This is business introduction

1. The business and its challenges
INTRODUCTION Study unit:
• NB: This SU is only on
these slides and NOT in
the textbook

2. After completing this study unit, you should
be able to:
1. Distinguish between the different ways of defining
a sector
2. Describe an industry
3. Define the concept of business
4. Explain the reason for the existence of a business
5. Describe the factors of production
6. Discuss certain business decisions.
(Action words in YELLOW – see study guide)
LEARNING OUTCOMES

3. SECTOR (1)
A sector refers to the broad nature of activities.
Distinguish between private, state and voluntary sectors
 Private sector is the part of the economy where individuals and
businesses generate profit from selling products and services to
consumers. It consists of the primary, secondary and tertiary
sectors. Jobs are created by growing businesses in the economy
that leads to economic growth. (Farmers, mines,
supermarkets and wholesalers/retailers)
 Public sector includes the national, provincial and local
government as well as state-owned enterprises (SOE). The
government receives its income via many types of taxation and
is concerned with legislation and policies also to enhance
economic activity. (Municipality: Tlokwe, Eskom, SAL,
Telkom, Transnet)
 Voluntary sector refers to organisations that do mainly charity
work and are mostly funded by grants and donations like
SPCA, Lions club, Blind SA and Hospice.
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4. SECTOR (2)
The private sector contains 3 main activities:
 Primary sector
 Secondary sector
 Tertiary sector
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5. SECTOR (3)
The private sector activities consist of three broad
nature of activities:
 Primary sector refers to all the businesses that has to do with
the exploitation of natural resources, including the raw products
of farming, mining and fishery.
 Secondary sector involves all the businesses that process
products further into final products, mainly manufacturing
businesses e.g. the manufacturing of motor vehicles.
 Tertiary sector includes all the businesses that provide a service
to deliver the final product (of the secondary sector) from the
manufacturer to the consumer. It includes wholesale and retail
trade as well as banking and insurance, education and nursing,
hotels and entertainment.
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6. INDUSTRY
Industry refers to the classification of
businesses that provide more or less the
same product or service e.g. all the car
manufacturers are part of the manufacturing
industry, specifically the manufacturing of
motor vehicles.
Twenty one standard industry categories
are used in South Africa. E.g. agriculture,
mining, manufacturing, financial services
education and construction.
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7. THE CONCEPT OF BUSINESS (1)
The term product refers to both goods and services
sold to consumers.
• Goods: All those things that we can feel and touch
(tangible products) e.g. fridges, clothing, shoes and cars.
• Services: The things we cannot feel or touch
(intangible products) e.g. services provided by a
medical practitioner, lawyer.
• Combination: Includes both tangible goods and
intangible goods, e.g. Roman’s pizza. Pizza (tangible
product), delivering pizza to your home (intangible service).
Any organisation that supply goods and services to
its customers in an economic system
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8. THE CONCEPT OF BUSINESS (2)
Profit seeking businesses distribute a part of the profit to its
owners (dividend in a company) and re-invest a part of it in the
business. Profit is the amount that remains in the business after
all the cost (expenses) is paid.
• INCOME minus COST = PROFIT
A business as an enterprising entity can be engaged in
commercial, industrial, or professional activities.
Businesses are found in the private sector as profit-
seeking or in the public sector as non-profit seeking.
Non-profit organisations (NPOs) strive to get enough income to
cover expenses.
• Sports clubs, welfare organisations and religious organisations
are all examples of non-profit-seeking private sector business
• Political parties and labour unions are examples of public sector
not-for-profit seeking business.
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9. WHY DO BUSINESSES EXIST? (1) LO
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• To satisify a need (Maslow hierarchy of needs)
• To generate profit (Economic principle))

10. WHY DO BUSINESSES EXIST? (2)
MAXIMUM output with MINIMUM input =
ECONOMIC PRINCIPLE
Economic principle: To obtain the largest
output with the minimum resources.
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11. Four basic factors of production is needed to
establish and operate businesses
Natural
Resources
Human
Resources
Capital
Resources
Raw materials in
nature which can
be processed
Employees who
perform specific
activities
Assets e.g.
buildings and
equipment
Entrepreneurship
The process in which natural, human and capital
resources are used to manufacture goods and/or deliver
services to generate a profit.
FACTORS OF PRODUCTION
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12. BUSINESS DECISIONS (1)
Various decisions can be taken to improve
the productivity of the business
Specialisation: A business decides to focus on a specific product or
process or a limited number of products. It assists technical labour
division and mass production. E.g. Clover focus on milk products
(Yoghurt)
Diversification: Takes place when the scope or variety of products
and/or services within a business is extended. E.g. Yoghurt, soy milk,
various types of cheese, butro and condensed milk.
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Voorbeelde:
Unilever : https://www.unilever.co.za/brands/?page=2
Tiger brands: http://www.tigerbrands.com/our-brands/

13. BUSINESS DECISIONS (2)
Various decisions can be taken to improve
the productivity of the business
Differentiation: When the management of a business decides to let a task which was
performed by a specific department be performed by an entirely different department.
Product differentiation is process of distinguishing a product from competitors products
to make it more attractive to a specific target market.
Integration: Describes the activity leading to a vertical shrinkage of the transformation
process. This is the opposite of differentiation and can result in markets or businesses
disappearing. If this is only an internal process, it can lead to the merging of different
departments within a business.
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Integration:
• vertical (suppliers or retailers)
• horizontal (competitors)

14. BUSINESS DECISIONS (3)
Various decisions can be taken to improve
the productivity of the business
Combination: This happens when the business decides to
grow by means of acquisitions or mergers. The process is
similar to differentiation and diversification, but new businesses
are not established.
Concentration: It is the internal growth of a business which
results in the increase of production capacity of the business.
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15. BUSINESS DECISIONS (4)
Various decisions can be taken to improve
the productivity of the business
Standardisation: It is a decision where competing businesses that produce
similar products agree to adhere to certain norms (e.g. packaging,
measurements, quality or other standards accepted by the involved parties).
Tipisation: Involves the decision to only manufacture certain types of a
product. It is the limitation of the range of products produced by only using
certain measurements, forms, quality, colour or other characteristics of the
product.
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16. After completing this study unit, you should
be able to:
1. Distinguish between the different ways of defining
a sector
2. Describe an industry
3. Define the concept of business
4. Explain the reason for the existence of a business
5. Describe the factors of production
6. Discuss business decisions.
LEARNING OUTCOMES