differences between local, national, international and multinational businesses

Enterprise – The Nature of Business Activity (Cambridge IGCSE/A‑Level 9609)

Learning Objectives

• Explain why businesses exist and the core economic concepts that underpin activity.
• Identify and describe the four factors of production and the process of adding value.
• Analyse choice and opportunity cost in business decision‑making.
• Describe the dynamic environment using the full PESTEL framework.
• Compare entrepreneurs and intrapreneurs, including risk exposure and their contribution to national economic development.
• Distinguish between local, national, international and multinational businesses with real‑world examples.
• Outline the purpose, key components and limitations of a business plan.
• Classify business structures – economic sectors and ownership types.
• Explain how size is measured, define small business, and differentiate organic from external growth.
• State the main objectives of private‑ and public‑sector firms and explain the rationale for corporate social responsibility (CSR).
• Apply the above knowledge to evaluate why businesses succeed or fail in a dynamic environment.

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1.1.1 Purpose of Business Activity & Core Economic Concepts

Why do businesses exist?

• To satisfy human wants and needs – providing goods or services that people value.
• To create value – converting inputs (resources) into outputs that are worth more to customers.
• To generate profit – profit can be reinvested, distributed to owners, or used to pay staff.

Factors of Production

Factor	Definition	Typical Example
Land	Natural resources and space used in production	Mineral deposits, agricultural land
Labour	Human effort – physical and mental	Factory workers, software developers
Capital	Man‑made assets used to produce other goods/services	Machinery, computers, factories
Enterprise (Entrepreneurship)	Risk‑taking, organisation and coordination of the other factors	Founder of a start‑up

Adding Value

Value is added when the selling price of the output exceeds the total cost of the inputs. A simple diagram can illustrate this:

Choice and Opportunity Cost

• Choice – businesses constantly decide between alternative courses of action (e.g., product A vs. product B).
• Opportunity cost – the benefit foregone from the next best alternative when a decision is made.
• Example: If a bakery uses its oven to bake bread instead of cakes, the opportunity cost is the profit it could have earned from the cakes.

Dynamic Business Environment – PESTEL

• Political – government stability, tax policy, trade agreements.
• Economic – inflation, interest rates, exchange rates, economic growth.
• Social – demographics, lifestyle changes, cultural attitudes.
• Technological – innovation, automation, digital platforms.
• Environmental – sustainability pressures, climate change, resource scarcity.
• Legal – health & safety, consumer protection, employment law.

Why Do Businesses Succeed or Fail?

Success Factors	Failure Factors
Clear market need Effective leadership & strategic planning Strong financial management Adaptability to change (technology, consumer trends) Competitive advantage (price, quality, innovation)	Poor market research Inadequate cash flow Weak marketing or branding Resistance to technological change Regulatory non‑compliance

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1.1.2 Entrepreneurs & Intrapreneurs

Key Comparisons

Aspect	Entrepreneur	Intrapreneur
Typical Setting	Start‑up or new venture (often independent)	Established organisation (internal project)
Core Motivation	Creating own business, financial independence, personal vision	Driving innovation within the firm, career progression, organisational improvement
Risk Exposure	Personal financial risk – may lose personal assets	Risk is borne by the company; personal financial risk is limited
Key Qualities	Visionary & proactive Resilient and tolerant of uncertainty Strong networking skills	Innovative thinking within organisational constraints Collaborative & persuasive Ability to navigate corporate culture
Common Barriers	Access to finance, market entry, regulatory hurdles	Organisational inertia, limited resources, internal politics
Contribution to National Economic Development	Job creation, new products/services, export earnings, stimulates competition	Improves productivity, retains talent, encourages continuous improvement within existing firms
Real‑World Example	Sarah Blake – founder of “Eco‑Bite” (sustainable food‑packaging start‑up)	Google’s “Area 51” team – develops experimental products while remaining part of Alphabet

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1.1.3 Types of Business Activity: Local, National, International & Multinational

Key Definitions

• Local business – Operates in a single town or city; customers are mainly from the immediate community.
• National business – Presence in several regions or states of one country; serves a nationwide market.
• International business – Engages in trade (export/import) or has operations in more than one country but usually retains a single central headquarters.
• Multinational corporation (MNC) – Owns or controls subsidiaries, production facilities or significant operations in several countries; subsidiaries often have a degree of local autonomy.

