IGCSE Business Studies (0450) – Complete Revision Notes
1. Understanding Business Activity
1.1 What is a Business?
- Definition: An organisation that produces goods or services to satisfy needs and wants, aiming to achieve specific objectives.
- Primary purposes: profit maximisation, growth, survival, and/or social/ethical goals (e.g., CSR).
1.2 Types of Economic Activity
- Primary sector: extraction of raw materials (mining, farming, fishing).
- Secondary sector: manufacturing and construction (car factories, house building).
- Tertiary sector: services (retail, banking, tourism).
- Quaternary sector (optional for extension): knowledge‑based services (IT, research).
1.3 Business Organisations
| Form |
Key Features |
Examples |
| Sole trader |
Owned by one person, unlimited liability, simple to set up. |
Local bakery, freelance graphic designer. |
| Partnership |
Two or more owners, shared liability & profit, partnership agreement. |
Law firm, small manufacturing partnership. |
| Limited company (Ltd) |
Separate legal entity, shareholders have limited liability, can raise equity. |
Apple Inc., Tesco plc. |
| Co‑operative |
Member‑owned, profits shared among members, democratic control. |
Housing co‑ops, farmer co‑ops. |
1.4 Business Objectives
- Typical objectives (must be SMART – Specific, Measurable, Achievable, Relevant, Time‑bound):
- Increase market share by 5 % within 12 months.
- Raise net profit margin to 8 % by the end of the next financial year.
- Launch a new product line in Q3.
- Improve customer satisfaction score to 90 %.
- Reduce carbon emissions by 20 % over five years.
- Objectives may be financial (profit, ROI), market‑oriented (share, growth), or non‑financial (CSR, employee welfare).
1.5 Stakeholders and Their Interests
| Stakeholder |
Primary Interests |
| Owners / Shareholders | Returns on investment, share price growth. |
| Managers | Achievement of targets, career progression. |
| Employees | Wages, job security, training, safe conditions. |
| Customers | Quality, price, service, value for money. |
| Suppliers | Reliable orders, timely payment, long‑term contracts. |
| Community & Government | Employment, tax revenue, ethical conduct, environmental protection. |
1.6 External Environment – PESTLE
- Political & Legal: taxes, regulations, health & safety, consumer protection.
- Economic: inflation, interest rates, exchange rates, unemployment, business cycle.
- Social & Cultural: demographics, lifestyle trends, attitudes to sustainability.
- Technological: innovation, automation, e‑commerce, R&D.
- Legal (separate from Political): employment law, IP rights, competition law.
- Environmental: carbon footprint, waste management, green legislation.
2. People in Business
2.1 Motivation
- Intrinsic factors: achievement, responsibility, personal growth, job satisfaction.
- Extrinsic factors: salary, bonuses, benefits, promotion, job security.
- Common theories (briefly): Maslow’s hierarchy of needs, Herzberg’s two‑factor theory.
2.2 Recruitment & Selection
- Identify vacancy and job specification.
- Advertise (online job boards, newspapers, recruitment agencies).
- Short‑list candidates (CV screening, application forms).
- Selection methods: interviews, tests, assessment centres, reference checks.
- Make offer and complete contractual paperwork.
2.3 Training & Development
- Induction: introduction to policies, culture, health & safety.
- On‑the‑job training: coaching, job rotation, apprenticeships.
- Further education: courses, workshops, e‑learning, professional qualifications.
2.4 Leadership & Management Styles
- Autocratic: decisions made by manager alone.
- Democratic: staff involved in decision‑making.
- Laissez‑faire: minimal manager direction.
- Situational leadership: style adapted to task, team ability and motivation.
2.5 Communication
- Formal channels: reports, memos, meetings, official emails.
- Informal channels: grapevine, social media, casual conversations.
- Effective communication is clear, two‑way, timely and appropriate to the audience.
2.6 Trade Unions & Employee Relations
- Collective bargaining: negotiation of wages, conditions.
