1.

Enterprise
Factors of Production

Factors of production are resources needed by business to produce goods or

services. They include:

▪ Land – this general term includes not only land itself but all of the renewable and non-
renewable resources of nature, such as coal, crude oil and timber.

▪ Labor – the manual e orts and skills which are invested in the form of a workforce into
the business.

▪ Capital – this is not just the nance needed to set up a business and pay for its
continuing operations, but also all of the man-made resources used in production
which include capital goods; such as computers, machines, factories and vehicles.

▪ Enterprise – this is the driving force, provided by risk-taking individuals, that combines
the other factors of production into a unit capable of producing goods and services. It
provides a managing, decision-making and coordinating role

The concept of Adding Value

Value Creation in Business

All businesses aim to create value, which involves selling
goods and services at a price higher than the cost of
materials. The primary goal is to make a pro t through
value creation.
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 Pro tability and Value
Essential for Pro t: Pro tability hinges on a business's ability to successfully create value.
Success Indicator: If customers are willing to pay a price exceeding the material costs,
the business has e ectively created value.

Concept of Adding Value

Adding Value De ned: This process is often referred to as 'adding value,' signifying the
enhancement of a product's worth.
Calculation: It is the di erence between the nal price of goods or services and the cost
of materials acquired for production.

Methods of Adding Value

Various methods can be employed to add value to a product, such as:
Attractive Packaging: Eye-catching and appealing product packaging.
Aesthetic Shop- ttings: Creating an attractive and welcoming in-store environment.
Customer Service: O ering excellent customer service, including after-sales service
policies.

Signi cance of Value Addition

Customer Perspective: Value addition enhances the perceived worth of a product or
service in the eyes of the customer.
Competitive Edge: Businesses that e ectively add value can gain a competitive
advantage in the market.

The nature of economic activity, the problem of choice and opportunity

cost

Nature of Economic Activity

• Economic activity involves the production, distribution, and consumption of goods and
services in an economy.
• Production: Creation of goods and services.

• Distribution: Allocation and movement of goods and services.

• Consumption: Utilization of goods and services by individuals and businesses.

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The Problem of Choice

• Scarcity: Resources (time, money, labor, etc.) are limited compared to unlimited wants
and needs.
• Necessitates Choice: Due to scarcity, individuals, businesses, and governments must
make choices about what to produce, how to produce, and for whom to produce.

Opportunity Cost
• The value of the next best alternative foregone when a decision is made.
• Example: If you choose to spend your evening studying instead of going to a movie,
the opportunity cost is the enjoyment and experience of the movie.
• Inherent in Choices: Every decision involves giving up something to gain something
else.

Understanding opportunity cost is crucial for e ciently allocating limited resources. It

helps individuals and businesses make informed choices by considering the trade-o s
involved. Furthermore, it aids in achieving a balance between wants and resources,
contributing to economic e ciency.

The Dynamic Business Environment (PEST)

The dynamic business environment refers to the constantly changing and evolving
conditions in which businesses operate. The business environment is characterized by
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continuous change and uncertainty, in uenced by various factors such as technology,
market trends, and regulatory developments. It involves the interplay of numerous factors,
including economic conditions, technological advancements, societal shifts, and
competitive forces.

Components of the Dynamic Business Environment [PEST]

Technological Advances: Rapid changes in technology impact industries, market

dynamics, and business operations.
Economic Conditions: Fluctuations in economic conditions, such as in ation, interest
rates, and global economic trends, shape the business landscape.
Market Trends: Shifting consumer preferences, market demands, and industry trends
contribute to the dynamism.
Regulatory Changes: Alterations in laws and regulations at local, national, and
international levels impact business strategies and compliance requirements.

Impact on Businesses

• Adaptability: Businesses need to be adaptable and responsive to changes to remain

competitive.
• Innovation: The dynamic environment encourages businesses to innovate and stay
ahead of emerging trends.
• Risk Management: Uncertainties in the environment necessitate e ective risk
management strategies.

Challenges and Opportunities

• Challenges: Businesses may face challenges in predicting and responding to rapid

changes, leading to risks and disruptions.
• Opportunities: The dynamic environment presents opportunities for growth,
innovation, and gaining a competitive edge.

