IGCSE Business Studies – Complete Syllabus Notes (Cambridge 0450)
1. Understanding Business Activity
1.1 Purpose of Business
- Profit‑maximising businesses – aim to generate the greatest possible profit for owners/shareholders.
- Non‑profit organisations – provide services for social, charitable or community benefit (e.g., charities, NHS).
- Social enterprises – combine profit goals with a social or environmental mission.
1.2 Classification of Business (Sectors)
| Sector | Primary Activity | Typical Examples |
|---|
| Primary | Extraction of natural resources | Farming, mining, fishing |
| Secondary | Manufacturing & construction | Car factory, building company |
| Tertiary | Service provision | Retail, banking, education |
1.3 Types of Enterprise
| Enterprise | Legal Status | Key Features |
|---|
| Sole trader | Unincorporated | Owner has full control and unlimited liability. |
| Partnership | Unincorporated | Two or more owners share profit, loss and liability. |
| Limited company | Incorporated | Separate legal entity; shareholders have limited liability. |
1.4 Size of Business (Cambridge thresholds)
- Micro – ≤ 10 employees and ≤ £2 million turnover.
- Small – ≤ 50 employees and ≤ £10 million turnover.
- Medium – ≤ 250 employees and ≤ £50 million turnover.
- Large – > 250 employees or > £50 million turnover.
1.5 Business Objectives
- Profit maximisation
- Growth (market share, sales, product range)
- Survival (especially in recession)
- Corporate social responsibility (CSR)
- Customer satisfaction, quality, innovation
1.6 Stakeholders and Their Interests
| Stakeholder | Primary Interest |
|---|
| Owners / Shareholders | Profit, return on investment |
| Employees | Job security, wages, working conditions |
| Customers | Quality, price, service |
| Suppliers | Timely payment, long‑term contracts |
| Creditors | Repayment of loans, interest |
| Government | Tax revenue, compliance with law |
| Community / Society | Employment, environmental impact |
1.7 The Business Cycle
The economy moves through four stages. Understanding them helps businesses plan for changes in demand and finance.
- Growth – rising output, low unemployment, increasing consumer confidence.
- Boom – output at or above capacity, inflationary pressures, interest rates may rise.
- Recession – falling output, rising unemployment, reduced consumer spending.
- Slump (or trough) – output at its lowest point; the economy prepares to recover.
Suggested diagram: A simple “U‑shaped” curve labelled with the four stages.
1.8 Government Economic Objectives & Their Impact on Business
- GDP growth – aims to increase total output; can boost sales for most firms.
- Price stability (low inflation) – protects purchasing power; high inflation can raise input costs.
- Full employment – ensures a labour supply; low unemployment may increase wage pressures.
Key policy tools that affect businesses:
- Taxation – higher corporation tax reduces after‑tax profit; tax relief can encourage investment.
- Government spending – infrastructure projects can create demand for construction firms.
- Interest rates (monetary policy) – affect borrowing costs for expansion or working‑capital finance.
1.9 Why Businesses Grow / Why They Fail
| Reasons for Growth | Reasons for Failure |
|---|
- Effective marketing – reaching new customers.
- Innovation – new products or processes.
- Good financial management – adequate cash flow.
- Economies of scale – lower unit costs.
|
- Poor cash‑flow management – inability to meet short‑term liabilities.
- Weak market research – product‑market mismatch.
- Inadequate control of costs – eroding profit margins.
- External shocks – recession, regulatory change.
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2. People in Business
2.1 Motivation Theories (Key Points)
- Maslow’s Hierarchy of Needs: physiological → safety → social → esteem → self‑actualisation.
- Herzberg’s Two‑Factor Theory: hygiene factors (salary, conditions) prevent dissatisfaction; motivators (recognition, achievement) create satisfaction.
- McGregor’s Theory X & Y: X assumes employees dislike work; Y assumes they are self‑motivated and seek responsibility.
