Man as an Economic Animal

In prehistoric days, man had to use the resources of his environment to produce the goods
and services he consumed. He would engage in economic activities such as production,
consumption and exchange

Direct Satisfaction of Wants / Subsistence Level economy

Man produces everything for himself and his family without the help of others, producing
just enough to survive.

Indirect Satisfaction of Wants / Domestic Level of Production

As time went by, man learn ways of improving his life. He started planting seeds, making
basic tools and rearing animals. As a result of this he started producing what he was good
at, leading to surplus production.
With this surplus, man started trading with other families who had goods which they did not
produce.

Barter System and its Limitations

This indirect satisfaction of wants was possible through barter exchange. Barter is the
exchange of goods without the use of money. Counter trade is a form of barter today.
There were, however, some problems associated with barter.
Lack of double coincidence of wants - finding someone who had what you wanted and
wanted what you had; which made it time consuming.
Unequal exchange rate - value of goods were not always the same.
Indivisibility of goods - some goods was impossible to divide without destroying their
value.
Storage of wealth - most of the goods was perishable and could not be stored.

Development of Money

To solve the problems with barter, money was developed. This was a stable system of
exchange.
Money is a medium of exchange that is generally acceptable.
In the early days money was in the form of shells, beads, dogs teeth and grains but today
we have notes and coins.
Characteristics of money

Acceptability people must all agree to use it.

Durable It is long lasting..
Portable There is no difficulty in taking it around.
Divisible can be broken down into smaller units.
Stable Value There is a source in supply to keep value high.
Homogeneous identical notes must have similar values.

Functions of money

Medium of exchange used to obtain goods or services needed.

Measure of value prices can be quoted in monetary values.
Store of value can be saved.
Postponed Payments payments can be made at later dates differed
payments (postponed payment).

1. DEFINITION AND EXPLANATION OF THE TERMS AND CONCEPTS RELATED TO

BUSINESS:

Enterprise
Any undertaking or project, with the implication that it is of reasonable size and
complexity. This is the entire organization, including all its subsidiaries. It implies a large
corporation or government agency, but it may also to a company of any size with many
systems and users to manage. It depends on context. A corner candy store is
someones enterprise. The term, enterprise, company, corporation and
organization are used synonymously.
Entrepreneurship:
The capacity and willingness to undertake conception, organization, and management
of a productive venture with all attendant risks, while seeking profit as a reward. In
economics, entrepreneurship is regarded as a factor of production together with land,
labour, natural resources, and capital. Entrepreneurial spirit is characterized by
innovation and risk-taking, and an essential component of a nation's ability to succeed in
an ever changing and more competitive global marketplace.

Barter:
 Trading in which goods or services are exchanged without the use of cash. Resorted-to
usually in times of high inflation or tight money, barter is now a common form of trading
in deals such as offers to buy surplus goods in exchange for advertising space or time.
Advent of internet has transformed bartering from largely person-to-person to mainly
business-to-business exchange where items ranging from manufacturing capacity to
steel and paper are bartered across international borders on a daily basis.
Profit:
The surplus remaining after total costs are deducted from total revenue, and the basis
on which tax is computed and dividend is paid. It is the best known measure of success
in an enterprise. Profit is reflected in reduction in liabilities, increase in assets, and/or
increase in owners' equity. It furnishes resources for investing in future operations, and
its absence may result in the extinction of a company. As an indicator of comparative
performance, however, it is less valuable than return on investment (ROI). Also called
earnings, gain, or income.

Loss

1. General: Unrecoverable and usually unanticipated and non-recurring removal of, or

decrease in, an asset or resource.
2. Accounting:
a. cost that produces no benefit
b. decrease in value
c. excess of expenditure over income
d. excess of cost over the net proceeds from a transaction.
3. Insurance:
a. reduction in the value of an insured property due to an insured peril
b. amount sought in an insurance claim
c. amount paid under an insurance contract.

Trade

Commercial transaction involving the sale and purchase of a good, service, or

information.

Organization

A social unit of people, systematically structured and managed to meet a need or to

pursue collective goals on a continuing basis. All organizations have a management
structure that determines relationships between functions and positions, and subdivides
and delegates roles, responsibilities, and authority to carry out defined tasks.
Organizations are open systems in that they affect and are affected by the environment
beyond their boundaries.
Economy
An entire network of producers, distributors, and consumers of goods and services in a
local, regional, or national community.

Producer
 Entity that generates animal, botanical, or other agricultural products through natural
processes, usually by stimulating them with labour, nutrients, and other means.
Commonly used interchangeably with manufacturer.

Consumer

1. A purchaser of a good or service in retail.

2. An end user, and not necessarily a purchaser, in the distribution chain of a good or
service.

Exchange

Open, organized marketplace (such as a stock exchange) where buyers and sellers
negotiate prices. Exchanges require an almost instant (real time) bid and ask matching
mechanism, settlement and clearing, and market wide price communication and
determination.

Goods

1. Commerce: An inherently useful and relatively scarce tangible item (article,

commodity, material, merchandise, supply, wares) produced from agricultural,
construction, manufacturing, or mining activities. According to the UN Convention On
Contract For The International Sale Of Goods, the term 'good' does not include (1)
items bought for personal use, (2) items bought at an auction or foreclosure sale.

2. Economics: A commodity, or a physical, tangible item that satisfies some human

want or need, or something that people find useful or desirable and make an effort to
acquire it. Goods that are scarce (are in limited supply in relation to demand) are
called economic goods, whereas those whose supply is unlimited and that require
neither payment nor effort to acquire, (such as air) are called free goods.

Services

Intangible products such as accounting, banking, cleaning, consultancy, education,

insurance, expertise, medical treatment, or transportation.
Sometimes services are difficult to identify because they are closely associated with a
good; such as the combination of a diagnosis with the administration of a medicine. No
transfer of possession or ownership takes place when services are sold, and they (1)
cannot be stored or transported, (2) are instantly perishable, and (3) come into
existence at the time they are bought and consumed.

Market
 An actual or nominal place where forces of demand and supply operate, and where
buyers and sellers interact (directly or through intermediaries) to trade goods, services,
or contracts or instruments, for money or barter.
Markets include mechanisms or means for (1) determining price of the traded item, (2)
communicating the price information, (3) facilitating deals and transactions, and (4)
effecting distribution. The market for a particular item is made up of existing and
potential customers who need it and have the ability and willingness to pay for it.
Commodity
A reasonably homogeneous good or material, bought and sold freely as an article of
commerce. Commodities include agricultural products, fuels, and metals and are traded
in bulk on a commodity exchange or spot market.

Capital

1. Wealth in the form of money or assets, taken as a sign of the financial strength of an
individual, organization, or nation, and assumed to be available for development or
investment.

2. Accounting: Money invested in a business to generate income.

3. Economics: Factors of production that are used to create goods or services and are
not themselves in the process.

Labour

The aggregate of all human, physical and mental effort used in creation of goods and
services.
Labour is a primary factor of production. The size of a nation's labour force is
determined by the size of its adult population, and the extent to which the adults are
either working or are prepared to offer their labour for wages.

Specialization

An agreement within a community, group, or organization under which the members

most suited (by virtue of their natural aptitude, location, skill, or other qualification) for a
specific activity or task assume greater responsibility for its execution or performance.

BRIEF HISTORY OF TRADING INSTRUMENTS FORM SUBSISTENCE ECONOMY TO

MONEY ECONOMY, INCLUDING THE USE OF THE FOLLOWING:

Bills of Exchange
An unconditional order issued by a person or business which directs the recipient to
pay a fixed sum of money to a third party at a future date. The future date may be either
fixed or negotiable. A bill of exchange must be in writing and signed and dated. This is also
called a draft.

Credit card
Any card that may be used repeatedly to borrow money or buy products and services on
credit. It is issued by banks, savings and loans, retail stores, and other businesses.

Electronic transfer

Any transfer of funds from one account to another that occurs electronically. An
electronic transfer can take various forms, including a transfer made between an
individual's various accounts (move from savings to chequing), from one individual's
account to a corporation's account for an automatic reoccurring bill payment, or via a
credit or debit card swiped at a retail location to pay for a purchase.

Telephone banking

Provision of certain banking services (such as account balance inquiry, funds transfer,
and payment of bills) through telephone.

Electronic commerce

Business conducted through the use of computers, telephones, fax machines, barcode
readers, credit cards, automated teller machines (ATM) or other electronic appliances
(whether or not using the internet) without the exchange of paper-based documents. It
includes activities such as procurement, order entry, transaction processing, payment,
authentication and non-repudiation, inventory control, order fulfillment, and customer
support. When a buyer pays with a bank card swiped through a magnetic-stripe-reader,
he or she is participating in e-commerce.

REASONS FOR ESTABLISHING A BUSINESS

The main functions of a business are to:

make profits
produce goods and services
create jobs

FORMS OF BUSINESS ORGANIZATIONS AND ARRANGEMENTS

Sole Trader

This type of business may be operated by the owner alone or by a manager he appoints.
He may also employ several people to work in the business, however, ownership remains
with one person.

A small business like but I have to produce

mine needs less the capital myself .
capital. It can be difficult
to get a loan because
Im a bigger risk than
a large company

When I make a profit, but I have unlimited

Its all mine. liability for the business
if it goes bankrupt.
If Im unable to pay my
creditors they can
take everything I own.

Im my own boss, but there is no back-up if

make my own decisions Im unable to work
and Im involved with for any reason,
every aspect of the such as illness.
business and all my clients.

Other advantages:
Decisions can be made promptly.
New ideas can be put into operation quickly.
There is a personal incentive to succeed and manage the business efficiently.
There is no need to publish details about the company.

:Other disadvantages
- Essential expertise may be lacking.

Partnerships
One of the ways by which the sole trader can expand his business is to turn it into a
partnership. The minimum number of persons in a partnership is two while the maximum is
twenty. Some professional groups such as banks are only allowed a maximum of ten
partners.

Reasons of partnerships
1. The capital required is more than one person can provide.
2. The experience or ability needed to manage the business cannot be found in one
person.
3. Many persons want to share management instead of doing everything on their own.

Characteristics of partnerships
1. It is formed to make a profit.
2. If there is no partnership agreement it obeys the Partnership Act of 1890.
3. There can be a minimum of two persons, maximum of twenty.
4. Each partner (except for limited liability partners) must pay his/her share of any debt
owed by the business
.
Types of partners

Ordinary Partner:Plays an active role in the running of the business.Sleeping

Partners:These are also called dormant partners. They have a
financial interest in the business but take no part in the day- to- day
running of it.Limited Liability
Partner:The Limited Partnership Act of 1907 restricts the liability of a partner to the amount
of capital he has invested in the firm.Unlimited Liability
Partner:If the business is unable to pay its debts, unlimited liability partners can lose all the
monies they had invested and also their personal property such as house, land, car, etc.
They are totally responsible for all the debts of the firm.Upon the formation of a partnership,
it is always wise to draft up a partnership agreement which must be signed by all the
partners. This deed must embody all the important terms or features of the partnership.
With the absence of a partnership agreement, the partners will follow the Partnership Act of
1890 which states, among other things that the profits/losses are to be shared equally.

Advantages
1. Additional partners will mean more capital.
2. Better decisions may be made since there is more input.

3. Death of a partner need not mean the end of the business greater continuity.
4. The expenses and management of the business is shared.

5. Specialization may result in greater efficiency.

Disadvantages

1. If a partner makes a mistake, all partners are affected.

2. The decision-making process is slowed down because of the inclusion of other partners.
3. Generally there is unlimited liability.
4. Possible disagreement between partners.
5. Membership limit of twenty restricts resources of the business.

Company
These are associations of persons who have contributed capital towards the operating of
the business. Capital is contributed by buying shares. There are two types:

Private limited company

This type of business is usually a family affair. Its main features are:
1. there is a minimum of two persons, maximum of fifty
2. Shares are issued for sale not to the general public but not only to members of the
business or their immediate relatives. Past or present employees may also buy shares.

Advantages
1. Limited liability.
2. Some degree of privacy exists especially since the company does not need to publish its
accounts.
3. Continuity of existence.
4. The founders will hold the majority of the shares and control the business.

Disadvantages
1. Capital can be limited since the appeal for additional capital cannot be made to the
general public.
2. Restricts partners ability to transfer shares.
3. Management and ownership may be so separate that communication problems arise.

Public limited company

This type of company indicates its public status by including the letters PLC in its title. Its
main features are:
1. There can be a minimum of seven persons, no maximum.
2. Unlike a private limited company, a public limited company may raise Capital by inviting
the public to buy shares in the company.

Advantages
1. Continuity of the business is ensured.
2. There is no restriction on the transfer of shares.
3. Public companies may appeal to the public to buy shares.
4. Economies of scale are possible. Economies of scales are the benefits to be derived
from a large- scale production.

Disadvantages

1. Shareholders have no say in the policy- making decisions.

2. The legal formalities in forming a company are complex.
3. Dividends are sometimes small when the number of shareholders is large and profits are
small.
4. The accounts must be published annually so there is little privacy.
5. Businesses tend to be large; hence manager and owners lose contact with employees.
 Formation of a company
When a company is being formed, it must register with the Registrar of Companies. This
registration is accomplished through the completion of two documents. These are:

Memorandum of association
This document governs the companys relationship with the outside world, i.e., the
companys relationship with other organizations or external forces. Some of the information
contained in the memorandum of association are:
name
address
objectives
declaration of limited liability
country of operation

.
Articles of association
This document outlines the internal relationship of the company.
Among other things it shows:
The rights of shareholders
Method of election of directors
Ways in which meetings are to be conducted.
Division of labour.
The holders of shares are part of the business and will share in the companys profits by
receiving dividend.

Types of shareholders

1. Ordinary shareholders

Holders of these shares are risk-bearers and will receive no dividend if the company
does not make a profit. If the company makes a large amount of profit, then ordinary
shareholders will receive a greater amount of dividend, however, if the company makes
a small amount of profits, then dividends will also be small.

2. Preference shareholders

These are offered at a fixed rate of dividend and must be paid before ordinary
shareholders. There are two types:
a. Cumulative Preference Shareholders
 These holders will have to be paid in arrears, i.e., if for one year they receive no
dividend or only part of the dividend, then the balance is carried over into the next
year and is paid along with the dividend for the current year.
b. Non Cumulative Preference Shareholders:
Holders of these shares are not entitled to arrears.

Prospectus
This is a notice that invites the public to buy shares in a company.

Debentures

These are loan certificates that carry a fixed rate of interest.

Debenture interest must be paid whether or not the business makes a profit.

Cooperatives
These are owned by a group of people who pool their resources (money, time, and
administrative skills) together. Profits are usually ploughed back into the business.

Advantages
1. Economies of bulk buying through obtaining large trading discounts.
2. It is a democratic form of management. Decision -making is shared.
3. Guaranteed market for members products.
4. Employment is created within the organization.

Disadvantages
1. Conflict may arise when members are both employees and employers.
2. Management may be inexperienced and poorly trained.
3. Lack of capital inhibits expansion.

Multi-nationals
Companies which have their headquarters (parent company) in one country and various
branches/subsidies in other countries, for example: Shell, Esso, Woolworth, Desnoes &
Geddes, Grace Kennedy, Kentucky, Burger King, etc.

Advantages
1. They help to develop idle resources in other countries.
2. They create increase in employment.
3. They allow transfer of advanced technologies to various parts of the world.
4. They reduce transport and operating costs since they produce in areas where their
market is found.

Disadvantages
1. They transfer vast sums of money between countries by inter company practices to
avoid paying taxes.
2. They may have no loyalty to Government.
3. Their profits are repatriated, i.e., sent home to the parent country.
4. They can function only to fulfill cooperate interests, hence they may show little
understanding of a countrys problems.

Nationalised industries
Public Enterprise, state ownership, public co-operations and nationalized industries are all
terms that are used to describe organizations run by the government. The government
appoints a chairman and a managing director to run it, however, overall responsibility rests
with the government.

Advantages
1. Government provides essential goods and services.
2. They provide goods and services which private industries would not produce.
3. Stagnant industries may be revived when operated or taken over by the state.
4. They provide employment for many.
5. Profits are ploughed back into other areas of the country.

Disadvantages
1. Inefficiencies may develop because taxpayer money is not adequate enough to maintain
the industry.
2. Since the aim of some state owned companies is to provide essential goods and
services and not to make a profit, they tend to run into grave difficulties.
3. If a monopolized service exists, customers have little choice.

Conglomerates
These result from the merger of two or more companies that are engaged in different types
of goods/services. The goods/services are unrelated, e.g. A businessman owning a
restaurant and a bookstore.

Advantages
1. Additional profits create further security for the business.
2. It broadens the scope of business activities thereby strengthening profits.
3. Profits made in one venture may compensate for the loss of another.
4. Merging of companies often results in an experienced management team.
Disadvantages
1. Subsidiaries are sometimes hard to monitor, especially when production is too diverse.
2. Because of expansion, communication with customers may deteriorate.
3. Rationalization of staff may result and certain positions may be made redundant.

Government departments
These are departments that are owned and operated by the government. A government
minister is answerable to the Prime Minister, on the running of each government
department. There is a permanent secretary who oversees the operation of each
ministry/department. This person is not to be politically affiliated for while ministers of
government come and go, permanent secretaries remain to carry on the responsibilities of
that ministry.
Permanent secretaries report to the ministers.

Advantages

1. The enormous task of running the country is divided into manageable units.
2. Consultants are attached to each department to give advice.

Disadvantages
1. Change of government causes much discontinuity in staffing and policies.
2. Lack of funding leaves some departments not reaching their full potential.

Local and municipal authorities

Elected government officials are in charge of providing local services e.g. mayors and
councillors, to see to things such as parks, markets, wastage of water, electricity, parochial
roads (roads off main roads).

Advantages
1. Citizens get involved in the decision-making process by electing local councillors to
represent them.
2. Fulfill local needs and allows local development.

