The private sector is the part of a country's economic system that is run by individuals and companies, rather than the government.
Most private sector organisations are run with the intention of making profit.
The segment of the economy under control of the government is known as the public sector. Charities and non-profit organisations are sometimes considered to make up a third segment, known as the volunteer sector. However, such organisations are more commonly considered part of the private sector.
Types of organisation in the private sector:
Sole traders include tradesmen such as plumbers, electricians, television repair people etc. Nowadays lots of people are setting up their own businesses by creating small web-based companies working from home.
Partnerships are typically found in professional services such as accountants, solicitors, doctors, dentists etc, where the partners can share expertise and skills. They can also share the workload, organising work rotas to allow for time off and holidays. Partners also pool their capital.
Companies are owned by shareholders that each contributes a stock of money into a central pool. This pool of capital is then used to provide a core sum of finance, which is then added to by borrowing and other forms of finance. Directors run the company on behalf of shareholders who receive a share of the profits as dividends.
Examples include Apple, Unilever, Google and Cadbury Schweppes.
Franchises are licensing arrangements whereby an individual or group can buy the right to trade and produce under a well known brand name in a given locality. The franchisee benefits from working for themselves while having the privilege and reputation associated with a much larger group. Coca-Cola franchises some of its bottling operations, and you will all be familiar with McDonald's. Many of the McDonald's outlets are franchised.
Municipal enterprises are local government enterprises.
In the private sector, there are sole traders, partnerships, private companies,
public companies, and franchise organisations.
Private companies have Ltd after their name.
They are typically smaller than public companies although some like Portakabin and Mars are very large.
Shares in a private company can only be bought and sold with permission of the Board of Directors.
Shareholders have limited liability.
A public company like Cadbury Schweppes has their shares traded on the Stock Exchange. The main advantage of having shares traded on the Stock Exchange is that large amounts of capital can be raised very quickly.
One disadvantage is that control of a business can be lost by the original shareholders if large quantities of shares are purchased as part of a takeover bid. In order to create a public company the directors must apply to the Stock Exchange Council, which will carefully check the accounts.
Franchising
In the United States almost half of all retail sales are made through firms operating under the franchise system like McDonald's which has a brand franchise. Franchising is becoming increasingly popular in this country.
Franchising is really the 'hiring out' or licensing of the use of 'good ideas' to other companies.
A franchise grants permission to sell a product and trade under a certain name in a particular area. If I have a good idea, I can sell you a licence to trade and carry out a business using my idea in your area.
The person taking out the franchise puts down a sum of money as capital and is issued with equipment by the franchising company. The firm selling the franchise is called the franchisor and a person paying for the franchise is called the franchisee.
Where materials are an important part of the business (e.g. confectionery, pizza bases, hair salons) the franchisee must buy an agreed percentage of supplies from the franchiser, who thus makes a profit on these supplies as well as ensuring the quality of the final product.
The franchiser also takes a percentage of the profits of the business, without having to risk capital or become involved in the day-to-day management.
The franchisee benefits from trading under a well-known name and enjoys a local monopoly. Training is usually arranged by the franchiser. The franchisee is his or her own boss and takes most of the profits.
Typical samples of the different types of business organisation outlined above are:
Sole traders - like small corner stores and newsagents. If you call out a plumber or electrician they have a good chance of being a sole trader. Although they may also be part of a franchise arrangement or a partnership.
Partnership - your doctor or dentist may well be in partnership, as well as solicitors that help your family to buy a house or to make out a will.
Private companies - are typically small family businesses that want to keep the control of the business within the family.
Public companies - are the well known national and international companies like Vodafone and Corus.
Franchises - are commonly found in Quick Service Restaurants such as McDonald's as well as in other food outlets, and services such as 24 hour plumbing.
Limited liability - is a form of business protection for company shareholders and some limited partners. For these individuals the maximum sum they can lose from a business venture into which they have contributed going bust, is the sum of money that they have invested in the company - this is the limit of their liability.