Comparative Overview

Aspect	Local	National	International	Multinational (MNC)
Geographic Scope	One town/city	Whole country	≥ 2 countries (single HQ)	≥ 2 countries with subsidiaries in each
Market Reach	Local residents	Customers nationwide	Customers in foreign markets (often via export)	Customers worldwide; products often adapted locally (glocalisation)
Ownership & Control	Often family‑owned or sole trader	Private or publicly listed; centralised decision‑making	Strategic decisions from HQ; foreign sales/agents follow	Strategic direction from HQ, operational autonomy for subsidiaries
Regulatory Environment	Local council licences, health & safety	National legislation (tax, employment, consumer law)	Home‑country law + host‑country trade & customs rules	Multiple legal systems; must comply with each jurisdiction’s regulations
Risk Exposure	Limited to local economic conditions	National economic cycles, policy changes	Currency fluctuations, political risk, exchange‑rate risk	All of the above plus cross‑border supply‑chain disruptions, cultural mis‑fit
Resource Allocation	Owner’s capital & local credit	National financing, bank loans, equity markets	Foreign exchange, overseas financing, joint ventures	Global pool of capital, technology transfer, economies of scale & scope
Examples	Corner bakery, independent garage	Tesco (UK‑wide), Marks & Spencer (national retailer)	British Airways (flights to Europe & US), Spotify (Swedish app exporting music)	Unilever, Toyota, Apple, Nestlé

Key Differences Explained

1. Scale of Operations – From a single community (local) to a global network of subsidiaries (multinational).
2. Decision‑Making Structure – Local firms make rapid, informal decisions; MNCs use layered hierarchies (HQ strategic, subsidiary operational).
3. Market Adaptation (Glocalisation) – Multinationals tailor products to local tastes (e.g., McDonald’s menu variations); local firms serve a relatively homogeneous market.
4. Risk Profile – International and multinational firms face currency, political, legal and cultural risks that are largely absent for local businesses.
5. Resource Mobilisation – MNCs can move capital, technology and expertise across borders, achieving economies of scale and scope that smaller firms cannot.

Suggested Diagram (for classroom display)

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1.1.4 Business Plans

Purpose of a Business Plan

• Clarifies the business idea and how it will create value.
• Acts as a roadmap for launch, growth and performance monitoring.
• Helps secure external finance (banks, investors, venture capital).
• Provides a benchmark for measuring progress against objectives.

Key Elements

Section	What it Should Contain
Executive Summary	Brief overview of the business, mission, and key objectives.
Business Description	Industry context, legal structure, location, and vision.
Market Analysis	Target market, size, trends, competitor review, and positioning.
Products / Services	Features, benefits, lifecycle, and intellectual property.
Marketing & Sales Strategy	Pricing, promotion, distribution channels, and sales forecasts.
Operations Plan	Location, facilities, technology, supply chain and staffing.
Management & Organisation	Key personnel, organisational chart, and responsibilities.
Financial Projections	Start‑up costs, cash‑flow forecast, profit & loss, break‑even analysis.
Risk Assessment	Potential threats, mitigation strategies, and contingency plans.

Benefits & Limitations

• Benefits – clarifies thinking, improves credibility with financiers, highlights gaps early, aids internal coordination.
• Limitations – time‑consuming to prepare, forecasts may be inaccurate, can become a “paper exercise” if not regularly reviewed.

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1.2 Business Structure: Sectors & Ownership

Economic Sectors

Sector	Primary Activity	Typical Examples
Primary	Extraction and production of natural resources	Farming, mining, fishing
Secondary	Manufacturing and construction	Car factories, shipyards
Tertiary	Provision of services	Retail, banking, education
Quaternary	Knowledge‑based services	IT, research, consultancy