Disadvantages
1. Lack of continuity in some projects when there is a change of government.
2. Political biases may interfere with some projects.
Private sector :The part of the economy where private individuals owns businesses, assets
and resources, is referred to as the Private Sector. The main types of private business are
Sole Traders, Partnerships, Private and Public Limited Companies. These businesses pay
taxes and give other financial contributions to the government.
Public Sector refers to all the businesses, assets and resources owned by the government
or state. This sector usually produces goods and services like electricity (light and power),
water, postal services, health, education, police and army, agriculture, tourism and so forth.
1. Main aim is to make profits.
1. Main aim is to provide necessary goods and services.
2. Capital is provided privately.
2. Capital is provided by public funds.
3. Prices are usually high.
3. Prices are usually low.
4. Government actions will influence their operations, e.g., increased interest rate will lead
to less investment.
4. Government will make policies to achieve economic objectives.
5. Cost of production is usually minimized and operations are usually efficient and
effective.
5. It sometimes operates at a loss and organizations are usually overstaffed and
inefficiently operated.
An economic system refers to the way in which a country or nation uses its limited
resources to achieve economic growth and better the living standards of its citizens.
They are basically three (3) types of economic systems. Namely: -
Free-market or capitalist
Planned, controlled, command or socialist / communist
Mixed.

Irrespective of the system that the country uses, there are some economic problems
common to all countries. Some of these are:
What and how much to produce?
How many to produce?
Who should produce?
How technologically efficient are the methods of production?
Are there many idle resources?

1. There is little or
no government
intervention.
1. Competition will result in low prices, so consumers benefit.
1. Sometimes the necessary goods are not produced because there is not enough profit
on them.
2. Private ownership of most of the factors of production. (land, labour, capital, etc.)
2. There are rewards for the factors of production (rent, wages, interest and profit).
2. The rich will tend to get richer while the poor get poorer.
3. Consumers usually decide what is to be produced.
3. Consumers preferences are satisfied because they decide what is to be produced.
3. Advertising can lead to an artificially high demand.
4. Also called unplanned laissez-faire, market economy.

1. Government owns most of the factors of production.

1. Prices are usually affordable.
1. A lot of money being spent on administration.
2. Government decides what to produce.
2. Incomes are more evenly distributed.
2. There are limited choices for the consumers.
3. Government sets the prices of both goods and services and the rewards for the factors
of production.
3. There is no chance for a monopoly to develop.
3. There is little or no initiative and innovation in the economy.

4. Profits made from one company will help to develop other areas of the country, e.g.
health.

The following are the major stakeholders involved in business activities.

For our purposes, stakeholders refer to any individual or group of individuals who have a
vested interest in the business and, as such, want it to be a success. Now, we will identify
and discuss the role of the main stakeholders in business.

Owners and part-owners are perhaps the chief stakeholders in businesses. This is so by
virtue of their contributing capital, whether directly as in partnerships or through the
purchasing of shares as in companies and cooperative societies. Their stake or interest in
the business is to see the money that they have invested grow, therefore, they expect to
gain interest on the capital they have invested. For this to be realized, the business must be
a success.
The owners will therefore do anything in their power to ensure efficiency and high profits.
They will ensure that the best methods of production are used at the lowest possible cost
and they will see to it that resources are not wasted. Some owners/co-owners take an
active role in the running of the business, while others simply contribute capital.

As stakeholders, employers' stake or interest in the business is similar to that of the

owner/co-owner, especially where there is an overlap and the owner/co-owner is also the
employer in the business. The employer will ensure that the right amount of resources is
employed in the business, including labour, to ensure success of the business and security
of their jobs if they themselves are employed. This being so, they will try to find every
means possible to motivate their workers so as to increase their productivity, all to the
ultimate benefit of themselves and the business.
The employees' stake surrounds the fact that the business affords them employment and
an opportunity to earn a wage or salary and realize their potentials. Income earned allows
them to aim at being economically independent. Thus, the employees' interest is to keep
the business open and alive so that they do not become unemployed. They want to get as
much as they can out of the business, whether in cash or kind.

This group of persons has an interest in being provided with quality goods and services at
affordable prices and of receiving first-class customer care. Therefore, if this is not being
provided at the present business, they will easily move to the business's competitors. In
their role as customers, they can endeavour to assist the business in satisfying them by
informing the business of their likes and dislikes, as they carry out market research and
seek to cater to their needs and wants.

If the business is a public-sector business, then the government will have a stake or interest
as any other owner of a business. As far as other businesses are concerned, governments
are interested in seeing to it that they abide by their requirements in setting up the business
and in their operations; they follow closely the laws and regulations of government.
Governments see to it that businesses do not exploit the consumers and if they are
monopolies or operate like monopolies, they seek to regulate their activities in the interest of
the consumer. An important interest or stake for the government is in the taxes and other
government contributions that businesses make which allow them to provide the necessary
social services that the country needs. They also ensure that businesses put into place
policies aimed at reducing market failure, such as social costs, for example, pollution.

Members of society in general seek for businesses to help to upgrade their communities
and to sponsor community events, as well as to offer scholarships and other benefits. If they
have invested in these businesses, they expect a good return on their investment, and since
they are also consumers, they have the stake that the consumer group has in the business.

In general, to (1) provide a reasonable amount of work, (2) provide a safe and healthy work
environment, (3) compensate employees in accordance with the terms of the contract of
employment, (4) indemnify employees against liabilities and losses resulting from following
management's instructions.

In general, to (1) obey a lawful, reasonable order within the terms of the contract of
employment, (2) serve faithfully, (3) cooperate with the employer, (4) perform duties with
proper care and diligence, (5) account for all money or property received, (6) indemnify the
employer in appropriate cases, and (7) not to misuse the confidential information acquired
while in service.
 Collective insight into customer needs, wants, perceptions, and preferences gained
through direct and indirect questioning. These discoveries are translated into meaningful
objectives that help in closing the gap between customer expectations and the firm's
offerings.

Promoting of economic growth

Ensuring a level of full employment
Maintaining a healthy balance of payment position
Education
Collecting taxes etc.

A business or business unit consists of a person or group of persons engaged in trade or

some other commercial activity, with a view to making a profit. Not all organizations can be
regarded as businesses. A non-profit organization is not a business. For example, a church
bazaar may be engaged in selling goods, but it is not a business, because the money made
will be given to the church or a charity. This was their aim in selling the goods; they did not
sell with the aim of making a profit. A private school, run for a profit by its owners, is a
business, but a government school, provided as a service to the community is not.

The functions that a business carries out; depends on its aims, goals and objectives.
However, for most businesses there are three main functions:

Goods are made through the use of raw materials and other productive resources. They are
tangible items.
Services are intangible and there are two types, direct or personal and indirect or
impersonal.

Labour is one of the productive resources used to make goods and provide services,
therefore, businesses employ labour and in doing so, they create jobs for those seeking
employment. They create jobs for skilled, semi-skilled and unskilled labour, thereby
reducing unemployment.

Businesses aim to make profit. In the private sector, the aim is to maximize profits and to
minimize the use of resources in doing so. In order to realize a profit, a business must keep
its production costs as low as possible and sell its product for more than it costs to produce.
Being in business does not, of itself, guarantee that a profit will be made. Among other
things, to be successful, a business must produce goods and services that people want, at
a price they are willing to pay.
1. Businesses aid in the development of the country in which it is located.
2. A business helps to upgrade the skills of the workforce and contributes to the rise in the
standard of living.
3. To promote or improve local industry using local raw materials.
.

The roles of a business fall under four main headings:

These include: ECONOMIC

To sell goods and services of a high quality at prices so the majority wishing to purchase
them can do so
To give export orders priority and to try to increase these order
To make a profit
To improve the good or service
To contribute towards the improvement of the community
To create employment

These include: FINANCIAL

To make a profit
To be in a good financial standing with its bankers
To plough back profit into the business for expansion
To pay shareholders
To invest in other productive areas

These include: POLITICAL

To lobby and vote for parties whose policies coincide with their own wishes
To donate to the funds of political parties they favour
To influence government into establishing policies which will benefit their businesses as
well as their country

These include:SOCIAL AND ETHICAL

To develop a good community spirit by donating to charities and sponsoring educational,
health and sporting events
To promote the well-being of employees
To take part in community clean-up campaigns
To maintain homes and community centres
 Business organizations do not exist in isolation. They are located in communities on which
they depend for raw materials, labour, facilities and amenities. Business organizations
should develop
and strive to maintain good public relationships, and thus a good public image. How can this
be achieved? Businesses can develop and maintain a good public image, or be good
corporate citizens through:
. In other words, the activities of the business organization should not in any way
jeopardize the safety of the community.
by contributing to charities, education, health, sporting, and other worthwhile community
projects.
. If businesses have realized profits because they have been able to lower the cost per
unit produced, then it would be good if sales prices are reduced, thus providing the
opportunity for the consumer to share in their wealth. Does this really happen?

creating employment
paying corporate taxes
collecting of statutory deductions from workers and handing over same to the
appropriate government agency (Collector of Taxes)
producing quality goods and services which can compete on the world market and
thus earn foreign exchange for the country.
. Shareholders contributions help to provide the capital needed by public companies
to carry out their business operations. Therefore, returns, or profits, or interests on
investment should be fair. When business organizations fail to meet obligations to
shareholders, then shareholders and potential shareholders may be reluctant to
participate in such economic ventures. Shareholders may pull out of such
organizations by selling their shares while potential shareholders may be reluctant to
invest. The inability of such organizations to raise capital through contributions from
investors would naturally affect employment, thus resulting in economic hardships. It
may also mean the non-achievement of economic targets set by the nation.
Policies being pursued by government should be known, studied, understood, and
pursued where these would be in the best interest of the community or country to do
so. Businesses can even lobby to have certain policies adopted by government as
long as these will be mutually beneficial. On the other hand, business organizations
have a right to guard against being manipulated by the political directorate.

Internal organizational environment

Functional areas of a business

The major functional areas of a business are Personnel, Finance, Production and
Marketing.

a. Production
 The primary role of the production department is to transform raw materials or
components into finished products/goods. Its main functions are:
a. providing the necessary raw material for the finished product
b. ensuring that the finished product matches specifications
c. providing transportation for the goods (sometimes linked with the marketing
department)
d. storing raw materials and goods
e. checking stock controls
f. maintaining equipment of the firm
g. recommending production equipment to be bought

b. Finance

The primary role of the finance department is to ensure that the finances of the company
are properly accounted for. Its other functions are:
a. maintaining a satisfactory cash-flow position
b. ensuring that the books are available for audit at all times
c. providing necessary statements at the end of the month for Board Meetings (or as
otherwise agreed)
d. re-investing profits, where/when necessary

Marketting

Marketing provides the match between the organizations human, financial and physical
resources and the wants of customers. Its main objectives are:
a) Advising board of directors on marketing policy
b) Within the limits of policy laid down, the marketing manager will plan and execute all the
activities for assessing and creating consumer demand and for the sale, storage and
distribution of the companys products.
c) As concerns market research, he will keep the market under review, noting the extent
of the market, his firms share and the share of the market held by competitors and all
aspects of changing demand
d) Sales promotion advertising and display, pricing policy, discounts and credit terms
e) Budget preparation preparation of sales budgets in liaison with production and
finance departments
f) Control of distribution this involves selection of channels of distribution, warehousing
and transport facilities
g) Control of personnel in collaboration with personnel manager, selection and training
of sales, clerical and warehouse staff.

Personnel

The primary role of the Personnel Department is to deal with staff welfare. Its other
functions are
a. negotiating with trade unions
b. recruitment of staff
c. firing/deployment of workers
d. safekeeping of confidential information of employees
e. recruitment of staff
f. training of staff (on and off the job)
g. working closely with finance regarding salary agreement/s.

Functions of Management
Management is defined as the art of directing human activities to reach the goals set by an
organization.
If management is an art then there must be an artist or several artists involved in the
process. The entrepreneur or manager is such an artist. He or she is the one co-
coordinating the various factors of production so that the goals or objectives of the
organization can be met.
What are the human activities mentioned in the definition? Most business organizations are
designed to achieve its goals by dividing tasks into four main functional areas:
1. Finance
2. Marketing
3. Personnel
4. Production
Individuals within these areas function to achieve the goals of the organization or firm.
These are the results that the firms are expecting for the efforts they have put into their
work. Usually firms plan the results or targets that they would like to achieve and then work
towards these. One goal may be to increase sales order to maximize profits. Another may
be to provide good incentives and proper working conditions for staff. Still another could be
to improve the quality of the product they provide for customers.
To get an idea of what the possible goals of an organization may be, you need to examine
the responsibilities of management. This is so because it must set goals to achieve these
results.

involves looking ahead: making decisions and formulating policy on the intentions and
objectives of the organization, and the methods to be used to achieve these objectives.
Planning assists the efficient utilization of the firms resources, and it emphasizes
preventive rather than corrective measures.
ensuring that workers can get on with their job by making sure that people, materials and
machinery are available in the right place at the right time. Good organization involves
planning what is to be done, who is to supervise it, time frames, and the most efficient
method of doing it.
directing and integrating the activities of the team under managements direct supervision,
and contributing to the overall co-ordination of the activities within the organization in
order to form a united strategy of operations to achieve the organizations objectives.
supervising and checking the activities and performance of subordinates to ensure that
instructions are being carried out properly and plans and methods are being followed.
giving instructions to workers so that they are clear as to how their work should be done to
best benefit the organization.
assigning tasks or goals to subordinates whilst at the same time granting them the
necessary authority to carry out tasks. The subordinates must recognize their
responsibility and accept their accountability for the expected performance.
encouraging other members of the organization to carry out their tasks properly and
effectively. Although extrinsic incentives such as wages help to motivate people, the
ability to motivate others is very much dependent upon leadership qualities which are
discussed later. Intrinsic incentives such as job enlargement and job satisfaction also
help to motivate people.

A.
i.To maximize efficiency and create surpluses (profit).
ii.To notify them about changes in the market and possible needs for diversification.
iii.To use, with their permission, the surpluses for further suitable investments in the
business or in accumulating other assets.
iv.To ensure the employment of an able-bodied and efficient workforce.
B.
.To provide suitable working conditions.
i.To provide adequate training facilities for the workers.
ii.To maintain good interpersonal relations among staff.
iii.To maintain good communications whether through oral, written or visual methods.

C.
i.To produce goods of high quality which are in demand.
ii.To sell at affordable prices.
iii.To offer good customer relation services such as investigation of complaints.
iv.To reduce health risks to customers by practicing aspects of consumerism.
v.To offer sale services where necessary.

D.
i.To avoid social costs i.e. the cost borne by society as a result of the operation of the
business. Examples include the pollution of the environment due to harmful fumes
and effluent in rivers.
ii.To educate the community on safety tips in and around the business environment.
 iii.To donate some of the profits to the community efforts in health, education and
sporting activities.

E.

Responsibility towards the government: As part of their social responsibility,

management must conduct business affairs in a lawful manner, honestly pay all the
taxes and dues, and should not corrupt public official for selfish ends. Business
activities must also conform to the economic and social policies of the government.

Organizational charts
Organization is an important function of management. It is through organization that
planning comes alive. In organizing, business organizations set up formal structures so that
the best results of their efforts can be achieved.

An
is a design of an organization, which indicates its formal, planned relationships between its
personnel and the functions they perform in relation to each other. The structure shows who
reports to whom and which worker must do what job in order for another job to be done.
Organization structures may be expressed in the form of
.

An organization chart is a diagrammatic representation of the structure and reporting

relationships within an organization.

A graphical representation of an organization. It shows:

a. How work is divided among employees.
b. What kind of organization is in existence and the comparative status of different
members of the organization.
c. The number of levels of management and their span of control.
d. It is also helpful when it comes to reorganizing.

is grouping by reason of social customs, personality, religion, etc., while

is concerned with the official lines of communication followed by employees in carrying out
management decisions. It shows clearly the lines of authority and responsibility.

means having the right or power to command. One has the right to exercise his authority as
long as he/she is given responsibility.
is the obligation to perform a task properly. Responsibility brings about accountability.
Therefore, a person or organization that is given the right or power to command has an
obligation to do so.
Formal organization structure is established to show reporting relationships among workers
of an organization. The structure can be of a line/direct, functional, line and staff, or
committee nature.

This is a traditional form of organization structure. It is also called a

or
.
. Examine the organization chart below.

Fig. 2.1: Line organization chart.

In addition to having a department head, a company may also appoint a staff member who
is a specialist or expert to assist the department manager. The staff member is not involved
directly in the operations of the company but merely advises and assists the department
manager.
This type of organization divides the business into departments to carry out basic functions
such as Administration, Finance, Production, etc.
A department head may supervise not just the functions of his department but may also be
called upon to oversee a particular area in another department though not gaining full
control of it. A subordinate will be in the position of reporting to more than one supervisor.

Fig. 2.2: Functional organization chart.

As organizations expand, they not only become larger, they also become more complex. To
facilitate communication and interaction among the workers at all levels, committees are
formed. In a committee organization:
a group of persons is in charge of authority and responsibility, instead of one manager.
the committee organization structure works with the line-and-staff structure.

The principle of
means that a worker must understand whose commands he/she should accept and follow.
The worker must receive instructions that are agreeable and not conflicting from persons
who are in charge. To avoid confusion, one worker should never be assigned to more than
one supervisor.

The concept of the chain of command is also called the

. This means that the right or authority to command, that is to exercise authority, or to show
that a person is in charge, must be seen from the top to the bottom of the organization.

means that in organizing, the organizer should ensure that the number of persons to be
supervised by any one person should be of a manageable size, to facilitate effectiveness of
supervision. For example, it is easier for a supervisor to supervise twenty workers who are
involved in completing the same task, than to supervise five workers who are doing five
different tasks.

means assigning tasks to persons who are qualified and capable of performing them. If
delegation is accepted, in principle, then the person who is assigned a task should have the
authority to see to its accomplishment. For example, if a person is asked to be in charge of
a project, then he/she should have the authority to see to the achievement of the objectives
of the project. This should be clearly understood by all persons involved.

