Read Ch 2. Types of Business Activity

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Read Ch 2. Types of Business Activity Outline

Read Ch 2. Types of Business Activity 1 Grade 10, Unit 2 Types of business activity

Grade 9, Ch 2. Levels of Economic Activity 2 Grade 10, Unit 2 Types of business activity

Tasks:Activity 2.1. Submitt Monday August 4 2008 Business Primary Secondary Tertiary InsuranceForestryCoal MiningComputer AssemblyTravel AgentBreweryCar 3 Showroom Grade 10, Unit 2 Types of business activity

Levels of Economic Activity, Examples Stage Business Involved Primary Woodcutter Secondary Furniture Makers Tertiary Retailer 4 Grade 10, Unit 2 Types of business activity

The Stage of Production: 1. Primary stage, Extracts and uses the natural resources of the earth, Such as farming, fishing, forestry. 5 Grade 10, Unit 2 Types of business activity

The Stage of Production (continued): 2. Secondary stage, Manufactures goods using the raw materials provided by the primary sector, Such as building, aircraft making, computer assembly. 6 Grade 10, Unit 2 Types of business activity

The Stage of Production (continued): 3. Tertiary stage, Provides services to consumers and the other sectors of industry, Such as transport, banking, insurance. 7 Grade 10, Unit 2 Types of business activity

Notes:  Developing country: – Country, primary industries employ many more people than manufacturing or services industries.  Most developed country: – Country where the output of tertiary sector is often higher than the primary sector and secondary sector. 8 Grade 10, Unit 2 Types of business activity

Public and Private Sectors of Industry  3 different types of economic system which are used by countries to manage their resources as efficiently as possible: 1. Free market economy. 2. Command or planned economy. 3. Mixed economy. 9 Grade 10, Unit 2 Types of business activity

Public and Private Sectors of Industry (continued)  Free market economy: – Al resources are owned privately. – There is no government control. – Profit. – Prices of goods are influenced by demand and supply of goods. 10 Grade 10, Unit 2 Types of business activity

Public and Private Sectors of Industry (continued)  Free market economy: – Advantages: * Consumers are free to choose. * Workers are encouraged to work hard. * Business compete. * New businesses are encouraged. – Disadvantages: * No government control. 11 Grade 10, Unit 2 Types of business activity

Public and Private Sectors of Industry (continued)  Command or planned economy: – Government controls the use of resources. – Advantages: * There should be work for everybody. – Disadvantages: * Less incentive to work. * The government may not produce goods which people want to buy. 12 Grade 10, Unit 2 Types of business activity

Public and Private Sectors of Industry (continued)  Mixed economy: – Combines free market economy and command economy. 13 Grade 10, Unit 2 Types of business activity

Privatisation  Privatisation: Governments sold off businesses they previously owned to new owners in the private sector. 14 Grade 10, Unit 2 Types of business activity

Privatisation (continued)  Arguments in favour of privatisation: – Profit, run the business efficiently. – Keep the price low. – Additional capital. – Raises money for the government. 15 Grade 10, Unit 2 Types of business activity

Privatisation (continued)  Arguments against of privatisation: – Some services making losses money may be closed. – Worker’s job could be lost. – The prices could be higher. – Only few people wil benefit. 16 Grade 10, Unit 2 Types of business activity

Comparing the Size of Businesses  Business size can be measured in a number of ways, such as: 1. By number of employee. 2. By value of output and sales. 3. By profit. 4. By capital employed. 17 Grade 10, Unit 2 Types of business activity

Comparing the Size of Businesses  Comparing business size by number of employees: – Easy to understand.  Comparing business size by value of output and sales: – Comparing business in the same industry. – A high sales level does not mean that a business is large. 18 Grade 10, Unit 2 Types of business activity

How Can Businesses Grow?  Advantages of businesses grow? – Higher profits. – More status and prestige for the owners and managers. – Lower average costs (economies of scale). 19 Grade 10, Unit 2 Types of business activity

Business can expand in 2 main ways: 1. Internal growth, Owner could open another the same business in other area. 2. External growth, Involving “take over” or “merger” with another business. 20 Grade 10, Unit 2 Types of business activity

External growth Three examples of mergers:1. Horizontal merger (horizontal integration), – one firm merges with or take over another one in the same industry at the same stage of production. 2. Vertical merger (vertical integration), – one firm merges with or take over another one in the same industry at a different stage of production. 21 Grade 10, Unit 2 Types of business activity

External growth Three examples of mergers:3. Conglomerate merger (conglomerate integration, diversification), – one firm merges with or takes over firm in completely different industry. 22 Grade 10, Unit 2 Types of business activity

Integration: 1. Horizontal integration, – benefits: * reduces number of competitors * opportunities for economies of scale. * will have a bigger share of total market. 23 Grade 10, Unit 2 Types of business activity

Integration: 2. Forward vertical integration, Example: A car manufacturer takes over a car retailing business. – benefits: * an assured outlet for the product. * prevented from sel ing competing. * consumer needs and preferences can now be obtained by the manufacturer. 24 Grade 10, Unit 2 Types of business activity

Integration: 3. Backward vertical integration, Example: A car manufacturer takes over a firm supplying car body panels. – benefits: * An assured supply of important components. * The profit margin of the supplier is absorbed by the expanded business. * The supplier could be prevented from supplying other manufacturers. * Cost of components and supplies for the manufacturer could be controlled. 25 Grade 10, Unit 2 Types of business activity

Integration: 3. Conglomerate integration, – The business has activities more than one industry. – Business has diversified its activities. – Spread the risks taken by the business. 26 Grade 10, Unit 2 Types of business activity

Why Do Some Businesses Stay Small?  Not al businesses grow.  Some stay small (employ few people; use relatively little capital). Several reasons:1. The type of industry the business operates in. Example: hairdressing; car repairs. 27 Grade 10, Unit 2 Types of business activity

Why Do Some Businesses Stay Small? Several reasons:2. Market size, The total number of consumers is smal Example: The shops which operate in rural areas far away from cities. 3. Owner objectives, Some business owners prefer to keep their firm smal . 28 Grade 10, Unit 2 Types of business activity

Homework: 1. Identify the form of business growth which is used in each of these situations. a. A garage agrees to merge with another garage. b. A bicycle retailer expands by buying a shop in another town. c. A fruit juice firm buys a fruit farm. d. A business making electrical goods agrees to join with a business with retail shops specialising in electrical goods. 29 Grade 10, Unit 2 Types of business activity