SECTION 1: THE NATURE OF BUISNESS

EARLY ECONOMIES:
The Economic Problem:
Our unlimited needs and wants far exceed the limited resources available to satisfy our needs.
Scarcity: is the fundamental economic problem of having seemingly unlimited human wants in a world
of limited resources. It states that society has insufficient productive resources to fulfil all human wants
and needs.
Scarcity leads to Choice–making a decision between several choices eg. Having to make choices at
the grocery store.
Economy: This is any place or location where economic activity exists i.e consumers and producers
interact. Economies also interact with government and the international sector.

SUBSISTENCE ECONOMY:
This occurred amongst early humans whose basic needs and wants were food shelter and clothing.
These are called our primary needs. The needs of a village were satisfied from nature only providing
for themselves. This is also called Direct Production.

Division of Labour and Specialisation

Nomadic people settled to different areas such as around rivers they began to specialise in different
tasks.

Definition of Specialisation:
This is the focusing of effort on one particular task or product.
Specialisation can exist in 6 different ways:
By Product – eg. Fish farming, Poultry or Cattle
By Process – eg Oil extraction, Refining, By product (Lubricants, Gas)
By Firm – eg Microsoft – Software, Tablets, Cell Phones. Or Google
By Industry –eg Tourism, Transportation, Agriculture, Extractive.
By Region- eg Northern Region of Trinidad for Chive
By Nation- eg Trinidad’s Oil, Switzerland’s Chocolates, Germany’s Automobiles.

Advantages and Disadvantages of Specialisation:

Advantages
Less time to train a person performing one job.
Tools are less expensive because the jobs are less complex.
Output or production is increased. (Repetitive)
Machines can be used to speed up production.
Efficiency is improved (Time related)
The skill of the worker is improved through repetition
Standardised product (lower cost)

Disadvantages
Cannot work for niche or small markets
Difficult to motivate workers doing repetitive tasks
Industrial action is easier to organise and more effective (Workers cannot be easily replaced)
Machines allow for individual craftsmanship to be lost.
Can be disruption in the chain of production if worker is ill or absent.
Occupational Immobility- unable to transfer skills learnt to other jobs.

BARTER:
In simpler economies before the advent of money bartering was used.

Definition:
Exchange (goods or services) for other goods or services without using money.

Disadvantages to Bartering:
A double coincidence of wants. Can only exchange if each party desires what the other party has.
Rate of exchange could be difficult to be decided upon.
Some goods are not divisible.
Goods are bulky and difficult to transport.
Store of Value – Some goods are perishable and cannot be stored for a long time.
TERMS AND CONCEPTS
Capital/ Producer goods- Tangible assets or goods that are used to produce other goods eg.
Buildings, Vehicles, Stock, Raw materials
Consumer goods- are goods that are ultimately consumed rather than used in the production of
another good. (Final Product)
Primary goods- are those goods that are utilised in the production of consumer goods eg. Raw
materials, agriculture, fishing, farming.
Consumer - a person who purchases goods and services for personal use and plays a vital role in the
economy.
Free good – A good that is not scare and available without limits eg. Air, Desert sand, water in the
oceans.
Private good- is defined in as "an item that yields positive benefits to people that is , i.e. its owners can
exercise , preventing those who have not paid for it from using the good or consuming its benefits eg
Bread
Public Goods- These goods are non-exclusive i.e no one individual can exclude another individual
from receiving its benefits eg. Roads, Bridges
Merit Goods – These are goods that when used contributes a benefit to the wider society eg.
Education
Demerit Goods – These goods when used or consumed have a negative impact on the wider society
eg. Cigarettes
Labour – The human mental and physical effort in the production process.
Market – A mechanism which allows buyers and sellers to interact in their interest eg. Online buying,
financial market, commodity market.
Opportunity Cost – is the value of the loss incurred as the result of the sacrifice of the second best
option.
Organisation – The provision and coordination of the firms inputs to achieve the goals and objective of
the firm
Producer –A person that satisfies human wants by the organisation of resources to produce goods and
services.
Profit – Total Revenue Exceeds total Cost
Loss – Total Cost of Production exceeds Total Revenue
Service – Intangible actives that are provided to satisfy human wants eg. Banking, Cleaning, Insurance
Direct Services – a service that is incurred for their own sake eg. Haircut, repairs.
Indirect Services – service that is received along with benefiting from a direct service or good eg.
Delivery of Pizza
Trade or Exchange – the exchange of goods and services for money eg international trade.
Distinguishable from barter which is exchange of goods for goods.
Commodity – This is a good that is traded, usually raw materials or primary agricultural products such
as copper or coffee.
Enterprise- This could mean a business. This is used to describe an undertaking of an activity with
some degree of difficulty or risk. This undertaking has specific purpose such as monetary goals.
Enterprise can also mean initiative which is daring to do something new or different, challenging or
risky.
Entrepreneurship- The practice of identifying a new innovation or opportunity, organising the financing
and other resources and taking the risk in the hope of creating wealth. The entrepreneur is the
individual who identifies the opportunity and risks the time and money to start to organise this new
adventure.
Trade- This is the process of buying and selling. Business engage in trade to make a profit.
THE DEVELOPMENT OF MONEY
Definition of Money- A commonly accepted instrument or medium of exchange eg. Coins, bank notes,
paper notes.
History of Money-
The drawbacks of barter led to the development of money.
Traditionally cowrie shells, cattle, salt and sugar were used as money.
Then precious metals were used such as silver and gold but it became burdensome and heavy.
The goldsmiths kept the gold while issuing receipts to precious metal owners to represent the value of
gold owned.
The owner would present the receipt when the gold was required.
The bearer of the receipt would be paid the gold.
Gold smiths started to issue smaller denominations such $10 and $5
Now receipts became a representation of money.
Goldsmiths became bankers and the amount of money exceeded the amount of gold or silver in
reserve due to loans being given out which led to greater economic activity.
Central banks took over the issuing of money to stabilize the system.

Characteristics of Money:
Generally acceptable
Relatively Scarce
Easily divisible
Homogenous in nature
Fairly durable
Portable

Functions of Money:
As a medium of exchange
As unit of account - pricing
As a store of value – stored for future use eg. savings
Means of deferred payment- makes credit possible.

Legal Tender-
Legal tender is a medium of payment recognized by a legal system to be valid for meeting a financial
obligation. Paper currency and coins are common forms of legal tender in many countries.
Fiat- An official order or decree by someone in power.
Limited legal tender money is accepted as legal tender only up to a certain limit eg coins because of
bulk.
Coins are token money and legal tender up to a small amount.
Banknotes or paper money- faith money and not valued to gold or silver.
Bank Deposits – upon which cheques can be drawn. Cheques are not legal tender the deposit is.
Near Money- Cheques, credit cards, debit cards, electronic transfer, bills of exchange, money orders,
bank drafts.
Medium of exchange- a commonly accepted form of payment for goods and services.
Representative money- Money of no intrinsic value that is used as money to claim value.
Legal Tender- money that has been accepted by law to be a medium of exchange
Cheques
A cheque is an order to the bank to make payments to the payee stated on it.
Credit Cards/Debit Cards
This allows the card holder to make payments by simply presenting the card to the seller. A credit card
facility is actually a loan given to a customer and thus it is repaid at an interest. A debit card is issued
against a customer’s account balance and is therefore not a loan.
Money Order
They can be used to make payments locally or overseas, as they are made out in the currency in which
they are to be paid. The payee will cash the money order at his bank.
A money order is basically a tool to transfer money or make payments. Think of it as an alternative to a
cheque. However, while cheques and money orders can serve a similar function, and they also look
quite similar, there are some important differences to consider.
Unlike regular cheques, money orders are prepaid. That means they're backed by large agencies or
corporations instead of individuals, making them especially valuable because of the safety and
reliability they provide.
Bank Draft
A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank drafts
can be made out to a payee in foreign currency and thus used for making overseas payments. Bank
drafts are obtained for a fee from a commercial bank.
Getting a banker’s draft is like asking a bank to write a cheque for you – you give them your money,
and they give you a cheque for that amount to give to the person you’re paying.
Bill of Exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter
(drawer) to an importer (drawee) requiring payments of a certain sum of money at a fixed future date.
The time period allowed is normally three months.
Electronic Transfer
This is a system used to transfer funds electronically rather than paper-based payment methods.
Funds are transferred over a computer network and makes payments fast, safe and easy.
Examples include credit and debit card transactions, remittances (through companies such as Western
Union) and money transfers.
Tele-Banking
This system allows a bank’s customer to simply use the telephone to get his banking services done
rather than visiting the bank. Services include; checking account balances and transaction history,
opening a new account, transferring funds etc.
Internet Banking
This differs from tele-banking in that the internet is used to access the same services. Customers can
go on-line to view their balances and transaction history and transfer funds etc.
Ecommerce
Electronic commerce more popularly called ecommerce is the buying and selling of goods and service
using the internet. It allows for a full range of trading activities over the internet such as advertising,
placing orders, delivery and making payments.
ECONOMIC SYSTEMS
Economic Systems
Every economy is faced with a fundamental economic problem. In every economy, whether rich or
poor, there are limited resources and unlimited wants i.e., the resources of a country are not enough to
satisfy the wants of all its citizens. Since the resources of a country is limited and wants unlimited,
choices will have to be made. For example, the government may have to decide whether to spend
more money on schools, hospitals, transportation or on road work. The process of choice begins with a
scale of preference. This is a list of all options in order of preference. For example
Scale of Preference:
hospitals
transportation
schools
road work
The option to build hospitals being placed at the top of the scale of preference indicates that this choice
is most preferred as it yields the greatest satisfaction from the resources to be spent. Transportation is
the opportunity cost of this choice as it is the second most preferred option that had to be given up to
accommodate the building of hospitals. Opportunity cost is defined as the next best alternative
foregone as a result of making a choice.