The private sector is larger in free enterprise economies, such as the United States, in which the government imposes relatively few restrictions on businesses. In countries with more government control, such as China, the public sector makes up the larger part of the economy.
In many countries, there is considerable overlap between public and private sector industries. Examples of enterprises that are often run cooperatively include waste management, water management, health care and security services.
An industry or business may start out in one sector and move to the other. The act of turning a publicly-run enterprise over to private citizens is known as privatisation. The opposite movement, from private to public, is known by various names, including nationalisation or municipalisation, depending on the level of government involved.
Define the public sector and give examples of public sector organisations
So some examples would be School, Hospitals,Council Departments, Police, Ambulance, Fire brigade, Public and national parks, BBC, Government Departments.
In the public sector, public corporations are government owned businesses such as the BBC, which are then managed independently of the government but to pre-set aims and objectives.
Define the voluntary sector and give examples of voluntary sector organisations
Voluntary organisations throughout the UK work towards achieving specific aims and objectives delivering tangible benefits to our society. With over 180,000 registered charities in the UK with dedicated staff and volunteers there are many different types of organisations and causes to consider donating your skills to.
Charities are very different from commercial companies as they have:
Multiple stakeholders: their beneficiaries (the most important group of stakeholders),
Funders (there may be many of these, often with different priorities to each other),
The charity’s own staff
Volunteers and trustees
Any partners the charity might be working with.
Many charities need skilled volunteers to help their charity thrive and to enable them to provide relevant and efficient services
The voluntary sector or community sector
(also non-profit sector or "not-for-profit" sector) is the duty of social activity undertaken by organisations that are not-for-profit and non-governmental.
This sector is also called the third sector, in contrast to the public sector and the private sector.
Civic sector or social sector are other terms for the sector, emphasising its relationship to civil society.
Explain the possible advantages and disadvantages of working in one of the following sectors: private, public or voluntary
Working for a
private sector allows you more room to move
around from one position to another. You have more freedom in your title and
you are not bound to a specific role as much as you are in a public sector job
role. It is also easier to get a raise from a private sector as you do not need
to go through the government. Salary can be negotiated in a private sector
where as Public sectors tend to work on a band system and it is much more
difficult to get a raise. The ability to get promoted faster and work your way
up in a business is much easier in a Private sector, although it is not
impossible in a public sector, it is definitely much harder.
A disadvantage of working in a private sector would be is the lack of benefits. Some
companies may certainly offer great insurance and retirement packages, they are
often not on the same level as those in the public sector. It can also be
harder to get into a Private sector job without having a degree. Sometimes you
may have to start as an Intern or as an apprentice to build a relationship with
your employer to be made a full time employee.
A pro of working in a public sector would be the stability that comes
with a job like this. For example, if you are working for the NHS, it is much
harder to be sacked than it is in a Private sector.
However, a con of working for a public sector would be that they are
mostly associated with the lower salaries. On average, the salaries offered in
the public sector are not as high as those offered in the private sector. Also,
there are many entry-level positions available, but it can be more difficult to
work your way up the corporate ladder.
Voluntary sector work can expose you to a number of new experiences.
Local charity jobs can give you a better view into the
needs of people in your area, while working for a larger charity can lead to
travelling internationally and once in a life time experiences.
Voluntary sector work takes up a lot of time, which can be difficult
when you are not getting paid, even though the work can be rewarding.
Describe the following business functions:
•
Operations
Having
a detail operation allows for a company to run smoothly and effectively to
increase sales and spend the right money in the right places to make the whole
process cost effective.
•
People
Without
employees, a company will struggle to manage all aspects of the business such
as admin and actually provided the service etc.
•
Information
Without
information, the customer won’t know what they are paying for which will mean
that the consumer will go to a competitor that is much more informative about
the service/product so the customer knows exactly what they are paying for.
•
Research and development
Without
initial research, the company will not know what market to target and what
audience within that market they are looking to target. They will not know what
their competition is or how costly their product or service will be.
•
Finance
Without
financial support, a company won’t have the money to buy the resources need to
provide a service/company or market themselves in anyway.