In any organization, relationships are established among workers. These relationships help
persons to interact with each other and to form informal groups.
Informal groups are not represented on the organization chart. These are groups of workers
that grew out of a need to:
interact with others
band together on issues that affect them
satisfy the needs and desires of the group.
The leader of the informal group:
1. helps the supervisor/management team to accomplish the goals of the organization by
assisting in setting work standards and distributing work.
2. keeps managers/supervisors informed about the quality of management as seen through
the eyes of the workers.
3. influences members of the informal group to work toward the goals of the organization.
4. encourages colleagues to be more productive workers.
5. influences staff morale negatively or positively.

Informal groups could:

1. cause work stoppages due to unsatisfactory work-related situations.
2. sabotage supervisors/managers by withholding vital information.

A leader usually emerges from the informal group. The leader is eventually selected and
is used extensively as a way of communicating privileged information, or to carry out other
tasks.

The success of an organization can be felt in a number of ways within and outside the
organization. Examine the following:

The company benefits from increased profits. More resources are available for capital
investment. When more is invested, more workers may be required to handle the increased
workload. The company may choose to invest in better machinery and plant in order to
increase the efficiency of its work processes, and, thus, improve the quality of the outputs.
Division of labour or specialization, if not yet being used, may be introduced as a way of
increasing efficiency. The organization structure would expand to accommodate the new
areas. For example, research, organization and management, systems units may be added
if they were not part of the structure already.

Shareholders may receive increased dividends on their investments.

More jobs can be created through increased investment in the organization. Some
employees may benefit from learning new skills as new methods and procedures are
introduced.

Customers also benefit from lower prices for example, which may result from prosperity
being experienced by the firm. A greater range of goods and services can be accessed as
well.
The government benefits from the additional taxes collected. A wider tax base is created.

More orders for goods can come from customers.

More jobs are created, thus higher levels of employment are realized, bringing more
opportunities for employment.

Leadership can be classified into four main styles. They are autocratic, democratic,
charismatic and laissez-faire. The type of leadership style is used in an organization
depends on the circumstances or situations that require it.

Managers who are autocratic are called authoritarians and are usually very strict. The
authoritarian leader gets others to do things by giving them little scope to influence
decisions. In other words, this type of leader is the sole decision-maker who gives orders
for work to be done.
The autocratic leader will dictate the particular work or task that is to be done and at times
this type of leader may also dictate specific work companions for each employee.
Employees who are under the authority of the autocratic leader will put in a great amount of
work. This is mainly because the leader uses fear, threats, and his authority and
personality to get his way.
If the authority leader is absent from the organization and is not around to direct activities,
work may cease for a while.

The democratic leader seeks to persuade and consider the feelings of employees and
encourage their participation in decision-making. It is for this reason they are also called
the participative leaders. The democratic leader welcomes input from his / her employees;
even if a tentative decision is to be made, a democratic leader will enforce it only after
reviewing it with his subordinates.
Employees under a democratic leader are given freedom in their choice of work
companions and divisions of tasks. This is the image of the leader who merely advises and
inspires his / her subordinates and tries to gain their respect and cooperation.
The results are that employees are highly motivated and will produce quality. In addition,
innovative ideas arise from workers who are directly engaged in the production process.
However, the variety of opinions may slow down the decision making process.

This leader is one who has a special ability to lead. He or she uses this enormous ability to
lead to convince persons to accept certain ideas and use them in the completion of tasks.
He or she adopts a high level of persuasion.

Under this type of leadership, employees are allowed to develop their own work plans and
to complete tasks accordingly to their own capabilities. Thus, employees have complete
freedom to make decisions, choose work companions and the tasks they wish to do. The
laissez-faire type of leader only supplies information when asked.
This leadership style is usually employed in creative productions such as in advertising
agencies and architectural firms. It is most effective where workers have a high degree of
expertise.

Conflict is a situation that develops when one person interferes with the achievement of
another's goals.
Conflicts usually occur between two people, but they may also occur between an individual
and a group or between groups. Because conflict can be an obstacle to job performance,
managers need to be concerned about it.
A modest amount of conflict is sometimes beneficial, because it may challenge employees
and may stimulate new ideas. However, while some conflict in organizations may be
healthy, too much conflict can be harmful. Undesirable conflict results when the actions of
any one person or group undermine the goals of the organization. What, though, are the
potential sources of conflict within an organization?

Lack of communication and/or poor communication

Poor judgment and problems not dealt with effectively by management
Inconsistencies and violation of work rules
Lack of motivation or encouragement by management
Harsh leadership styles and/or inappropriate leadership styles
Lack of corporation or lack of willingness among workers and management
Dishonesty among workers and managers
Work not done properly
Lazy workers and managers
Inflexibility
Poor decision making
Hostility and suspicion
Misunderstandings
Job dissatisfaction in terms of :
(a) Pay
(b) Promotion prospects
(c) Working hours and times of attendance
(d) Holiday arrangements
(e) Job security
(f) Friendships and relation- ships between employees

So now we know some of the many sources of internal conflict. Since these conflicts may
arise from time to time, how do we go about resolving such?

Each situation differs and it is necessary to decide which type of strategy will BEST resolve
the conflict.
Here are some suggestions:

This is where a neutral position is taken or one agrees with another's position even though it
differs from one's personal belief. However, if a disagreement involves extremely important
issues, an avoidance strategy may not be advisable.

This is where everyone involved in the conflict agrees to a mutually acceptable solution.
Everyone involved personally contributes to the decision and it is the preferred method of
conflict resolution.

This is the most dangerous approach to conflict resolution. This strategy is one in which no
one compromises, thereby resulting in one person winning and one losing. The win/loose
situation is destructive and management attempts to prevent them.

There are some specific strategies that the principles of business require us to consider:
Mediation
Arbitration
Trade union representation.

The term industrial relations is used to refer to the degree of conflict or peace in an industry
and between employers and employees.
Industrial relations at the work place are important for many reasons. If the relations
between the workforce and management are good then the enterprise has a good chance
of being successful. The opposite is also true that where the relations are poor the
enterprise is far less likely to succeed. Industrial relations are about setting up the right
working climate in which the enterprise can best be assured of a successful life. Bad
industrial relations will become evident in strikes and other forms of restrictive practices.
There are two main ways in which industrial matters may be settled:
Three specific ways of settling internal conflicts to establish good management-employee
relationships are:

This refers to intervention between persons or groups for the purpose of reconciling them in
terms of getting them to come to some sort of agreement or by restoring peace. The person
who intervenes is known as the mediator.

This is the process of listening to a dispute, examining the facts and finally handing down a
ruling or decision to the disputing parties. The person who intervenes here is known as the
arbitrator and that person is selected based on an agreement between parties. The
Industrial Disputes Tribunal is the arbitrator in most cases. Both parties also agree that they
will accept the ruling or decision of the arbitrator.

Conflicts can also be resolved through the actions of trade unions. A trade union is made up
of a group of workers who combine so that bargaining with the employer on issues that
affect them is made stronger. Trade unions may intervene in disagreements and conflicts
especially when they exist between worker and management. The main person is known as
the union delegate or the shop steward. As a means of conflict resolution, the manager can
also establish a grievance procedure, which refers to the steps an employee can take in
resolving a conflict within the organization. These steps may include mediation, arbitration,
Ministry of Labour and the final court of appeal.
These are associations of workers in an industry or group of industries who have joined
together to improve their wages and working conditions, job security and other benefits.

To improve the terms of employment.

To improve the physical environment at work.
To promote the welfare of members.
To Improve social security payments such as unemployment, sickness benefits and
pensions.

To participate in company decision making process.

To settle disputes resulting from unfair dismissal of staff.
To bargain for wage increase and fringe benefits.

1. these are unions in which all members, irrespective of the industry in which they work,
practice the same craft or trade or follow the same occupation. e.g a designer.
 2. unions in which all members are employed in the same industry, e.g. sugar or bauxite.
3. these are unions in which all the members are of many trades and employed in many
industries.
4. these are unions in which members are all white collared workers (clerks and office
staffs).

Management and labour need each other. Therefore, it is essential that good working
relations exist between them. What can managers do? What can workers do?
1. Keep the lines of communication open. Various forms of communication should be
encouraged to suit the different personalities and preferences of workers. Communication
should also be two-way.
2. Management should encourage input and ideas where possible so that workers will feel
good about themselves and their jobs.
3. Both parties must learn to be tolerant of the other, bearing in mind that personalities,
backgrounds, religious leanings etc. will differ among persons.
4. Show respect for other persons.
5. Do not breach rules.
6. Display self-control where needed.
7. Encourage cooperation and teamwork.
8. Choose effective leadership styles.
9. Motivation of workers.
10. After-work socializing. This helps to breakdown the formal barriers and allows people to
relax and relate more freely with each other.
11. Ensure there is no overlap of authority and responsibility in the organization.
12. Remove all discrimination and exploitation.
13. Reward positive actions with praise and other forms of reward.
14. Be flexible.
15. Express sympathy and empathy.
16. Be polite.

This is a framework within which the views of management and unions about disputed
matters, which can lead to industrial disorder, can be considered with the aim of eliminating
the causes of any disorder. It may also be defined as talks between representatives of
employer and trade unions to decide pay rates and other terms and conditions of
employment.
Among other things, collective bargaining may include negotiations and the settlement of
disputes such as:
wage increase and fringe benefits
better working conditions
overtime pay
special allowances e.g. maternity benefits
unfair dismissal
organizational conflicts
is where a third party is appointed to try to help find a solution that is acceptable to both
sides.

is where both sides of a dispute request that it goes before an arbiter, whose verdict both
sides agree to accept. The Industrial Disputes Tribunal is the arbiter in most of these cases.
These are the ways opened to employees to bring to the attention of management any
grievance they might have in order to have them investigated and if possible remedied.
Under grievance procedures an employee has the right to be heard, to have his/her case
be referred to higher authority if necessary until the problem is resolved. Below are the
major steps involved:
The Union delegates i.e. the worker who represents his co-worker at union meetings must
first ascertain whether a complaint represents a true grievance. If a grievance exists he will:
The union delegate holds discussions with the supervisor (middle management)

2. If there is no agreement he speaks to the personnel officer or industrial relations

officer.

3. If there is still no agreement he reports to the union officials who hold discussions
with top management.
If there is still no agreement the union officials may seek
conciliations or mediation by the Minister of Labour or any other
independent body.
If there is still no agreement the matter will end up in arbitration,
before the courts. There, what the judge decides will be final.

This is an issue of conflict between employees, trade unions and management which can
be manifested in a number of ways referred to as industrial action.

The employers action may take any of the following forms:

Suspension or sacking of workers in a case where sacking of an employee does not
constitute an illegal act on the part of the firm
Negotiation
Overtime bans withdrawal of overtime work in the case of organizations that depend
on overtime hours for workers to maintain production, for example, in the area of
transport.

The employees action may take any of the following forms:

sit in
sick out
lock out
go slow
negotiation
strike
 Adopt a participative style of leadership. In this way workers feel that their input is
important and thus tend to have a more positive approach to work.
Ensure that workers understand their jobs and can respond appropriately to the
requirements of management. They also need to know what management expects of
them in terms of performance and behaviour.
Keep workers informed. Supervisors should also keep management informed about
workers concerns.

a. You must have had the experience of working in a team to accomplish a task. Team
building is a technique used in organizations and in groups to accomplish certain tasks.
Teamwork is often adopted when a major project is to be completed. Management
selects the relevant persons and assigns the task. The team collaborates in completing
the tasks. There are benefits to be derived from teamwork. These include the following:
Creative problem-solving from the inputs of individuals of the team
The pooling of resources, ideas and expertise
Greater control over the tasks assigned
Motivation of the workers personally and collectively
Increase in the amount of work done and, thus, increase in the level of productivity
Improvement in the quality of work
Fostering of a participative approach to work which gives a feeling of belonging, and
of making a meaningful and significant contribution to the organization
Providing for continuity in the carrying out of projects. For example, if a member
leaves the team, the project continues
Enhancement and the provision of computer technology in the carrying out of tasks
Increase in the efficiency and effectiveness of the negotiation process
Provision of a consultative or resource base for managers/supervisors and other
work teams in the day to day operations of the organization. In other words, a
manager or supervisor can consult members of the work team for ideas and
advice.
b. The greatest disadvantage in teamwork is the amount of time it takes to make decisions,
and complete tasks. As was pointed out in Unit I, the sole proprietor makes his or her
own decision, but in partnership, for example, decision making is slow since each
partners opinion will have to be sought on a matter before a final decision is taken.

Here are some factors to consider in selecting a team.

. In other words, can the persons who make up the team really work together to
accomplish the desired task? A test can be carried out to determine the relationship
 within the work group before the team is formed. The supervisor can probably draw on
his experience in making the decision about who should be included in what team. The
aim is to have a working team rather than a team which spends most of its time in
conflict.
. Team members should have a common understanding of the goal or goals to be
accomplished.
. Age differences could influence the decisions arrived at, could cause conflicts, and
could really bog down the group, and thus, slow down the work to be done.
. These can also cause conflicts in certain work teams.
. If there is a lack of interest in the particular task, for example, a demanding project
assignment, then the supervisor should avoid including such persons in the team.

The supervisor should always seek to build work teams. This is even more important today
because of the
. In this process, the organizational structure is contracted, resulting in fewer levels of
managers. The managers that remain operate as a team. For example, an organization with
a CEO, a divisional manager, heads of departments, supervisors and line employees (four
levels of mangers) might be flattened or contracted to become one with the following
structure (showing two levels of managers).

Fig 3.3: Flattening out of the managerial pyramid.

The ultimate aim of the flattening process is to achieve higher levels of efficiency and
effectiveness in meeting the needs of customers. The approach to management is less
centralized and there is more employee involvement in business decisions.
With the advent of modern computer and telecommunications technology, many work
processes are being integrated. Thus, workers with more broad-based rather than
specialized skills are needed in the workplace.

Generally, communication in any organization is seen as:

i) a medium, for example, a memorandum or a report
ii) a skill or art, for example, chairing a meeting, giving instructions
iii) a tool for organizing, for example, the chain of command.
The three elements (i, and iii) comprise formal communication in an organization.

In organizations, communication flows vertically and laterally/horizontally. The vertical line

of communication provides for the upward and downward flow of information; while the
lateral line provides for the horizontal flow of information. Examine the diagram below.

Fig. 3.4: Flow of communication in a typical organization.

Informal communication channels are also features of an organizations communication
system. These informal communication channels are called the grapevine. The grapevine
transmits messages that may be true or may not be true about what is happening in the
organization. The grapevine is also referred to as sus-sus. The grapevine is so powerful
that sometimes much confusion occurs in the organization.
The communication process involves the following:
A sender
A message
A receiver
A channel
Feedback
Noise
Action
 Reaction

Fig. 3.5: The communication process.

a) The
creates the message. This is also referred to as
, that is converting the idea into codes through writing, for example. The
is sent through a
such as radio, television, the written word, telephone, facsimile (fax), electronic mail, as the
case might be, to the
or
. The receiver decodes or deciphers the message and interprets it from his or her point of
view.
b)
is then provided by the receiver. This allows the sender to determine whether or not the
message was effectively and accurately communicated.

Noise can affect the message at any point in the communication process. Noise relates to
any distraction which interferes with the message itself, or the communication process as a
whole. One may have chosen the wrong channel to communicate an idea, or give some
information from which will come an action or a reaction.

or
plays a very important role in the communication process. A person may say something, but
the expression on that persons face may give a different meaning to what was said.
Another may not say anything, but the body language speaks loudly and indicates clearly
what he or she feels or thinks.

The world is fast becoming technologically advanced. Today we have an integrated office
that is adequately equipped with the latest electronic equipment to meet all processing and
communication requirements. The integrated office leads to the institution of the
Management Information System MIS.
In the past, managers spent days, even months, waiting for data to be processed into
information in order to make important decisions. This has changed in recent times because
of the availability of information systems.
MIS refers to any computer-based system that provides timely and accurate information for
managers to use in the decision making and management of an organization.

is a modern concept that has greater meaning and understanding within an information
technology environment.

MIS is the means by which data are processed to help management in decision-making.
Such a system must exist in every organization, but in any individual organization there
may be a good or bad MIS.

An MIS is a computerized information system making use of available resources to provide

managers at all levels in all functions with all the information from all relevant sources to
enable then to make timely and effective decisions for planning, directing and controlling the
activities for which they are responsible.

Information is produced from raw data to enable management to plan and control. What is
information to one level of management or department, to another may be raw data needing
to be processed. Managers use information in two ways:
1. By relating it to other knowledge they already have or
2. By asking for other information before making a decision.

1. The functions of individuals in their areas of responsibility in achieving company

objectives should be defined.
2. Areas of control within the company, e.g., cost centres, budget centres, etc., should also
be clearly defined.
3. Information required for an area of control should flow to the manager who is responsible
for it.

Management needed and still needs timely and accurate information. More often than
not, this information was contained in filing cabinets in bulky papers and was often
presented to management when it was needed. MIS evolved in an attempt to solve
these problems.
There was and still is conflict between management and data processing department.
Management was often not computer literate and reports produced by the Data
Processing Departments were not in a form that was easily understood by
management. MIS evolved in an attempt to provide management with simple
computerized computational aids.

An MIS:
enhances the communication process by making information more readily available in a
short time
enhances decision making greatly, also, since managers have access to the necessary
data/information needed for such purposes
provides a good data base for the organization
provides more accurate information
 lessens the turn-around time on tasks
increases the productivity of organizations since timely, accurate data are available for
decision making
reduces the cost of labour since routine tasks are taken over by computerized systems
and lessens the need for large-scale human intervention
provides for company-wide decision making
aids in the development of organization policies.
centralization and control of MIS
creation of an efficient communication system with networking, for example LAN
sharing of data
saving of space and technology and so operations become more cost effective
aids decision making
standardized systems are put in place
monitoring of systems and activities is made easier
provision of training for the staff.