Economic Systems
An economic system refers to the way that a country uses its resources to organize production and the
distribution of goods and services, to maximize the benefits to its society. Economic systems vary
worldwide.
In this lesson we will discuss four types. These are the:
Subsistence,
Free Market,
Planned and
Mixed economic systems.
Governments choose particular economic programmes that will effectively manage their economies,
bring about economic growth and improve the lifestyles of its citizens. The following economic
questions must be answered by managers of economies.
1. What to produce?
2. How much to produce?
3. What methods of production are to be used?
4. How will goods and services be distributed?
Answers to questions 1, 2, & 4 will depend on the economic system of each country.

Subsistence Economic Systems

The Subsistence economic system as its name suggests are economies in which just enough is
produced by its citizens for their survival. Since there is no surplus wealth is not created. Subsistence
economies exist in many villages in Africa and South America among peoples who live in simple
societies.
Advantages:
Every member of the society knows their role.
The social network is strong
Disadvantages
This society is slow to changes
Does not take advantage of technological change
Little or no development of intellectual or scientific initiatives

Free Market Economic System also called Free Enterprise or Laissez Faire
Private individuals own the greater share of the property and capital resources that are used in the
production process. There is little or no government intervention in the economic activities of the
country. The government may provide essential services e.g. transportation and water. Therefore the
private sector provides the majority of goods and services.

Advantages
Competition among business will result in increased quality of output and lower prices.
Competition also leads to innovation i.e. newly invented goods, services and production processes.
Consumers are free to choose the goods and services that they wish to purchase and therefore
production is based on their demands.
Freedom from government interference
The invisible hand or price mechanism determines the price

Disadvantages
Consumer exploitation by suppliers may go unchecked by government as there is little or no
government intervention.
There is an unequal distribution of wealth as goods are purchased by only those who can afford it.
In the case of no government intervention public goods such as postal service, streetlights and roads
are not provided
Large companies such as monopolies or cartels may exert influence on prices and limit competition.
May lead to overuse of demerit goods
Wastage of resources in advertising and excessive competition.

The Planned or Controlled Economic System

Property and capital resources are owned by the government on behalf of the society. The government
makes all decisions concerning the use of the country’s resources and the distribution of its output.
Goods and services are provided through government-owned and run operations. These include
factories, telephone services, newspapers, television stations, etc.

Advantages
There is a fair distribution of goods and services as the government determines how goods are
distributed.
Citizens in these economies enjoy a least a basic standard of living as the government provides all
goods and services.
There is full employment of all available resources.
Wasteful competition is avoided.

Disadvantages
Resources are inefficiently allocated as consumers are not free to indicate their demand for goods and
services. Therefore resources are not sent to where they are most needed but into industries based on
the government’s decision.
The lack of competition reduces innovation and the motivation to produce quality output.
Too rigid system that is inflexible to changes such as shortages
Too much bureaucracy, procedures and paperwork.
No freedom of choice for producers and consumers.

The Mixed Economic System

The private and public sector are both involved in the production of goods and services.
The economic resources are owned by government and private individuals.
Economic decisions are made by the price system and the state.
Private sector to maximise profits and Public sector to maximise social welfare.
Public sector produces the goods that the private sector is unwilling to provide.

Advantages
Consumer protection through the regulation of businesses by government.
Economic benefits of competition coupled with goods and services provided by government for those
who cannot afford to access these through the market system.

Disadvantage
Public sector companies tend to be inefficient as they are supported by taxpayer’s money.
Government regulatory policies may reduce the enthusiasm of the private sector e.g. the setting of
prices of goods and services resulting in the closure of businesses.
State demand for factors of production may limit the amount available to the private sector.
Disparities exists in earnings and productivity between the state and private sector.

Decision makers in a mixed economy-

Consumer- to satisfy wants
Firm- producer to make profits
Factor owner- person who owns the factors of production
Government-Provides regulation and guides overall economic activity.
FORMS OF BUSINESS ORGANIZATIONS

Functions of a business:
To produce goods and services
Creating jobs and training employees
Purchase goods and services for resale
Raise money by borrowing

Objectives of a business:
To produce a stream of income
To create employment
Security of employment
Corporate social responsibility
Reasons Businesses are established
Starting a business is a lot of hard work. Therefore persons who decide to start a business must be
ready to dedicate a lot of time and energy to its start-up. It is also very costly and therefore capital will
have to be identified to inject into a new business.

Reasons for starting a Business:

1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business
would give them the opportunity to be a successful business person and achieve financial
independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfilment
Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
Business can assist in providing jobs for persons in communities with high levels of unemployment.
Forms of Business Organizations
An organization is a system that groups people together towards establishing a common goal.
Business organizations are centered on creating goods and services for profit. There are several types
of business organizations that one can start.

Forms of Business Organizations:

Sole Trader
Partnership
Private Limited Liability companies
Public limited Liability Companies
Multinationals
Franchise
Conglomerates
Cooperatives
Nationalized Industries
Local and Municipal Authorities
Government Departments
All forms of business organizations can either be characterized as a part of the private sector or the
public sector.
The Private and Public Sector

Public Sector
Government control of factors of production on behalf of citizens
Motive to provide services to citizens
Consists of nationalized industries, executive agencies, local and municipal authorities, government
departments, public corporations.

Advantages
Government provides public goods that the private sector will not provide.
Government provides welfare services to poorer members of society.
Government sets the control mechanisms on place for the conduct of business.

Disadvantages
Government can increase taxes to finance expenditure
Inefficient use of state resources
Political interference in private sector

Private Sector
Private individuals or businesses own the factors of production
Motive to maximise profits
Consists of sole traders, partnerships, public and private companies multinationals, conglomerates,
franchises

Advantages
Brings more competition and product variety to the market
Increased use of technology
Provides investment and employment

Disadvantages
Will only provide products that citizens can pay for
Engages in the production of demerit goods once there is demand
FEATURES PRIVATE SECTOR PUBLIC SECTOR

Ownership and Control Private citizens/individuals and The state, national/local

firms. Only persons who government, municipalities. The
purchased shares in the enterprise is owned by tax
company are owners payers in general.

Objective To earn/make profits To provide essential goods and

services to the country.

Source of capital Private individuals and persons Taxes, rates, levies and
who choose to buy shares in the statutory deductions.
enterprise. Loans from banks,
credit unions, friends, family
members, personal savings.

Terms and concepts:

Insolvent – unable to repay debts or bankrupt
Liquidate – This occurs when a business sells off its assets to repay debts
Limited liability- it means that he or she is not personally responsible for business debts and obligations
of the corporation.
Unlimited liability - refers to the legal obligations general partners and sole proprietors because they are
liable for all business debts if the business can't pay its liabilities.
The Sole Trader
The sole trader is a single business owner. This person may employ several other persons to work in
the organization, but he has to make all decisions, acquire all the capital required and other resources
needed for the business on his own.

Characteristics
He or she manages the business and may have the help of family and friends.
He or she enjoys all the profit and bears all the risks
Capital is limited since the savings of the owner fund the business
Personal contact with clients
Performs a large variety of tasks related to the operations of the business
This type of business is not incorporated (not given a separate identity) and therefore easy to set up.
Examples: Electrician, Plumber, small farmers, doctors and lawyers.
Formation
There are no legal formalities in the setting up of a business as a sole trader except for the registration
of a trade name or the acquisition of a license. For example a license is required for the sale of alcohol
or for the sale of food items.

Management and Advantages

Enjoys all profits
Ease of formation – no legal requirements
Independence – find personal satisfaction in working for themselves
Simple organisational structure
Personal Control – decision making is quick
Personal Service
Secrecy – No need to disclose info. Except to tax authorities or to creditors
Personal Commitment to succeed

Disadvantages
Limited source of finance
Lack of specialised staff
Over reliance upon one’s personal health and vigour
Unlimited Liability
Lack of leisure time
Lack of technology
He bears all the risks
Partnership
A partnership business is formed legally by a minimum of two (2) and a maximum of (20) twenty
persons in a business. There are two types of partnership forms:
Limited Liability Partnership – at least one partner must have unlimited liability
Unlimited liability Partnership- All partners have unlimited liability.