2.2 Organisational Structure
- Hierarchical (tall) – many management levels; clear chain of command.
- Flat (horizontal) – few levels; wider spans of control; quicker communication.
- Matrix – employees report to two managers (functional & project); useful for complex, multi‑product firms.
Suggested diagram: Simple org‑chart: CEO → Department Heads → Team Leaders → Staff.
2.3 Management vs Leadership
- Management – planning, organising, directing, controlling (the “4 Ps”).
- Leadership – inspiring, influencing, setting vision, motivating staff.
2.4 Trade Unions & Employer Organisations
- Trade unions protect employee rights (pay, conditions, health & safety).
- Employer organisations (e.g., Confederation of British Industry) represent business interests to government and the public.
2.5 Recruitment & Selection
2.5.1 Internal vs External Recruitment
| Aspect | Internal Recruitment | External Recruitment |
|---|
| Cost | Generally lower (advertising, training) | Higher (advertising, onboarding) |
| Time to fill | Usually quicker | May take longer |
| Morale impact | Boosts motivation (career progression) | Can cause resentment if staff feel overlooked |
| Fresh ideas | Limited | Brings new skills and perspectives |
2.5.2 Selection Methods
| Method | Purpose / When Used | Advantages | Disadvantages |
|---|
| Application form | Initial screening | Easy to compare qualifications | May not reveal personality |
| Interview (structured) | Assess knowledge, attitudes, communication | Allows probing of answers | Time‑consuming; interviewer bias |
| Assessment centre | Group exercises, role‑play for managerial posts | Observes behaviour in realistic tasks | Expensive, requires trained assessors |
| Psychometric tests | Measure aptitude, personality | Objective, standardized | May not reflect job performance alone |
2.5.3 Recruitment Flowchart
- Identify vacancy →
- Write job description & person specification →
- Choose recruitment method (internal, external, advert, agency) →
- Advertise vacancy →
- Receive & shortlist applications →
- Selection (interview, tests, assessment centre) →
- Offer contract →
- Induction & training.
2.5.4 Part‑Time vs Full‑Time Employment
| Factor | Part‑Time | Full‑Time |
|---|
| Hours | Usually < 35 hrs/week | Typically 35‑40 hrs/week |
| Pay | Pro‑rated to hours worked | Fixed weekly/monthly salary |
| Benefits | Limited (e.g., no full pension, limited holiday) | Full statutory benefits and often extra perks |
| Flexibility | Higher – attractive for students, carers | Lower – more predictable staffing |
2.6 Training & Development
- On‑the‑job – apprenticeships, coaching, job rotation.
- Off‑the‑job – classroom courses, e‑learning, seminars.
- Training improves skills, productivity and can aid career progression.
2.7 Delegation
- Assigning authority and responsibility to a subordinate while retaining overall accountability.
- Benefits: faster decision‑making, staff development, reduces manager’s workload.
- Key steps: define the task, choose the right person, give authority, set clear deadlines, monitor progress.
2.8 Redundancy & Legal Controls
- Redundancy – occurs when a role is no longer needed (e.g., automation, reduced demand). Statutory redundancy pay may apply.
- Key employment legislation (UK examples, relevant to Cambridge):
- Employment Rights Act – outlines contracts, unfair dismissal, notice periods.
- Equality Act – protects against discrimination (age, gender, race, disability, religion, sexual orientation).
- Health & Safety at Work Act – employer duty to ensure a safe working environment.
- National Minimum Wage Act – sets minimum hourly rates.
- Trade Union and Labour Relations (Consolidation) Act – rights to join unions and collective bargaining.
- Effect on business: compliance avoids legal penalties, improves staff morale, and protects reputation.
2.9 Communication
- Formal channels – memos, reports, official meetings, emails.
- Informal channels – grapevine, casual conversations, social media groups.
- Effective communication requires:
- Clarity of message
- Appropriate medium for audience
- Two‑way feedback
- Consideration of cultural and language differences.