Ownership & Legal Forms

Form	Key Features	Liability	Typical Size
Sole Trader	Owned & run by one person; simple registration	Unlimited – owner liable for all debts	Micro / small
Partnership	Two or more owners sharing profit & decision‑making	Usually unlimited (unless limited partnership)	Small to medium
Limited Company (Ltd)	Separate legal entity; shares not publicly traded	Limited to amount unpaid on shares	Medium to large
Public Limited Company (PLC)	Shares traded on a stock exchange; must meet stricter reporting	Limited to share capital	Large / multinational
Franchise	Independent owner operates under a parent brand’s system	Limited to franchise agreement terms	Varies – often medium
Co‑operative	Owned & democratically controlled by members (workers or customers)	Limited to member contributions	Varies
Joint Venture	Two or more parties pool resources for a specific project	Limited to agreement; often limited liability	Project‑specific, can be large
Social Enterprise	Primary aim is social/environmental benefit; profit reinvested	Usually limited liability	Varies

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1.3 Size of Business & Growth

Measuring Size

• Turn‑over (Revenue) – total sales in a financial year.
• Number of Employees – full‑time equivalents.
• Market Share – proportion of total industry sales.
• Other indicators: asset value, profit before tax.

Definition of a Small Business (Cambridge guideline)

• Turn‑over < £5 million (or equivalent in local currency) or fewer than 50 employees.
• Often family‑owned, limited access to capital markets.

Growth Strategies

Organic (Internal) Growth

• Increasing sales through new products, market penetration, or improved efficiency.
• Advantages: retains control, lower integration risk.

External (Inorganic) Growth

Type	Definition	Typical Example
Horizontal	Acquisition of a competitor operating at the same stage of the value chain	Facebook’s purchase of Instagram
Vertical	Integration of a supplier (backward) or distributor (forward)	Apple’s acquisition of chip‑design firm ARM
Conglomerate	Purchase of a firm in an unrelated industry	GE’s diversification into finance and healthcare
Merger	Two firms of similar size combine to form a new entity	Formation of ExxonMobil (Exxon + Mobil)
Take‑over	One firm acquires a controlling stake in another, often against resistance	Vodafone’s takeover of Mannesmann
Joint Venture	New entity created by two (or more) firms to pursue a specific project	Sony‑Ericsson mobile phones

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1.4 Business Objectives & Corporate Social Responsibility (CSR)

Private‑Sector Objectives

• Profit maximisation – primary goal for most for‑profit firms.
• Growth – increase market share, turnover, or geographic reach.
• Survival – especially for start‑ups and SMEs.
• Market‑share leadership – becoming the dominant player.
• Objectives are often expressed using the SMART criteria (Specific, Measurable, Achievable, Relevant, Time‑bound).

Public‑Sector Objectives

• Provision of services at the lowest reasonable cost.
• Equitable access for all citizens.
• Economic and social development (e.g., reducing unemployment).
• Environmental sustainability and public welfare.

Why CSR?

• Ethical motivation – businesses recognise a duty to society.
• Reputation & brand value – responsible behaviour can attract customers and talent.
• Legal & regulatory pressure – increasing legislation on sustainability, reporting.
• Financial incentives – cost savings from efficient resource use; access to ethical investment funds.

Common CSR Activities

• Environmental: reducing carbon footprint, recycling programmes.
• Social: community volunteering, charitable donations, fair‑trade sourcing.
• Economic: ethical labour practices, transparent governance.

Real‑World CSR Example

Unilever’s “Sustainable Living Plan” aims to halve its environmental impact while improving health and well‑being for billions of people, linking CSR directly to long‑term profitability.

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Summary Checklist – What You Must Remember

• State the purpose of business activity and list the four factors of production.
• Explain “adding value”, choice, and opportunity cost with a simple example.
• Identify the six PESTEL components that shape the dynamic business environment.
• Recall at least three success factors and three failure factors for businesses.
• Compare entrepreneurs and intrapreneurs – motivations, risk exposure, barriers, and national economic contribution.
• Distinguish local, national, international and multinational businesses using:
  • Geographic scope
  • Market reach
  • Ownership & control
  • Regulatory & risk environment
  • Resource allocation
• List the main sections of a business plan and name two benefits and two limitations.
• Classify the four economic sectors and eight common ownership types.
• Explain how size is measured (turn‑over, employees, market share) and give the Cambridge definition of a small business.
• Differentiate organic growth from external growth (horizontal, vertical, conglomerate, merger, takeover, joint venture).
• State the primary private‑sector and public‑sector objectives and describe the SMART framework.
• Define CSR, give at least three reasons why firms adopt it, and cite a real‑world example.
• Be able to apply any of the above concepts to a case study analysing why a particular business succeeded or failed.