Formation
A deed of partnership must be drafted which set out the terms and conditions of the partnership. This
written agreement helps to settle disputes and in the absence of the deed the partnership will be
governed by the Partnership Act.
A deed will entail:
Number of partners
Amount of capital contributed by each partner
Type of trade engaged in
Share profits and losses accruing to each partner
Name of partnership
Salary of each partner mechanism for dissolution.

Types of Partners
Ordinary/General Partners: take an active part in the running of the business.
Unlimited liability of partners
Change of members ends partnership
Assets and liabilities are owned and shared equally
Each partner plays a part in the management of the firm
Partnerships cannot exist without an agreement
Sleeping Partners: invest in the business but do not take an active part in the business.
Limited Liability Partners: assets will not be lost if the business goes bankrupt.
limited liability of partners but one must have unlimited liability
Change of members does not end partnership
Does not play a part in the management of the firm

Advantages
More capital
Specialisation – partners use their different skills and knowledge
Simple Organisation – easy to form
Continuity – more continuity than sole trader
Limited Liability
Workload Shared
Decision making – shares knowledge and expertise

Disadvantages
Unlimited liability
Binding – all partners lose if mistake is made
Limited Capital
Disagreement
Concentrated risk – risk not spread enough
Decision-making
Continuity – broken partnership upon death
Profits are shared, irrespective of effort in the absence of a partnership agreement.
Limited Liability Companies
A company is a business entity that has been incorporated, that is, the company has a separate legal
identity from that of the owner.
Limited Liability Companies are companies in which shareholders/investors are protected as they will
not lose their personal assets if the business goes bankrupt. They are not liable for the debts of the
company beyond their level of investment. Therefore if a shareholder buys shares in a company valuing
$5000 then he will only lose that $5000 invested and his personal assets.
There are two types of limited liability companies.
1. Private Limited Liability Company
2. Public Limited Liability Company
The Private Limited Company only allows friends, relatives and co-workers to purchase shares and to
be a part of the company. Its privacy is also protected by the fact that unlike the public limited liability
company, it does not have to publish its balance sheet in the newspaper. Legally the private limited
company can only have a minimum of two and a maximum of fifty persons to join.
The Public limited company allows members of the public to purchase shares. The shares/stocks of
public limited companies are traded on the stock market. The public limited liability company has a
minimum of (7) seven members and there is no limit to the number of shareholders that can join.
The legal procedures for both these types of companies are lengthy as they must submit the several
documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements
which were laid down by the Companies Act, the promoters of the company must present the following
documents:

The Memorandum of Association

Company name , which must contain the word limited
Address of the company’s registered office
Objectives of the company
Statement that the liability of the shareholders is limited
Authorized share capital and the types of shares to be issued.

The Articles of Association

Procedures for calling an Annual General meeting.
Rights and obligations of the directors
Procedures governing the election of Directors
Statement concerning the borrowing power of the company
Procedures dealing with the payment of dividends

Statements of authorised, Registered or Nominal Capital

This is the amount stated in the MOA, which is the maximum amount which the company is authorized
to raise.

Prospectus
This is an invitation to the public to buy shares in a public company. It contains detailed information to
enable investors to estimate its prospects. It is important that the public should not be misled.

Statutory Declaration
Statutory declarations are commonly used to allow a person to declare something to be true for the
purposes of satisfying some legal requirement or regulation.

Certificate of Incorporation
This is a legal document relating to the formation of a company or corporation. It is a license to form a
corporation issued by state government. Its precise meaning depends upon the legal system in which it
is used.
Certificate of Trading
It is the certificate issued by the registrar of companies to the public limited company to grant
permission to commence its business.
The private limited company may begin trading after receiving the certificate of incorporation, but the
public limited company must issue a prospectus inviting the public to subscribe for shares before a
certificate of trading is issued.
Advantages of Private Limited Companies
A larger capital base than sole trader or partnership.
The company has continuity and thus can obtain loans easily.
The company has a separate legal identity from ownership.
Shareholders have limited liability
Disadvantages
Capital is limited since the membership is limited to fifty person.
Must file reports with the registrar of companies
Selling of shares is restricted to the private grouping.
Advantages of a Public Limited Company
It is easier to obtain financing
Shareholders have limited liability
Share can be quoted on the stock exchange and sold to the public
Company able to grow and obtain economies of scale
It has a separate legal existence. Changes in shareholders and directors do not affect continuity of the
company.
Disadvantages
The legal requirements may be costly and time consuming
The accounts have to be made public
Because of large size, decision making can be long
Differences in opinion may develop owners and directors.
Loss of control of company if sufficient shares are obtained.
These companies lack a personal element.
Multinationals
A multinational company is a company that has headquarters in a home country and operates
businesses in various host countries. Examples of Multinational companies in the Caribbean are Shell,
Kentucky Fried chicken and Digicel.

Advantages
They provide employment.
They introduce advanced technology.
Provide well needed goods and services.

Disadvantages
Profits earned are repatriated to the main centre in their home country.
They may exploit the workers by paying low wages and having them work long hours.
They cause unemployment when they close down to take advantage of cheaper labour and lower
operational cost in another country.
Franchise

A franchise is an agreement between a franchisee (the person requesting permission to set up

business) and the parent company to allow the franchisee to sell its products or services. Some
businesses begin by the owner acquiring a franchise to operate under an already existing business
name. Many multinational companies expand into new regions through franchises.
The franchisee bears the name of the parent company. They must abide by all the rules and guidelines
outlined by the parent company to sell its products. It pays royalties (a fee) to the parent company to
operate under its business name.
Advantages
Access to new markets for the franchisor
Source of revenue for the franchisor
The franchisee bears some of the risks
Franchisee benefits form the support provided by the franchisor eg. Training
The franchisee’s risk is reduced because it is selling a recognised brand.
Disadvantages
The Franchisee must pay the royalties regardless of business size
The franchisee has to operate under supervision of the franchisor
The franchisee is legally bound to sell only the products of the franchisor
Conglomerates
This is a group of unrelated companies (e.g. a restaurant, shoe store a travel agency etc,) under one
umbrella. A parent company owns a controlling stake in each company which conducts business
separately.

Advantages
The risk is spread over multiple businesses
Economies of scale
Easier to access financing due to asset base

Disadvantages
Management can be difficult
Some businesses may increase the risk of the conglomerate
Cooperatives
These are business entities owned by their members who purchase shares to join them. They are
usually established because of a need existing among a number of persons who wish to acquire
particular goods and services at a reasonable cost.

Principles of Cooperatives
Open membership- All persons over the age of 16 may join for a fee
Democratic Controls- Governed by its own members who attend a general meeting where members
elect a committee to run the cooperative
Limited interest on capital invested – low interest rates for members
Distribution of Surpluses- surpluses are distributed amongst members fairly- ploughed back into
business to expand and to sometimes for health care or education.

Types of Cooperatives
Consumer
Producer
Financial
Services
Worker
For example, members of a credit union purchase shares in these entities in order to obtain loans at
low interest rates.
There are several types of cooperative, for example, Retail/Consumer cooperatives and Producer
cooperatives. Shares invested in a retail cooperative are used to buy goods in bulk at a very low cost
and then resold to members. Producer cooperatives may include a group of farmers who will obtain raw
material at a low cost.
Profits are distributed to members based on the amount of goods that they buy and not on the amount
of investment that they make in the business. At the annual general meeting, shareholders elect their
management committees from among their members and vote on proposals put forward. Benefits of
being a part of a cooperative are therefore obtaining goods and services at low costs and a guaranteed
market as members are also customers. A disadvantage is that its management may be inexperienced
as they are chosen from their membership.
Advantages
Creates employment for members
Democratic Management
Benefit from economies of scale
Support services such as purchasing and marketing for members
Profit shared among the members
Disadvantages
Limited capital input depending on the size of the cooperative or the credit union
May lack managerial expertise in membership
Nationalized Industries
Definition
Nationalized industries are firms which were once privately owned, but have been taken over by the
government. Government seek to nationalize the key industries that is the industries on which the
government depends for the country’s economic survival for example Trinidad’s oil industry or bauxite
in Jamaica.
Formation
A company becomes nationalised when the government purchases all or the majority of shares in the
company
Management
Like State corporations, a Board of Governors is appointed. The board reports to the line Minister. The
Executive Director heads the company. The audited accounting reports of these companies must be
laid with the Audit General or Government accounting firm.
Characteristics
They are legal entities
The state is the only shareholder
They are managed by Boards of Directors that are appointed by the state
Advantages
State has Ownership and control, hence profits remain in the country.
The company is in a better position to service the needs of the community, for example the funding of
community projects in education, sporting and cultural projects.
Nationalization prevents private monopolies from being formed.
Disadvantages
Relatively low salaries paid to Executive Directors may not attract the best expertise.
The industries may be a drain on the Governments revenues.
State Corporations
These are independent organisations set up by the government to carry out a service. The Government
does not control their daily operations but can fix the overall strategy and nominate their board of
directors. These are usually non-profit making, but in the long term, they have to be self-financing.
State Corporations are usually in the broadcasting field, transportation, power and telecommunications
industries.
Formation
State Corporations are formed by legislation i.e passing of laws in Parliament.
Management
The government appoints a Board of Governors or Directors for a stipulated time frame. An Executive
Director is also appointed to head each organisation. The Executive Director reports to the board of
Directors or Directors.
Characteristics
Funding is mainly done by the state providing grants, although some legislation allows the
organisations to raise their own funds.
The state or state appointed auditors monitor all accounting procedures
Annual accounting reports must be sent to the Auditor General.
The aim of the state is not to make a profit but it is expected that these corporations may break even
Government Departments
These include the government ministries e.g. the Ministries of Finance and Education. A minister is
appointed in charge of each ministry. These departments are very important to the running of
government.
Local and Municipal Authorities are government bodies which are run by elected local officials, e.g., the
Kingston and St. Andrew Corporation (K.S.A.C.) in Jamaica. These bodies fulfil local needs and allow
for more balanced local development. They carry out duties such as cleaning gullies and drains and
fixing community roads.
STAKEHOLDERS AND THEIR ROLE IN BUSINESS ACTIVITIES
Stakeholders – are the various groups within and outside an organisation that stand to potentially gain
or lose as a result of the organisation’s actions.

