Someone who takes the risk of starting a business, combining resources to create something new.
Intrapreneur
An employee who acts like an entrepreneur inside an existing organisation.
Business plan
A document setting out a new business's aims, market, finances and strategy.
Every business uses the four factors of production (land, labour, capital, enterprise) and adds value by turning inputs into outputs.
The four functional areas are interdependent: a marketing campaign needs finance, enough staff (HR) and the capacity to produce (operations). Exam answers that link functions score higher.
Sectoral change: as economies develop, employment moves from primary and secondary towards tertiary and quaternary. This is called deindustrialisation in many high-income countries.
Why start a business: independence, financial reward, a gap in the market, a passion or hobby, redundancy or unemployment, social goals.
Problems start-ups face: lack of finance, cash-flow problems, lack of experience, building a customer base, competition from established firms, legal requirements.
Business plan (toolkit): executive summary, objectives, market research, marketing plan, operations, HR needs, financial forecasts (cash flow, break-even). It helps raise finance and reduces risk.
Worked example
Lina wants to open a vegan café in Lyon. Explain two problems she might face as a start-up.
Finance: banks see new businesses as risky, so Lina may struggle to get a loan, or pay a high interest rate.
Building customers: the café has no reputation yet, so sales may be low at first while costs (rent, wages) must still be paid. This can lead to cash-flow problems.
Each point: identify the problem → link it to Lina's café → explain the consequence.
Exam tip: Always apply theory to the case: use the business's name and facts in every paragraph. Generic answers are capped at low mark bands.
1.2Types of business entities
Key terms
Private sector
Businesses owned by private individuals or shareholders.
Public sector
Organisations owned and controlled by the government.
Unlimited liability
The owners are personally responsible for all the business's debts.
Limited liability
Owners can lose only the money they invested.
Social enterprise
A business whose main aim is a social or environmental purpose; profits are reinvested in that purpose.
Cooperative
Owned and run by its members (workers or customers), who share the profits.
For-profit entities:
Type
Owners
Liability
Main trade-off
Sole trader
One person
Unlimited
Full control and all the profit vs. personal risk and limited finance
Partnership
Usually 2–20 partners
Usually unlimited
Shared skills and capital vs. disagreements, shared profit
Privately held company
Shareholders; shares not sold to the public
Limited
Protection and control vs. limited capital
Publicly held company
Shareholders; shares traded on a stock exchange
Limited
Large capital vs. loss of control, takeover risk, public accounts
Social enterprises can be for-profit (private sector companies, public sector companies, cooperatives) or non-profit (NGOs and charities). Many earn revenue by trading, but their main objective is a social purpose.
A company is a separate legal entity (incorporation): it can sue, be sued and own assets in its own name.
Changing legal form is often linked to growth: e.g. going public through an initial public offering (IPO) to raise finance.
Worked example
A family bakery with two shops wants to expand to ten shops. Should it convert from a partnership to a privately held company?
For: limited liability protects the family's personal assets as debts grow; selling shares to friends or investors raises capital.
Against: costs of incorporation, legal paperwork and sharing ownership with new shareholders.
Judgment: with ten shops the risk is much higher, so limited liability is worth the extra cost, especially if the family keeps a majority of the shares.
Exam tip: In evaluation questions, finish with a justified judgment that depends on the case, e.g. “It depends on how much finance is needed and how much control the owners want to keep.”
1.3Business objectives
Key terms
Vision statement
Where the organisation wants to be in the long term.
Mission statement
The organisation's purpose and core values now.
Strategic objectives
Long-term goals of the whole organisation.
Tactical / operational objectives
Medium-term / day-to-day targets that help achieve strategic ones.
CSR
Corporate social responsibility: acting in the interests of society and the environment, beyond legal duties.
Good objectives are SMART: specific, measurable, achievable, realistic, time-bound.
Objectives change over time: survival for a start-up, then profit and growth, later market leadership, CSR or ethical goals.
CSR: benefits include reputation, customer loyalty and easier recruitment; costs include higher expenses and possible accusations of “greenwashing” if it is only for image.
SWOT analysis (toolkit): Strengths and Weaknesses are internal; Opportunities and Threats are external. Use it to inform strategy, not as a list.
STEEPLE (toolkit): social, technological, economic, environmental, political, legal and ethical factors in the external environment.
Worked example
A sportswear firm wants to sell its existing trainers in India for the first time. Use the Ansoff matrix to identify the strategy and its risk.
Existing product, new market → market development.
