Starting a Business Transforming Resources into Goods and Services

1. Starting a BusinessTransforming Resources into Goods and Services "Enthusiasm finds the opportunities, and energy makes the most of them."Henry Hoskins “Try not to become a man of success but rather try to become a man of value.” Albert Einstein "I wish that dear Karl could have spent more time acquiring capital instead of merely writing about it." Jenny Marx “80% of output is caused by 20% of input.” Pareto’s Principle (after Italian Economist Vilfredo Pareto) BUSS1.3 Transforming Resources into Goods and Services

2. In this topic you will learn about • Inputs, outputs and the nature of the transformation of resources into finished products • Adding value BUSS1.3 Transforming Resources into Goods and Services

3. Inputs, outputs and the nature of the transformation of resources into finished products The factors of production These are the resources used by firms to produce goods and services. They are called factor inputs as firms input these factors into the production process in order to produce a good or a service e.g. Fiat might use labour to help produce a car. Firms take these resources and turn them into other products that they sell for profit. There are four factors of production: • Land • Labour • Capital • Entrepreneurship (Enterprise) BUSS1.3 Transforming Resources into Goods and Services

4. The factors of production Land This encompasses all of the natural resources that come from the earth that are used in the production of goods or services. This can range from resources below the earth such as oil, on the earth such as agriculture, above the earth such as air and in the sea such as fish. Shell sees an end to easy oil production Declining tuna stocks The demise of the honey bee Run video clips from internet BUSS1.3 Transforming Resources into Goods and Services

5. The factors of production Labour This includes all of the workforce of an economy. Every worker is unique and we all have different skills, qualifications and experience. The value of a worker is called its human capital. A worker can be valued by the income they earn. Therefore, a top footballer, who entertains, is likely to be worth more than a nurse, who might save your life! Education and training are likely to increase our human capital – how much are your A Levels worth to you? UK workers more productive Female truckers fill workforce gap Run video clips from internet BUSS1.3 Transforming Resources into Goods and Services

6. The factors of production Capital Capital has a number of meanings such as money. However, when we talk about capital as a factor of production we mean the man-made aids that are used to help in the production process. These will include machinery, tools, factories and offices. Capital goods will bring a stream of income in the future rather than being consumed today. A car used for leisure purposes is a consumption good, but one used as a taxi is a capital good. Some major capital investment has occurred in recent years with Wembley Stadium, the Olympics and Heathrow Terminal 5. How the London Olympics is driving major capital investment. Run video clip from internet BUSS1.3 Transforming Resources into Goods and Services

7. The factors of production Entrepreneurship (Enterprise) The entrepreneur takes land, labour and capital and organises them in order to produce products that will be profitable. The skills of the entrepreneur are crucially important to the health of the UK economy. By taking risks the entrepreneur creates wealth and employment in the economy. Today’s small businesses are the large businesses of tomorrow and profit is the reward for the entrepreneur. Use the link below to watch video clips on entrepreneurs. Recommended viewing includes: Peter Cruddace CE of CMC Markets – from humble East End beginnings to Billion Pound company Mark Constantine of Lush discusses entrepreneurship and his mentors Run video clips from internet BUSS1.3 Transforming Resources into Goods and Services

8. Inputs, outputs and the nature of the transformation of resources into finished products Production sectors of the economy Production activities can be categorised into three separate sectors or industries: • Primary Sector • Secondary Sector • Tertiary Sector BUSS1.3 Transforming Resources into Goods and Services

9. Production sectors of the economy Primary Sector The primary sector includes those activities that are related to natural resources or the land element of the factors of production. These activities include agriculture, fishing, mining and forestry. The primary sector is the start of the chain of production. Businesses will take natural resources from the primary sector and turn them into manufactured goods. This adds value to the natural resource and is the method firms use to make a profit. BUSS1.3 Transforming Resources into Goods and Services

10. Production sectors of the economy Secondary sector (Manufacturing) The secondary sector includes those activities that are related to the manufacturing of natural resources that have been taken from the primary sector. This involves manufacturing e.g. cars, energy and the construction industry. This is the second stage of the production process. In the UK, and other developed economies, the Secondary Sector has seen rapid decline. This has particularly hit manufacturing. This means that we import more manufactured goods than we export. The key for firms in the Secondary Sector is to add value to the raw materials and semi-processed goods that they hold. This will help to distinguish them from the flood of cheaper imported goods from countries such as China and India. Tata takeover UK icons Jaguar and Landrover BUSS1.3 Transforming Resources into Goods and Services

11. Production sectors of the economy Tertiary sector (Services) The tertiary sector includes those activities that provide a service. This includes banking, finance, insurance, education, tourism, the health industry and the defence industry. In the UK services are the most important component of the economy. Most UK exports are from the tertiary sector and we export more services than we import. Firms in the Tertiary Sector will also need to add value to their products. However, it is harder for a Chinese firm to move into the UK service sector because services rely far more on good communications and face to face contact with the customer – it might be easy for the Chinese to produce a laptop but to act as a financial consultant or a teacher is far more difficult due to the language and cultural constraints. BUSS1.3 Transforming Resources into Goods and Services

12. Adding Value Adding value is when a business increases the worth of its factor inputs (the factors of production) by creating new output (the new product). This added value can be measured in terms of financial worth. The total value of inputs to a car might be worth £6000 in terms of metal, wages etc. and the firm sell the car for £10000 - adding value of £4000. How can a firm add value? A firm can add value in a number of ways. The Design Council have listed eight activities that they believe help to add value to a firm’s products. www.designcouncil.org.uk Output Input Process Added Value + = BUSS1.3 Transforming Resources into Goods and Services

13. Adding Value The Design Council looked at Added Value in UK businesses and broke it down into eight activities: • The retail experience – the shopping environment, the location and the opening times • Online services – web-based ordering systems or information on products and services • Physical services – fitting, installation, technical support or flexible delivery • Customer relationships – developed through after-sales service or knowledgeable staff • The design of products or services – improved quality, or customising to meet personal needs • Finance or insurance options • Developing a valued and trusted brand • Bundling products and services to create packages BUSS1.3 Transforming Resources into Goods and Services

14. Adding Value How a small firm adds value Read about and watch this video clip of Harrison Fisher to see how they are looking to add value by changing the perception of the company How a small UK Business adds value – DJS Market Research: Read about and watch this video clip of how rebranding added value at small firm Challs International: Run video clips from internet BUSS1.3 Transforming Resources into Goods and Services

15. For a cup of tea identify The inputs The process The output How much would you be willing to pay? What is the estimated added value? Consider each of the images below How have the inputs changed? How has the process changed? How has the output changed? Does this affect the price you are willing to pay? Does this affect the added value? Activity Within which of the three industrial sectors do you think added value is at the highest? With the use of suitable examples justify your answer.