List of Stakeholders:
Owners/Employers/Investors
Employees
Customers/Consumers
Suppliers Government
Members of society (media, special interest groups, communities)
Lenders/Investors and other creditors.
Business owners must be aware of the various groups that they interact with for the successful running
of the business.
Owners
A business may be owned by a single individual (a sole trader), partners or by a group of shareholders
forming a company.
Role of Owners
They must provide the resources that are required for the business to operate efficiently. These include
the employment of workers, identifying suitable premises and procuring machinery, equipment and raw
materials. They must make timely decisions to ensure that the business remains profitable. They must
motivate employees to perform well.
Employees
They are employed to carry out assigned tasks to achieve the company’s objectives.
Role of Employees
Employees must work efficiently to accomplish tasks assigned. Accomplishing tasks may require
teamwork and therefore employees must have good interpersonal skills. Employees must adhere to the
rules and regulations of the company.
Customers
They are the supporters of businesses in the economy. They purchase goods and services to satisfy
their needs and wants.
Role of Customers
They assist businesses in identifying the goods and services to be produced based on their demands.
They also help business to identify changing trends in the market and so prepare business operators
for future demands.
Society
Businesses must be aware of the society as a whole, how its activities affect it and not only those who
are customers.
Role of Society
The production process may cause air pollution and discharge of harmful waste into rivers and seas.
The society keeps businesses in check by making them aware of their impact on society. They write
letters to the company and the media and speak on talk shows.
Government
They are the managers of the economy within which the business operates.
Role of Government
Regulate business activities to protect consumers. Government agencies ensure product standards as
well as that various legislations are adhered to ensure the protection of consumers’ rights.

RESPONSIBILITIES OF A BUSINESS
The functions of a business are:
1. To produce high quality goods and services that will satisfy needs and wants.
Entrepreneurs enter business to make profits. They must be very keen in identifying those goods and
services that will create high demand make profits.
2. To create employment
Business will need all categories of workers to carry out the various tasks required to achieve its goals.
If the business is profitable and expands then more workers will be needed for its operations.
3. To make a profit
The reason for the establishment of a business is to make profits. If businesses are not profitable, its
owners will not be encouraged to continue operating. Profits are used to reinvest in the business for its
expansion.
Role of a Business within a Community
Corporate citizen is the term used to describe the responsibilities that businesses have within their
environment. As a good corporate citizen business must strive to have a good relationship with their
community.

Good corporate citizenship includes:

Support for the community through community projects, sports and youth clubs.
Being environmentally aware by reducing pollution
Providing job opportunities for community members e.g. a holiday work programme
There are five major responsibilities:

Economic
Produce a good or service to satisfy the needs and wants of society
Stimulate economic growth

Financial
Pay a fair wage to employees
Provide reasonable returns on investments

Political
Act as pressure groups to lobby governments for changes that will benefit business activity
Operate along the democratic principles of equality and fair play
Act in accordance with the laws; for example, paying taxes when they are due.
Assist in setting policies by giving feedback, making suggestions.

Ethical
Design ethical guidelines for their behaviour/decisions and follow these guidelines
Encourage good business ethics of their stakeholders by refusing to do business with unethical firms or
persons.

Social
Protecting the environment and avoiding social costs (borne society as a result of business operations,
for example, pollution.
Developing the culture of a country
Educate consumers and community members on safety tips and proper use and disposal of the
product.
Use some of the profits to help develop and benefit the community, as well as the culture of the country.
THE ORGANISATIONAL STRUCTURE OF A BUSINESS
Divison of Labour:
As businesses grow from sole trader to medium size to large different persons had to specialise in
different functional departments as follows:
Functional Areas in the Operation of Businesses
Departments in a business organization are structured according to certain functions. The departments
of various organizations will differ depending on the type of business.

Production
The production department is responsible for transforming raw materials into finished products. They
are also responsible for quality control to ensure that required standards are met.
Input to output
Quality control
Purchase and storage of stock
Organising production schedules

Finance/Accounts
The accounts department makes and receives all payments on behalf of the business and records all
financial transactions
Producing end of year financial statements – Annual reports, Balance sheets and Profit and Loss.
Advising Management
Payments and receipts
Managing cash flow

Marketing
This department creates awareness for the firm products and motivates consumers to buy. They also
carry out market research to identify customer’s needs.
Market research and sales forecasting
Advertising and sales promotion
Distribution of products

Human Resources/Personnel
The human resource department recruits and selects staff for the business organization. They are also
responsible for staff training and welfare.
Hiring and firing
Promotion criteria
Training
Employee record keeping
Interviews
Wage negotiation
Public Relations

The Purchasing Department

This department is responsible for the purchasing of the firms raw material, stationery and goods for
re-sale.

Customer Service/ Customer Relations Department

This Department bridges the gap between a business and its customers. It deals with customers’
queries, advising and assisting customers to place orders and handling customers’ complaints.
Legal Department
This department is concerned with legal problems that might arise for the company. For example,
compensation for employees and customers, who have brought lawsuits against the company.

Research and Development (R&D)

This department is involved with research to explore ways of improving the company’s existing
products, developing new ones and identifying efficient processes to increase production. This
department works closely with the marketing department as products developed must satisfy
consumers’ needs.
Organisational Structure- refers to the way a business is structured to achieve maximum efficiency.
An organizational structure defines how activities such as task allocation, coordination and
supervision are directed towards the achievement of organizational aims
Formal Structure - Formal organization is a fixed set of rules of intra-organization procedures and
structures. As such, it is usually set out in writing eg. Org Chart.
Informal Structure – the unofficial relationships that exist in the firm.
Span of Control - refers to the number of subordinates a supervisor has.