1. Time, money and labour are saved. Since the computer is used, the time spent in
overall decision making to the actual project completion is normally reduced. It is often
said that time is money, so, if time is saved, money is also saved.
Additionally, labour costs are saved because routine tasks which would, in the past, be
done manually are now done by the computer. Less labour is, therefore, employed,
reducing wages to labour.
2. Improvement in production and marketing techniques and profit margins. MIS provides
information that will ultimately lead to qualitative and quantitative improvements in
production, as well as provide information which will allow for improvements in
marketing techniques, such as advertising and sales promotions. Production and
marketing improvements will, most likely, transfer into increased profits margins.
3. Increased competitiveness. MIS enables managers to access information on their
competitors. They can study their competitor's techniques with the aim of doing better
than they do.
4. Less likelihood of errors being made. The reason is that it is a computer-based system
which tends to be accurate.
5. It allows for decisions to be made at all levels in the business. Decisions can be made
by top, level and lower-level managers. It is also useful for other employees in the
organization.
6. Communication within the organization is improved. This is so since the information is,
most of the time, clear and accurate - two elements of good communication.
7. Managers are assisted in carrying out their management functions, for example,
planning, controlling and directing. It also improves the efficiency of the functional
managers within the organization.

1. The cost of setting up and maintaining MIS. Since the system involves the purchasing
of costly computers, the maintaining of these computers and the cost of security
 systems, the capital outlay is very high and could initially be a hindrance to its use in
organizations.
2. The high cost of training. Managers must be trained to use the systems. Therefore, the
overall cost of human resource development increases.
3. Human error. Human error can affect the efficiency of the system. This means that
human error can result in problems which can cause time to be lost and, eventually,
cause profits to fall.
4. Often, too much information is supplied. Too much information can be just as harmful
as too little.
5. Sometimes, information is not timely. This means that it is not always on hand when it
is needed and information that is provided too late cannot be utilized effectively.

Motivation is the term given to the process of satisfying needs. Motivation is based on the
concept that people have needs and once these needs are satisfied they will work to the
best of their ability. Motivation therefore is a very important factor in the success of any
business.
There are many theories of motivation, but the most popular of these all is put forward by a
psychologist, Abraham Maslow, who said that every human being has within a hierarchy of
five needs.

1. Physiological
2. Safety
3. Social
4. Esteem
5. Self-actualization
6. Intrinsic
7. Extrinsic
are the basic needs of man - the need for food, clothing and shelter. These needs are
satisfied by salary and other incentives. Therefore workers will be willing to work and
achieve production targets if the wages and salary they are paid will be able to at least
cover these needs. It is against this background that some places of employment provide
subsidized lunches, housing allowance or loans to purchase homes, cars or car loans and
other things.

include security and protection from physical and emotional harm. This also includes job
security. Individuals will be willing to work in areas that are safe and at professions that are
not hazardous to their health, or where there is security of tenure.
In response to this need, some organizations provide security guards, grilling certain areas
and doing security checks on visitors entering and leaving the compound. Safety measures
are put in place for those who work with radioactive materials e.g., X-ray machines. In
addition, workers are aware of a probationary period and standards expected by
management, etc., during their orientation exercise.
include affection, acceptance, friendship, etc. Most work places attempt to satisfy these
needs by providing sports clubs, retreats, by getting involved in competitions and other
activities. These opportunities allow workers to come together as a group not only working
together but also playing together. Canteen facilities allow workers to sit at a meal together
where they discuss matters in an informal family setting, thus catering to the social needs of
the individual.
When workers in an organization compete with others outside of the organization, for
example, at dominoes, cricket, and netball, they see themselves as more than just workers,
a team a family. Retreats, seminars and meetings provide further opportunities for social
interaction satisfying social needs, resulting in individuals being loyal, dedicated and
productive.

include internal esteem factors as status, recognition and attention. Organizations cater to
these needs by giving recognition to workers through promotion and incentive schemes.
Awards are given for long years of faithful service; bonuses are given for extra effort shown
in meeting targets. Often times you enter a financial institution or a fast-food outlet and you
notice a plaque and photographs displayed Employee of the Month; Teller of the Month.
Sometimes pictures are taken and printed in the newspaper and congratulations are
offered from family, friends and co-workers this provides the extra encouragement to the
workers to work harder to maintain the attention and recognition given.
involve growth, where the individual achieves his/her potential and self-fulfillment. It is the
drive or motivation to become what one is capable of becoming. To show recognition for
this inborn desire of individuals as well as to improve the productivity of the workers, firms
provide on-the-job training, or facilitate employees doing courses on company time. Some
firms pay for the tuition and books of their employees to further their education in work-
related fields, e.g: computing, banking, engineering and law.

simply means self-motivation. If a worker really likes what he or she is doing, then it is
assumed that the supervisor would not have to expend much energy in encouraging that
worker to do his or her job even when certain conditions of work or service may not be
ideal.

means that motivation comes from without, that is a person gets the urge or strong desire to
do something because of the influence of something external to him or her. For example, a
worker may be motivated to work because of the fringe benefits that will accrue to him/her.
If these are removed, he/she may not be as motivated to work.
Fig. 3.2: Intrinsic and extrinsic motivation.

As a means of motivating workers, an organization may use any of the following methods:

Organizations, especially in the early days of industrialization, felt that money was the major
economic motivator. Workers were presumed to act exclusively as economic man.
Therefore, incentives were designed primarily to reflect monetary rewards. Incentives help
workers to increase their earning power. Such monetary incentives were paid out to those
workers who either maintained the set standards of work performance or exceeded them.

These are offered on an

or
basis.

or
. Some factory workers are paid on a piece-rate system. This means that they are paid a
certain amount, for example $5.00, for each unit of work produced. The items are referred
to as
. Thus, wages are paid on a piece-rate basis.
The piece-rate wage system may be extended to include a differential system of payment.
This means that the rate of pay per piece of work produced will vary according to the levels
of production attained by the workers. Study the example below.

Up to 100 pieces rate of pay = $5.00 per piece

101 200 rate of pay = $6.00 per piece
201 300 pieces rate of pay = $7.00 per piece

You will notice that there is a direct link between what is produced and earnings. The
workers are encouraged to increase their levels of production in order to increase their
earnings. Thus, under the
, a major advantage is that the high producer is rewarded.

The worker who is a high producer is rewarded.

1 Workers become very competitive, and although the competition is healthy the high
producers come under great pressure to stay on top, and sometimes quality is sacrificed
for quantity, thereby causing wastage.
2 The reality of work is not reflected in this system because very few persons can claim
that their personal efforts alone contributed to their high productivity levels.

Hourly-paid workers receive basic rates, for example, $100.00 per hour for a 40-hour week.
However, hours worked outside of the regular time, or overtime work, usually attract
different rates.
Regular rate $100 per hour for a 40-hour week
Overtime rate $150 per hour
Note: Overtime rate for Saturday, Sunday and public holidays may be paid at
double or triple time.

Some organizations offer group incentives. The incentives include:

Deferred profit sharing
Profit-sharing or gain-sharing
Employee stock and shares ownership plan.

The incentives are related to, or are generated by worker productivity. Where the
organization can tie increased productivity to the efforts of its workers, then incentives such
as those listed above are introduced. The aim is to motivate workers. Employees, is
believed, will become more conscious of the reed to cut costs and thus increase earnings.
Thus efficiency is the important thing.
Other incentives are presented below.

A
is an extra sum of money given to workers at the end of a period generally a year, to show
appreciation for their effort.

This is awarded to those persons whose work performance could be deemed excellent.

This is a percentage of sales paid to persons/agents who sell a firms products. In some
cases the sales persons are paid a small weekly or monthly salary as the aim is to
encourage such persons to increase sales and thus earn large sums of money from
commission. Insurance sales agents, for example, who exceed their quota usually, earn a
commission. Travel agencies are agents of airlines and so their earnings are based directly
on commission paid to them by the carrier companies.

Not all incentives are of a monetary nature. In other words, money is not always used as a
means of rewarding workers for outstanding performance on the job. As a matter of fact,
research has shown that if some workers have already met their basic needs
physiological and security or safety needs then those workers are not motivated
necessarily because of monetary rewards. Therefore, organizations have for some time
been providing
or perquisites (
) such as:

Motor vehicle or access to a motor vehicle

Housing allowance
Health benefits which may include other family members
Pension schemes.

These types of incentives bring psychological rewards rather than monetary rewards. In
other words, employees are receiving incentives, which meet some of their basic needs.
These persons would perhaps not have been able to provide for themselves from their
earnings. Thus workers welfare is being taken into consideration and thus their personal
well-being is greatly improved.
The entrepreneur is a human factor of production whose main functions are to organize the
other factors of production and bear risks.
The entrepreneur consciously moves resources from an area of lower productivity and
lower yield to an area of higher productivity and higher yields.
The entrepreneur may also be seen as one who creates a new business in the face of risk
and uncertainty, for the purpose of achieving profits, by identifying opportunities and
assembling the necessary resources to capitalize on them.
Entrepreneurship is the process or the act of organizing resources and acceptance of risk
and uncertainty for the purpose of capitalizing on opportunities with the aim of achieving
profit.

1.
The entrepreneur must formulate ideas regarding the type of business and the type of
product that can be put on the market. He must also think of the size of the production
in order to make a profit.
2.
This means that the entrepreneur will consider the future and what is to be done in the
future with regard to what has been conceptualized. The entrepreneur will make short-
term as well as long-term plans. Overall, policies and organizational structure will have
to be worked out.
Planning also includes outlining the duties of managers and setting targets to be met,
for example, production and sales targets.
3.
The entrepreneur is responsible for raising funds or finances before production begins and
whenever the business needs additional capital for expansion. This does not mean
that the funds must come from the entrepreneur's own pocket. Apart from savings, the
entrepreneur can use other sources of finance, including:
Borrowing from friends and relatives
Attracting foreign investors
Acquiring partners
Financial institutions.

4.
This involves bringing together the other factors of production in order to ensure efficiency,
maximum output and maximum profits.

5.
Once the entrepreneur has chosen the right form of ownership, made short-term and long-
term plans and organized resources, including time and money, he may begin to
operate or run the business. Operating the business will involve the functional areas of
 production, marketing, finance and personnel. Operation of the business results in the
production and sale of a good or service with the view to making a profit.

6.
One of the functions of managers is evaluating. This is done at the end of the production
process to see if the entire process has been successful and to see if the goals of the
organization have been met. Problems and failures are reviewed and suggestions are
made and put in place to avoid these in the future.

7.
A risk is a chance. There are two types of risks:
a. insurable and
b. non-insurable risks.
It is the responsibility of the entrepreneur to take out policies against those risks which
can be insured, for example, the threat of theft, fire, flooding, etc. Those risks which
cannot be insured against must be borne on the shoulders of the entrepreneur. Such
risks are referred to as uncertainties, for example, a sudden change in the demand for
the product. Entrepreneurs must be willing to take risks or chances in order to make
profits.

8.
The entrepreneur's reward for organizing the factors of production and bearing risks is
profit. To gain profit, the entrepreneur must sell the good or service for more than it
costs him to produce. That is, average revenue must be greater than average cost. If
he sells for less than it costs him to produce, he will make losses. In the long run, he
will leave the industry and go into one where he can, at least, make normal profit.

In some forms of operations by entrepreneurs, profits and losses are shared, for
example, partnerships. In other forms, for example, the sole trader, profits and losses
belong to the owner of the business.

This means being able to use the imagination to invent something different or original.
In other words, be able to find new methods or ways of doing things and to make changes
where necessary. It also involves bringing in new ideas.
This means to be easily adaptable. In this rapidly changing world, the entrepreneur must
adapt to changes in technology and changes in demand. Rigidity often results in
failure.
Whatever the entrepreneur does should be towards achieving the goals or objectives of the
business. He or she should not be sidetracked into doing things that have no bearing
on the aims and objectives of the business.
The entrepreneur should be able to continue firmly in a certain course of action despite
difficulties. This does not mean, however, that there should not be changes where
necessary. Remember, we have already said that the entrepreneur should be flexible.
However, being persistent means not giving up on an idea or project at the first sight
 of problems. Efforts should be made to 'iron out' the problems and continue the
projects, resulting in the achievement of the goals and objectives of the business.
If the entrepreneur has a high degree of commitment, then hard work and perseverance
should pay off.
This means that the entrepreneur should be someone who has a sense of searching for
opportunities and is willing to take chances based on the fact that the person has
studied what is involved and feels that there can be success and achievement of the
well-defined goals of the business. Thus, the entrepreneur will spot and capitalize on
opportunities.
The risks that cannot be insured against are referred to as uncertainties. These risks must
be dealt with by the entrepreneur.
Entrepreneurs often have the desire to start up a business. What are some of the
reasons that he will want to do so? This question brings us to our next subheading:
Reasons for wanting to start a business. Let us begin by defining a business.

A business refers to an individual or a group of individuals involved in some

commercial activity, such as producing or selling goods and services, with the aim of
making a profit. Where persons are engaged in such activities but not with the aim of
making a profit, then they cannot be regarded as a business.

i.Desire for financial independence

ii.Self-actualization/self-fulfillment

Some people set up businesses in order to gain money so that they will not have to rely on
others for money for food, clothing and shelter. Financial independence, in this case, is
realized through making a profit. Where an entrepreneur sees that a product can be sold for
more than what it costs to produce, there will be motivation to set up business, so as to not
have to depend on others.

Often, businesses are set up because of the need to realize one's potential because of the
need to express creativity, because of the need to achieve and to be able to recognize
one's limitations or shortcomings and to be able to make improvements.

Business owners are able to achieve what is important to them. Entrepreneurs want to be
their 'own bosses', and they set up businesses to bring their desires to life. Businesses
allow for self-expression, an opportunity to do what you enjoy.

Some persons see businesses as an opportunity to contribute to society and be recognized

for their efforts. They gain trust and recognition from customers who have served them
faithfully over the years.
The person who desires to set up the business must come up with ideas regarding the
product, type of business, size of business, etc.

This is done in order to be aware of customers' needs, which the business will attempt to
satisfy, with the aim of making a profit. Market research is a systematic approach to
collecting information, recording and analyzing the information collected and adopting it to fit
the marketing plan of the business. The aims of market research are:
to find out what the public wants
to assess the likely volume of demand
to discuss what will influence consumers, for example product name, style and
colour of packaging, price, etc.

Resources refer to the factors that will be utilized in producing the good or service. A
decision must be taken as to the type of resources and where they will come from. These
resources include the financial resources, man-made resources (capital) human resources
(labour and enterprise) and the natural resource (land).
Time is also a resource that must be considered.

A business plan is a written summary of an entrepreneur's proposed business venture. It

includes its operational and financial details, its marketing strategies, its management skills
and abilities, etc.

The plan serves as an entrepreneur's road map on a journey towards building a successful
business. It describes the direction the business is taking, what its goals are, where it wants
to be and how it is going to get there.

A business plan is also used to attract lenders and investors and serves as a sales tool.

Having already decided how much funds will be required for the business, the future
business owner must decide how the funds will be obtained. Will it be by public means or
from a financial institution? If it will be from a financial institution, the financial requirements
and the terms of repayment for the loan must be taken into consideration.
In this step you are now ready to begin producing or selling your goods and services. For
this to happen, an organizational structure must be in place and each department of the
business must realize its role in the successful operation of the business.

In establishing your business, you must ensure that you have the required functional areas
of the business. These refer to specialized departments within a business. These
departments carry out specific functions that assist the business overall.

.
Businesses can vary greatly in size. When a business is small, there are no definite
functional areas evident. This is so because the owner usually produces and markets his
own products and does his own accounting and personnel work. As the business expands,
however, specialized (functional areas) departments become necessary.

Most large businesses have four functional areas: production, finance, marketing and
personnel. In very large businesses, there are two additional functional areas: research and
development and social.

We will now take a brief look at what takes place in these specialized departments.

In this department, raw materials are combined to produce goods, and services are also
provided. Designers make specifications which are fully developed and tested. Sample
products are also made. There will be no production department, however, if the business is
only engaged in retailing or wholesaling, since they are buying and selling already-
manufactured goods or they are in the service industry.

This department is responsible for the accounting procedures and processes of the
business. Their staffs are also involved in the investment of funds in plant and machinery,
as well as in the purchasing of the needs of other departments of the business. Where
shareholders are paid dividends, this department will make it a reality for them.

The marketing function includes market research, publicity, distribution, selling,

merchandising and after-sales services, advertising and sales promotion.
This department is sometimes referred to as the human resource department. The functions
and duties of this department concern mainly the employees of the business. Primary
concerns are: planning and forecasting manpower requirements; recruitment and selection
of employees; job analysis and job description; job specifications and employee training,
etc.

Having looked at the four main areas, let us spend a few minutes on the additional
functional areas that may exist if the business is large.

The work of this department includes many types of research, for example consumer
research, product research and motivation research. Feasibility studies and pilot projects
are carried out and communication with research institutes, such as the Department of
Statistics, takes place.

This may include trade union negotiations, efforts to reduce pollution and dumping of waste
products, provision of health facilities and provision of clean working environments and the
initiation of social groups in the business, for example clubs and credit unions.

The research plan can call for the gathering of primary data, secondary data or both.
Primary data, also known as field research, is research that collects original or new data
using various techniques. These techniques include:
The questionnaire is the most common survey method. It may be written or orally
administered. It is designed specifically for the task and is normally completed face to
face, by telephone or through the post or email.

A potential new product is marketed on a small scale regionally to gauge people's

reaction to it, before committing the firm to production and national launch.

A panel consisting of a small number of consumers is set up. They receive the product
and comment on it.

These may be formal or casual. They may be conducted on an individual or a group

basis.

People's reactions are quietly watched or noticed while they shop. This provides
information from the marketplace.
If primary research is to provide relevant information, it must use a representative sample,
that is, consumers forming the sample must represent the market as a whole. The
researcher must also decide how the respondent will be chosen and how large the sample
will be.