- Industrial action: strikes, work‑to‑rule.
- Grievance procedures: formal steps for handling complaints.
2.7 Legal Controls on Employment
- Minimum wage, National Minimum Wage (UK) or equivalent.
- Working Time Regulations – maximum hours, rest breaks.
- Health & Safety legislation – risk assessments, training.
- Equality Act – non‑discrimination on gender, race, disability, etc.
3. Marketing
3.1 The Role of Marketing & Market Research
- Identify customer needs, create value, build relationships, generate sales and profit.
- Market research methods:
- Primary: surveys, focus groups, interviews, observations.
- Secondary: published statistics, industry reports, competitor literature.
- Segmentation, Targeting and Positioning (STP) help focus resources on the most profitable groups.
3.2 The Marketing Mix – The 4 Ps
| Product |
Price |
Place (Distribution) |
Promotion |
- Features, quality, branding, packaging, warranty.
- Example: Smartphone with high‑resolution camera and water‑resistance.
|
- Pricing strategy (penetration, skimming, cost‑plus), discounts, credit terms.
- Example: Introductory 20 % discount for a new snack.
|
- Channels (direct, retailers, wholesalers), coverage, logistics, inventory.
- Example: Online store plus selected high‑street retailers.
|
- Promotion mix, budgeting, timing, evaluation.
- Example: TV advertising, social‑media campaign, PR event.
|
3.3 Promotion
3.3.1 The Promotion Mix
| Tool |
Key Characteristics |
Typical Example |
| Advertising |
Paid, non‑personal, mass communication (TV, radio, online, billboards). |
30‑second TV commercial for a new shampoo. |
| Sales Promotion |
Short‑term incentives to encourage purchase (discounts, coupons, contests, BOGOF). |
Buy‑one‑get‑one‑free offer on a cereal brand. |
| Public Relations (PR) / Publicity |
Unpaid media coverage, events, sponsorship, press releases. |
Charity partnership announced in local newspaper. |
| Personal Selling |
Face‑to‑face or telephone interaction, tailored advice, relationship building. |
Sales rep demonstrating a kitchen appliance in a store. |
| Direct / Online Marketing |
Email, SMS, social media, websites, targeted ads, direct mail. |
Monthly newsletter with a special discount code. |
3.3.2 Reasons for Promotion
- Create awareness – introduce a new product or remind customers of an existing one.
- Generate interest and desire – highlight benefits and unique selling points (USPs).
- Stimulate demand – encourage immediate purchase (e.g., limited‑time offers).
- Build brand image and reputation – shape long‑term perceptions of quality, status, reliability.
- Support other marketing objectives – facilitate market entry, increase market share, launch a product line.
- Provide information – explain how a product works, its price, where to buy it.
- Persuade and remind – reinforce value to existing customers and encourage repeat buying.
- Differentiate from competitors – emphasise features that set the product apart.
3.3.3 Matching Reasons to Promotional Tools
| Reason for Promotion |
Most Suitable Tools |
Illustrative Example |
| Create awareness of a new product |
Advertising, publicity, social‑media campaigns |
National TV ad for a new electric car model. |
| Stimulate immediate sales |
Sales promotions, coupons, contests |
Buy‑one‑get‑one‑free offer on a snack brand. |
| Build long‑term brand image |
Advertising, sponsorship, PR |
Luxury watch brand sponsoring a major tennis tournament. |
| Provide detailed product information |
Personal selling, direct mail, online content (videos, FAQs) |
Technical brochure and demo video for industrial CNC machines. |
| Differentiate from competitors |
Advertising, PR, personal selling |
Campaign highlighting biodegradable packaging in a crowded beverage market. |
3.3.4 Planning, Budgeting & Control
- Promotion planning steps
- Set SMART objectives (e.g., increase sales of Product X by 10 % in 6 months).
- Identify target audience and appropriate channels.
- Select the most effective mix of promotional tools.
- Allocate a realistic budget.
