1.1.3

Why are Businesses Set Up?

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Why are Businesses Set Up?

We have seen that businesses exist to serve customers’ wants or needs and do so through supplying goods or services. Businesses are set up for a variety of reasons. They are not always set up to provide or increase someone’s income. A few key reasons include:

People want the good or service

People want the good or service

An entrepreneur starts to sell a good or service that they think people will want to buy.

Distribute goods

Distribute goods

Businesses may be set up to distribute goods – they buy products from manufacturers and then sell these goods to other businesses or to customers.

Benefit society

Benefit society

Businesses may be set up to benefit other people or to benefit society as a whole. These businesses are often not-for-profit organisations.
E.g. a business that is set up to provide malaria nets to people who can’t afford them in Africa.

Adding value

Adding value

Businesses are set up to add value to goods or services.
Added value is the difference between the selling price and the cost of inputs.
Value can be increased by: improving quality, branding, convenience, or offering better customer service.
Example: Toms shoes adds value by combining the product with a social purpose
- For every pair sold, a pair is donated to someone in need.

1

Understanding Business Activity

1.1

Business Activity

1.1.1Purpose of Business Activity 1.1.2Customer Needs 1.1.3Why are Businesses Set Up?1.1.4Specialisation & Division of Labour

1.2

Classification of Businesses

1.2.1The 3 Sectors of Economic Activity 1.2.2Public & Private Sector

1.3

Enterprise, Business Growth & Size

1.4

Types of Business Organisation

1.4.1Sole Traders 1.4.2Partnerships 1.4.3Limited Companies 1.4.4Private Limited Companies 1.4.5Public Limited Companies 1.4.6Unlimited vs Limited Liability 1.4.7Not For Profit 1.4.8Franchising 1.4.9End of Topic Test - Business Ownership 1.4.10Application Questions - Business Ownership 1.4.11Diagnostic Misconceptions - Company vs Business

1.5

Business Objectives & Stakeholder Objectives

1.5.1The Main Stakeholders in a Business 1.5.2The Impact & Influence of Stakeholders on Business 1.5.3Diagnostic Misconceptions - Profit 1.5.4Diagnostic Misconceptions - Owners vs Shareholders

2

People in Business

2.1

Human Resource Management (HRM)

2.1.1Contracts of Employment 2.1.2Recruitment 2.1.3Benefits of an Effective Recruitment Process 2.1.4Reducing the Workforce 2.1.5Legal Controls Over Employment 2.1.6Training 2.1.7End of Topic Test - The Workforce 2.1.8Application Questions - The Workforce 2.1.9Diagnostic Misconceptions - Recruitment

2.2

Organisation & Management

2.2.1Internal Organisational Structures 2.2.2Business Functions & Definitions 2.2.3Centralised vs. Decentralised Structures 2.2.4Tall & Flat Organisations 2.2.5The Impact of Organisational Structure on Managing 2.2.6Leadership Styles 2.2.7Trade Unions 2.2.8End of Topic Test - Org Structure

2.3

Methods of Communication

2.3.1Communication in Businesses

2.4

Motivating Employees

2.4.1Motivation in the Workplace 2.4.2Financial Methods of Motivation 2.4.3Non-Financial Methods of Motivation 2.4.4Diagnostic Misconceptions - Money

3

Marketing

3.1

Marketing & the Market

3.1.1Customer Needs 3.1.2Identifying and Satisfying Customer Needs 3.1.3The Market 3.1.4The Market-Driven Approach 3.1.5Competition 3.1.6The Impact of High Competition 3.1.7Diagnostic Misconceptions - Competition 3.1.8Market Segmentation 3.1.9Methods of Market Segmentation

3.2

Market Research

3.2.1Market Research 3.2.2Qualitative & Quantitative Research 3.2.3Primary Market Research 3.2.4Secondary Market Research 3.2.5Analyse Market Research Data 3.2.6Application Questions - Marketing 3.2.7End of Topic Test - Marketing

3.3

Marketing Mix

3.3.1The Product Life Cycle 3.3.2Product Design 3.3.3Product Portfolio & The Boston Matrix 3.3.4Benefits & Risks of New Products 3.3.5Extension Strategies 3.3.6Price 3.3.7Pricing - Skimming & Penetration 3.3.8Competitive and Cost-Plus Pricing 3.3.9Market Mapping - Price vs Quality 3.3.10Place 3.3.11Manufacturer-Wholesalers-Retailers-Customers 3.3.12Manufacturer-Retailers-Customers 3.3.13Direct to Customers 3.3.14Promotional Methods 3.3.15Reasons for Promotion 3.3.16Advertising 3.3.17Advertisement - Product Placement 3.3.18Public Relations 3.3.19Sales Promotion 3.3.20Sponsorship 3.3.21Social Media 3.3.22Promotional Mix 3.3.23E-Commerce and M-Commerce 3.3.24Benefits & Drawbacks of E-Commerce and M-Commerce 3.3.25End of Topic Test - Marketing Mix 3.3.26Grade 9 - Marketing Mix 3.3.27Diagnostic Misconceptions - Decreasing Price 3.3.28Diagnostic Misconceptions - Advertise vs Promote 3.3.29Diagnostic Misconceptions - Social Media 3.3.30Marketing Strategy 3.3.31Entering Foreign Markets

