Business and its Environment
This domain tests how a business combines resources, produces goods or services, and interacts with the people and forces around it. Expect questions on business activity, sectors, stakeholders, and the internal and external environment.
What a business does
A business is an organisation that combines factors of production - land, labour, capital and entrepreneurship - to make goods or provide services that satisfy human needs and wants. Profit rewards risk, but cooperatives and public services may pursue service objectives.
Sectors and stakeholders
- Primary: extraction and agriculture, e.g. fishing, tea growing.
- Secondary: manufacturing and construction, e.g. a garment factory.
- Tertiary: services and distribution, e.g. banking, retailing.
Stakeholders include owners, employees, customers, suppliers, lenders, government and the community. Their objectives can conflict: owners want profit, employees want wages, customers want low prices.
The environment
Internal environment: resources, culture, management structure. External micro-environment: customers, competitors, suppliers, intermediaries. Macro-environment: economic, legal, political, technological, social and environmental forces. A fuel price rise is an economic factor that raises transport costs.
Worked example
A bakery buys flour from a mill, employs bakers, sells bread to households and pays taxes. If the government raises fuel tax, delivery costs increase. The bakery may raise prices (customers may switch), absorb the cost (profit falls), or find a nearer supplier. The example shows an external factor affecting internal decisions.
Traps
Writing that all businesses aim only at profit; confusing primary and secondary activity; treating “environment” as only nature; listing stakeholders without linking their objectives.