Factors that influence the span of control

• Competence, skill and experience of the workers
• The nature of the job i.e. complexity
 • The actual skill of the manager
• How motivated workers are
Lines of Communication- this represents the standards and procedures associated with the
movement of information
Organizational Charts
An organizational chart is a diagram of the organization of an enterprise. Its pyramid shape illustrates
the hierarchy system that exists in the organization. The most senior position in the organization is
placed by itself at the apex. The pyramid gets wider towards the bottom depicting the greater number of
workers at its base.
Those who have the power to issue commands have authority in an organization. In the organization
chart above the sales manager has the authority in the Sales department. All persons with the same
level of authority are placed at the same level on the chart. For example the sales manager and the
accounts manager have the same level of authority in their various departments.
Responsibility is the capacity to accept duties and to carry out their tasks. For example, both sales
supervisors are responsible to the sales manager.
The chart shows the following:
• each person’s position
• the number of levels of managers
• to whom each employee is responsible (reports) to
• the span of or (area) of control for senior staff members.
Types of Organizational Charts
Line
Staff
Functional
Committee
Line or Direct
The line organizational chart depicts a straight line of command. Authority is said to flow downwards
only in the line organization. The line organizational structure is found in schools or in the military.
Advantages
Simplicity- simple to understand and implement.
Responsibility is fixed- Every employee is clear about whom he is answerable to and who is
accountable for him.
Unified Control – Good control and direction.
Quick decisions made.
Flexibility- changes to circumstances
Disadvantages
Overloading of the executive as several duties are managed independently.
Lack of Specialisation – because different jobs are supervised.
Functional Organizational Chart
The Functional organization chart is a diagram of an organization that is arranged by its functions. For
example, there is a manager in charge of marketing, and another in charge of production. This type of
organization has an advantage over the Line as experts are appointed to run each department. All
managers report to the General Manager.
The Functional organizational chart combines the straight line of command of the line organization with
horizontal dotted diagonal lines representing functional authority. The dotted diagonal lines in the figure
above show the authority that the Human Resource Manager has over other departments. The Human
Resource Manager is allowed authority in these department over human resource matters only e.g. to
hire and fire workers. He therefore cannot give directives on production or marketing matters.
Advantages
Specialisation – allows for specialisation by function thereby developing their skills.
Efficiency and Productivity improved.
Disadvantages
Lack of Teamwork- difficulty working with other units.
Difficult Management Control- Difficult to manage a growing organisation.
Line and Staff Organizational Chart
The Line and Staff organizational chart combines the line and functional organization with the addition
of staff personnel. Staff workers assist and advise line workers. Staff workers include consultants,
advisors, company lawyers, executive secretary, auxiliary workers etc. Staff officers do not have
authority, that is, the power to delegate tasks to subordinates in the organization. Their main role is to
advise and assist line officers. This is why there are no vertical lines connecting staff officers to any
other member of staff on the chart. They are therefore, placed at the side directly below the line officer
whom they assist or advise.
Advantages
Decision efficiency- able to use staff specialist skills without interference of a hierarchy.
Expert Advice
Productivity increases because line managers can have more free time to focus on other duties.
Disadvantages
Authority- confusion between the line and staff positions for authority.
Decision Making- line position relies heavily on a staff position for decision making.
Conflict between staff and line positions.
It is more costly to hire staff specialist.
Committee Organizational Chart
Committees are advisory bodies. They are usually appointed to advise organizations. Examples of
committees include; parent teachers associations and student councils which are committees within a
school organization. Committees usually delegate certain duties to sub-committees. For example, an
executive committee may appoint a finance committee to advise it on financial matters. Note that an
element of the line organization exists in the committee organization as all sub-committees are
responsible to the executive committee.

Advantages
Improved problem solving because of differing ideas.
Authority is shared
Different interest groups are represented.
Assist in coordination amongst various divisions.

Disadvantages
High cost and long time to make decision.
Conflict among members.
Dominant members may control decision making.
No one particular person can be held responsible.
Matrix structure:
This is a combination structure that joins functional areas with structures for projects and teams. The
functional areas flow vertically down the chain of command. Simultaneously, a worker can be
horizontally attached to a project team. Matrix structures offer flexibility for organisation employees to
utilize skills and competencies. It is based on the individual having expertise in functional areas and be
able to transfer these skills to projects. Difficulties can occur in areas of control of tasks, role ambiguity
and role conflict.

Advantages
Efficient Information Exchange
Increased Motivation – shared decision making encourages employees

Disadvantages
Internal Complexity- this may cause miscommunication and confusion because of dual authority.
Expensive to Maintain and Internal Conflict
Chain of Command- The definition of a chain of command is an official hierarchy of authority that
dictates who is in charge of whom and of whom permission must be asked. An example of chain of
command is when an employee reports to a manager who reports to a senior manager who reports to
the vice president who reports to the CEO.
Types of Org Charts:
Vertical
Circular
Horizontal
Departmentalization- is an aspect of organizational design that includes the subdivision of a business
into units based on their function or other criteria.
Types of Departmentalization:
By Function
By Process or Equipment
By Geographic Territory
By Product
By Customer and Client
TEAMWORK
Definition of Team:
A group of two or more persons interacting regularly and coordinating their work to accomplish a
common objective.
Role of Teamwork
Many firms adopt a teamwork approach to complete tasks more efficiently. For example a major
Caribbean airline encourages its workers to work as a team to achieve the main task of having each
flight leave on time. Workers therefore move to various positions if needed, to have each flight leave on
time.

Advantages
1. It improves the working relationship among workers
2. It increases communication
3. Skills and knowledge are passed on through the interaction
4. It satisfies the social needs of workers
5. Ability to solve problems constructively.
6. Ensures continuity, i.e. if one team member is absent the other will complete the task.
7. The quantity and quality of work will improve due to collaboration.

Disadvantages
Adds unnecessary bureaucracy (slow to make decisions)
Only effective with clear objectives
Personality clashes (Conflict)
Additional cost in terms of time and human resources (training)
Unwieldy and Unproductive
Groups are formed naturally by persons with similar interest, common goals and similar past
experiences in an organization. The establishment of various clubs, work socials and outings will
encourage greater interaction among workers, better relationships and a teamwork approach to
completing tasks.
THE FUNCTIONS OF MANAGEMENT
Definition: Management
The art of combining the resources of the organisation with the aim of achieving the goals of the
organisation.

THE FUNCTIONS OF MANAGEMENT

Planning
This is the process of defining goals for future organisational performance and deciding on the tasks
and resources needed to attain them.
All managers must plan, that is, setting out steps for the attainment of future organizational objectives.
It involves formulating the policies and programmes for the firm.
Organizing
This involves the bringing together of the factors of production, namely, land, labour, capital and
enterprise.
Organising usually occurs after planning. Organization reduces cost, time, chaos and conflicts.
Managers must obtain all the necessary tools, machinery and personnel for each task and arrange all
tasks so that they are done in the most efficient manner.
It involves:
Designing structure
Assigning duties and responsibilities to departments
Determining the workflow
Establishing schedules
Providing the raw materials
Technology and the related skills needed to accomplish the goals
Directing
Managers must guide subordinates by giving them instructions to perform the tasks assigned.
Delegating
Delegating duties involves giving others (e.g. supervisors) the authority to have specific tasks
completed through the management of others. Therefore, supervisors will ensure that workers
complete tasks assigned. Delegation reduces the workload of the manager.
Controlling
Managers must continually measure the activities of subordinates, ensuring that all activities conform to
plan.
Coordinating
Managers must bring together all the various organizational tasks so that the organization may function
harmoniously.
Motivating
This is process by which workers are influenced to take the right action to get the task done. It inspires
workers to give of their best.

Theories of Motivation:
Maslow’s Hierarchy of Needs
Herzberg’s Two Factor Theory
Douglas McGregor Theory X and Theory Y

Maslow’s Hierarchy of Needs

Maslow divided needs into higher and lower order needs.

Lower Order Needs

Physiological (Bodily, Function) needs- relates to survival and physiological maintenance of the
human being. Eg. Food, Water Shelter, Clothing.
Safety Needs – refer to desire for freedom from threatening events and surroundings. Eg Physical
safety and security, continual employment, adequate flow of income, free from fear of illness, expenses
or loss of property.
Belonging or Social need (Love and Affection Needs) - this includes the need for friendship,
affiliation and interaction from others. Human beings are social creatures and need to feel a sense of
belonging.

Higher Order Needs

Esteem needs - the need to feel self-worth and self-respect. They also want respect from others. Eg. a
good reputation, prestige, status, fame, glory, recognition. Mangers use the difficulty of the job and the
skills required to motivate workers. Motivation can be achieved through publicly rewarding workers and
bonuses.
Self-Actualising Needs – the need to reach ones full potential. Involves including employees in the
decision making process, challenging assignments. Problem solving can help with achieving
self-actualisation.

Frederick Herzberg Two Factor Theory

Motivational factors - builds high level of satisfaction but the absence will not cause dissatisfaction.
Examples are:
Achievement
Recognition
Advancement
Pleasure in the work itself
Responsibility
Hygiene factors – necessary to maintain a reasonable level of satisfaction. Examples are:
Adequate salary
Job security
Working conditions
Status
Clear company policies and administration
Good interpersonal relationships with supervisors and peers
Mc Gregor Theory X and Y
Theory X-
Manager’s view subordinates as:
Inherently dislikes work and must be coerced into performing adequately
Ambiguous, irresponsible, lazy and not to be trusted
Self-centred and indifferent to achieving the organisational goals
Having to be controlled
Desires job security and economic rewards above all others.
Theory Y-
They are viewed as:
Enjoying work.
Seeking responsibility.
Exercising self-direction and self-control to accomplish objectives to which they are committed.
Not wanting to be controlled.
Having desires to satisfy social and self-actualising needs.
Characteristics of a Good Leader
A leader is someone who has been given authority over a group of individuals. His job is to motivate the
group to achieve the goals set out for it. Leadership is therefore about influencing or inspiring an
organized group towards the accomplishment of goals. Below are the characteristics of a good leader.
Integrity
It is important for a leader to possess this quality as it makes them trustworthy. They are perceived as
honest and therefore command the respect of their subordinates.
Good communication skills
Leaders should be able to communicate effectively with persons at all levels of the organization.
Manager must pass down directives as well as listen to workers opinions complaints and ideas. This
will foster good working relations among leader and followers.
Intelligent
This is a very important characteristic for leaders. It refers to being rational and having good judgment
when making decisions. Leaders are decision makers and therefore need to be intelligent. This
characteristic also refers to shrewdness and therefore describes someone who is smart, perceptive and
wise.
Devoted and Committed
A leader must be a role model for others. He/she should therefore believe in the goals of the group and
motivate others to achieve it. His/her continuous hard work will portray dedication and loyalty to duty.