This is where everyone in the population has an equal chance of selection, since no special
criteria for selection are used.

A subgroup of the population is selected, for example using age, sex, occupation, etc. Only
those in the subgroup will be in the sample.

Data is collected until the target quota is met.

The larger the sample size, the more expensive and time consuming it is to collect the data.

This type of research uses existing information, such as information in the firm's own
records. This may include:
sales records
official publications
statistical and newspaper reports
government publications
trade association studies
university journals
websites
textbooks, etc.

The major advantage of this type of research is that the information is readily available and
can be stored for the future. Among the disadvantages is the fact that it is sometimes out of
date and the research is more time consuming than the primary type of research.

The link between the planning and operation of a business is that the planning stage is the
first stage and the operation stage is the last stage. Between these two important steps
there are a number of other steps which include research and the acquisition of funds for
the business.

The plans are short term, medium term and long term. The long-term plans are the overall
plans of the business.

However, in order to achieve these plans, interim or short-term plans and medium-term
plans must be established in line with the long-term or overall plans. In other words, once
the interim or short-term plans and the medium- term plans have been achieved, the long-
term or overall plans would have been achieved.
The short-term and medium-term plans are the stepping stones to the long-term plans. If
the entrepreneur tries to achieve long-term plans without short-term and medium-term
plans, he is likely to fail in the achievement of such plans. Without proper planning,
operation of any business is not likely to succeed.

The regulatory practices governing the establishment of businesses refer to the rules and
regulations by which people who wish to establish a business should be guided. The
regulations differ according to the type of business.
As far as the sole-trader type business is concerned, there are very few regulations in the
setting up of the business. In fact, many sole- trader type businesses do not have any
requirements to satisfy at all. A few might be required to have permits or licences in order to
operate businesses. For example, those involved in handling food, say at a restaurant, are
required to have a food-handlers permit. They are also required to take a medical
examination to satisfy the authorities that they are in good health as, otherwise, they could
spread diseases.

Public-health inspectors will also visit the premises to ensure that sanitary conditions apply.
For those who are selling alcohol or spirits, a licence authorizing them to do so is required.
Taxi operators are considered to be illegal operators if they do not have the correct
transport documents, including a licence to carry passengers.

They are also given regulations regarding the number of passengers they should carry in
their passenger vehicles. Hairdressers and barbers will be licensed to operate once it is
proven that they are qualified and that they have hygienic places to operate in. Sand miners
also need a licence to remove sand from riverbeds.

The partnership should have a minimum of two partners and a maximum of 20. In setting up
a partnership, a partnership deed or deed of partnership should be drawn up. This
document includes the name of the business, name and other occupation of partners and
statements as to how profits and losses will be shared. The document may be drawn up by
a lawyer, but it is not mandatory. The deed of partnership should be taken to the Registrar
of Companies who will give permission for them to operate the partnership, if everything is
in order.

If a partnership is set up and there is no partnership deed, then the partners will make
reference to the British Partnership Act 1890 which indicates that all profits and losses
should be shared equally.

Private and public limited companies are required to register with the Registrar of
Companies and to present the documents required. Included is the very important
document, articles of incorporation, which has replaced the memorandum of association
and the articles of association. A private company may be formed with one person, or may
have up to fifty (50).

For the public company, the minimum number of shareholders is seven and there is no
maximum. Public companies are required to publish their accounts and may sell shares to
the general public, via the stock exchange. The private company is not allowed to sell
shares to the general public and, therefore, is not allowed to use the stock exchange.

In the case of professionals, for example, doctors, lawyers, accountants and so on, the
requirement is that they register with their professional association. Their associations are
permitted by the Government to play a major role in overseeing the professional conduct of
their members.

Persons who are engaged in trades, such as electricians and plumbers, must be licensed.
Some are required to sit and pass examinations which qualify them to receive their licences
and practise unsupervised.
Cooperative societies should register with the Registrar of Cooperative Societies. They are
required to pay a small fee. They should operate the cooperative based on the five
cooperative principles.

Businesses have a number of ways to raise capital including venture capital. This is capital
that is used to start the business or capital required for a special project within the business.
The various sources of capital available to the business depend on the type of business.

The sole trader normally uses private means of raising capital. He may use his savings, his
inheritances or he may borrow from friends and relatives. Financial institutions are not
normally a source of capital for the sole-trader type business since they are normally very
small and, as such, are not competitive when it comes to qualifying for loans. However,
financial assistance may be given to them from the Small Businesses Association of
Jamaica.

Partnerships rely on the pooling of money by each of the partners, and they also borrow
from financial institutions, such as commercial banks. Private- and public-limited companies
and cooperatives get their capital mainly from selling shares. In addition, public and private
companies may sell debentures. Debenture holders lend money to companies at interest.

Depending on their size, they may also qualify for loans from financial institutions such as
commercial banks.
The significance of collateral in accessing capital for establishing a business is very
essential for the sole trader. These include the borrowing of money from financial
institutions. In many cases, a financial institution will not grant a loan to an applicant unless
the applicant is able to supply adequate collateral.

Collateral is anything of value that can be sold quickly and the money used to cover
amounts that a loan recipient has defaulted on. A number of items can be used as
collateral, including:
House titles
Land titles
Motor vehicle titles
Titles for the businesses
Investment documents (such as share certificates and debenture certificates)
Antique furniture
The cash value of insurance policies
Gold, silver and other valuable jewellery
Rare and valuable works of art

The value of collateral lies in the fact that:

1. It is something that can be sold so that the financial institution can recover the
outstanding money on the loan. The collateral is signed over to the financial institution.
This is done when the loan applicant signs a letter of hypothecation.

2. Collateral or guaranteed loans are cheaper, in terms of rates of interest, since there is
less risk for the financial institution.

3. A collateral loan is also easier to obtain than a non-collateral loan.

Some loans may not require collateral. A guarantor may be required to sign on behalf of
the borrower. This person signs with the intention that if the borrower defaults on the
loan, he or she will have to repay what is owed. This is another form of secured loan.

A few institutions may grant unsecured loans. In these instances, neither collateral nor a
guarantee is required.

is a written document indicating an entrepreneur's proposed venture. It shows its proposed

production, marketing and finance. The business plan is the entrepreneur's 'road map' on
the journey towards building a successful business. It describes the direction the business
intends to take, its goals, where it wants to be in the future and how it is going to get there.
1. It guards the operations of the business by charting its future course and devising a
strategy to get to the end of that course. It gives managers and employees a sense of
direction.
2. It is used to attract lenders and investors.
3. It is used as a sales tool.

1. Lending institutions. Commercial banks, for example, may require the business plan as
part of the processing of loan applications.
2. Strategic partners or investors. Such persons would want to assess the viability of the
business of which they will be stakeholders.
3. Landlords. They need to ensure that the activities of the business will be viable so that
tenants will be able to make their regular monthly rent payments.

A business plan usually has four main sections:

1. The executive summary

2. The production plan
3. The marketing plan
4. The financial plan

This is the first part of the business plan, but it is usually done last. It summarizes all the
necessary points of the proposed venture. If there is a financial request, it should explain
the purpose of the financial request, the dollar amount required, how the funds will be used
and how the money (loan) will be repaid.

The executive summary is useful in instances where individuals are too busy to read the
whole business plan, but need some vital information about the proposed business.

The executive summary includes:

1. The name of the business

2. The type of business
3. Information about the owners, for example, their names, addresses, qualifications and
work experience
4. A description of the product (detailed)
5. A statement of the financial needs. This includes how much is needed, what the funds
will be used for and what will be the proposed means of repayment.
6. An overview of the planned strategic actions to ensure that the business is a success.
Information that may be included in the production plan:

The production process

Type of production (primary, secondary, tertiary, etc)
The level of production (subsistence, domestic or export/surplus level)
Use of technology (state the processes that the machines will be used for (sewing,
cutting, dyeing, etc)
Whether the fixed assets will be rented, leased or bought
The expected life of the fixed assets if they will be bought
Maintenance of the fixed assets (for example how much will it cost per year)
Sources of equipment (places where they can be obtained and the costs)
Planned capacity (how much they will be able to produce)
Terms of purchase of assets (cash or hire purchase)
Location and layout of machinery (time may be lost if machines are far apart)
A list of the raw materials needed
Labour - number needed, cost (wages), statement of availability, skills and experiences
needed
Overheads - all expenses
Production cost (this plus mark-up [profit] equals final price)

This plan may include:

A description of the good or service and a statement of what makes it different from
others already on the market
Justification of the location of the business
Market area
Main customers
Total demand
Market share
Selling price (note current price (competitors), customers' ability to pay and advertising
costs)
Sales forecast over a set period of time
Promotional activities
Marketing strategies, including advertising, sales promotions, etc.
Potential buyers - who they are, what their motivation to buy will be, expected annual
purchase, whether the product will be seasonal and, if so, what times of the year the
product will be purchased.
Market analysis defines the market in terms of size, structure, growth prospects, trends and
sales potential.
The total aggregate sales of your competitors will provide a fairly accurate estimate of the
total potential market. Once the size of the market has been determined, the next step is to
define the target market. The target market narrows down the total market by concentrating
on segmentation factors that will determine the total number of users within the field of the
business's influence. The segmentation factors can be geographic, customer attributes or
product-oriented.
Pricing your product is important as it will have a direct effect on the success of your
business. Though pricing strategy and computations can be complex, the basic rules of
pricing are:
1. All prices must cover costs.
2. The best and most effective way of lowering your sales prices is to lower costs.
3. Your prices must reflect the dynamics of cost, demand, changes in the market and
response to your competition.
4. Prices must be established to assure sales. Don't price against a competitive operation
alone. Rather, price to sell.
5. Product utility, longevity, maintenance and end use must be judged continually, and
6. prices adjusted accordingly.
7. Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available to you:

Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs,
both fixed and variable, are covered and the desired profit percentage is attained.
Demand pricing. Used by companies that sell their product through a variety of sources
at differing prices based on demand.
Competitive pricing. Used by companies that are entering a market where there is
already an established price and it is difficult to differentiate one product from another.
Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your
desired profit to the cost of the product.

Distribution includes the entire process of moving the product from the factory to the end
user. The type of distribution network you choose will depend upon the industry and the size
of the market. A good way to make your decision is to analyze your competitors to
determine the channels they are using, and then decide whether to use the same type of
channel or an alternative that may provide you with a strategic advantage.

The promotion strategy in its most basic form is the controlled distribution of communication
designed to sell your product or service. In order to accomplish this, the promotion strategy
encompasses every marketing tool utilized in the communication effort. This includes:
Advertising. Includes the advertising budget, creative message(s), and at least the first
quarter's media schedule.
Packaging - description of the packaging strategy. If available, any labels, trademarks or
service marks should be included.
Public relations. A complete account of the publicity strategy including a list of media that
will be approached as well as a schedule of planned events.
Sales promotions - description of collateral marketing material as well as a schedule of
planned promotional activities such as special sales, coupons, contests and premium
awards.
Personal sales. An outline of the sales strategy including pricing procedures, returns and
adjustment rules, sales presentation methods, lead generation and customer service
policies.
Industry trends are examined to make predictions; this includes trends related to consumer
behaviour, employment, technological advancements, new product development,
competition, government norms and other factors that impact the industry.

Here are some major sources of information for identifying industry trends:

:- comprises of fundamental analysis examining the prediction of each industry, with a

comparative analysis of company data. Information on major trends, key players and
financials is accompanied by an update on the recent developments in the industry and
a forecast on the impact of government legislation on the industry.

: This source is helpful in identifying industry trends through an analysis of company

profiles. Information on a companys products, share prices and consumer marketing is
provided.

The Five Force model is a useful tool for spotting industry trends. The assessment of an
industrys structure is done by analyzing the following:
Bargaining power of buyers
Bargaining power of sellers
Threat of substitutes
Threat of new entrants
Rivalry among competitors

This part of the business plan may include:

A statement of how much capital is required, how it will be obtained and the terms of
repayment, if any
Security for loan if one will be sought
How the funds obtained will be used (a budget can be created)
Cash-flow statement
Projection of operation costs
Profit-and-loss statement
Balance sheet
Break-even point (estimate about how long it will take to reach there)
Return on investment (percentage projected)

Ethics has to do with right and wrong, good and bad. The ethical issues include:

Ensuring that if a license, permit or registration is required for the operation of the
business, everything is taken care of. If there is no proof of the legality of the business or
if the business has not been given approval to proceed, the Government can shut it
down.
 Refraining from money laundering. This is when money from illegal or underground
economy is used in the legal business, for example to purchase assets. When this is
done, it distorts the national economy.
Reporting extortion, which is illegal.
Making sure there is no document falsification, in terms of figures or information
Resisting price gouging. This is the practice of increasing prices when the supply is low
and the demand is high, for example in times of natural disaster.
Using standard accounting procedures.
Paying all required taxes. Tax evasion is illegal and cheats the Government of much-
needed revenue.
Disposing of waste properly. Dumping waste in rivers and seas causes pollution and ill-
health.
Providing quality materials. Inferior raw materials must not be used as they can result in
poor quality and, perhaps, dangerous goods that may shorten lifespan or cause
accidents.
Adhering to business standards set by the Bureau of Standards Jamaica and the
Government
Making truthful declarations. False declarations must be avoided, for example saying
juice is 100 per cent natural, with no preservatives, when this is not so.
Avoiding double ticketing, that is, putting new, higher price tags on products already
priced.

- Unfair and fraudulent practices on the population

- Cheating the Government of revenue
- Pollution and ill-health, even death
- Distortions in the national economy

A feasibility study is a detailed investigation to determine whether a business idea or project

is technically, financially and economically viable, and if it will be successful before
committing large sums of money to it. It is a screening exercise and is often described as a
likelihood study.

To some, the feasibility study is a way of determining if a business idea is capable of being
achieved. The question is asked: can it work and produce the level of profit necessary?

It is done before the business plan and usually after a series of business ideas have
been discussed.
It includes cost-benefit analysis.
It results in the development of a feasibility report.
Small teams of experts from marketing, production, finance and development produce
this estimate.
 Past information is used to produce trends.

A feasibility study:
Determines if a business opportunity is possible, practical and viable.
Enables one to take a realistic look at both the positive and negative aspects of the
business opportunity.
Identifies the reasons not to proceed; therefore saving time, money and heartache later
on.
Ensures that the business venture chosen will generate adequate cash flow and profits,
withstand risks, remain viable in the long run and meet the objectives of the founders.
Helps to frame and flesh out or shape specific business alternatives so they can be
studied in depth.
Outlines and narrows down the business alternatives.
Provides quality information for decision making.
Helps to increase investment in the business.
Provides documentation that the business venture was thoroughly investigated.
Helps in securing funding from lending institutions and other sources.

A contract is a legal binding agreement between two or more parties. A contract must be
clearly defined from a mere social agreement. An example of a social agreement is a
promise by
to
to carry
to work in the mornings. If
does not turn up one morning,
cannot sue
since it was just a social agreement made between two friends.
A contract, however, must contain certain requirements for it to be legally binding and
enforceable in a court of law.

This is a promise of one party to another to perform a certain act. An offer is not valid
unless communicated to the offeree.

lost an item and placed an advertisement offering a reward for its return.
did not see the advertisement, hence had no knowledge of the reward. He however found
the dog and returned it. Upon learning of the reward, he claimed for it.
This is where the offeree unconditionally agrees to all terms and conditions to the
offer. Acceptance may be written, oral or implied.
1. contract
2. contract
3.
Require no special form. They may be oral written or implied by conduct. Simple contracts
are the most common type of contracts and require three basic elements:
1. offer
2. acceptance
3. consideration
1. The offer must be communicated to the other party.
2. The offer may be made generally or to a definite person but acceptance must be made
by a specific person or group.
3. The offer may be revoked at any time before acceptance unless valuable consideration
has been given to keep the offer open.
4. The offerer may attach any condition he pleases but these conditions must be brought
to the offerees attention. eg. Buying tickets, which contains conditions limiting liability
for damage or loss of possession.
5. If the offerer decides to revoke or end the offer, he must do so before the offeree
accepts.
6. Acceptance must be unconditional. That is, all terms and conditions must be accepts.

This is the benefit received by both parties upon entering into the contract.

Obviously it is usual for both the offerer and the acceptor to benefit. e.g.

promises to sell

a car for $2000. The benefit for B is the car while the benefit for A is the $2000.
1. Consideration needs to be adequate but must have some value.
2. Consideration must be legal.
3. Consideration must not be passed.
4. Consideration must move from the promiser to the promisee.
A contract can only be legal binding if the parties have capacity to the contract, i.e., they
must be able to bind themselves in a court of law. If incompetence develops, a party
may be excused by virtue of incapacity. eg., minors (persons under 18 years old) cannot
enter into a contract. Furthermore, the law would excuse persons who are mentally
incapable or drunk at the time a contract was made with them.
The subject matter of a contract must be legal. eg., a contract to run a prostitution business
would be illegal and unenforceable in a court of law.
A contract between parties must be such that it can be performed. e.g., Jason offered to
sell Georgia a car he owns but Jason does not own a car. The fact that Jason does not
own a car makes it impossible to perform this contract.
A person who enters into a contract must do so willingly and not as a result of fraud,
misrepresentation, mistake, duress or undue influence.

A
 is a statement that is not true. If the statement is made with a genuine belief that it is true,
then that is
. If a genuine mistake is made, the law will support this. If, however, a statement is made
with the knowledge that it is untrue or misleading, then that is
.

Certain types of mistakes in a contract will render it void. The following are some of those.

All parties to the contract are agreed but are equally mistaken regarding some element in it.
For example, Mr Singh sold a car to Mrs Whiteman. Unknown to them both, the car was
stolen property.

The parties to a contract are agreed but do not realise that each is agreeing to something
different from what the other party/parties understand. The parties are at cross purposes
and the mistake is on both sides. Mrs Carey has two Nissan cars a grey and a white.
Misha agreed to purchase one of the cars. However, she was most upset when she
discovered that she was being sold the white car read of the fully-loaded grey car. At no
time did Mrs. Carey intend to sell the grey car.

