Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Notes
Chapter 3: Enterprise, Business
Growth and Size

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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Enterprise and Entrepreneurship

Enterpreneur A person who organises, operates and takes the risk for a
new business venture.
Advantages:
a) Independence
b) Work on own ideas
c) Fame and success when business grows
d) More profitable
e) Make use of personal interests and skills
Disadvantages:
a) Risk of failure
b) Own capital at risk
c) Lack of knowledge and experience in starting and operating a
business
d) Inconsistent monthly income
Chracteristic of successful entrepreneurs:
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

a)
b)
c)
d)
e)
f)
g)

Hardworking
Risk taker
Creative
Self-confident
Innovative
Independent
Effective communicator

Why Governments Support Business Start-up

New businesses will create jobs that will help reduce employment.
New businesses will give consumers more options and increase
competition with already established businesses.
New businesses will help the economy benefit from the increased output
of products.
New businesses may grow to become very large and important
businesses in the future.
What Support Governments Give To Start-up Businesses
Business ideas and help by organising advice and support sessions
offered by experienced business people.
Premises with enterprise zone which provide low-cost premises to
start-up businesses.
Finance loans at low interest rates.
Labour Grants to train employees and help increases their productivity.
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Research Encourage universities to make their research facilities

available to new business enterpreneurs.
Business Plan
It is a document containing the business objectives and important details
about the operations, finance and owners of the new business.
Elements:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)

Type of business organisation

Business objectives
Goods/ Services
Target market
Human resources plan
Location of business
Production details and business costs
Forecast profit
Cash flow
Finance

A bank will certainly ask an entrepreneur for a business plan before

agreeing to a loan overdraft to help finance the new business.
Without a business plan, the bank will be reluctant to lend money to the
business as it cannot show that they have thought seriously about the
future.
Company Business Size
Firms can be owned and run by a single individual, or it can have
hundreds of thousands of workers all over the world.
Investors, governments, banks, competitors and workers would find it
useful to compare business sizes.
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Business sizes can be measured by the number of employees, value of

output, value of sales and value of capital employed that all have
advantages and limitations.
Capital employed It is the total value of capital used in the business.
Number of employees a high level of output does not mean that a
business is large. A firm employing a few people might produce several
very expensive computers each year and have higher output figures than
a firm selling cheaper products but employing more workers.
Value of sales It can be very misleading when comparing the size of
businesses that sell very different products.
Value of capital employed A company employing many workers may use
labour-intensive methods of production. These give low output levels and
use little capital equipment.

Why Owners Often Want Businesses To Grow

Possibility of higher profits for the owners.
More status and prestige for the owners and managers.
Large share of its market as the proportion of total market sales it makes
is greater.
How Businesses Can Grow
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Internal growth It occurs when a business expands its existing

operations.
External growth It is when a business takes over or merges with another
business. It is often called integration.
Merge It is when the owners of two businesses agree to join their firms
together to make one business.
Takeover It is when one business buys out the owners of another
business which then becomes part of the business.
Horizontal integration- It is when one firm merges with or takes over
another one in the same industry at the same stage of production.
Vertical integration It is when one firm merges with or takes over another
one in the same industry but at a different stage of production.
Forward vertical integration It merges with a firm which is at later stage
of production (closer to the consumer)
Backward vertical integration It merges with a firm at an earlier stage of
production (closer to the raw material supplies).
Conglomerate integration It is when one firm merges with or takes over
a firm in a completely different industry / diversification.

Advantages
Horizontal Integration
a) The merger reduces competition in the industry.
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

b) The combined business will have a bigger share of the total market.
Forward Vertical Integration
a) The merger gives an assured outlet for their product.
b) Information about consumer need and preferences can now be
obtained directly by the manufacturer.
Backward Vertical Integration
a) The merger gives an assured supply of important components.
b) Costs of components and supplies for the manufacturer could be
controlled.
Conglomerate Integration
a) The business would have diversified its activities and this will spread
the risks taken by the business.
b) There might be a transfer of ideas between the different sections of
the businesses even though they operate in different industries.
Disadvantages:
a) Hard to control.
b) Poor communication.
c) Expansion is costly, so do it slowly and use profits for further
growth.
Why Some Businesses Stay Small
They offer personal services/ specialised products.
It is difficult to offer the close and personal service demanded by
customers if the business is too large.
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

The Market Size Is Small

Owners are interested in keeping control of a small busines and knowing
all of their staff and customers.
Owners wish to avoid the stress and worry of expanding the business.
Why Some Businesses Fail
Poor management Lack of experience can lead to bad decisions, like
locating the business in an area with high costs but low demand.
Failure to plan for change New technology, powerful new competitors
and major economic changes can lead to business failure if not
responded to effectively.
Poor financial management Shortage of cash means that workers,
suppliers, landlords and more cannot be paid what they are owed.
Over-expansion When it expands too quickly, it can lead to big problems
of management and finance.
Risks of new business start up The owner may lack of experience and
decision-making skills.

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