Risk: medium. The firm knows the product but not Indian customers, competitors or distribution.
Reduce the risk with market research and a local partner (e.g. a joint venture).
Exam tip: For SWOT, a weakness of the firm is not a threat. Threats come from outside the business (competitors, regulation, recession).
1.4Stakeholders
Key terms
Stakeholder
An individual or group with an interest in a business's activities.
Internal stakeholders
Employees, managers, directors, shareholders.
External stakeholders
Customers, suppliers, local community, government, banks, pressure groups, competitors.
Stakeholder conflict
When the interests of different groups clash, e.g. higher wages vs. higher dividends.
Stakeholder mapping
Plotting stakeholders by their power and interest to decide how to manage them.
Each group wants something different: shareholders want profit and dividends; employees want pay and job security; customers want quality and low prices; the community wants jobs and low pollution.
Shareholders vs. stakeholders: shareholders own the company; stakeholders are anyone affected by it. Don't mix them up.
Stakeholder mapping (toolkit): high power, high interest → manage closely; high power, low interest → keep satisfied; low power, high interest → keep informed; low power, low interest → monitor.
Conflicts are resolved by compromise, communication, prioritising the most powerful groups, or aligning interests (e.g. profit-sharing for employees).
Worked example
A factory plans to open a night shift to raise output. Identify one stakeholder conflict.
Shareholders gain: higher output and profit.
Local residents lose: noise and traffic at night.
Possible compromise: limit deliveries at night, invest in soundproofing, communicate early with the community.
Exam tip: Name the specific stakeholder group and explain why it is affected. “Stakeholders will be unhappy” earns almost nothing.
1.5Growth and evolution
Key terms
Economies of scale
Falling average costs as a firm grows larger.
Diseconomies of scale
Rising average costs when a firm becomes too large.
Internal (organic) growth
Growing by selling more, opening new outlets or launching products using the firm's own resources.
External (inorganic) growth
Growing by joining with other firms: mergers, acquisitions, takeovers, joint ventures, strategic alliances, franchising.
Franchising
A franchisor sells the right to use its brand and business model to a franchisee for fees and royalties.
Internal economies of scale: purchasing (bulk buying), technical (better machinery), financial (cheaper loans), marketing (spreading ad costs), managerial (specialist managers), risk-bearing (diversification). External economies: benefits from the whole industry growing (skilled labour, suppliers nearby).
Diseconomies: poor communication, lack of control and coordination, low motivation in a huge workforce.
Small can be beautiful: flexibility, personal service, niche markets, lower costs of control.
Merger: two firms agree to combine. Acquisition: one buys a controlling stake. Takeover: a hostile acquisition. Joint venture: a new business owned jointly. Strategic alliance: cooperation without a new firm.
HLPorter's generic strategies (toolkit): cost leadership, differentiation, cost focus, differentiation focus. Choose by competitive advantage (low cost or uniqueness) and scope (broad or niche).
Worked example
A coffee chain buys a coffee plantation in Colombia. Identify and evaluate this type of growth.
Buying a supplier = vertical backward integration (external growth).
Benefits: secure supply, control over quality, removes the supplier's profit margin.
Risks: high cost, running a farm requires new skills, less flexibility to switch suppliers if prices fall.
Exam tip: Use the precise term (e.g. “horizontal integration by acquisition”) and then explain a consequence specific to the case.
1.6Multinational companies (MNCs)
Key terms
MNC
A company with operations (not just sales) in more than one country.
Host country
The country where an MNC sets up operations.
Home country
The country where the MNC's head office is based.
Globalisation
Growing integration of the world's economies through trade, investment and technology.
Reasons for growth of MNCs: access to new markets, lower costs (labour, raw materials), avoiding trade barriers, economies of scale, spreading risk.
Benefits for host countries: jobs, foreign direct investment, tax revenue, transfer of skills and technology, more choice for consumers.
Costs for host countries: competition can close local firms, profits repatriated to the home country, environmental damage, poor working conditions, cultural influence, political influence over governments.
The impact depends on the country's regulation, the MNC's ethics and how much of the value chain is local.
Worked example
An electric-car MNC opens a factory in a lower-income country. Discuss its impact on the host country.
Positive: thousands of jobs, training in new skills, tax revenue, local suppliers grow.
Negative: local car makers lose sales; profits leave the country; pressure on the environment and water.
Judgment: overall positive if the government sets clear rules on wages, environmental standards and local sourcing.
Exam tip: Discuss both host-country stakeholders and the MNC itself. A two-sided answer with a judgment reaches the top band.