In this case one party is mistaken and the other is aware of it but does not reveal this
knowledge. This is
.
Sandra buys a pair of gold earrings from Maria at a very high price. Maria is aware that the
earrings are not of genuine gold, but Sandra is ignorant of this fact.

A special kind of contract that is not valid unless it is made out in writing, signed, sealed and
delivered.
a. once a contract is signed, none of the parties can deny knowledge of
its content. The parties that signed become bound to the terms and conditions of the
contract whether or not they have read it.

b. A symbol seal is usually affixed to the contract. The seal is usually red and a signature
and date is usually written on the seal giving further proof of its validity

c. The act of handing over the document signed and sealed to the other part. A specialty
contract does not come into effect until this is done, whereas a simple contract may
become operative as soon as the offer is accepted even if the relevant documents have
 not been delivered. If a specialty contract is to be valid, the right persons must receive
the relevant documents for delivery to have taken place.
d.
Hire purchase
Mortgage
Sale of Goods
Sale of Land
Contract of Insurance

is a form of credit buying. The buyer takes the goods and agrees to pay for it in
installments. When buying goods on hire purchase, the seller will need to know a number
of things about the prospective buyer. Among other things, they may enquire about:
The credit worthiness of the prospective buyer
Job, position held, and place of employment
Bank statement
Assets that are owned
Outstanding debts, if any
References
Guarantors

1. The goods do not become the buyers until he has made all the installments.
2. The buyer cannot sell the goods while the period of making installments is still in
progress.
3. No sum of money, which has already been paid, can be refunded if the buyer decides to
return the goods or defaults in payments.
4. The seller may repossess the goods if the buyer defaults in payment, however, notice
must be served to the buyer before this is done.

is the transfer of possession of goods as security for a debt without transferring the
ownership of such goods. The objective of a mortgage is to obtain money from a person or
institution. In return, the lender will want some kind of security such as the deed of a land or
property.
If the money which is loaned is not paid back, or there is no intention of doing so, the lender
will be entitled to sell the land or property he has in order to recover his money. Whatever
the buyer has given up as security is considered useless in the sense that he cannot sell it
while he still has outstanding money to be paid on the loan/mortgage.

A contract of record is imposed by a court order requesting a party to abide by obligations

laid down by the court. For example, a man may be requested by the court to pay alimony
to his wife or a businessman may be told to stop trading.
A contract may be discharged or terminated in the following ways:
1
. Both parties carry out their side of the agreement.
2
. Both parties agree to cancel the contract before it is completed.
3
. One party breaks the contract by failing to carry out its side of the agreement.
4
. One party carries out a portion of the contract and fails to go any further.
5
. One contract is substituted for a higher one.
6
. Failure of a party to carry out its side of the contract within a reasonable time.
7
. If one of the parties to the contract becomes bankrupt.
8
. One party might die and cause termination. However, that partys agent or beneficiaries
may be liable to continue the terms of the contract.
This carries the idea of a willingness to negotiate. An invitation to treat is not an offer.
Goods may be displayed only as a means of advertising or to see how many offers for
purchase will be made. A shopkeeper for example, who displays various articles in his
store, cannot be sued if he decides not to sell. The offer is made when the customer picks
up the item, thus offering to buy. The shopkeeper accepts to sell by allowing the customer
to pay the price.
Also if an auctioneer advertises goods for sale and prospective buyers flock to the auction
site, he is not legally bound to sell the goods so advertised.

This is an offer that is made contrary to the original offer. A counter offer is made when the
offeree changes the conditions of an agreement thereby cancelling the original offer and
making a new one. e.g.,
offers to sell
a car for $500

now becomes the 'offerer' and

the 'offeree'. It is up to
to decide if he will accepts
s offer to buy at $450.
This is effective when the notice of the rejection reaches the of error. An offeree that has
rejected an offer cannot accept it afterwards.

A contract is frustrated or rendered incapable of being performed by law

a) if an object necessary for performance is totally or partially destroyed.
b) where death or illness prevents a party from performing a personal action.
c) where an event that is basic to the contract does not occur.
d) where the law changes or the State intervenes and renders any attempted performance
illegal.

This is rejection that is implied by law. This happens when the offeree makes a counter
offer or the offeree makes a conditional acceptance. If the offeree asks for additional
information this cannot be seen as implied rejection.

An offer will end through passage of time in the following cases.

a) Where acceptance is not made within the period of time stipulated by the offeror.
b) Where no period of time is given and acceptance is not made within a reasonable time
(what is considered reasonable depends on the circumstances of the case).

This is where the offeror agrees to keep the offer open for a set period of time. The offeror
is not bound to keep the offer open unless the offeree gave consideration in return for it.

If one party performs an act before the other party made his promise, that act cannot be
used to support the promise.

This is the period of time in which an action for breach of contract may be brought. For
simple contracts it is six years and for specialty contracts it is twelve years.

Any party who unjustly or unfairly receives goods under an unenforceable or voidable
contract should return these goods. For example, under Jamaican law, Section 3 of the
Minors Contract Act, 1987 covers restitution of goods by minors who acquire property
unfairly and unjustly.
These are contracts that cannot be enforced by law. This means that this type of agreement
is lacking in one or more of the basic elements

These are contracts of a continuing nature, which an individual may legally avoid at a later
time if he does not want to continue the agreement. For example John may decide to end a
partnership a few days before he turns eighteen years old.

The use of documents in trade is very important. Documents allow the trader or
businessman to keep records of transactions, e.g. the amount of goods sold and to whom.
They also supply him with information such as suppliers of commodities (style, size, etc)
and price listings. Finally, documents provide information for his accounting system, i.e. his
credit and debit positions. During the course of the year the businessman may use several
different types of documents. Here are some of the most common ones and their use:-

1.

It takes the form of a normal business letter, but the following points should be clearly
observed:
a. It must be specific and to the point.
b. It must bear a date and a reference number.
c. If possible it should state definite requirements.

2.

A catalogue is an attractively printed booklet giving a full description of the goods and
their prices and terms and conditions of sale. Catalogues are often printed in colour,
with drawings or photographs of the goods that are to be sold. They are very
expensive to produce, so some firms may ask their customers to pay for the
catalogues when requesting it. The money paid is sometimes deducted from the cost
of the first order sent in. When only a few items are requested, or if the goods have to
be made specially, the firm will write a letter to the customer giving all details. This
letter is called a quotation. It may be on normal notepaper or on a special form. The
quotation should also bear a number which the customer will have to quote when
giving his order. The terms and conditions of the proposed sale must also be given.

3.
 When a customer decides to place an order with a supplier, he may place his order in
writing in a letter or by using his firms own order forms. An order has a reference
number and gives a full description of the goods ordered and also the degree of
urgency.

4.

The
gives full details of the goods sent, conditions of sale and delivery. It also shows how much
is being charged. The sellers always keep a copy of the invoice for their own records,
but extra copies are sometimes needed. A copy packed in the parcel with the goods is
known as a
. A copy handed to the truck driver, on which he gets a signature as proof of delivery, is
called a
. If a copy is sent to the buyer before the goods are bought, it is known as an
.

5.

Performa invoices are used in the following circumstances:

(a) To show the buyer exactly what he would have to pay (in place of a quotation).
(b) When payment is required.
(c) When goods are sent to an agent to sell on commission (to
tell him how much he should charge for them).
(d) When goods are sent through customs free of charge, so
that the customs have a statement of the goods and their
value.
(e) To accompany goods sent out on approval, so that the buyer know how much to
pay if he keeps the goods.

6.

Tenders are competitive bids which are usually invited by a private company or
government institution for a project to be done. A company applying for the tender
must give in writing an estimate of the job to be done as well as state the experience
and qualifications of the professionals involved. Institutions do not always accept the
lowest priced tenders because the quality of performance might be lower than a higher
priced tender. Tenders are common in the construction industry.
 7.

Credit Notes may be sent from wholesaler to the retailers for goods demanded which
have not been received as ordered and for overcharges.

8.

Debit notes may be sent from the wholesalers to the retailers for goods not included
on the invoice by mistake or for other reasons, and usually show an undercharge.
NB Both notes have clear descriptions of the quantity, the errors and the correct
charges.

9.

If the goods are received in good condition, the customer will have to pay for them. It
customary to issue a receipt as proof of payment, although when payment is made
by cheque a receipt is not necessary, because clearance of the cheque through the
banking system is accepted as proof of payment. In most countries receipts for $5 or
over must bear a postage stamp (five/ten cents). Receipts are usually written out on
forms in numbered receipt books; either they are made out in duplicate with carbon
paper, or a counterfoil is provided.

10.

At regular intervals, usually once a month, the seller sends his credit account
customers a statement of purchases and payments since the accounts were last
balanced. The balance shown on the statement of account is the amount owing by the
customer.

11.

The alternative for this is a

. It records the current receipts, states the quantity of stock ordered as well as the
minimum, maximum and re-order levels. The Stock Card gives a detailed description
of stock received and stock on hand.

1.

(already defined)

2.
 These licences are granted by the government to traders. The authorities need to
disclose the selling price of each item as well as the manufacturing cost. The purpose
of this is to make the administration of the excise duties easier.
This document contains the necessary information that officials from importing
countries need to know about the contents, for example raw materials used in the
product. Therefore products that have been barred for health or economic reasons can
be identified by the relevant authorities.

4.

Shipping notes are directed to custom officials. They give details of destination,
description, quantity and price of goods being exported or imported. When Shipping
Notes are stamped and signed they become Dock receipts and are used to clear
goods.
If the buyer is unwilling to pay until he is sure that the goods have been shipped, he
can establish (through his own bank) a letter of credit with a bank in the sellers
country. This bank then pays the seller when he can produce the shipping documents.
A letter of credit may carry a time limit, after which it expires, and it may be revocable
or irrevocable. A revocable letter of credit can be cancelled any time.

6.

This represents the title to the goods while they are on the high seas; ownership of the
goods is transferred to the purchaser. It is a receipt for the goods shipped, evidence of
the contract of carriage, and the document of title.

7.

Goods to be shipped must be insured for loss. Ship-owners normally insure their
charge to their customers.

8.

This document is used by an exporter to charge his customer a certain amount which
must be paid in a specific time in a specific currency. The bill is dated giving the name
of the sender (creditor) and the accepter (debtor). If the debtor accepts the charge he
writes this across the bill and signs his name.

9.

Every consignment of goods by air must be covered by an airway bill in three parts:
a. Part one - For the carrier and signed by the consignor.
b. Part two - For the consignee and travels with the goods. It is signed by both
the carrier and consignor.
c. Part three - signed by the carrier and returned to the consignor.
 All goods imported or exported must be passed by customs officials. Printed forms
must be completed to show the type of merchandise and its liability for duty, details of
the shipment and the source of origin of the goods.

1.

A legal tender is anything which the state declares as a method for payment. Money
including notes and coins are the best examples.

2.

A promissory note is a written promise to pay a person at a particular time from the
date of the note, a sum of money owing. This is a legal document and can be enforced
by law if the debtor refuses to pay.

3.

Postal orders provide a convenient means of paying small amounts. They can be
bought at post offices in a variety of denominations. If there is no order available for
the exact amount required, the few extra cents can be made up by sticking postal
stamps on the order. This is a local instrument of payment.

4.

These are used for larger payments than postal orders. Because of the large sums of
money involved, the procedure is more complicated. The sender must fill out an
application form giving the full name and address of the payee. After paying the sum
due, the sender transmits the receipted form to the payee. Meanwhile the
issuing post office will have sent the order itself to the paying post office. When
the payee goes to the post office to collect his money, he must present the receipt and
some form of identification. The two halves of the order are then matched up and the
money paid over.

Money orders sent overseas where quick transactions are needed, use telegraphic
offices. The process is the same as the money orders sent through the Post Offices.
In recent times where telex equipment is used in banks and offices (Moneygram,
Western Union Money Transfer, Federal Express, etc), the money order may be sent
through banks internationally, giving details of the payees account number and name.
The charge is usually expensive.
 These can be sent through the mail and addressed to the payee and is cashed at a
foreign bank chosen by the sending bank. The amount to be sent is usually subject to
foreign control regulations.

7.

A cheque is an order given to a financial institution to make payment to the person

named as payee on the cheque.

a. The date: The cheque is dated on the day on which it is drawn.

b. The payees name: This is the name of the person to whom the cheque must be
paid. It is written immediately following the words Pay to the order of.
c. The amount: The amount must be written in words and in figures.
d. The signature: The person drawing the cheque must sign the cheque at the bottom
right-hand corner. His/her signature must be the same as the specimen signature held at
the bank.
e. Personal cheque account number: On personal cheque account, the account
number must be written on the bottom left-hand corner.
f. Other date: Some cheques possess a branch number, at the top right-hand corner,
and sorting date along the bottom edge. Where a counterfoil is attached to a cheque, the
customer may record details of the cheque drawn, for checking with his bank statement.

(a)
These are worded pay, bearer, or cash and would be paid to the person presenting the
cheque. These are not very safe cheques.

(b)

These are worded Pay to the order of, or Payor Order and would only be paid to the
order of the person named after the word pay.
(c)

Personal cheques are drawn on current accounts at commercial banks where payees can
either cash or deposit the cheque on or after the date written on the cheque.
(d)

These are cheques made out by the bank in a persons name in exchange for cash and are
usually done for large sums of money. There is a charge issued by the bank for this service.
(e)
 A crossed cheque has two parallel transverse lines drawn across the face of the cheque or
the top left-hand corner. Sometimes the words and Co.; are written between the lines.
The effect of crossing is to prevent the cheque being paid over the counter. A crossed
cheque can also be paid into a bank account. Crossing also provides a means of tracing a
cheque, since the owner must use a banking account in order to obtain cash.
The
can either be:
- General, with two parallel transverse lines with or without the word & Co. or not
negotiable. Such cheques can be passed through any bank.
- Special, with the name of the banker written across the face of the cheque, with or
without the parallel lines and words not negotiable. Such cheques must be paid into the
bank named on the face.
(f)

These are personal or company cheques which banks certify that signature, name and the
amount drawn, are valid.
(g)

These are cheques issued in specific amounts which are changed by the traveller at the
banks or stores in the country to which they have traveled. Travellers must sign the cheque
in the presence of the bank clerk and sign again in the presence of the person to whom it is
being paid.
(h)

These are cheques which have been written for the past six months which have not been
cashed lodged to an account. Cheques must therefore be cashed within six months of the
date mentioned on the cheque.
(i)

These are cheques which are written for a later date. A cheque cannot be changed before
the date mentioned on the cheque.
(j)

A dishonoured cheque is a cheque which the bank will not honour (not pay out money)
because of reasons stated below:
- stale-dated
- post-dated
- the figures and letters do not correspond
- the signature of the holder of the account does not correspond with the specimen at the
bank
- there is not enough money in the account to take care of the amount on the cheque (not
sufficient funds)
These are issued by banks and finance companies to users who do not have to pay cash
for the goods or services. They are billed monthly by the credit card company which makes
its profit by the interest charged to customers and commission paid by business owners.
Credit cards are only issued to persons with good credit rating.
This is an authority given to the banks by its customers to make regular payments on
specific dates on the customers behalf. Payments are usually made on insurance
premiums, outstanding loans, savings accounts, and so on.

Insurance is based on the probability of an event happening and the sole purpose is to
compensate those who suffer losses. Insurance transfers the risk from the person who is
insured to the contracting party (the insurer). In return for a predetermined sum of money
(premium), the insurer assumes the risk of compensating the insured in the event that an
insured loss occurs.
Premiums for similar types of risk are placed in a fund or pool and the claims for those
suffering losses are paid out of this pool. e.g. an insurance company will pay its motor
claims out of monies it has received from those insuring motor cars etc.

The success of an insurance company is dependent upon its ability to meet a loss if it
occurs. The company can ensure it meets its claims by using statistical analysis.
Workers at insurance companies who accept the risk of insurance (underwriters) use their
records of past claims to calculate the probability of the risk involved occurring. If this can
be easily done, then the insurance company will be willing to take on the risk and will be
able to calculate how much to charge the customer (premium). Risks that can be easily
calculated are known as insurable risks.
Uninsurable risks, on the other hand, are those which cannot be assessed in value. This
occurs when there is insufficient past experience to assess the likelihood of the event
happening. Uninsurable risks also include risks against public interest or illegal acts.

This principle implies that all vital facts likely to affect the attitude of the insurance company
must be disclosed by the insured. e.g. if one is taking out a life assurance policy and has a
record of heart disease in his family, he must report this to his prospective insurance
company. Likewise, the insurance company must reveal all relevant facts about the policy to
the prospective insured.
This means that no one can make a profit out of his/her loss. That is, he is entitled to
recover only the value of his or her loss or to make good his/her former position, e.g. if
Adam insured his house against a particular risk for $50, 000 and the risk did occur, valuing
$30, 000, then Adam is only entitled to $30, 000 which would restore him to his former
position.
No one can insure anything unless he has a personal or direct interest in it. e.g. you may
insure your house but not somebody elses even though theirs may pose a danger to yours.
The term subrogation means to take the place of. When an insurance company pays out
money on a claim, that money takes the place of the article damaged. If your motor car was
damaged beyond repair and your insurance company paid over money to you, the
damaged vehicle now becomes the property of the insurance company who may sell it and
retain the scrap price.
The principle of subrogation also gives the insured legal rights against third parties and
where ones insurance company may assume these rights. e.g. if Ricardos negligent
driving causes him to crash and ruin Maxines car, then Maxine may be compensated by
Ricardos Insurance Company. However, both Maxines and his own insurance companies
cannot compensate her. If on the other hand, Maxines insurance company took care of the
damage, then they will claim compensation from Ricardos insurance company.

