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The main purpose of a business is to make profits. To achieve this, a business needs to

  • Satisfy customer needs
  • Reduce operating costs
  • Strive to survive by competing favorably

Types of business activities

  • Extraction – means obtaining goods from their natural setting e.g mining, farming, lumbering etc
  • Processing of raw materials – it is changing the form of goods without combining it with other goods
  • Manufacturing – combining different raw materials to come up with one final product e.g. table is made of wood, glue, nails and varnish
  • Construction – Rails, road and buildings
  • Distribution of goods – Spreading of goods from the manufacturers to the users. Done by distributors
  • Trade – Buying and selling of goods with the aim of making profits. Done by traders
  • Provision of services – Selling services to consumers e.g. hairstylist, car washers

Business environments and their effects

Internal and external

Internal environment

  • May either be strengths or weaknesses of the business e.g. skilled man power.
  • It is also called micro environment

They include :-

  • Business structure

This is the formal arrangement of the activities carried out at various levels of the organization. A well laid business structure would lead to success because:-

  • Each employee knows what is expected
  • No conflict or confusions
  • Team work is enhanced
  • Proper control – promotes efficiency
  • Resources

A resource is something that can be used to achieve an objective. The following are some of the resources to a business

  • Human resource

Employees in a business provide human resource. A business with qualified human resource is more likely to do well.

  • Financial resources

A business with adequate finances is more likely to do better than one lacking such aspects.

  • Physical resources

These are tangible facilities which belong to a business e.g. buildings, machinery, furniture and stock.

  • Technology

These are the skills and methods used in production. A business with the relevant technology is more likely to succeed.

  • Business culture

Business cultures arise from the combination of employees expectations, beliefs and values within the business. A culture of involving employees in decision making always does better.

  • Owner

He provides finances and makes decisions concerning operations of the business.

External Business Environment

  • Also called macro environment – large in scale

They include:-

  • Economic environment

These are factors that affect the buyers’ ability to buy goods and services offered by a business e.g charges, taxes, rates etc

  • Demographic environment
  • Includes factors in population change – size, distribution, age, density, birth and death rates
  • A growing population provides market for goods and services
  • Age and sex distribution shape the line of business while better education and jobs for consumers would improve their taste and demand for quality goods services
  • Legal – political environment

The government closely monitors and passes laws and policies to regulate activities. Traders may opt to invest in some areas because of lower taxes or nor taxes

Manufactures of foodstuffs are required to include expiry dates to their goods. Political stability also creates a conducive working business environment

  • Technological environment

Technology refers to level of know-how, efficient use of tools and equipments and other resources. Advancement in technology would lead to better quality of goods being produced.

  • Cultural environment

Culture is the norms that regulate the behavior of people in society. Includes customs, beliefs and values. Dictates how people live and products they consume e.g. Muslims and pork.

  • Competitive environment

Firms trying to outdo each other in their endeavors to maximize profits. Competition can ether be generic or enterprise.

Generic competition refers to competition where the products are used for the same purpose though the products are different. E.g. cinemas and discos are competing form of entertainment.

Enterprise competition is found were products are similar to those of the other firm. E.g a local shoe manufacturing company competing with imported shoes.

  • Physical environment

Includes factors such as climate and infrastructure e.g. roads, water supply, electricity, banks etc

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EcoleBooks | Business Studies Form 1 Notes : CHAPTER TWO - BUSINESS AND ITS ENVIRONMENT


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