- Create a timetable and assign responsibilities.
- Monitor progress and make adjustments where necessary.
- Budgeting methods
- Percentage of sales: e.g., 5 % of projected turnover.
- Objective‑and‑task: set objectives → estimate costs of each task → add contingency.
- Competitive parity: match the spend of main rivals.
- Control & evaluation
- Compare actual results with objectives using:
- Sales figures (pre‑ and post‑promotion).
- Market research (brand awareness, attitude surveys).
- Customer feedback and repeat‑purchase rates.
- Return on Investment (ROI) = (Net profit from promotion ÷ Cost of promotion) × 100 %.
- Use the results to inform future promotional decisions.
3.4 Linking Promotion to Business Objectives
Effective promotional planning ensures each activity directly supports a wider business goal. Examples:
- Objective: Increase market share by 5 % in the next year.
Promotion link: Nationwide advertising and a limited‑time discount to attract new customers.
- Objective: Launch a premium product line.
Promotion link: High‑profile PR event, influencer partnerships, and selective advertising to build a premium image.
- Objective: Improve customer loyalty.
Promotion link: Loyalty card scheme (sales promotion) combined with personalised email newsletters (direct marketing).
4. Operations Management
4.1 Production Methods
| Method |
Characteristics |
Typical Example |
| Job production |
One‑off, customised items; high labour cost, low volume. |
Custom wedding dresses. |
| Batch production |
Groups of similar items; set‑up costs between job and flow. |
Bread baked in daily batches. |
| Flow (mass) production |
Continuous, high‑volume, highly automated; low per‑unit cost. |
Car assembly line. |
4.2 Location Decisions
- Factors to consider:
- Transport costs and infrastructure.
- Proximity to markets and customers.
- Labour availability, skill level, wage rates.
- Government incentives, taxes, regulations.
- Utilities, raw material sources, environmental impact.
- Techniques: cost‑benefit analysis, break‑even analysis for location, GIS mapping (advanced).
4.3 Quality Management
- Total Quality Management (TQM): company‑wide focus on continuous improvement.
- ISO standards: ISO 9001 (quality), ISO 14001 (environment).
- Inspection & testing: statistical process control, product sampling.
4.4 Break‑Even Analysis
Break‑even point (units) = Fixed Costs ÷ (Selling Price per unit – Variable Cost per unit).
Interpretation: the level of sales at which total revenue equals total costs; below this level the business makes a loss, above it a profit.
4.5 Economies of Scale
- Cost advantages from increased output:
- Spreading fixed costs over more units.
- Bulk buying of materials (discounts).
- Specialised labour and equipment.
- Technical improvements and better utilisation.
- Potential disadvantages: diseconomies of scale (coordination problems, bureaucracy).
5. Financial Information and Decisions
5.1 Sources of Finance
| Source |
Key Features |
Advantages |
Disadvantages |
| Retained profits (internal) |
Reinvested earnings. |
No interest, no dilution of control. |
Limited amount, may restrict growth. |
| Sale of assets (internal) |
Disposal of surplus equipment, land. |
Quick cash, no debt. |
Reduces future productive capacity. |
| Equity (external) |
Shares issued to shareholders. |
No repayment, spreads risk. |
Dilutes ownership, dividends payable. |
| Debt (external) |
Bank loans, bonds, overdrafts. |
Interest is tax‑deductible, retains control. |
Repayment obligation, interest cost. |
| Leasing |
Hire‑purchase or operating lease of equipment. |
Spreads cost, easier cash‑flow management. |
Higher overall cost, no ownership (operating lease). |
| Venture capital / Angel investors |
Funding for high‑growth start‑ups. |
Large capital, expertise. |
Loss of control, high return expectations. |
5.2 Cash‑Flow Forecast
- Projects cash inflows (sales receipts, loans, asset sales) and outflows (payments to suppliers, wages, tax, interest) over a period (usually 12 months).
- Helps identify periods of surplus or deficit and plan borrowing or investment.