Any damage that is caused must be directly related to the terms of the policy. A loss must
be that which you actually insured against. e.g. if a person insures his house against fire,
he can only claim for damage if the house is destroyed by fire. Also if outside forces are the
result of the fire, the insurance company is not liable but may sue the outside forces for
causing the damage.
Also if your car is damaged and it was left unattended, the insurance company will pay for
its repairs but will not necessarily be expected to pay for articles stolen during the time it
was left unattended.

If a situation arises wherein more than one insurance company are liable to compensate the
insured then each company would pay only a portion of the damage. If a car valued at $16
000 is insured with company A for $10 000 and company B for $6 000 becomes totally
damaged, then Company A will only pay $10 000 while company B will pay $6 000.

This principle states that an insured persons right to claim from his insurance company is
limited to the same proportion of the loss as his insurance coverage is to the total value of
the goods insured. e.g. Sonia insured her house which is valued at $100,000 for $75 ,000.
In the event of a total loss she will get $75,000 (3/4 x $100,000). If however, the house
was damaged, valued at $50,000, then she would get only 37,500 (3/4 x $50,000).

There are four broad types of insurance:

(a) life (b) marine (c) fire (d) accident

Insurance deals with the probability that an event may happen while assurance deals with
the fact that the event must happen. There is no doubt that death must come, hence the
term life assurance. There are two main types:
 a. The victim himself cannot be compensated, however, when he dies, his dependent
will benefit from the policy.
b. There is a guarantee that a fixed sum will be paid on a specified date or at the death
of the insured whichever occurs first. If the policy matures before the death of the
insured, the lump sum will be paid to him. If he dies before the policy matures, the money is
immediately paid over to his beneficiaries.
N.B. Life insurance may be used to stand security against a loan.

This covers loss and damage to ships and their cargoes. Aircraft insurance may also fall
into this category.
a. covers damage to the vessel and all its machinery and equipment.
b. covers the cargo / goods the ship is carrying.
c. covers the possibility that the shipper does not pay the transport / freight charges to
the ships owner.
d. covers the possibility that the ship owner may be liable. e.g. collision with other
vessels, injury to crew members or passengers, and pollution of the beaches.

This covers fire risks and may be combined with other risks, such as theft, storm, flood and
lightning.

This type of insurance covers a wide range of policies:

a. can be:
i.Comprehensive: This covers all risk and injuries to drivers and third parties and also
compensate for the damage of vehicle.
ii.Third Party: This covers damage to other people and property only.
b. covers a wide range of items from goods in transit or in store to buildings or content.
c. covers accidents or sickness to a person such as disability or the need for an
operation.
d.
.covers the employers legal liability for the safety of each employee.
i.covers the liability for members of the public visiting the business premises.
ii.This insures the company against non-payment of money owing to it by its debtors.
iii.insures the company against misappropriation of funds, fraud or theft by its employees.
v.
: insures the company against damage which the use of the product may cause user
(as long as used as directed).
 The scarce or limited resources which are used to produce the commodities people want,
are collectively called the factors of production. If production is to take place, the
combination of two or more factors must occur. The factors of production are:
1. Land (natural resources)
2. Labour (human resources)
3. Capital (Capital resources)
4. Entrepreneur

Land as a factor of production includes not only the physical land itself but also the natural
resources found in the earth and sea. Land includes:
Geographical surface area
Rivers, lakes and sea
Minerals and chemicals
Land is used for setting up factories and other business enterprises. Rivers and seas make
transportation to other places possible and from it other forms of livelihood may be
obtained, e.g. fishing and other natural resources. Natural resources of the Caribbean
includes mineral such as:
Bauxite
Oil
Natural gas
Gold
Diamond
Clay
Limestone
Gypsum
Manganese
Sand
Silica

Bauxite
Jamaica & Guyana
Refined as aluminium, used in pots and pans, machines and parts (e.g. aircraft parts).
Clay
Throughout the Caribbean
Bricks, earthenware pots

Diamonds
Guyana
jewellery, industrial diamonds

Forestry

Guyana
Furniture
Gold

Guyana
Jewellery
Limestone

Barbados, Trinidad and Tobago

Cement products
Manganese

Guyana
Metal and glass production
Natural Gas

Barbados, Trinidad & Tobago

Energy fuel
Oil

Trinidad & Tobago

Petrol and by-products such as plastic and paint
Pitch

Trinidad & Tobago

Asphalt, shingles
Sand and Silica

Throughout the Caribbean

Building materials, glass
Sun
Throughout the Caribbean
Solar energy

Some physical forces which are sometimes used for energy production include lakes, rivers
and solar energy.
This is the factor of production which is mans physical and mental contribution to the
creation of goods and services. This contribution of man is generally rewarded with wages.
No kind of production is possible without the use of man, therefore it is important that there
is an adequate supply of labour with the required skills. Labour may be categorized as
follows:

Labour which requires lengthy education and or training, for example engineers, mechanics,
electricians, teachers, doctors, nurses, pharmacists and so on.

Labour which requires some amount of education and training, the period for which is
usually short and less intensive than that of skilled labour.

Labour which involves little or no special education and training and usually involves
working with the hands, for example cleaners, street sellers, watchmen, drivers and so on.

Labour is important to all forms of production, even the automated form of production where
labour is required to operate machinery and supervise automated processes. Without
labour, it would be impossible to convert resources into goods and services that people
want. Therefore, production could not take place.

Since labour is so important, its supply needs to be adequate. Labour supply refers to the
amount of labour service available.

There are many factors which influence the supply of labour. I will now proceed to discuss
some of these.

1.

If workers are not in the best of health they cannot produce efficiently and output will fall.

2.

If there is a shortage of schools and training programmes the population will not develop
the skills needed for the job.

3.

The layout and conditions of business places must be such that employees enjoy the
best working conditions. If this is not so then people will not be willing to work.

4.
 This is important in producing a knowledgeable workforce which is competent enough to
carry out various tasks.

5.

High wages and good benefits can lead to a more efficient workforce. If persons are not
being adequately compensated then they will refuse to work.

6.

If persons do not spread out in their choices then they may become unemployed. They
must develop occupational mobility so that they can move to different places into
different jobs if necessary.

- generally speaking, a country with a large population will have a large labour supply.

- a large population alone cannot guarantee a large labour supply if the population is made
up of a high proportion of very young and or very old people who are not available for
work.

- policies of government may either increase or decrease these ages. An increase in the
school-leaving age will reduce the labour supply, while an increase in the age of
retirement will increase the labour supply.

The extent to which women go out to work - this is dependent on factors such as economic
conditions, traditions and attitudes towards working mothers. The greater the extent to
which women work, the greater will be the labour supply.

The birth rate of the country - If the birth rate of a country slows down, this will affect the
future supply of labour.

The number of hours worked - the greater the number of hours worked, the greater will be
the labour supply. In developed countries, there is a trend towards a shorter working
week; this has the effect of reducing the supply of labour.

The death rate of the country - if inadequate and inappropriate health services cause an
increase in the death rate, this will ultimately reduce the future labour supply.

Labour efficiency has to do with the quality of labour and its ability to work at its best. As
with the supply of labour, the efficiency is affected by a number of factors. Some of these
factors are noted below:

(i) the amount and quality of education and training of the labour
(ii) the efficiency of factors of production and technology used by the labour
(iii) health and well-being of the labour force
(iv) the extent to which job security and upward mobility can be assured
(v) working conditions under which labour exists
(vi) monetary and other benefits given to labour
(vii) attitude of workers towards work

Capital constitutes money and all other assets, which can be converted into money i.e. all
the assets of a person, company or industry. It includes:
1. Machinery, building equipment which are used in the production of goods/services in the
creation of further wealth. (Fixed Capital).
2. Stock of raw material, cash, bank balances, and all other items required for the day-to-
day operation of the business and which are continually being used up.

1. To enable and expand the business.

2. To create/produce other goods/services.
3. To help the smooth and efficient flow of the business.
4. To lend it order to get higher interest rates on such lending.
5. To accumulate further capital.

Goods/Services cannot be produced without the help from a Manager or Director. No matter
how many machines, men or money is invested in the business, poor management leads to
poor production and hence poor profits. The entrepreneur is needed to plan, organize and
co-ordinate the other factors of production.

1. To raise capital from savings or by borrowing for investment in the business.

2. To organize the various levels of labour required.
3. To define and clarify business policy decisions so that all levels of personnel can
understand the goals and objectives of the business.
4. To make any change necessary to the interest of the growth and development of the
business.
5. To employ and organize land, labour and capital and combine them in the right
proportions.
6. To assume the risk of production.

Production refers to the creation of goods and services to satisfy people's needs and wants.
Needs are things that are essential to human survival. There are three (3) primary needs:
food, clothing, and shelter. Wants are things not necessary to survival. These things help to
make the quality of life better: for example furniture and appliances. Production can also be
defined as the putting together of direct and indirect services that gives utility or satisfaction
to consumers.
Factors of production refer to inputs into production, agents of production or productive
resources used to make the things people want to consume.

Factors of production can be classified or grouped under THREE main headings:

Land
Labour
Entrepreneur /capital

Movement of a person from one country, of a substance from one medium, or of data from
one format, platform, or system, to another.

The mobility of labour simply refers to the movement of labour. If labour moves easily, it is
said to be mobile. If, however, it is not easily moved, it is said to be immobile. There are two
types of labour mobility: geographical mobility of labour and occupational mobility of labour.
Geographical mobility of labour considers labour movement from place to place, that is,
from one geographical location to another. If labour moves easily, geographically, it is said
to be geographically mobile. If labour has difficulty moving in the geographical sense, it is
said to be immobile, geographically.
Occupational mobility, on the other hand, considers the movement of labour from one
occupation, or form of employment, to another. Specialized labour does not move easily
and is, therefore, said to be occupationally immobile. The less specialized the labour is, the
easier it will move from one employment to another, that is, it will be more mobile.

Many of you are aware of the massive labour migration that took place from the West
Indies, especially the English-speaking Caribbean, during the early 1950s to Britain, the
United States of America (USA) and Canada.
When labour moves geographically, this movement might or might not be permanent.
However, migration is the permanent movement of people from one area to another, within
a country (internal migration) or from one country to another (external migration) for at least
one year.
When a person leaves a country, he or she is referred to as an emigrant. When the person
arrives in the other country, he or she is referred to as an immigrant. Internal migration
might be from rural to urban areas (urban drift) and from urban to rural areas; the former
being the most popular. External migration is mostly from less-developed countries to more-
developed countries. Persons move between countries, for example, between Jamaica and
the USA or Canada. Remember, though, that we are talking about permanent movements
(movements for at least one year).
Why do people migrate? I will now discuss some of the reasons for labour migration. Some
of the points apply to internal migration, some to external migration, and some to both
internal and external migration. As I go through the points, see whether you can make the
correct applications.

People migrate for the following reasons:

1. They might be unemployed and migration promises them employment.
2. While they might be employed, migration might mean the opportunity to secure better
and higher-paying jobs resulting in higher standards of living.
3. Some migrate because of the attraction of town life, especially in the area of
entertainment.
4. Many migrate for educational reasons, that is, the desire to improve education and
skills. Often, the opportunities where they live are limited or, in some fields, non-
existent. Also, the quality of education and training in other places might be higher
than where they live.
5. Migration is the choice of some in order to obtain or secure new homes or more living
spaces, especially as families grow in size.
6. A number of persons migrate for health reasons, often on a doctor's recommendation.
For example, as person's age, a cold climate might not be conducive to their keeping
healthy. Doctors might suggest that they move to a warmer climate. Or, certain
medical treatments that are needed on a regular basis might not be readily available
where one lives, and this might be the reason for migration.
7. Some persons migrate in order to take care of relatives or to be reunited with family
members from whom they have been separated for extended periods.
8. The increase in rural population, and the poor state of agriculture, may cause
migration.
9. Some rural areas are depressed, and so people will move from these areas to thriving
industrial areas and to towns and cities.
10. A number of persons migrate in order to escape the political and economic pressures
that are heaped upon them in their present locations.
Migration to the Caribbean came after the abolition of slavery. Many Indian and Chinese
workers came to work on the plantations.

Many migrants offered their services to the countries in which they settled. Among other
things, they got jobs as porters, post office workers, bus drivers and conductors, teachers,
civil servants and nurses. Others went on to further education and became doctors,
economists, lawyers and accountants, returning to their homeland at the expiration of their
studies. Many migrants, however, remained abroad, refusing to return to their homeland
where they were most needed.
In the foreign country, many found it difficult to get work because of sex and/or racial
discrimination, class discrimination and barriers, and because they had educational
qualifications that were not recognized in the new country. Also there were language
difficulties and they experienced exploitation of their ignorance of the new country. Most of
those who did get work had to settle for low-paying, dirty work, at least to begin with, and
they had to be prepared to live in very bad conditions.
Migration causes the break-up of families. In the early 1950s, it was mostly married men
who migrated, leaving behind their wives and children in the hope of them joining them
later. For many of them, that later never came. In addition, many social problems were
created among those who were left behind, as parents migrated without making adequate
plans for the care and protection of their children. These children got into trouble with the
law and put greater pressure on the country's social welfare system.

Not all persons who migrated were unskilled, untrained and uneducated. Many were well
trained and skilled, for example teachers, experienced welders, plumbers, mechanics, and
so on. When they left, it was difficult to replace them and, in most cases, they were not
replaced. This migration of skilled persons came to be known as 'brain drain'. This includes
even the migration of potential members of the labour force, such as children who migrate
with their parents. Because of the brain drain, home countries suffered from the lack of
proper economic development.
In the British Caribbean between 1955 and 1975, the exodus nearly caused a minor
economic depression. External migration affects production negatively. Over time, negative
economic growth results, mainly because of scarcity of entrepreneurial skills and a low level
of technically trained people in the region.
Perhaps one positive effect of external migration was that when the unskilled and untrained
migrated externally, this resulted in a reduction of the strain on the national budget of home
countries.

Migration of labour internally, for example, rural migration, means that one area is being
upgraded while the other area is being depleted. These persons might have been able to
help their communities develop economically, socially or otherwise. The shortage of labour
in the areas vacated causes a setback in terms of development of these areas. Urban drift
(rural migration) causes agriculture to be plunged into serious problems, as there are fewer
and fewer persons to work in and to develop this vital area.
Movement to cities and towns from rural areas causes over-population in those areas,
resulting in unemployment, lack of housing, crime and other social disorders, inadequate
health services, competition for good education, traffic congestion and lack of open space.
Such movements put pressure on the authorities in cities and on governments which must
provide more social and other amenities in the cities and towns.
Also, the lack of housing results in the capturing of, and squatting on, (government) Crown
lands, and even on private properties. Competition for good education causes pressure to
be brought on the educational system as people seek good quality education and compete
for limited spaces in schools and other educational institutions.
Entrepreneurial ability refers to the people who must provide the funding, organize the
factors of production, set the targets to be met, and monitor what is being done to ensure
that the goals of the organization are met. The entrepreneur must come up with new ways
of completing old tasks and also with fresh ideas and techniques. Often the entrepreneur
must create products for markets and markets for products. This is necessary to keep the
business organization alive and competitively viable.
Entrepreneurial ability must be teamed with organizational skills because it is through
proper organization that efficiency can be maximized to enhance productivity. The good
organizer places workers in the right positions so that they can realize their potentials and
so maximize their output. The organizer must bring together the natural resources, human
resources, capital and entrepreneurial skills and ability to keep the production machinery in
action.

Fixed Capital

This is capital that is employed in assets of durable nature for repeated use over a long
period. Also called fixed investment.

Working Capital

1. The cash available for day-to-day operations of an organization. Strictly

speaking, one borrows cash (and not working capital) to be able to buy assets or
to pay for obligations. Also called current capital.

2. Accounting: Net liquid assets computed by deducting current liabilities from

current assets. The amount of available working capital is a measure of a firm's
ability to meet its short-term obligations.
Sources of working capital are (1) net income, (2) long-term loans, (3) sale of capital
assets, and (4) injection of funds by stockholders. Ample working capital allows
management to take advantage of unexpected opportunities, and to qualify for bank
loans and favourable trade credit terms. In the normal trade cycle of a company,
working capital equals working assets.
Venture Capital

Startup or growth equity capital or loan capital provided by private investors (the
venture capitalists) or specialized financial institutions (development finance houses or
venture capital firms). Also called risk capital.

Production is necessary to meet the consumption needs of human beings. These include
needs such as food, clothing, and shelter; and wants such as entertainment, books, and
cars. Production operates at three basic levels. These are:

subsistence
domestic
surplus

At this level, the method of producing goods allows for only the basic needs of the
individuals or families concerned to be met. The quality of life of such persons can hardly be
improved at the subsistence level. An economy based on subsistence production is usually
agrarian, that is, it produces mainly agricultural products.
A major advantage of subsistence production is self sufficiency. The communities are
usually self- sufficient and their surpluses are exchanged in the marketplace. However,
given that producers cannot control natural disasters, for example, flooding or an unusual
event such as El Nio, crops are destroyed, and the communities suffer from a lack of food.

This means that more goods than what is needed are produced and these can be sold on
local or export markets.

Domestic production involves producing goods and services not just for the individual,
family or community, but also for the local market. Natural and human resources determine
what can be produced. Additionally, consumption patterns are determined by what is
produced locally. In theory, countries that engage in large-scale domestic production of
goods and services such as agricultural products, apparel, and housing for local
consumption are able to exist at the level of domestic production.
However, because no one country is blessed with all the resources to make it completely
self-sufficient, goods and services have to be imported. It means, then, that some countries
produce surpluses that are exported to other countries. Such countries, therefore, produce
those goods that they can produce most efficiently and in the quantities desired, and import
those that they are unable to produce for themselves.
Many Caribbean countries fall in the category of countries that have to import goods and
services to supplement what is produced in the region as well as to obtain what cannot be
produced in the region.
Some goods and services are imported especially for the tourist industry, and for the
multinational fast food chains. The aim is to ensure that high quality product and services
are available.
However, this leads to conflict at times since local producers of some of the goods and
services are deprived of markets.
Additionally, because the countries of the region, of necessity, must earn foreign currency,
they tend to export most of the goods produced and thus leave very little for local
consumption.