Compare the possible advantages and disadvantages of working for a national organisation and a Small and Medium-sized Enterprise (SME)
The pros of
working for a large company would be the stability of the job. You will be
assigned to do one specific job and you will carry out that specific job while
everyone else has their own specific job.
Larger
companies, in general, are better about providing benefits like retirement
plans and more holidays a year.
For example, if you are not happy without something in the office, you will know exactly who to go to as there is only one manager, whereas, if you are working for a huge company with offices all over the UK you may not know where to go if you are having an issue want something to change to make office life better for you and your colleagues.
With employment law and equal pay legislation coming into
place over the last 25 years, women are being encouraged to work and not be
punished for raising children.
Employers offering flexible working practices or child
care facilities at the workplace have also helped to make it easier for women
with children to continue working.
Another change in recent years has been rate of pay. As
recent as this year, Apprenticeship wage has risen from £2.74 to £3.30 and
hour. This is making apprenticeships look more appealing as the majority or 16
– 17 year olds that are looking at apprenticeships tend to say no due to the
low pay as they want to start earning a decent wage from the start, not taking
into consideration that you are still in education.
Outline some of the changes in patterns of employment nationally
The rise in students going to higher education after
school has also resulted in a large temporary workforce available for employers
such as supermarkets and restaurants.
A dramatic increase in female part-time workers has again
appeared mainly due to more women being in the workplace, but only work part-time
due to child care.
EMPLOYEES
Since the late 1970s, inequality of annual earnings among employees has grown considerably. Increases in inequality have been greater for men but there is evidence that inequality started to fall among women after 1997.
Between 1979 and the mid-1990s, the lifetime earnings of men became more unequal.
In the late 1970s, earnings mobility was lower among women but by 2005 it was generally higher than among men.
Wage mobility generally has risen since 2000.
MIGRANTS
When migrants first find work in Britain, they typically earn less than their British-born counterparts: over 30 per cent less for men and 15 per cent less for women. This pay gap reduces as their stay in Britain lengthens.
For migrant men it takes, on average, 20 years to close this gap. For migrant women, it takes no more than 6 years.
Different nationalities experience different rates of wage convergence, with Europeans catching up the fastest.
Asian men show little signs of catching up at all.
More recent groups of migrants have fared better but this is largely due to smaller pay gaps on entry into Britain rather than faster wage growth.
More recent groups of migrants have fared better but this is largely due to smaller pay gaps on entry into Britain rather than faster wage growth.
FAMILIES
Working Families Tax Credit (WFTC) seems to have increased employment retention among men.
WFTC did not appear to lead to pay increases in the first year after the start of a claim, relative to Family Credit.
There is no evidence that employers have used the more generous WFTC to keep pay increases down.
The pattern of trade
The global economy has grown continuously since the Second World War. Global growth has been accompanied by a change in the pattern of trade, which reflects ongoing changes in structure of the global economy. These changes include the rise of regional trading blocs, deindustrialisation in many advanced economies, the increased participation of former communist countries, and the emergence of China and India.
Changes in the global economy
The main changes in the global economy are:
- The emergence of regional trading blocs, where members freely trade with each other, but erect barriers to trade with non-members, has had a significant impact on the pattern of global trade. While the formation of blocs, such as the European Union and NAFTA, has led to trade creation between members, countries outside the bloc have suffered from trade diversion.
- Like several advanced economies, the UK's trade in manufactured goods has fallen relative to its trade in commercial and financial services. Many advanced economies have experienced deindustrialisation, with less national output generated by their manufacturing sectors.
- The collapse of communism led to the opening-up of many former-communist countries. These countries have increased their share of world trade by taking advantage of their low production costs, especially their low wage levels.
- Newly industrialised countries like India and China have dramatically increased their share of world trade and their share of manufacturing exports. China, in particular, has emerged as an economic super-power. China's share of world trade has increased in all areas, and not just in clothing and low-tech goods. For example, in 1995, the US had captured nearly 25% of global trade in hi-tech goods, while China had only 3%. By 2005, the US share had fallen to 15%, while China's share had risen to 15%.