Strategic Planning
• Continuous Planning: Businesses engage in continuous strategic planning to
anticipate, respond to, and capitalize on changes in the environment.
• Flexibility: Strategies need to be exible to accommodate unforeseen changes and
seize emerging opportunities.
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 What businesses need to succeed?
Enterprise

Successful businesses often exhibit a strong enterprise by fostering innovation and

adaptability. Entrepreneurs, as the driving force behind enterprises, are essential for
identifying and capitalizing on new opportunities. Their ability to take calculated risks and
navigate uncertainties contributes to a business's ability to stay competitive and meet
evolving market demands. Moreover, a culture that encourages entrepreneurial thinking
among employees enhances creativity and problem-solving throughout the organization.
Objectives

Clear and well-de ned objectives are the compass guiding a business toward success.
When objectives are aligned with the broader mission and vision, they provide a roadmap
for strategic decision-making. Measurable objectives allow businesses to assess their
progress and adjust strategies as needed. However, the key lies not only in setting
objectives but also in regularly reviewing and adapting them to remain responsive to
changes in the business environment. Flexibility in objectives ensures that businesses can
pivot when necessary without losing sight of their overarching goals.
Cost Monitoring

E ective cost monitoring and management are fundamental to a business's nancial

health. By closely tracking expenses, businesses can identify areas for optimization,
ensuring e cient resource allocation. Regular budgeting and cost analysis contribute to
maintaining healthy pro t margins and bolstering nancial stability. It's not merely about
minimizing costs but also about making strategic investments that yield long-term
bene ts. Businesses that prioritize cost-consciousness while strategically allocating
resources are better positioned for sustained success.
Human Resource Management

The success of any business heavily relies on the people within it. Talent acquisition is not
just about lling positions but about attracting individuals whose skills align with the
business's needs and culture. Ongoing training and development programs are crucial for
adapting to industry changes and fostering employee growth. A positive workplace
culture and high levels of employee engagement lead to increased productivity and
innovation. Human resource management extends beyond administrative functions; it is a
strategic driver of organizational success through e ective talent management.
Marketing

Understanding the market and consumer needs is the foundation of successful

marketing. Businesses must go beyond product or service o erings to create value that
resonates with their target audience. E ective communication of this value proposition
builds brand recognition and customer loyalty. The dynamic nature of markets
necessitates an agile approach to marketing strategies, with businesses adapting to
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changing consumer behaviors and industry trends. A well-crafted marketing strategy not
only attracts customers but also establishes a strong market presence, contributing to
sustained business success.
Coordination

Coordination is the backbone of smooth business operations. Internally, e ective

communication and collaboration among di erent departments ensure that everyone is
working toward common goals. Supply chain coordination is critical for timely production
and delivery, preventing disruptions. Furthermore, fostering a culture of collaboration and
open communication within the organization promotes innovation and problem-solving.
Successful businesses recognize that coordination is not just a logistical necessity but a
strategic advantage that enhances overall e ciency and adaptability.

Why do new businesses fail?

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 Lack of Record Keeping

Issue: Failing to keep accurate records can lead to nancial mismanagement and a lack
of insight into the business's performance.

Impact: Inadequate record-keeping hampers decision-making and makes it challenging

to address nancial issues promptly.

Working Capital and Cash Flow Challenges

Issue: New businesses often struggle with working capital, causing di culties in covering
day-to-day expenses.

Impact: Cash ow problems can lead to operational disruptions, a ecting the ability to
pay bills, purchase inventory, or invest in growth.

Poor Management Skills

Issue: Ine ective management, especially in human resource management, can result in
demotivated employees and poor quality of work.

Impact: A lack of leadership and organizational skills can hinder productivity, employee
satisfaction, and overall business performance.

Changes in the Business Environment

Issue: Both external and internal factors can disrupt the business environment, posing
challenges for startups.
Impact: Adapting to unexpected changes becomes di cult, a ecting strategic planning
and execution.
Competition from Established Businesses
Issue: Established businesses set benchmarks, making it challenging for startups to
attract customers.
Impact: The competition may overshadow new entrants, making customer acquisition
and market penetration di cult.
Building a Loyal Customer Base
Issue: Making a product stand out in the market and building a loyal customer base is
challenging for startups.
Impact: Without a solid customer base, sustaining sales and achieving long-term
success becomes uncertain.
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 Local, national and international/multinational businesses

Local Businesses:
Scope: Operate within a speci c local or regional area.
Audience: Primarily target local customers.
Scale: Limited scale compared to national or international businesses.

National Businesses:
Scope: Operate within the borders of a speci c country.
Audience: Target a national customer base.
Scale: Larger scale compared to local businesses, with a broader market reach.

