Introduction to human resource

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Benefits include:

• Total national output (gross domestic product) increases and this improves average standards of living. • The increasing output of goods can result in lower imports and higher exports of such products. • The expansion of manufacturing businesses will result in more jobs being created. • Expanding and profitable firms will pay more tax to the government. • Value is added to the country’s output of raw materials, such as corn processed into breakfast cereals, rather than simply exporting these as basic, unprocessed products. Problems include:

• The chance to work in manufacturing can encourage a huge movement of people from the countryside to the towns, which leads to housing and social problems. It may also result in depopulation of rural areas, and farmers may not be able to recruit enough workers. • The expansion of manufacturing industries may make it difficult for secondary sector businesses to recruit and retain sufficient employees. • Imports of raw materials and components are often needed, which increases the country’s import costs.

Costs of imported materials vary with changes in the exchange rate. • Pollution from factories will add to the country’s environmental problems. • Much of the growth of manufacturing industry is due to the expansion of multinational companies, which may remit all of their profits to their home countries.

In more economically developed economies, the situation is reversed. There is a general decline in the importance of secondary sector activity and an increase in the tertiary sector. This is known as deindustrialisation. In the UK, the proportion of total output accounted for by secondary industry fell from 30% in 1970 to 17% in 2020. This decline in the relative importance of the manufacturing sector also occurred in other developed economies such as the USA, France and Germany. The reasons for and possible impact of these changes on business include the following: • Rising incomes associated with higher living standards have led consumers to spend much of

They also need to make sure they have enough financial resources to pay for the inputs of their production. 1 Define the term ‘entrepreneur’. [2] 2 In which economic sector(s) will Huan and Bonnie’s start-up business operate? Justify your answer. [4] 3 Suggest two types of ‘inputs’ that Huan and Bonnie need in their ice-cream business. [4] 4 Using examples, explain the importance of all four business functions for the start-up ice-cream business. [4] Changes in economic structure – sectoral change It is very important to recognise two features of the four-sector classification of economic activity. The first is that the importance of each sector in a country’s economic structure changes over time. Industrialisation describes the growing importance of the secondary sector manufacturing industries in developing countries. The relative importance of each sector is measured in terms either of employment SAMPLE levels or output levels as a proportion of the whole economy. In some countries in Africa and Asia, the relative importance of secondary sector activity is increasing. This brings many benefits as well as problems.

their extra income on services rather than more goods. There has been substantial growth in tourism, hotels and restaurant services, financial services and so on – yet spending on physical goods is increasing more slowly. • As the rest of the world industrialises, manufacturing businesses in the developed countries face increased competition and these rivals tend to be more efficient and use lower-cost labour.

Therefore, the growing number of imported goods are taking market away from the domestic secondary sector firms, and many have been forced to close. • Employment patterns change – manufacturing workers may find it difficult to find employment in other sectors of industry. This is called ‘structural unemployment’. The second thing to recognise is that the relative importance of each sector varies significantly between different economies. Table 1.1 shows the differences that exist between the economies of different countries and the share of total employment accounted for by each sector of industry.

CASE STUDY 1.2 Vietnam’s sectoral change Vietnam is undergoing a swift economic transition. Historically, it has been an agricultural country, dependent on the production of rice. The country’s reliance on the primary sector has been reducing over time. The secondary sector grew fast, especially in the late 2000s. The growth of manufacturing, mostly in auxiliary industries such as textile, electronics, leather and garments has been supported by various economic policies of the Vietnamese government. Moreover, Japan offered aid of approximately $180 million to finance small and medium-sized enterprises (SMEs) in Vietnam. As a result, areas such as Que Vo district and Bac Ninh province became industrial zones. The industrialisation of Vietnam attracted big multinational firms such as the Korean company Samsung, which now assembles most of its smartphones in the country. By 2020, smartphones accounted for roughly one quarter of the country’s exports. Today, Vietnam is developing its tertiary sector fast. Some of the fastest-growing industries are finance and banking, insurance, health care, education, transportation, trade and tourism. Modern technologies in the quaternary sector are growing fast as well, with firms like Samsung investing in artificial intelligence (AI), 5G, and research and development (R&D) facilities. Vietnam’s sectoral change has improved overall welfare in the country by increasing the national output and creating new job positions in the secondary and tertiary sectors. The average

household income has increased, leading to improved living standards. Yet, Nguyen Hoang Dung, former R&D director of the Ho Chi Minh City Institute of Economy and Management in Vietnam, identified some issues along with the benefits of the sectoral change. Some of these issues are linked to the fact that most of the economic shift is led by foreign businesses. One main problem is the lack of adequate training of local manual workers by multinational companies. Also, foreign firms often do not transfer much technological know-how to Vietnamese engineers, and they are not environmentally responsible. 1 Define the term ‘secondary sector’. [2] 2 With reference to the case study, identify two examples of ‘sectoral change’ in the Vietnamese economy. [4] SAMPLE 3 With reference to the case study, identify one advantage and one disadvantage of the economic transition in Vietnam. [4]

