to repay the amount
that has been lent along with the interest on it. The bank will thus
have business liquidity as its objective.
● Community: this consists of all the stakeholder groups, especially the third
parties that are affected by the business’ activities.
Objectives:
○ The business must offer jobs and employ local employees.
○ The production process of the business must in no way harm the
environment.
○ Products must be socially responsible and must not pose any
harmful effects from consumption.

Public- sector businesses

Government owned and controlled businesses do not have the same objectives as
those in the private sector.

Objectives:

● Financial: although these businesses do not aim to maximize profits, they will
have to meet the profit target set by the government. This is so that it can be
reinvested into the business for meeting the needs of the society
● Service: the main aim of this organization is to provide a service to the
community that must meet the quality target set by the government
● Social: most of these social enterprises are set up in order to aid the
community. This can be by providing employment to citizens, providing good
quality goods and services at an affordable rate, etc.
● They help the economy by contributing to GDP, decreasing unemployment
rate and raising living standards.

This is in total contrast to private sector aims like profit, growth, survival, market
share etc.

Conflicts of stakeholders’ objectives

As all stakeholders have their own aims they would like to achieve, it is natural that
conflicts of stakeholders’ interests could occur. Therefore, if a business tries to
satisfy the objectives of one stakeholder, it might mean that another stakeholders’
objectives could go unfulfilled.

For example, workers will aim towards earning higher salaries. Shareholders might
not want this to happen as paying higher salaries could mean that less profit will be
left over for payment of return to the shareholders.

Similarly, the business might want to grow by expanding operations to build new
factories. But this might conflict with the community’s want for clean and
pollution-free localities.