3. Marketing
3.1 Role of Marketing
Identify, create and satisfy customer demand while helping the organisation achieve its objectives.
3.2 Market Changes
- Technological advances – e‑commerce, social media, mobile apps.
- Demographic shifts – ageing population, multicultural societies.
- Globalisation – new competitors, wider market opportunities.
3.3 Niche vs Mass Market
- Niche – specialised, small segment (e.g., vegan cosmetics).
- Mass market – broad appeal, high volume (e.g., basic household cleaning products).
3.4 Market Segmentation
| Segmentation Basis | Example |
|---|
| Geographic | Urban vs rural shoppers |
| Demographic | Age 18‑25, students |
| Psychographic | Lifestyle – eco‑friendly consumers |
| Behavioural | Frequent buyers, brand‑loyal customers |
3.5 Market Research
- Primary research – surveys, interviews, focus groups, observation.
- Secondary research – published statistics, trade journals, company reports.
3.6 The 4 Ps of Marketing (with example)
| Element | Definition | Example (Sports‑Drink “Energix”) |
|---|
| Product | What is being offered | Low‑calorie, vitamin‑enriched drink |
| Price | Amount customers pay | £1.20 per 330 ml bottle |
| Place | Where it is sold | Supermarkets, gyms, online store |
| Promotion | How customers are informed | Social‑media ads, sports‑event sponsorship |
3.7 E‑commerce
- Advantages: wider reach, lower overheads, 24/7 sales.
- Disadvantages: security concerns, delivery logistics, reduced personal contact.
3.8 Marketing Strategies
- Penetration pricing – low price to gain market share quickly.
- Price skimming – high initial price for early adopters, then lower.
- Differentiation – unique features, branding or customer service.
3.9 Legal Controls on Marketing
- Consumer Protection Act – product safety and liability.
- Advertising Standards Authority (ASA) – truthfulness, no misleading claims, rules on comparative advertising.
- Data protection (GDPR) – handling customer personal data responsibly.
3.10 Foreign Market Entry Options
| Entry Mode | Control | Risk |
|---|
| Export | Low | Medium (exchange‑rate fluctuations) |
| Licensing | Medium | Medium (intellectual‑property loss) |
| Franchising | Medium‑High | Medium (brand control) |
| Joint venture | High | High (partner conflict) |
| Wholly‑owned subsidiary | Very high | Very high (large capital outlay) |
4. Operations Management
4.1 Methods of Production
- Job production – one‑off customised items (e.g., bespoke furniture).
- Batch production – limited runs of similar items (e.g., bakery cakes).
- Flow (line) production – continuous, high‑volume (e.g., car assembly).
- Mass production – identical products, highly automated processes.
4.2 Productivity
Productivity = Output ÷ Input
Ways to improve productivity:
- Invest in modern technology and equipment.
- Provide staff training and develop skills.
- Adopt lean production techniques (eliminate waste, streamline workflow).
- Improve workplace layout to reduce movement.
4.3 Lean Production (Key Features)
- Focus on value‑adding activities only.
- Use of Just‑In‑Time (JIT) inventory to reduce stock costs.
- Continuous improvement (Kaizen) involving all staff.
- Standardised work processes and visual management.
4.4 Quality Management
- Quality control (QC) – checking output against standards (e.g., inspections, testing).
- Quality assurance (QA) – systematic processes to prevent defects (e.g., ISO 9001).
- Benefits: higher customer satisfaction, lower re‑work costs, stronger brand reputation.
4.5 Location Decisions
- Factors to consider: proximity to markets, raw materials, labour costs, transport links, government incentives.
- Examples: a car manufacturer near a major port for easy export; a fast‑food chain near high‑traffic retail parks.
4.6 Capacity Planning
- Ensuring the business has enough resources (plant, staff, equipment) to meet expected demand.
- Techniques: forecasting, using capacity utilisation ratios, adopting flexible work shifts.