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1.6 Entrepreneurship – starting a business Opportunities The process of setting up a new business is known as entrepreneurship. Entrepreneurs have many different reasons for starting their own business but the main opportunities created by setting up a business are: • Overcoming unemployment. Losing a job encourages many people to set up a business of their own. They could provide a product or service similar to that of their former employer, or another product, or they could provide a service based on an interest or skill they have. Talking to friends and

It is a good idea to read the business section of newspapers regularly. Don’t forget that these are often available free online. This will help you to apply the work you have done in class to the real ACTIVITY 1.2 Business Primary Secondary Tertiary Quaternary Description of main activities Coca-Cola HSBC RTZ Corporation plc Booking.com Rolls Royce Holdings plc Tencent 1 Copy the table above into your notebook. Use the internet or other means of research to: a identify these well-known international companies b identify the main sector of industry that they operate in c give details of their main activities. 2 Have you had problems identifying the main sector of any of the companies in the table? If so, why? How did you come up with an answer? 3 Research five businesses that operate in your country and identify which sector of the industry they mostly operate in and what their main activities are. family may reveal various products or services that an entrepreneur could offer. • Being independent. Some people dislike the idea of being told what to do! By creating their own business they have flexibility around their work and control over their working lives. If the business is a success, the entrepreneur will no longer have to accept other managers’ decisions, nor face the threat of being made redundant by an employer. • Improving standard of living. The desire to earn more money is the main thing that drives most entrepreneurs to establish their own business. Many people setting up a business believe that they will earn a higher income working for themselves as they will be motivated to work hard and take the necessary business risks.

world, and actual business examples can be used to help answer some examination questions. For example, what was the major business story in your country this week? SAMPLE 9

THEORY OF KNOWLEDGE Challenges

Knowledge question: To what extent does intuition affect entrepreneurship?

Entrepreneurs are people who are willing to take risks to turn innovative ideas into goods and services. Start-up businesses face a high risk of failure. In order to avoid this, entrepreneurs must organise their resources and pursue their goals in the most effective way possible. In many cases, entrepreneurs decide on appropriate business opportunities after researching the market. They examine the overall external environment to identify the potential risks. They study basic statistics such as market shares and market growth data, and in some cases they perform primary research to understand the exact wants of consumers before making any investments. However, some famous entrepreneurs base their business plan on intuition rather than facts. Intuition – sometimes referred to as a ‘gut feeling’ – is not a magic ability. It is the result of accumulated knowledge, perspective, cultural background, personal ethics and experience. According to scientific evidence, the intuitive sense is the result of signals sent via neural communication channels between the gut and the brain. Richard Branson, the founder of the Virgin Group, once said: ‘I rely far more on gut instinct than researching huge amounts of statistics.’ Should logic, statistics and facts overrule intuition when entrepreneurs decide on new business activities? Discuss in class. KEY TERM business plan: a written document that describes a business, its objectives and its strategies, the market it is in and its financial forecasts

The potential for success when starting a new business can be considerable. However, if it was easy to set up a successful business we would all be multimillionaires! There are many challenges that new entrepreneurs have to confront and overcome when setting up a business. Challenge 1: Do I have the appropriate personal qualities? There are some important personal qualities that most successful entrepreneurs tend to have. Innovation The entrepreneur may not be a ‘product inventor’, but they must be able to create a new niche in the market. They need to attract consumers in innovative ways and present their business as being ‘different’. This requires original ideas and an ability to do things innovatively. Commitment and self-motivation It is never easy to set up and run your own business. It is hard work and it may take up several hours every day. A willingness to work hard, a keen ambition to succeed, energy and focus are all essential qualities of a successful entrepreneur. Multiple skills An entrepreneur will have to make the product or provide the service, promote it, sell it and count the money. These different business tasks require a person with many different qualities such as being keen to learn technical skills, an ability to get on with people, and being good at handling money and keeping accounting records. Leadership skills An entrepreneur has to lead by example. They must have a personality that encourages people in the business to follow them and be motivated by them. Self-belief Many business start-ups fail, but this will not discourage a true entrepreneur. They believe in their abilities and business ideas and they will bounce back from any setbacks. SAMPLE 10