TYPES OF LEADERSHIP
Autocratic
This type of leader makes all decisions and asks members only to be obedient in following orders. He
will give detailed instructions and closely supervise subordinates.
Advantage
Time is not wasted consulting with others to reach a decision.
Disadvantage
Workers must comply with directives given by the leader and therefore the organization will not benefit
from workers initiative and innovative ideas

Democratic
A democratic leader allows the participation of subordinates in decision making. The leader asks for
progress reports at intervals instead of continuous close supervision.
Advantage
Discussion between management and workers leads an improved relationship.
Disadvantage
The variety of opinions to consider may slow down the decision making process.

Laissez-Faire
This type of leader will give minimum directives and allow maximum freedom for workers to make
decisions about completing their tasks.
Advantage
The firm will benefit from the initiative and innovation of workers.
Disadvantage
It may lead to chaos in the organization. This type of style can only be used with persons that are very
self- motivated and disciplined.

Charismatic Leader
Inspires and motivates through skills and personality.
COMMUNICATION
Communication – This is the transmission or relaying of information, ideas, opinions or understanding
from a person or group to another person or group.
What is the Communication Process?
Sender
Message
Receiver
The Channel (Medium)
Feedback
Strategies for Effective Communication
The sender’s strategies:
Decide what exactly is to be communicated and who the receiver will be
Choose the most appropriate medium for the message
Identify any possible barriers to communication and take steps to overcome these barriers
Decide on the most appropriate type of feedback
Continue the process but make the necessary changes if communication fails
The receiver’s strategies:
Try to understand the message
Identify any possible barriers to communication and take steps to overcome these barriers
Send the required feedback

Methods of Communication

1. Oral – This includes all types of spoken communication:

Examples Advantages Disadvantages

Direct Speech Direct contact More difficult to control

2. Written – This includes all things that are written:

Examples Advantages Disadvantages

Memorandum Provides written documentary Can be time consuming

evidence. eg contract.

Visual – This includes all things which can be seen:

Examples Advantages Disadvantages

Bar graphs Demonstrates through a visual May be difficult to interpret by

stimulus. itself

TYPES OF COMMUNICATION
Internal Communication- Communication that occurs within the organisation.
External Communication- Communication that occurs outside of the organisation
Telecommunications
Advertising
Letter post
Registered letters – offers proof of delivery for the sender by providing a receipt signed by the receiver.
Insurance
Private boxes and post office bags
Business reply service
Formal Communication -These are official methods approved by management.
These includes meetings, announcement on notices boards, memoranda, messages over public
address systems, interviews, performance appraisals, company magazines. etc.
Informal Communication -These are unofficial methods of communication.
These include: rumours and the grapevine, secret signs and gestures as well as casual conversation
between employees.

Barriers to Communication
Distortion of messages e.g. rumours or the grapevine can easily distort messages.
Inappropriate forms of transmission e.g. a notice of a formal meeting must be conveyed in writing and
not by word of mouth. If this type of meeting is not conveyed in writing it may seem casual and
unimportant.
Physical barriers e.g. faulty telephone connections, defects in mechanical or electronic equipment, and
poor postal services.
Information overload.
Specialized jargon used or technical language.
LABOUR RELATIONS (CONFLICT RESOULTION)
Definition of Work:
Activity involving mental or physical effort done in order to achieve a purpose or result.

Why do we work?
People need money to buy things. If you go to work, your boss will pay you. You will have money to
pay the rent and to go shopping. You will be more independent.
People want to be busy. They go to work because it is boring to stay at home and do nothing. At work
one learns new things and meets new people. It can be fun to have a job.
Going to work makes people feel useful. Other people have more respect for people that work.

Definition of Trade Union-

An organization of workers in the same skilled occupation or related skilled occupations who act
together to secure for all members favourable wages, hours, and other working conditions. The key
function of the trade union is to represent the interest of workers. The trade union seeks to promote the
interest of workers through the process of collective bargaining.

Role and Functions of Trade Unions:

Collective bargaining
Social activities
Political activities
Educational activities
Act as a pressure group to influence government decision making
Negotiate for better or competitive salaries
Set regulatory standards for some unions eg. provide training and negotiate rights of workers
Enhancement of workforce
Seek welfare of workers
Promote a system of democracy for electing union officials.
Collective Bargaining- is a process of negotiation between employers and a group of employees
aimed at reaching agreements to regulate working conditions. The interests of the employees are
commonly presented by representatives of a trade union to which the employees belong.

There are two aspects of collective bargaining:

1) Negotiation-
A process of trying to reach a mutual agreement between parties.
2) Settlement of Disputes-
Disputes can be elevated from local union representatives (on the job) to the District Office, Union
Executive, Chief Labour Officer, then to arbitration, Industrial Courts or Minister of Labour.

FUNCTIONS OF TRADE UNIONS

Social Activities-
They take care of their sick, retired and unemployed

Political Activities-
Have linkages with political parties

Educational Activities-
Have special fund to educate their member and children of their members.

Types of Unions:
Craft
Industrial
General
Staff

Industrial Relations- Definition-

The relationship between the employees and employer.

Reasons why unions will be able to negotiate a high wage.

A strong economy
Increased productivity and profitability.
Increased risk and cost of living.

Sources of Conflict within the organisation:

Competition between employees over performance or promotion
Employees or Departments regarding allocation of resources
Worker groups share diff. needs and interest.
Diff. objectives, attitudes and values between employee and the organisation.
Breakdown in communication leading to misunderstandings
Management and Leadership style not suitable to workers or task
Industrial relations [Link]
Breach of Labour Law
Work regulations
Break of agreement or policy
Unfair treatment
Unfair dismissal
Threat to Health and Safety Issues

Conflict Resolution Strategies-

Grievance Procedures – a set series of stages that work related grievances must be referred to before
it is resolved. It is reported to the immediate supervisor, then manger then to the executive of the trade
union then onto the industrial court.
Conciliation- A third party, usually from the Ministry of Labour will be present during the discussions to
encourage communication and reaching a resolution without offering solutions.
Mediation- This is where the third party offers solutions upon which the parties can decide to accept or
reject.
Arbitration – This is where all parties make their declarations and the third party called the arbitrator
makes the final decision which is legally binding.

Guidelines for establishing good relations between managers and employees:

Maintain good communication with workers
Establish Grievance Procedures
Practice good leadership
Motivate workers with adequate compensation and incentives
Provide more interesting work through job enrichment and enlargement.
Improve working conditions.

Methods of Industrial Action by employees-

Go Slow – workers complete their tasks very slowly.
Overtime ban- No overtime is offered by the employees
Work to Rule- Stick to Job Specifications
Picketing- Public sympathy is achieved
Closed shop- force employees to join union
Strike action- work stops completely.

Methods of industrial action by employers-

Lockouts are used to avoid sabotage
Firing all workers.
Scab Labour- Alternate labour is hired.

Local Examples –
SECTION 2: INTERNAL ORGANISATIONAL ENVIRONMENT
MANAGEMENT INFORMATION SYSTEMS (MIS)
MIS Definition:
MIS is the formal mechanism for making available to management, the accurate and timely information
necessary to facilitate the decision making process and assist the organisation in planning, controlling
and carrying out its operational functions efficiently and effectively.

Main activities of an MIS:

Accepting instructions
Receiving information
Processing information
Sending information to devices
Storing information

Design of an MIS:
Set objectives
Identify constraints
Determine information needs and sources
Put system together

Role of MIS:
Provides managers with information (reports) to help them perform activities that directly relate to their
specific areas of responsibility.
Provides a coordinated system of information processing among the functional departments. i.e
departments share data
Speeds up decision making and enables precise decisions to be made
Facilitates trade
Facilitates problem solving by testing different scenarios using computerized data.

USES OF MIS IN COMMERCE AND INDUSTRY:

As an aid to Management
Control by MIS
Computerised research and design
Computerised information systems
Computerised clerical operations

BENEFITS OF MIS:
Provides a data bank
Facilitates decision making and effective communication
Improves productivity
Allows immediate communication
Improves competitive advantage
Up to date, accurate and easy to access information.

Challenges of MIS:
Can be costly to acquire and implement.
Needs skilled and trained staff.
Technology may become outdated.
User-designer communication gap.

