advantages and disadvantages of businesses becoming more sustainable

IGCSE Business Studies – Complete Syllabus Overview (Sections 1‑6)

Syllabus Section	Key Sub‑topics	Assessment Objectives (AO) Alignment
1 Understanding Business Activity	Business objectives, types of business, profit vs non‑profit, stakeholders, external influences	AO1 – define terms; AO2 – apply to case studies; AO4 – evaluate business decisions
2 People	Organisational structure, motivation theories, leadership styles, HR planning, recruitment, training, health & safety	AO1 – list concepts; AO2 – illustrate with examples; AO3 – analyse impact on performance; AO4 – evaluate HR policies
3 Marketing	Market research, market segmentation, marketing mix (4 Ps), pricing strategies, promotion, distribution channels, product life‑cycle	AO1 – state definitions; AO2 – apply to real‑world products; AO3 – interpret market data; AO4 – assess marketing effectiveness
4 Operations Management	Production methods, costs & break‑even analysis, sustainable production, quality control & assurance, location decisions	AO1 – define; AO2 – use case‑studies; AO3 – calculate & interpret data; AO4 – evaluate trade‑offs
5 Finance	Sources of finance, cash flow, budgeting, break‑even, ratio analysis, investment appraisal	AO1 – list finance options; AO2 – apply to business scenarios; AO3 – analyse financial statements; AO4 – evaluate financial decisions
6 External Influences	Economic, political, legal, social, technological, environmental (PESTLE) factors; globalisation, ethics	AO1 – identify influences; AO2 – link to case‑studies; AO4 – evaluate impact on strategy

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1 Understanding Business Activity

• Business objectives – profit maximisation, growth, survival, market share, corporate social responsibility (CSR).
• Types of business – sole trader, partnership, private limited company (Ltd), public limited company (PLC), non‑profit organisation.
• Profit vs non‑profit – profit businesses aim to generate surplus for owners; non‑profits reinvest surplus to achieve a social mission.
• Stakeholders – owners/shareholders, employees, customers, suppliers, government, local community, environment.
• External influences – brief link to Section 6 (PESTLE) – essential for AO4 evaluation questions.

Evaluation Prompt (AO4)

Discuss how a sole trader’s objective of “survival” might conflict with a public company’s objective of “maximising shareholder wealth”.

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2 People

Organisational Structure

• Hierarchical – clear chain of command, typical in large firms.
• Flat – few management layers, encourages employee involvement.
• Matrix – dual reporting lines (functional & product), used in project‑based organisations.

Motivation & Leadership

• Maslow’s hierarchy of needs, Herzberg’s two‑factor theory, McGregor’s Theory X & Y.
• Leadership styles – autocratic, democratic, laissez‑faire; impact on morale and productivity.

Human‑Resource Planning Cycle

1. Forecast labour demand (based on production plans or sales forecasts).
2. Analyse labour supply (internal skills audit, external labour market).
3. Recruitment & selection (advertising, interviews, tests).
4. Induction, training & development.
5. Performance appraisal & reward.

Case‑Study Question (AO2 & AO4)

A fast‑growing tech start‑up expects to double its staff in 12 months. Recommend two recruitment methods and evaluate their suitability.

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3 Marketing

Market Research

• Primary research – surveys, interviews, focus groups.
• Secondary research – published statistics, trade journals.
• Qualitative vs quantitative data.

Market Segmentation & Targeting

• Segmentation variables – demographic, geographic, psychographic, behavioural.
• Targeting strategies – undifferentiated, differentiated, concentrated, micromarketing.

Marketing Mix (4 Ps)

Product	Price	Place	Promotion
Features, quality, branding, eco‑design, life‑cycle.	Cost‑plus, competition‑based, price‑skimming, penetration, psychological pricing.	Direct sales, retail, e‑commerce, distribution channels, logistics.	Advertising, sales promotion, public relations, personal selling, digital marketing.

Product Life‑Cycle (PLC) Stages

1. Introduction – high costs, low sales.
2. Growth – economies of scale, increasing profit.
3. Maturity – market saturation, price competition.
4. Decline – reduced demand, possible product withdrawal.

Evaluation Prompt (AO4)

Analyse the advantages and disadvantages of using a price‑skimming strategy for a new smartphone.

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4 Operations Management

4.1 Production Methods

• Mass production – large volumes of identical products; high capital cost, low unit cost.
• Batch production – groups of items produced together; flexible but higher set‑up cost per batch.
• Job (custom) production – one‑off items made to specification; high labour cost, low output.
• Continuous (process) production – non‑stop flow (e.g., chemicals, electricity, oil refining); requires specialised plant and high fixed costs.
• Lean production – eliminates waste, uses just‑in‑time (JIT) inventory; improves efficiency and reduces storage costs.
• Sustainable production – integrates environmental considerations into any of the above methods (see 4.3).