International/Multinational Businesses:
Scope: Operate across borders, in multiple countries.
Audience: Target a global or diverse customer base.
Scale: Largest scale, with operations spanning multiple countries and regions.

Business plans
A business plan is a written document outlining a company's objectives, strategies, target
market, nancial forecasts, and operational details.

Purpose: Serves as a roadmap for the business, guiding decision-making, attracting

investors, and providing a foundation for day-to-day operations.

Key Components

• Executive Summary: Concise overview of the business.

• Company Description: Details about the business, its mission, and vision.
• Market Analysis: Examination of the industry, target market, and competition.
• Organization and Management: Structure and key roles within the business.
• Product or Service Line: Description of o erings and their value.
• Marketing and Sales: Strategies for reaching and selling to customers.
• Funding Request: If seeking nancial support, outlines the amount and purpose.
• Financial Projections: Forecasts of revenue, expenses, and pro tability.
• Appendix: Additional documents and supporting material.
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 Importance of making a business plan
• Provides a structured path, keeping the business focused on goals and strategies.
• Instills investor con dence by showcasing market understanding and a solid strategy.
• Facilitates strategic decisions, ensuring alignment with the overall vision.

• Essential for securing loans or investments by outlining fund and growth plans.

• Communicates business direction to team members, partners, and stakeholders.

• Identi es and addresses potential challenges, enhancing business resilience.

• Serves as a benchmark for tracking performance, prompting adjustments as needed.

• Guides the business in understanding its market position and di erentiating from
competitors.

• Encourages a forward-thinking mindset by considering future expansion possibilities.

The role of the entrepreneur

Entrepreneur – someone who takes the nancial risk of starting and

managing a new venture.

Qualities of a good entrepreneur:

1. An entrepreneur should be innovative in what he/she does, which

means coming up with unique ideas and products/services that
bridge the gap in the market.

2. An entrepreneur should be determined about work as well as be

ready to handle failure and how to cope with it.
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 3. An entrepreneur must be able to set realistic objectives, manage the workforce as well
as plan resources with the help of organization skills.

4. An entrepreneur for all of this to happen and set ambitious goals must be self
assured and self confident.

5. An entrepreneur must possess the skill of convincing stakeholders of the value of a

product or service.

6. The entrepreneur must be willing to sacri ce leisure time and work long hours
showing commitment to the business.

Common problems faced by entrepreneurs

Competition: Having competition from other businesses, before having to even start, in
the industry can drive the new businesses to failure. This is because of various reasons. A
larger business may have a larger scale of operation allowing them to produce at a lower
cost due to economies of scale and hence providing a more competitive price in the
market. Whereas a new business may not have the same kind of resources to compete
let alone beat the market leaders. Moreover, competitors may have access to greater
knowledge as well have loyal customer base that cannot be taken away easily.

Sourcing nance: Mostly all entrepreneurs lack su cient personal funds to nance their
business. Entrepreneurs may not be aware of lending facilities such as venture capitalists
and micro nance institutions. It may be di cult to get loans from the banks due to lack
of su cient trading records or credit scores making banks reluctant to lend to such
entrepreneurs.

Building a customer base: It may be di cult to build a customer base especially if they
are loyal to the existing competitors and it is extremely important for a business to
establish itself in the market and gain loyal customers. In order to do so, the business
must distinguish itself by building a USP in for eg; having excellent after sales services,
customizing products or ful lling one-o customer requests.

Deciding on location: In order to reach a breakeven level and survive in the market, it is
important for a new business to keep xed costs as low as possible. When deciding
location, the market potential of the area must be considered to generate higher sales as
well as shops being closer to residential areas to provide customer convenience.
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Intraprenuership
Intrapreneurship is when employees operate in the organisation the way entrepreneurs
do; they analyse data, take risks and develop creative ideas.. In other words, develop and
implement their own ideas on production methods, product designs, promotional mixes
etc Senior employees should encourage an ‘intrapreneurship culture’ so employees take
initiative and reach their full potential.

Role of enterprise in the economic development of a country

• Increasing employment leading to an increase in living standards of the country.
• Small businesses contribute in increasing the GDP of the country.
• New businesses increase e ciency in the country by creating competition
• Increased social cohesion with increasing number of small businesses

Business Risk and Uncertainty

Business risk refers to the potential of nancial loss or disruption to operations due to
various factors, such as market uctuations, economic downturns, or unexpected events.
Uncertainty, on the other hand, is the lack of predictability regarding future events or
outcomes. While risks can be assessed and managed to some extent, uncertainty
involves factors beyond one's control.
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