Examples of Management Information Systems:

Transaction Processing System: Supports the day to day operations of the business eg. Electronic
transfer of funds
Decision support systems: Provides information for managerial decision making eg. Sales figures for
reports.
Office Automation System: Provides support for office operations eg. Communication
Executive Support System: Provides information for high level management or executive decision
making.
Human Resource Information System: Provide information related to the people aspect of the
organisation eg. Performance management.
Marketing Information System: Provides information on the marketing aspects of the organisation eg.
Market research, pricing strategies.
ESTABLISHING A BUSINESS
Entrepreneur- Person who identifies successful business opportunities, risks time and money to start
and operate a business, bringing resources together with the intention of generating wealth.
Role of an Entrepreneur
An entrepreneur is one who undertakes the risk of investment to create and market a good or service
for financial gains. He is very perceptive and takes advantage of business opportunities that will
generate high profits. Entrepreneurs can be sole traders, partners in a business or a group of
shareholders.
Entrepreneurs are of vital importance to an economy. They are motivated by their own self-interest to
make profits and in so doing provide employment, create goods and services and generate revenue
impacting on the economy’s level of national income and hence potential for economic growth.
The entrepreneur is a shrewd investor and takes calculated risks i.e. ones that minimize loss when
choosing investment opportunities. The entrepreneur is the conceptualizer of the initial business idea.
He must identify the best resources that suit the business operation and ensure the efficiency of each
resource employed. For example, training workers, using machinery to increase labour productivity,
maximizing the use of factory and shop space and borrowing money at low interest rates. The
entrepreneur must continuously evaluate the performance of his ventures. Information can be garnered
from the balance sheets and Management Information Systems.

Role of entrepreneur
Conceptualising
Planning
Accessing funds or financing
Organising the business
Operating the business
Evaluating the performance of the business
Risk bearing
Importance of entrepreneur
Provide goods and services
Create jobs
Increases the GDP or value of goods produced.
Utilize local raw materials
Earns foreign exchange
Personal Qualities of an Entrepreneur
Entrepreneurship requires the following characteristics for success:
1. The creativity to innovate new product and ideas.
2. Innovation
3. The drive and determination to be successful.
4. The ability to take calculated risks.
5. The flexibility to adapt to changes in the market and industry.
6. Very goal- oriented to purposely and aggressively accomplish task and meet objectives.
Reasons Persons Establish their own Businesses
1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business
would give them the opportunity to be a successful business person and achieve financial
independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfilment
Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
Businesses can assist in providing jobs for persons in communities with high levels of unemployment.
Steps in Establishing a Business
1. Conceptualization
All business ventures begin with the conceptualization of an idea. At this initial stage the product or
service idea is envisioned. Most Entrepreneurs identify a need in the market i.e. a service that is not
being provided or a product that does not exist. If the product or service already exists then ideas to
make improvements may be conceptualized.
2. Research
The entrepreneur is a shrewd investor and takes calculated risks. Before investing money in a business
venture a market research must therefore be done to ascertain the extent of the need for the product or
service. This helps to minimize losses. A market research involves gathering information about a
potential market to help an investor make decisions about entering that market.
3. Identification of resources
What resources are needed to start the business?
If the market research is favourable the entrepreneur must now identify the necessary resources to
operate business. The resources required are land, labour and capital. Land refers to location or place
used to set up a business. This may be bought, rented or family home. Labour employed must be
qualified and skilled to efficiently carry out their duties. Capital includes money, raw material and assets
such as machinery and equipment.
4. Creation of a business plan
Preparing a business plan is very important before the start of a business. This will help the business to
ascertain whether or not the business will be profitable. A business plan outlines the goals of a
business and the strategies that will be employed to achieve them. Usually financial institutions require
that a business plan be presented when a loan is requested for business investment.
5. Acquisition of funds
There are several ways of acquiring funds to start a business. There are a myriad of financial
institutions that are willing to assist small businesses once their business plans are deemed workable.
The investor must weigh the advantages and disadvantages of acquiring funds from the various
financial institutions. The cost of borrowing i.e. the interest rate charged and the length of the
repayment period are factors to consider.
Funds may be borrowed from friends and relatives that may attract a lower or no repayment cost and a
more flexible repayment schedule. Funds can also be acquired from personal savings. Encouraging
partners or selling shares are ways of avoiding high costs of capital.
6. Operation of a business
A business must be efficiently operated to ensure high quality goods and service. This is important to
keep existing customers and for business growth. Many companies employ an operation manager to
design and oversee its operations. This person develops and manages the various processes used to
create goods and services efficiently to ensure customer satisfaction.
Sources of Research in Establishing a Business
Firms embark on research to uncover information about consumer preferences, the level of competition
in the market, responses to advertisement etc.
Sources of Information
Data may be collected from primary or secondary sources.
(a)Primary Data
Primary data is originally collected data. This data will be obtained by interviewing, observing or
distributing questionnaires to the sample population.
(b) Secondary Data
Secondary data is information that has already been collected by someone else originally. This data will
be therefore obtained from books, newspapers, magazines, libraries and publications of various
institutions.
Process between Planning and the Operation of a Business
Managers must continue to plan in order to ensure that its operations meet all long – term, medium-
term and short- term goals.
Long- term plans are made for 3 to 5 year periods. Long-term plans determine the direction of the
company. These plans set out the firm’s overall strategy to move from its present position to where it
intends to be. Long-term plans include expansion plans and plans to create new products and services.
Long-term plans are made by the directors or persons in senior management positions of a company.
Medium-term plans range from 1 to 2 years. They are made by department managers or persons in
middle management positions. Medium term plans include increasing the efficiency of a department in
order to increase the quality and quantity of output. This would involve implementing training
programmes for staff and identifying equipment that would increase efficiency.
Short-term plans are made daily, weekly and monthly by supervisors or persons in lower level
management positions. These plans are centred on meeting daily, weekly and monthly production
targets.
Regulatory Practices Instituted by Governments
A business is not considered a legal entity if it is not registered as business in the country where it
operates. All persons desirous of starting a business must first be registered with the government
agency authorized to carry out registration of business in their country.
A sole trader only needs to register his business by meeting the requirements outlined for sole traders
by the registering office and filling out the required documents.
Partnerships are also registered by the completion of a registration document. The names of all the
partners must be listed on the document. Partners in a business are advised to draft a Deed of
Partnership. This document sets out all the rules that govern the partnership and will thus help to
prevent conflict among partners.
The formation of public and private limited liability companies involves the preparation of a number of
documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements
which were laid down by the Companies Act, the promoters of the company must present the following
documents:
1. The Memorandum of Association – this document governs the company’s relationship with the
outside world. It contains:
(a) The name of the company
(b) The address of the registered office
(c) The objectives of the A statement of limited liability to members
(d) The amount of capital to be raised by the selling of shares and the types of shares to be issued
(e) The number of shares to be taken by the directors
(f) Statement of intent to form a limited liability
2. Articles of Association – this document contain the internal rules and regulations which govern the
company. It contains:
(a) The rights and obligations of the directors
(b) The procedures for calling an annual general meeting
(c) Procedures for electing directors
(d) The borrowing powers of the company
In order to effect the registration of a company, the Memorandum and Articles of Association must be
prepared by a lawyer or any person named in the articles as a director or company secretary and sent
to the companies registering office.
3. Statutory Declaration – this document states that the promoters of the company have compiled with
the Companies Act. It is a signed statement from each director certifying their willingness to serve.
4. Certificate of Incorporation
Once all three documents above have been submitted and the Registrar of Companies is satisfied that
all is in order, it will enter the name of the company on the register, and issue a certificate of
incorporation. The certificate of incorporation is proof that all requirements of the Companies Act have
been complied with. The certificate of incorporation establishes the firm as a legal body.
5. The Incorporated Company
A company always means an incorporated company. If a company is not incorporated, it is really a
large partnership. Every business that has more than twenty shareholders must be registered as an
incorporated company. The advantage of incorporation is that each member’s liability is limited. At this
stage it is only the private limited company that may begin trading.
6. The Prospectus
The public limited liability company must first publish its prospects inviting the public to subscribe for
shares. This may be a publication in the newspaper or in another public media. The prospectus will
contain information on the assets, liabilities and profit levels of the company.
7. Certificate of Trading
Once the public limited liability company has collected the total amount of share capital stated in the
memorandum, the company will then be issued with a Certificate of Trading. This will allow the
company to start trading.
Sources of Capital in Setting up a Business
Capital is one of the resources required to set up a business establishment.
Capital mainly refers to those assets that are used to start and continuously operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are
so called because they cannot easily be turned into cash.
Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash
balances. These assets can easily be converted into cash.
Sources of Capital
• Personal savings of the owner or owners
• Assistance from friends and family
• Loan from a financial institution
• Selling shares
• Forming Partnerships
• Debentures
• Venture Capitalist
Collateral – is money or property that is pledged as security for repayment of a loan.
Guarantor – someone who gives a legally binding promise to be responsible for the debt of another
person or to carry out some other legal obligation of the other person.
The significance of collateral in accessing capital to establish a business
Collateral is anything of value that is used to secure a loan. It is required by financial institutions for the
approval of loans. If the loan is not repaid then the financial institution has the authority to seize the
borrower’s collateral. Forms of collateral include: bank balances, motor vehicle, dwelling house, land,
machinery and equipment etc.

