Types of Business Activity
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Sectors of Industry
- Primary Sector
- Secondary Sector
- Teritiery Sector
- Primary Sector is the extraction of natural resources from the earth.
- Secondary Sector is the manufacturing of the natural resources into goods.
- Teritiery sector is providing the goods or selling those goods as a service.
Industrialisation and Deindustrialisation
Industrialisation is when a firm moves from the primary sector to the secondary sector whereas Deindustrialisation is when a firm moves from the secondary sector to the Teritiery sector.
Private Sectors
All businesses, which are owned, and run by private individuals. The main objectives being to:
1)Make profit. (Profit Maximization)
2)Growth (To control a large share of the market)
Public Sectors
The businesses owned by the government with their main objectives being:
1) Providing services I.E. education , medical support etc.
2) Decrease unemployment.
3) To influence the economy
Free Market Economy
Private individuals own all resources; the government has no say in the decisions of the business; the firm itself plans where to locate the business how much to manufacture etc.
Advantages
- The consumer has more choices.
- The harder a worker works the more money he/she gets.
- Competition between businesses means a)Lower prices b)Wider choice c)Better quality.
- Because businesses make maximum profit from their product without any tax other businesses will be encouraged to setup and make profits.
Disadvantages
- The government does not provide any governmental services eg; education, medical support for citizens
- Consumers can be exploited.
- A business is likely to produce a product that might be harmful for the public.
- No free services for the people [Sewage collection and defense]
- no control over recessions and booms. (Growth)
Command and Planned economy
The government has all control and owns all the resources in the command and planned economy system. There are no private enterprises and companies, all belong to the government.Consumers have a limited choice.
Advantages
- There are jobs for everyone
- All the wastage produced due to the competition between businesses will be eliminated by the government
- Essential services like educatio medical support will be provided by the govt.
- Consumers can not be exploited.
Disadvantages
- No incentives for workers to work hard
- No incentives to do business
- Consumers will not have freedom of choice on what is produced
- Inefficiency will exist (Workers and Managers)
Mixed Economy
Mixed economy is the economy system which has the characteristics of both Command and Planned Economy as well as Free Market Economy's Characteristics.
Areas Of Government Ownership
- Health
- Education
- Public Transport
- Electricity
- Water
- Defence
Privatisation
When the government owns a business, we call it a nationalized industry. The process of selling the nationalized industry to private sector is called privatization. Examples, B.T (BRITISH TELECOM) B.R (BRITISH RAIL) B.S (BRITISH STEEL) B.L (BRITISH LAYLAND). All these companies were owned by the \british government but have now been privatized(sold in the private sector)
Advantages
- New owners operate to make money so the company will become more efficient.
- The government gets money.
- In the private sector there is competition.
- Investment in the business increases.
Disadvantages
- Because private sector is only interested in making a profit some services which are not profitable will close.
- Unemployment occurs.
- It might become a monopoly.
- When the business is in the public sector all of the people benefit, but the private sector business ONLY THE OWNERS BENEFIT.
Comparing the size of businesses
There are 4 most common ways to measure the size of the business.
They are:
a) By measuring the number of employees:
Some companies use production methods that require a small number of
employees (ie. They are capital intensive firms). Therefore a company
with high output levels could have only a small number of employees.
b) Turnover (Sales):Some companies may produce very expensive products,
(eg. F16 Fighter Planes). So the sales will be low but they will
be very big companies.
c) Profit:Some firms maybe very large and make very low profits.
WHY? Because:
(I)They are badly managed.
(II)They may have objectives of growth, want to have a big market share,
or may want to provide a service.
d) Amount of Capital Employed:4. Some companies are labour intensive.
Some companies are capital intensive. A capital intensive business
employs a lot of machinery but only a small number of people (Employees or Workers).
A labour intensive business employs a lot of people with only some machines.
There is no perfect to measure the size of a business; we have to
use more than one method to get accurate results.
How businesses Grow
Businesses can grow in 2 main ways. They are: 1. Internal Growth. 2. External Growth. INTERNAL GROWTH. It is when a business expands its current operations. Eg: Opens a new branch This is often done by retained profits. EXTERNAL GROWTH. There are many types of External Growth. They are:1. HORIZONTAL INTEGRATION. (MERGER)
2. VERTICAL INTEGRATION.
3. CONGLOMERATE INTEGRATION.
Integrations
HORIZONTAL INTEGRATION.
When 2 firms join together (merge) at the same stage of production. Eg: 2 Firms producing tables merge together.
VERTICAL INTEGRATION.
When 2 firms at different stages of production merge together.
Eg:
a) The woodcutter merger with the manufacturer of tables and chairs.
b) The manufacturer of tables merges with the shop selling the tables.
NOTE: a) When a firm in the secondary sector merges with a firm in the primary sector we call it VERTICAL BACKWARD INTEGRATION.
b) When a firm in the secondary sector merges with a firm in the tertiary sector we call it VERTICAL FORWARD INTEGRATION.
CONGLOMERATE INTEGRATION.
When 2 firms merge together from a totally different industry. This is also known as DIVERSIFICATION. Eg: A clothing company owns a watch factory.
BENEFITS OF INTEGRATION.
1. Economies of scale.
2. You have a larger share of the market and therefore guarantee sales of your product.
3. Profits will be increased.
4. Guaranteed supply of raw materials.
5. A conglomerate spreads its risks over a large number of products, and in different industries. So, if 1 industry is not doing well it will not send the company bankrupt.
WHY DO SOME BUSINESSES STAY SMALL?
1. Type of industry. (Hairdressers)2. Market's size (Share)
3. Owner's Objectives
MARKET'S SIZE.
If the size of the market is small then the business will stay small. OWNER'S OBJECTIVES.
The owner doesn't want to have a big business. WHY?
1. He doesn't want any hassle.
2. It is easy to manage a small business.
3. Less stress and worries in a small business.
4. He can keep control of the small business
About the Author
by: Admin
Total views: 2702
Word Count: 1676
Date: Sat, 20 May 2006 Time: 12:00 AM
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