5.3 Key Financial Statements
- Income Statement (Profit & Loss Account): shows revenue, cost of sales, gross profit, operating expenses, net profit/loss for a period.
- Balance Sheet: snapshot of assets, liabilities and equity at a specific date. Equation: Assets = Liabilities + Owner’s Equity.
5.4 Ratio Analysis (selected)
| Ratio |
Formula |
Interpretation |
| Gross profit margin |
(Gross profit ÷ Sales) × 100 % |
Efficiency of production & pricing. |
| Net profit margin |
(Net profit ÷ Sales) × 100 % |
Overall profitability after all expenses. |
| Current ratio |
Current assets ÷ Current liabilities |
Liquidity – ability to meet short‑term obligations. |
| Return on Capital Employed (ROCE) |
(Profit before interest & tax ÷ Capital employed) × 100 % |
How efficiently capital is used to generate profit. |
| Debt‑to‑Equity ratio |
Total debt ÷ Total equity |
Financial risk – proportion of finance from lenders vs owners. |
5.5 Investment Appraisal Basics
- Payback period: time required to recover the initial outlay from net cash inflows.
Formula: Initial investment ÷ Annual cash inflow.
- Net Present Value (NPV) – where required: sum of discounted cash inflows minus initial outlay. Positive NPV indicates a profitable investment.
- Decision rule: accept if payback period ≤ required time **or** NPV > 0.
6. External Influences on Business
6.1 Economic Environment
- Business cycle: expansion, peak, recession, trough – influences consumer spending and investment.
- Inflation – erodes purchasing power; interest rates – affect borrowing costs.
- Exchange rates – impact import/export competitiveness.
- Unemployment – affects labour supply and disposable income.
6.2 Government Policy
- Taxation (corporate tax, VAT, duties).
- Subsidies and grants – encourage specific activities (R&D, green energy).
- Regulation – health & safety, consumer protection, competition law.
- Trade restrictions – tariffs, quotas, import licences.
6.3 Social, Cultural & Ethical Issues
- Changing consumer attitudes (e.g., health consciousness, ethical consumption).
- Corporate Social Responsibility (CSR) – philanthropy, ethical sourcing, community projects.
- Fair trade, gender equality, diversity policies.
6.4 Environmental Concerns
- Sustainability – reducing waste, recycling, renewable energy.
- Legislation – carbon trading schemes, emissions limits.
- Impact on reputation and cost (e.g., eco‑label premiums).
6.5 Globalisation
- Multinational corporations – operating in several countries.
- Offshoring & outsourcing – cost reduction, specialised skills.
- Import/export opportunities – market expansion, currency risk.
- International competition – pressure on price, quality and innovation.
7. Linking All Areas to Business Objectives
Successful businesses integrate the five core units so that each decision supports the overarching objectives.
- Strategic planning: use market research (Unit 3) to set realistic objectives, then choose an appropriate organisational structure (Unit 1) and financing (Unit 5).
- Operational efficiency: apply break‑even analysis (Unit 4) and economies of scale to keep costs low, supporting profit‑maximising goals.
- People management: motivated staff (Unit 2) deliver high‑quality products (Unit 4) and effective promotion (Unit 3), driving sales and market share.
- External awareness: monitor PESTLE factors (Unit 1 & 6) to adapt marketing mix, pricing and location decisions, ensuring resilience to economic or regulatory change.
Quick Revision Checklist
- Business types, objectives and stakeholder interests.
- PESTLE influences and how they affect decisions.
- Motivation theories, recruitment steps, training methods.
- Promotion mix tools, reasons for promotion, budgeting & ROI.
- 4 Ps – examples of each element.
- Production methods, location factors, break‑even point, economies of scale.
- Key financial statements, ratio meanings, sources of finance.
- Investment appraisal – payback period & NPV basics.
- Impact of economic, legal, social, environmental and global forces.
- How each unit links back to SMART business objectives.