Some countries produce certain goods and services mainly for export purposes. In other
words, much of their economic activity is export-oriented. Countries such as Korea and
Japan made a deliberate effort to produce for the export market. This is possible because
such countries have the resources and the technology to support their economic activities.
They are, then, better able to produce for both the domestic and the export markets. They
may even concentrate on producing certain products for export only.
Caribbean countries such as Dominica, St Lucia, St Vincent and Jamaica have been major
producers of banana, for the European market a banana marketing arrangement which
has a long history.
recent times, though, much difficulty has been experienced in the banana market because
of the changing trading agreements resulting from the coming together of European
countries to form the European Union. This has resulted in much hardship in the banana
industry. Intense negotiations have been taking place through the World Trade Organization
(WTO) aimed at helping the Caribbean to continue to enjoy the benefits of banana trading.
Just think of the problems being encountered by the banana producing countries.
Grenada is a major producer of spices and these are exported to a number of countries
Individual Caribbean nations also produce for the CARICOM market. So, there is much
regional trading.
What are the benefits to be derived from production for export, or surplus production?
+ a country earns well-needed foreign currency to pay for its imports
+ business and industrial expansion are facilitated
+ large-scale production is facilitated
+ employment Opportunities are greatly enhanced
+ meaningful trade relationships are developed between countries.

In the production of certain goods and services countries must spend foreign exchange to
purchase some of the raw materials or inputs. For example, a country which is a big
producer of peas and beans may wish to can the surplus for export purposes. Tins for
canning may have to be imported, thus requiring the spending of foreign currency. Thus a
country has to work towards balancing its import- export bill at all times.

Extractive Industries/Primary Industries (agriculture, mining, fishing)

Construction (building)
Manufacturing (assembling, refining)
Service/Tertiary (transport, communication, tourism, health, education)

An industry may be defined as that economic activity which produces a particular

commodity or group of commodities. Sometimes it is referred to a group of firms producing
the total number of a particular type of goods supplied to the market.

Extractive Industries (primary): industries which are concerned with the harvesting or
gathering of the free gifts of nature (natural resources).
The extraction of raw material e.g. bauxite, agriculture i.e., growing of rice, sugar cane,
citrus, banana etc.

Manufacturing and Construction (secondary): This is the second stage in the process of
production. It is where raw materials are converted into finished goods, e.g. sugar cane is
converted to sugar or rum. Other examples include oil refining, food processing, motor car
assembly, building.

Service Industries (tertiary): Any activity involved in transporting finished goods to

consumers. It also includes intangible services such as health, education, entertainment,
transportation, tourism etc.

Cottage Industry is defined as any production which takes place in the producers home,
e.g. handicraft, catering, tailoring, dressmaking, beauty salons and small scale buying and
selling.
Capital is easy to find.
The producer can work at his own time and pace.
Family members can assist in the work.
It provides income for many.
It helps to cut down on the importation of some goods.
It can become a source of earning foreign exchange either by direct export or by selling
to tourists.
Small businesses of today grow into big businesses of tomorrow.

The producer often works for long hours to ensure the success of his business.
Capital may be difficult to find.
It may be difficult to access loans for expansion.

A linkage industry is one that is linked or closely connected with another. Linkage industries
rely on each other for production to be possible. Linkage industries are of two types:

: These are industries which are related in such way that the product for one becomes
the raw material for another. Example, a farmers wheat will be used by the baker to
make bread.

: This is where the demand for one industry leads to the creation of others, e.g. the
demand for the transport industry might lead to the creation of new roads.

Some linkage industries are:

Bauxite Alumina Aluminium
Sugar-cane Sugar Rum Molasses Bagasse
Hides Shoes, Bags, Belts
Milk Butter Cheese Yogurt

Linkage industries allow raw materials to be used up in the country in which they are
found, e.g. the remains of sugar-cane are used to make by-products such as molasses.
Linkage industries allow more unemployed people to be sucked up in the working
population. As a result of increased employment, the total output of the country will
increase.
Investments will increase, thus creating other spin-off industries.
The standard of living of the country will increase.
Decrease in importation and increase in exports.
NB The more developed and plentiful linkages are, the more they will provide a high level
of economic activity. This will mean increased goods and services, jobs, income and wealth.

1. - Closeness to raw materials or to the port where they enter the country may influence
choice of site.
2. - Sitting near to good road, rail, sea or air links can save in distribution costs or in the
movement of raw materials.
3. - Businesses are attracted to sites close to where potential customers can be found;
shops near where shoppers will be, hotels near tourist areas.
4. - Some governments try to influence the location of the businesses, e.g. to improve
regional balance; reducing overcrowding in cities and towns.
5. - Firms will locate near other businesses on which they depend, or near to other firms in
a similar line of business.
6. - Closeness to fuel or power is less important today than in the past, but some firms still
need to locate near to sources such as water.
7. - Climatic conditions are important to some businesses, particularly those involved in
agricultural products.
8. - Availability of suitable labour with a good no-strike record. This will be influenced by
availabilities of social amenities such as housing and medical facilities.
9. - Availability of sufficient suitable land, at an economically viable price, in a convenient
area will attract business.
10. - staying at a particular site even though the original reason for sitting in that area (e.g.
near source of raw materials) no longer applies.
The small firm also has advantages over larger firms. It can stay open longer hours and
offer personal services to its customers, such as mini repairs and adjustments.
Many small businesses are run by the owner and his family, operating from their own home.
They can therefore cut costs and make reasonable profits to compete with the larger firms.
The small firm is also able to survive as result of the following:
1. In many small towns and villages, and on many small islands, the small business is the
only business that is possible.
2. Big trees can only grow from small seedlings. This means that nearly all businesses
are started out on a small scale, then grew bigger later as a result of expansion. Without
small businesses, many new ideas would never be tried out as they may be risky.
3. Small firms provide competition to the large firms, thereby preventing them from putting
up their prices too much.
4. Many people set up business on a small scale as a means of supplementing their
regular income.
5. Some businesses, such as taxi services, are difficult to control if operated on a large
scale. However, if the independent taxi driver runs his own taxi as a small business, he
will do so more efficiently, because his livelihood depends on it.

Scale refers to the size of an industrys (or firms) operations. An industry is said to be
operating on a large scale if its products account for a considerable proportion of the total
amount available on the market. If, on the other hand, its products account for only a small
proportion of the total available, then the industry is said to be operating on a small scale.
The tendency is for more and more machines and equipment to be installed to do the work
faster and better than it could be done by hand or brain.
The government can encourage the expansion of an industry by making investments
profitable. In order for investments to take place, however, there must be prior savings. The
government can encourage people to save their money, rather than spend it by:
1. Making the country as prosperous as possible and allowing industries to make good
profits, without excessive taxation, so that investors get reasonable returns on their
money.
2. Keeping inflation under control, so that the value of investments does not fall too low.
An industry operating on a large scale tends to have the following advantages over those
operating on a small scale:
1. It can afford to install more expensive and efficient machinery which will speed up the
production process.
2. It will be able to employ more workers, some of whom can be specialists in their areas.
3. It can place large orders for its supplies (bulk buying) and get better prices or bigger
discounts from its suppliers.
4. It can afford to pay for more research and development work, leading to better products
in the future.
5. It can employ more salesmen and run bigger advertising campaigns, thus maximizing its
sales.
6. It can negotiate better terms for loans from the bank, and will be able to obtain loans
more easily, because it can offer more collateral security.
7. It can offer better welfare benefits and training to its employees, and there is usually
more scope for internal promotions.
8. Its greater financial resources will make it easier to survive when business is bad.
1. Operations can grow too large for management to control, which can lead to idling,
waste, interdepartmental squabbling and pilfering.
2. On account of its large investments in machinery and other specialized equipment, it can
use the flexibility necessary to respond quickly to changes in demand.
3. Business may be lost because those who make decisions are out of touch with the
consumers.
4. There is a danger of unnecessary paperwork, and administrative staff being taken on,
thus increasing costs.
5. If the industry has a very large share of the market for its products, it may be subjected
to government intervention in the form of price control or their restrictions.
These are the benefits (or advantages) of large scale production or growth in an industry (or
firm). These economies may be internal or external. Internal economies refers to the
benefits derived by an individual firm in the industry, while external economies refers to the
benefits derived by the entire industry.
1. TECHNICAL: More expensive and efficient machines is used to speed up the production
process, which results in a lower cost per unit.
2. MANAGERIAL: As a result of the employment of specialists, there is increased efficiency
of managerial skills.
3. FINANCIAL: Larger firms will find it easier to obtain loans than the smaller ones,
because they can provide greater collateral security.
4. MARKETING: Larger firms can afford to launch advertising campaigns, which may result
in an increase in sales for their products.
5. RESEARCH AND DEVELOPMENT (R&D): This involves all activities associated with
improving existing products as well as the developments of new ones. Large firms will
find it easier to conduct such research and development exercises, which can lead to
better products in the future.
6. RISK BEARING: Large firms can afford to undertake more risks, because of their greater
financial position.
1. Savings in cost due to the location of related firms in a particular area. Such savings may
result from availability of raw materials, maintenance services, as well as corporate
advertising.
2. Growth in the industry may give rise to the growth of government incentives, such as
subsides, tax reductions, etc.
3. Trade associations are easily formed, which helps firms with information and provide
representations to the government.
These are the disadvantages which may result from large-scale production or growth in an
industry or firm, such as continually rising costs. Diseconomies can also be internal or
external.
1. TECHNICAL: Large equipment is costly to purchase and maintain. In addition, skilled
personnel may not be readily available to operate the equipment.
2. MANAGERIAL: Too many departments might result in greater paperwork and greater
administrative costs.
3. FINANCIAL: Interest rates on loans can be high, thus increasing the debt burden on
large firms.
4. MARKETING: Where advertising does not prove to be effective, amounts spent on
advertising may be considered as a waste of resources.
5. RESEARCH AND DEVELOPMENT: This involves the involvement of highly skilled
personnel, which may prove quite costly to large firms.
6. RISK BEARING: Continuous losses suffered from unsuccessful ventures may force
large firms into financial difficulties.
1. Losses in the industry, due to bad publicity, may affect all the files.
2. Worker unrest may spread quickly throughout the industry.
3. Government regulations can hinder the expansion of an industry.
4. Pollution, traffic congestion and other social costs can result from the expansion of the
industry.

The
states in essence, that when a factor of production remains constant or remains the same,
and the producer keeps adding more and more units of a particular variable factor, the
additional output achieved will diminish over time. Study the table below.

Land (5 hectares)
Labour (people)
: Farm Products (e.g. coffee)

Table 6.1 The law of diminishing returns illustrated.

A Capital Intensive Industry is one which uses a lot of machinery and very few people. On
the other hand, a labour intensive industry is one which uses a lot of people and little
machinery.
Many countries today face a very difficult situation. The manufacturing sector must compete
on the world market hence they have no other choice but to use highly mechanized
machinery. The use of these machinery has led to massive unemployment since people are
being replaced by machinery.
Mechanization is production performed by mechanical means or by machines. It helps
humans to do a job quicker, more efficiently, and with less fatigue.
Automation is an entire work process that is designed and programmed, so that work is
carried out, without any or very little human assistance.
If we introduce more mechanization and automation in our industries, our production will
increase because the quality of the goods will improve and the prices will be lower. For
these benefits to be derived, the human factor that monitors these techniques would have to
be competent.
Capital intensive industries would create more unemployment in the region which could
prove politically, socially and morally unacceptable.
The introduction of high technology into the bauxite industry of Jamaica and Guyana, and
oil in Trinidad made these industries the most capital intensive and important industries in
the region. These capital-intensive industries seemed to create a small privileged labour
aristocracy enjoying very good wages and working conditions, almost to the envy and
dismay of those who are not a part of the industrial site.
1. Fewer workers are needed, thus reducing labour costs (i.e. wages and salaries) to the
firm.
2. Production is usually speeded up, which normally leads to a lower production cost per
unit (mass production).
3. It reduces the chance of human error and results in more uniform output
(standardization).
4. On account of the reduction in time and labour, many goods produced automatically are
cheaper (to consumers).
5. Machines, such as the computer, can do things which would not be practical to be done
otherwise.
6. Automation acts as an incentive to technological development and scientific research,
because the profits to be made from successful inventions can be very great.
1. With the introduction of machines and computers, many people will be forced out of work
and it may be difficult for them to find new jobs. This may cause increased
unemployment.
2. If a mistake is made in setting up an automated process, it may result in considerable
damage, and can be very expensive to correct.
3. The machines usually require highly skilled technicians to operate and repair them.
These workers are often in short supply.
4. Because automated equipment is so expensive, the risk of loss in case of failure is very
great. It also requires large capital, which may be difficult to raise.
5. It may lead to the decline of small and medium-sized firms, which will result in a decline
in competition.

The demand for any commodity is the willingness of consumers to buy the product at a
given price in a given period of time. A change in prices will affect the demand for the
product:
- The lower the price, the greater the quantity demanded.
- The higher the price, the lower the quantity demanded.
This principle may be illustrated on a demand schedule and demand curve.

Price Quantity Demanded

40 1
35 2
30 3
25 4
20 5

Demand Curve
(To be completed with your teacher)
For this example, changes in demand are a result of an increase and decrease in income.
Giffen goods are those that will have a rise in demand as prices increase.

- Price of the commodity

- Income of buyers
- Availability of substitute
- Population of target group
- Buyers preference

Quantity Demanded
Price Original Increase Decrease
40 1 3 0
35 2 4 1
30 3 5 2
25 4 6 3
20 5 7 4
For this example, changes in demand are as a result of an increase and decrease in
income.

Demand Curve
(To be completed with your teacher)

Supply is the amount of a commodity that producers are willing to supply or put on the
market at a given price in a given period of time.
- The higher the price the more producers are willing to supply to the market
- The lower the price the fewer producers are willing to supply to the market.
This principle may be illustrated on a supply schedule and curve.

Price Quantity Supplied

10 100
20 200
30 300
40 400
50 500

Supply Curve
(To be completed with your teacher)

- Price
- Cost of raw material
- Availability of raw material
- Demand
- Price of the factors of production
- Technology
- Exogenous factors, i.e. outside factors such as the weather.

Quantity
Price Original Increase Decrease
10 1 2 0
20 2 3 1
30 3 4 2
40 4 5 3
50 5 6 4

For the example above, changes in supply is as a result of a fall in the cost of raw material
and an increase in the cost of raw material.

Supply Curve
(To be completed with your teacher)
These refer to the ways in which markets are designed or organized, in order for firms to
sell their products.

These include the following:

1. freedom or barriers to entry and exit.
2. nature of the product homogeneous or differentiated
3. control over supply/output.
4. control over price

There are two broad classifications of market structures:

Examples of this are the market for foreign currency, the stock market and the traditional
food markets in the Caribbean.

Whenever there is enough competition that no one seller can raise its price without losing
all its customers to other sellers. This is an idealistic market which does not actually exist
in the real world; however, many existing firms bear some similarities to this model.

1. there are many buyers and sellers

2. there is perfect knowledge of the market conditions
3. goods are identical
4. price is fixed and demand is perfectly elastic
5. no firm can benefit from advertising and special promotion because the price is fixed
6. in the long run, economic profits are non-existent.

At the extreme end and totally opposite to perfect competition is pure monopoly. A pure
monopoly is a sole supplier of a good or service for example National Water Commission
(NWC) in Jamaica.

N.B. A special type of monopoly is a sole distributorship or franchise. This allows a firm
exclusive right to import and sell a product from an overseas company e.g. Pepsi
International, Kentucky Fried Chicken.

A monopoly is a single seller in the market, for example National Water Commission,
Jamaica Public Service, Telecommunications of Jamaica, Jamaica Flour Mills, just to name
a few (March 1997).

1. there are barriers to entry (other sellers barred)

2. Monopolists can influence price by reducing quantities/by setting prices.

3. Monopolies may be natural, such as public electricity and power companies or legislated
by the government; or may exist because of large size of the firm.
 1. the consumers benefit
2. high degree of competition helps allocate resources to most efficient use.
3. normal profit can be made in the long run.

1. firms cannot raise the price of a product to increase its profit.

2. it does not make sense for firms to lower the price of their products as they may not
fully recover their cost.

1. it encourages innovation
2. development of some products not likely without some guarantee of monopoly in
production.
3. economies of scale can be gained consumers may benefit.

1. exploitation of consumers higher prices.

2. potential for supply to be limited less choice.
3. potential for inefficiency.

This market structure is a cross between pure monopoly and perfect competition as it has
features of both structures. E.g. of monopolistic competition are restaurants and building
firms.

This market structure is one in which a few firms dominate and which results in a high
concentration of sales. There are two types of oligopoly which are:
Perfect oligopoly this is where firms produce identical products.
Imperfect oligopoly this is where firms produce differentiated products.
 Duopoly Industry is dominated by two large firms.
E.g. of oligopolistic competition are supermarkets and banking industries.
N.B. Sometimes firms in the oligopolistic structure may collude to form what is called a
cartel.
Oligopolies behave like monopolies when they merge to make decisions.

1. prices are fixed but are quite variable, especially during price wars among the sellers
2. There are a few sellers (often three).
(c)

Only two sellers in the market

Monopolistic competition is similar to perfect competition, except that the price is not fixed
and firms monopolize their product markets through branding.

1. products are differentiated only by branding but are otherwise identical

2. there is freedom of entry and exit in the market
3. there is heavy advertising due to the various brands
4. enjoys tax holidays and subsidies

1. if a firm were to raise its prices slightly it will not lose all its customers.
2. consumers have variety of choices between differentiated products.

1. firms have to contend with new firms entering the market reducing profit levels.
2. firms may manipulate consumers by advertising brand imaging, giving them false
choice between products that are essentially the same.

1. firms are able to dominate the market.

1. the collusion of some firms may not be in consumers favour.

2. other firms may find it hard to survive in such a market.