Example – Choosing a Production Method

A start‑up sports‑shoe brand launches a limited‑edition sneaker. Job production suits the low volume and unique design. As demand rises, the firm could shift to batch or lean production to lower unit costs while retaining flexibility.

4.2 Costs of Production & Break‑Even Analysis

Key Cost Classifications

Cost Type	Definition	Example
Fixed cost (FC)	Does not vary with output level	Rent, salaries of supervisors
Variable cost (VC)	Changes directly with output	Raw material, direct labour per unit
Total cost (TC)	FC + VC	£50 000 + (£5 × units)
Average cost (AC)	TC ÷ units produced	£10 per unit at 5 000 units
Marginal cost (MC)	Cost of producing one additional unit	£5 for the next shoe

Break‑Even Point (BEP) – Simple Calculation

Assume:

• Fixed costs = £120 000
• Variable cost per unit = £30
• Selling price per unit = £50

Contribution per unit = £50 − £30 = £20

BEP (units) = Fixed Costs ÷ Contribution per unit

BEP = £120 000 ÷ £20 = 6 000 units

At 6 000 units the business makes no profit and no loss. Any sales above this level generate profit.

Interpretation Prompt (AO3)

Explain how a 10 % increase in the selling price would affect the break‑even point and why this is important for decision‑making.

4.3 Sustainable Production of Goods & Services

Methods of Sustainable Production

• Energy efficiency – using less energy for the same output (e.g., LED lighting, high‑efficiency motors).
• Renewable energy sources – solar panels, wind turbines, hydro, biomass.
• Waste minimisation – recycling, re‑using off‑cuts, reducing packaging.
• Eco‑design (product life‑cycle design) – designing for durability, easy repair, and end‑of‑life recycling.
• Lean production – eliminating waste in processes and inventory (JIT, continuous improvement).
• Supply‑chain sustainability – selecting suppliers with recognised green credentials and monitoring their practices.

Advantages of Becoming More Sustainable

1. Cost savings – lower energy bills, reduced raw‑material waste, fewer disposal fees.
2. Improved brand image – attracts environmentally‑conscious customers; can justify premium pricing.
3. Regulatory compliance – reduces risk of fines and prepares the business for future legislation.
4. Competitive advantage – differentiates the business and may open new market niches (e.g., green products).
5. Risk management – less dependence on volatile fossil‑fuel prices; safeguards against resource scarcity.
6. Employee motivation – staff pride in working for a responsible employer, leading to higher morale and retention.

Disadvantages of Becoming More Sustainable

1. High initial investment – renewable‑energy equipment, new machinery, redesign costs.
2. Uncertain return on investment (ROI) – savings may take several years to materialise, affecting short‑term profitability.
3. Technology risk – emerging green technologies may become obsolete or under‑perform.
4. Supply‑chain challenges – limited pool of reliable sustainable suppliers; possible price premiums.
5. Potential price increase – higher production costs may be passed to customers, risking loss of price‑sensitive buyers.
6. Complexity of implementation – staff training, process redesign, and monitoring add managerial workload.

Summary Table – Linking Methods to Typical Pros & Cons

Method	Typical Advantages	Typical Disadvantages
Energy efficiency	Lower energy bills; reduced carbon emissions	May require capital‑intensive upgrades (e.g., new machinery)
Renewable energy	Long‑term cost stability; positive public image	High upfront cost; intermittency (need storage or backup)
Waste minimisation	Reduced disposal fees; material cost savings	Requires new processes and staff training
Eco‑design (product life‑cycle)	Product differentiation; longer product life‑cycle	Design phase may be longer and more expensive
Lean production	Higher efficiency; lower inventory costs	Implementation can be disruptive to existing workflow
Supply‑chain sustainability	Improved brand credibility; risk reduction	Limited supplier options; possible higher purchase price

Quantitative Example – Energy‑Efficiency Savings

A factory uses 500 000 kWh of electricity per year at £0.15 per kWh (£75 000 total). Installing high‑efficiency motors cuts consumption by 12 %.

• Annual saving = 500 000 kWh × 12 % × £0.15 = £9 000
• Upgrade cost = £30 000 → Pay‑back period = £30 000 ÷ £9 000 ≈ 3.3 years

Students should discuss whether a 3‑year pay‑back meets the company’s short‑term profit targets (AO4).

Evaluation Prompt (AO4)

Analyse how the potential price increase (Disadvantage 5) could affect market share, profit margin, and the company’s long‑term sustainability goals. Suggest two strategies to mitigate any negative impact.

