Why Businesses Exist (AQA AS Business): Revision Note

What do businesses do?

• The purpose of business activity can be broadly defined as the organisation of human, physical and financial resources to produce goods or services that meet customer needs while adding value

The purpose of business activity

The transformation process

• Businesses take inputs and transform them in order to produce outputs that customers will want to buy

Adding value in the transformation process

• Inputs used in the transformation process may be financial, human or physical resources, as well as enterprise

• Outputs are goods and services, as well as by-products and waste

  • E.g. Kent's Shepherd Neame Brewery takes inputs including malts, hops and barley and uses the staff on the brewery premises in Faversham, as well as equipment, such as mash tuns, to transform them by brewing these inputs into its main output — its range of beers — as well as by-products, such as compost

• During the transformation process, businesses add value to inputs, allowing them to be sold to consumers and generate a profit

  • Some ways to achieve added value include branding, quality, packaging and appearance or taste

Businesses and the economy

• Businesses bring a range of economic benefits to the country in which they operate:

  • Create employment and provide income for inhabitants

  • Develop new products that may improve the standard of living

  • Sell products abroad, improving the balance of trade

• Governments often take steps to encourage businesses to expand, improve working conditions and innovate in order to maximise these economic benefits

• Businesses can be classified according to the economic sector in which they operate

• There are four main sectors of industry in which a business can choose to operate

Sectors of industry

• The primary sector

  • This sector is concerned with the extraction of raw materials from land, sea or air, such as farming, mining or fishing

• The secondary sector

  • This sector is concerned with the processing of raw materials, such as oil refinement, and the manufacture of goods, such as vehicles

• The tertiary sector

  • This sector is concerned with the provision of a wide range of services for consumers and other businesses, such as leisure, banking or hospitality

• The quaternary sector

  • This sector is concerned with the provision of knowledge-focused services, often related to IT, consultancy or research and development

Sectors of industry in the UK

• As the UK economy has grown and developed, it has undergone significant sectoral change

  • Since the early 1980s, the economy has become service-based, with many manufacturers ceasing operations or moving their production facilities abroad

    • By 2023, more than 81% of the population was employed in the tertiary and quaternary sectors, with less than 1% employed in the primary sector

    • Employment is concentrated in retail and leisure services and financial, educational and legal services