3.4

Legal Controls

3.4.1Legal Controls on Marketing

4

Operations Management

4.1

Production of Goods & Services

4.1.1Production Processes Overview 4.1.2Job Production 4.1.3Flow Production 4.1.4Batch Production 4.1.5Production Efficiency - Lean Production 4.1.6Managing Stock - Just in Time 4.1.7Technology & Production 4.1.8Factors of Production 4.1.9Diagnostic Misconceptions - JIT vs JIC

4.2

Cost, Scale of Production & Break-Even Analysis

4.2.1Costs 4.2.2Costs - Calculations 4.2.3Economies of Scale 4.2.4Diseconomies of Scale 4.2.5Break-Even Analysis 4.2.6Profits and Losses - Calculations 4.2.7Diagnostic Misconceptions - Fixed Costs 4.2.8Diagnostic Misconceptions - Economies of Scale 4.2.9Diagnostic Misconceptions - Break-Even

4.3

Achieving Quality Production

4.3.1Importance of Quality 4.3.2Measuring Quality 4.3.3Quality control 4.3.4Total Quality Management 4.3.5Benefits of Maintaining High Product/Service Qual.4.3.6Costs of Maintaining High Quality/Service 4.3.7End of Topic Test - Operational Decisions

4.4

Location Decisions

4.4.1Business Location 4.4.2Nature of Business Activity

5

Financial Information & Decisions

6

External Influences on Business Activity

6.1

Economic Issues

6.1.1Business Cycle 6.1.2Objectives of Government Economic Policy 6.1.3Provision of Public Services 6.1.4Taxation & Constraints on Public Spending 6.1.5The Government & Business Activity 6.1.6Interest Rates 6.1.7Interest Rates - Calculations 6.1.8Diagnostic Misconceptions - Recession

6.2

Business & the International Economy

6.2.1Multinational Companies 6.2.2Exchange Rates

6.3

Business & the Environment

6.3.1Globalisation 6.3.2Environmental Issues 6.3.3Business and Sustainability

6.4

Business & Ethical Issues

6.4.1Ethical Considerations for Businesses 6.4.2Benefits of Being Ethical

6.5

Pressure Groups

6.5.1Pressure Groups

Jump to other topics

1

Understanding Business Activity

1.1

Business Activity

1.1.1Purpose of Business Activity 1.1.2Customer Needs 1.1.3Why are Businesses Set Up?1.1.4Specialisation & Division of Labour

1.2

Classification of Businesses

1.2.1The 3 Sectors of Economic Activity 1.2.2Public & Private Sector

1.3

Enterprise, Business Growth & Size

1.4

Types of Business Organisation

1.4.1Sole Traders 1.4.2Partnerships 1.4.3Limited Companies 1.4.4Private Limited Companies 1.4.5Public Limited Companies 1.4.6Unlimited vs Limited Liability 1.4.7Not For Profit 1.4.8Franchising 1.4.9End of Topic Test - Business Ownership 1.4.10Application Questions - Business Ownership 1.4.11Diagnostic Misconceptions - Company vs Business

1.5

Business Objectives & Stakeholder Objectives

1.5.1The Main Stakeholders in a Business 1.5.2The Impact & Influence of Stakeholders on Business 1.5.3Diagnostic Misconceptions - Profit 1.5.4Diagnostic Misconceptions - Owners vs Shareholders

2

People in Business

2.1

Human Resource Management (HRM)

2.1.1Contracts of Employment 2.1.2Recruitment 2.1.3Benefits of an Effective Recruitment Process 2.1.4Reducing the Workforce 2.1.5Legal Controls Over Employment 2.1.6Training 2.1.7End of Topic Test - The Workforce 2.1.8Application Questions - The Workforce 2.1.9Diagnostic Misconceptions - Recruitment

2.2

Organisation & Management

2.2.1Internal Organisational Structures 2.2.2Business Functions & Definitions 2.2.3Centralised vs. Decentralised Structures 2.2.4Tall & Flat Organisations 2.2.5The Impact of Organisational Structure on Managing 2.2.6Leadership Styles 2.2.7Trade Unions 2.2.8End of Topic Test - Org Structure

2.3

Methods of Communication

2.3.1Communication in Businesses

2.4

Motivating Employees

2.4.1Motivation in the Workplace 2.4.2Financial Methods of Motivation 2.4.3Non-Financial Methods of Motivation 2.4.4Diagnostic Misconceptions - Money