4.4 Quality Control & Quality Assurance

• Quality control (QC) – inspection of output, statistical process control (SPC), defect tracking.
• Quality assurance (QA) – systematic processes to prevent defects (e.g., Total Quality Management, ISO 9001).
• Link to sustainability: fewer defects mean less waste and lower re‑work costs.

Evaluation Prompt

Compare the short‑term cost of implementing ISO 9001 certification with the long‑term benefits of reduced waste and improved brand reputation.

4.5 Location Decisions

• Proximity to market – reduces distribution costs and delivery times.
• Labour availability & cost – skill levels, wage rates, union presence.
• Transport links – road, rail, ports, airports; impacts logistics costs.
• Utilities – electricity, water, waste‑disposal facilities (including renewable‑energy availability).
• Government incentives – tax breaks, grants for green factories.
• Environmental impact – local regulations, community attitudes toward sustainability.

Case‑Study Question (AO2 & AO4)

A clothing manufacturer is considering two sites: Site A (low rent, poor public transport, high carbon‑intensity electricity) and Site B (higher rent, excellent rail links, access to solar farms). Which site should it choose if the company’s strategic goal is to become carbon‑neutral within five years? Justify your answer.

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5 Finance

Sources of Finance

Source	Type	Key Features
Owner’s capital	Internal	No interest; risk limited to owner’s investment.
Bank loan	External – debt	Fixed interest, regular repayments, collateral often required.
Hire‑purchase	External – debt	Asset purchased in instalments; ownership transfers at final payment.
Equity finance (share issue)	External – equity	Shares sold to investors; no fixed repayments but dilution of control.
Retained earnings	Internal	Profits reinvested; no external interest.
Government grant	External – non‑repayable	Often tied to specific projects (e.g., green technology).

Cash Flow & Budgeting

• Cash flow forecast – predicts cash inflows and outflows over a period; essential for liquidity management.
• Operating budget – estimates revenue and expenses for a financial year; used for performance monitoring.

Break‑Even & Ratio Analysis (recap from 4.2)

Key ratios for AO3 evaluation:

• Profitability – gross profit margin, net profit margin.
• Liquidity – current ratio, quick ratio.
• Efficiency – inventory turnover, receivables turnover.

Evaluation Prompt

Assess the suitability of a government grant for renewable‑energy equipment compared with a bank loan, considering risk, cost of capital and impact on control.

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6 External Influences (PESTLE)

Factor	Key Elements	Typical Business Impact
Political	Tax policy, trade restrictions, subsidies, stability	Changes in tax rates affect profit; subsidies may encourage green investment.
Economic	Inflation, exchange rates, interest rates, economic growth	Inflation raises costs; exchange‑rate moves affect import/export profitability.
Social	Demographics, lifestyle trends, health consciousness	Growing demand for sustainable products; ageing population influences service demand.
Technological	Automation, e‑commerce, R&D, digitalisation	Automation can reduce labour costs; digital channels open new markets.
Legal	Employment law, health & safety, environmental regulations	Compliance costs; failure can lead to fines and reputational damage.
Environmental	Climate change, resource scarcity, waste legislation	Pressure to adopt sustainable production; potential carbon taxes.

Evaluation Prompt (AO4)

Evaluate how increasing consumer awareness of climate change (Social & Environmental factors) could influence a multinational’s decision to locate a new plant in a country offering green‑energy incentives.

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Glossary of Key Terms (Cambridge wording)

Term	Definition (Cambridge wording)
Energy efficiency	The practice of using less energy to produce the same level of output.
Renewable energy	Energy obtained from sources that are naturally replenished (e.g., solar, wind, hydro).
Waste minimisation	Reducing the amount of waste generated through recycling, re‑use and better design.
Eco‑design (product life‑cycle design)	Designing products so they have a long life, are easy to repair, and can be recycled at the end of their life.
Lean production	A production approach that seeks to eliminate all forms of waste, using techniques such as just‑in‑time (JIT) inventory.
Supply‑chain sustainability	Ensuring that suppliers also adopt environmentally friendly practices.
Break‑even point (BEP)	The level of output at which total revenue equals total cost; no profit, no loss.
Quality control (QC)	Activities that check the quality of output, such as inspection and statistical process control.
Quality assurance (QA)	Systematic processes that aim to prevent defects from occurring.
Just‑in‑time (JIT)	A lean‑production technique where materials arrive exactly when needed, minimising inventory.
PESTLE	A framework for analysing Political, Economic, Social, Technological, Legal and Environmental influences on a business.

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Suggested Diagram – The Sustainable Production Cycle

Raw‑material sourcing → Eco‑design → Energy‑efficient & lean manufacturing → Waste minimisation & recycling → Product use → End‑of‑life collection → Remanufacture / recycling → (back to) raw‑material sourcing.