Changing patterns of employment
Over the last 25 years the make up of the UK’s working population has changed beyond all recognition.
Some of the changes are as follows:
Women at work
With employment law and equal pay legislation coming into place over the last 25 years, women are being encouraged to work and not be penalised for raising children.
Employers offering flexible working practices or child care facilities at the workplace have also helped to make it easier for women with children to continue working.
Rise of part-time workers
A huge increase in part-time staff has occurred again mainly due to more women being in the workplace and many only work part-time due to child care commitments.
The increase in students going to college and university has also resulted in a large temporary workforce available for employers such as supermarkets, fast food restaurants and call centres to make use of.
Flexible working practices
Again linked to the number of women in the economy now, job-sharing, teleworking and homeworking are more common than ever before.
This means workers do not have to spend as much time in the workplace as the traditional 9 to 5 job, but workers can work from home or on the move due to advances in mobile office technologies with laptops and smart phones.
Tertiary/Service sector
The process of deindustrialisation has resulted in Scotland turning away from shipbuilding and manufacturing to service sector jobs such as retail, tourism and banking. With these new openings thousands of jobs have been created in the Tertiary sector.
Public sector
Scotland has a large number of public sector workers, people employed to work for the State in areas such as the councils, the police, education and the NHS.
Describe how changing patterns of employment may affect his/her choices for learning or work
Explain the relationship between supply and demand in the business environment
Supply and demand is the amount of a commodity, product, or service
available and the desire of buyers for it, considered as factors regulating its
price.
If demand
increases then supply increases too, showing a positive growth of a business.
However, if the supply increases but the demand decreases then the product will
become more valued and rarer making the price higher.
Revenue is the amount of money a company receives from all sales made by the company. The profit is the amount of money after the expenses have been taken off, such as Gas and electric bills, employee payment, accommodation and the company’s marketing scheme. Price Price theory Economic theory asserts that in a free market economy the market price reflects interaction between supply and demand: the price is set so as to equate the quantity being supplied and that being demanded. In turn these quantities are determined by the marginal utility of the asset to different buyers and to different sellers. In reality, the price may be distorted by other factors, such as tax and other government regulations. Profit A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Profit is a very important concept for any business – particularly a start-up or relatively new business
Profit is the financial return or reward that entrepreneurs aim to achieve to reflect the risk that they take.
Given that most entrepreneurs invest in order to make a return, the profit earned by a business can be used to measure the success of that investment.
Profit is also an important signal to other providers of finance to a business. Banks, suppliers and other lenders are more likely to provide finance to a business that can demonstrate that it makes a profit (or is very likely to do so in the near future) and that it can pay debts as they fall due.
Profit is also an important source of finance for a business. Profits earned which are kept in the business (i.e. not distributed to the owners via dividends or other payments) are known as retained profits.
Retained profits are an important source of finance for any business, but especially start-up or small businesses. The moment a product is sold for more than it cost to produce, then a profit is earned which can be reinvested.
Profit can be measured and calculated. So here is the formula:
PROFIT = TOTAL SALES less TOTAL COSTS
Here is an example which illustrates the formula in action:
 Identify the connections between markets and competition What is meant by a competitive market? A competitive market is a market with a sufficient number of both buyers and sellers such than no one buyer or seller is able to exercise control over the market or the price. What is a market?
Businesses sell to customers in markets. A market is any place where buyers and sellers meet to trade products - it could be a high street shop or a web site. Any business in a marketplace is likely to be in competition with other firms offering similar products. Successful products are the ones which meet customer needs better than rival offerings.
Markets are dynamic. This means that they are always changing. A business must be aware of market trends and evolving customer requirements caused by new fashions or changing economic conditions.
Competition
A competitive market has many businesses trying to win the same customers. A monopoly exists when one firm has 25% or more of the market, so reducing the competition.
Competition in the market place can be good for customers. Governments encourage competition because it can help improve these factors:
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