3

Marketing

3.1

Marketing & the Market

3.1.1Customer Needs 3.1.2Identifying and Satisfying Customer Needs 3.1.3The Market 3.1.4The Market-Driven Approach 3.1.5Competition 3.1.6The Impact of High Competition 3.1.7Diagnostic Misconceptions - Competition 3.1.8Market Segmentation 3.1.9Methods of Market Segmentation

3.2

Market Research

3.2.1Market Research 3.2.2Qualitative & Quantitative Research 3.2.3Primary Market Research 3.2.4Secondary Market Research 3.2.5Analyse Market Research Data 3.2.6Application Questions - Marketing 3.2.7End of Topic Test - Marketing

3.3

Marketing Mix

3.3.1The Product Life Cycle 3.3.2Product Design 3.3.3Product Portfolio & The Boston Matrix 3.3.4Benefits & Risks of New Products 3.3.5Extension Strategies 3.3.6Price 3.3.7Pricing - Skimming & Penetration 3.3.8Competitive and Cost-Plus Pricing 3.3.9Market Mapping - Price vs Quality 3.3.10Place 3.3.11Manufacturer-Wholesalers-Retailers-Customers 3.3.12Manufacturer-Retailers-Customers 3.3.13Direct to Customers 3.3.14Promotional Methods 3.3.15Reasons for Promotion 3.3.16Advertising 3.3.17Advertisement - Product Placement 3.3.18Public Relations 3.3.19Sales Promotion 3.3.20Sponsorship 3.3.21Social Media 3.3.22Promotional Mix 3.3.23E-Commerce and M-Commerce 3.3.24Benefits & Drawbacks of E-Commerce and M-Commerce 3.3.25End of Topic Test - Marketing Mix 3.3.26Grade 9 - Marketing Mix 3.3.27Diagnostic Misconceptions - Decreasing Price 3.3.28Diagnostic Misconceptions - Advertise vs Promote 3.3.29Diagnostic Misconceptions - Social Media 3.3.30Marketing Strategy 3.3.31Entering Foreign Markets

3.4

Legal Controls

3.4.1Legal Controls on Marketing

4

Operations Management

4.1

Production of Goods & Services

4.1.1Production Processes Overview 4.1.2Job Production 4.1.3Flow Production 4.1.4Batch Production 4.1.5Production Efficiency - Lean Production 4.1.6Managing Stock - Just in Time 4.1.7Technology & Production 4.1.8Factors of Production 4.1.9Diagnostic Misconceptions - JIT vs JIC

4.2

Cost, Scale of Production & Break-Even Analysis

4.2.1Costs 4.2.2Costs - Calculations 4.2.3Economies of Scale 4.2.4Diseconomies of Scale 4.2.5Break-Even Analysis 4.2.6Profits and Losses - Calculations 4.2.7Diagnostic Misconceptions - Fixed Costs 4.2.8Diagnostic Misconceptions - Economies of Scale 4.2.9Diagnostic Misconceptions - Break-Even

4.3

Achieving Quality Production

4.3.1Importance of Quality 4.3.2Measuring Quality 4.3.3Quality control 4.3.4Total Quality Management 4.3.5Benefits of Maintaining High Product/Service Qual.4.3.6Costs of Maintaining High Quality/Service 4.3.7End of Topic Test - Operational Decisions

4.4

Location Decisions

4.4.1Business Location 4.4.2Nature of Business Activity

5

Financial Information & Decisions

6

External Influences on Business Activity

6.1

Economic Issues

6.1.1Business Cycle 6.1.2Objectives of Government Economic Policy 6.1.3Provision of Public Services 6.1.4Taxation & Constraints on Public Spending 6.1.5The Government & Business Activity 6.1.6Interest Rates 6.1.7Interest Rates - Calculations 6.1.8Diagnostic Misconceptions - Recession

6.2

Business & the International Economy

6.2.1Multinational Companies 6.2.2Exchange Rates

6.3

Business & the Environment

6.3.1Globalisation 6.3.2Environmental Issues 6.3.3Business and Sustainability

6.4

Business & Ethical Issues

6.4.1Ethical Considerations for Businesses 6.4.2Benefits of Being Ethical

6.5

Pressure Groups

6.5.1Pressure Groups

Practice questions on Why are Businesses Set Up?

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

1
Why do people set businesses up?Fill in the list
2
Why is a company selling malaria nets in Africa likely to have been set up?Multiple choice
3
Elon Musk set up Tesla because:Multiple choice
4
An entrepreneur notices many local residents need affordable fresh vegetables, but there is no nearby market. What is the main reason this entrepreneur might set up a business?Multiple choice
5
A company purchases toys from manufacturers and sells them to independent shops in the area. Which best describes the purpose of this business?Multiple choice

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Customer Needs

Specialisation & Division of Labour