Evaluation of Different types of collateral

Property- used for large loans for a long time
Stocks- Any size loans
Bonds- Any size loans
Money- Any size loans
Cash surrender on insurance policies- Any size loans
Motor Vehicles- small and medium loans for a short period
Other assets (Appliances)- small and medium loans for a short period

The value or importance of collateral

Important to an entrepreneur to raise finance for business.
Features of a Business Plan
A business plan is a document outlining the goals of a business and the strategies to achieve these
goals. It is mainly prepared by new businesses or by ones making major changes.
Executive Summary
The Executive Summary is a synopsis of the full business plan. It presents the salient points of the
plan. It contains information on the purpose of the business, its methods of operation and future
expectations.
History of the business
This section gives full details on previous operations of a business. For a new business it will explain
where the idea came from and the reasons for starting the business.
Mission Statement
The Mission Statement gives the overall goal of a business as well as its values. It serves as a guide to
the operation of the business. For example: providing the highest quality goods and services.
Business goals and objectives
The firms’ short-term, medium-term and long-term goals and the time in which these are to be achieved
is outlined in this section.
Organization
The business must state the ownership structure and give details of the management team.
SWOT Analysis
Looks at the strength and weaknesses of the business
E.g. Strengths – strategic location, years of experience
Weakness – Loans at affordable interest rates,
Industry Analysis
How has the industry changed in the past few years and who are the other firms in the industry.
Product /Service Description
Describe clearly the product or service that you will be offering.
Market Analysis
Describe your target market and your competitors.
Marketing Strategy
Explain the various promotional, pricing and distribution strategies.
Operations
Explain how the business will function on a day-to-day basis. For example: Procurement of raw
materials, the use of technology and operating methods.
Sales Forecast
What amount of sales the business expects to make on a monthly basis.
Start –up Cost
The total amount needed to start the new business, giving a detailed description of what the money will
be used for.
Operating costs
E.g. fixed Costs (rent, insurance and salary) and variable costs (utilities and wages)
Projected Cash Flow
An estimate of how much you expect to earn periodically once you start operating.
Acquisition of Funds
Information on how funds will be obtained e.g. personal savings, borrowing from friends and family,
borrowing from financial institutions or by selling shares.

Benefits of a Plan
Ensures that careful research is conducted into the feasibility of the business.
Anticipates needs and problems which can be planned for in advance.
Provides a written document that can be used when requesting financing.

Purpose of Feasibility Study

This is an analysis of the viability of a business idea, and an examination of the different aspects of
operating a business. It will show whether a business venture is worthwhile.
It will analyse:
Market demand
Target market
Profitability
Production methods
Operating expenses
Distribution channels
Competition
Promotional requirements
Cash flow
Resources required
Any special legal requirements
Ethical and Legal Issues
Business owners are required to obey all legislation concerning the operations of a business. These
include, paying taxes, business registration, obtaining licenses when required etc. Business owners
should also operate their business based on integrity. This involves:
• Environmental awareness – reducing pollution and harmful effluents in the rivers and seas.
• Avoiding tied selling (marrying of goods)
• Misleading advertising (untruths about goods advertised)
• Untrue sale price – For example, writing the word sale on items for which the price remains the
same.
• The use of market dominance to squeeze firms out of the industry- For example large firms may
drop the price of their goods so low that small firms are unable to compete with them.
Consequences of Unethical and Illegal Practices
Illegal business practices will result in legal consequence for business. This may include large fines the
loss of the business. Legislation also protects consumers, competitors and society from unethical
practices of a business.

Ethical and Legal Ethical and Legal Description Consequences

Issues practices

Advertising Misleading Advertising Honest and realistic Cause citizens to waste

advertisements a purchase

Taxation Withholding tax Mandatory Tax avoidance

Environmental Issues Unethical disposal of Law mandates Pollution

waste protection of
environment

Money (gained legally Money laundering- use Illegal business activity Too much money
vs illegally) of illegal money in circulating.
legitimate business
Chapter 10
CONTRACTS
Definition of Contract- A legally binding agreement made between two or more persons, intended to
create legal obligation between them and to be legally enforceable.
An agreement is an exchange of promises between two or more parties. (Offer and acceptance)
Concept of a Contract
A contract is an agreement that is enforceable by law. A contract therefore has legal implications for the
parties who enter into a contract. A mere agreement is not legally binding and therefore neither of
the parties is liable if anyone breaks the agreement.
What makes a contract different from an agreement?
A contract requires not only an agreement between parties but also something of value must be passed
from one party to the next to make the contract binding. For example, you offer to sell a friend your
used text books for $1000.00. After inspecting your textbooks the friend agrees and pays $1000.00.
The $1000.00 paid here is the consideration i.e. something of value that is passed from one party to the
next. Consideration is the price paid for a promise. You promised to let your friend have your textbooks
if he paid $1000.00. This $1000.00 makes the agreement binding. You are therefore obligated to
deliver the books to your friend and cannot decide to sell the books to someone else or to ask for a
higher price.
Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this offer
and mow the lawn. The work done here is an act of forbearance. You are giving something of value to
your neighbour to receive payment for the job. The consideration in this case is the work done by you. It
is the price that you have paid for the promise to be paid money for the job. Consideration passes from
promise to promise.
Characteristics of a Simple Contract
There must be offer and acceptance. The offerer is the party that makes the offer and the offeree is the
person that the offer is being made to. There must a clear offer and clear acceptance for a contract to
be binding. There is an agreement of the minds.
An offer is a promise in exchange for performance by another party. An offer can be revoked or
terminated under certain conditions. There are also times when an offer can be negotiated to create a
counter-offer.
Acceptance occurs when an offeree agrees to be mutually bound to the terms of the contract by giving
consideration, or something of value like money, to seal the deal. Keep in mind that acceptance
follows the mirror image rule, in that acceptance is valid if the product or service rendered is exactly
what was contained in the offer.
Consideration is the price paid by one party for the promise of the other. Thus if one party promises to
provide goods or services, something of value must be given in exchange. This may be in the form of
money, goods, services or it may be an act of forbearance.
The capacity to contract – Parties to the contract must be over 18 years, of sound mind, not under the
influence of drugs or incarcerated.
There must be no force, misrepresentation or fraud. Persons should not be forced to sign a contract
e.g. blackmail. They should not be lied to e.g. giving the wrong year of a car. Fraud may involve forging
someone’s signature.
There must be an obvious intention to create legal relations. This is based on the actions of the parties
e.g. offer, acceptance and consideration.
A contract must be legal- thus, agreements made between parties concerning illegal drugs and any
other illegal activity is not a contract.

Terms and Concepts

Misrepresentation- referring to a false statement of fact made by one party to another party, which has
the effect of inducing that party into the contract

Types of Misrepresentation-
Innocent – untrue statement with reasonable grounds for belief
Negligent- untrue but without reasonable grounds.
Fraudulent – untrue with the knowledge of the truth to mislead.
Breach - Breach of contract is a in which a or bargained-for exchange is not honored by one or more
of the parties to the contract by non-performance or interference with the other party's performance
Void -Contract is the contracts that cannot be enforceable.
Voidable- the Voidable Contract is the contract in which one party has the right to enforce or rescind the
contract.
Rules governing offer and acceptance
An offer must be communicated to the other party
The offer may be made generally or a specific person, but acceptance must be made by a specific
person/s
Conditions attached must be brought to the attention of the offeree at the time of the offer for the
offeree to be bound.
Acceptance must be communicated to the offerer. The offeree must act positively to constitute
acceptance.
Offer can be revoked before acceptance unless consideration was given.
Revocation has to reach the offeree before the offeree has accepted.
Acceptance must be unconditional. No counter offers.
An offer can be accepted by the person to whom the offer is made.
Offer must be within a specified or reasonable time.
Offer lapses if time is expired, rejected by offeree, death of offerer or offerree
Use the post – Offer is only made when the post reaches the offeree and it is accepted once offeree
posts the acceptance whether it is lost or not.
Consideration – consideration should either be good or valuable since it is the price one pays to secure
the legal obligation on the part of the other.
Consideration must be :
Real – that is it should be well defined. One should be able to convert it to cash or something of value.
Transferable and not already obligated to do by law.
Lawful – the subject should be a lawful act or the contract is void.
Consideration must not be past i.e past payments not considered
Executed – When both parties have fulfilled their obligations (eg Purchase of goods on credit)
Executory – The contract still has to be completed.
Differences between a Simple & a Speciality Contract & Contract of record.
A simple contract can be made orally, in writing or by the implications deemed from the actions of the
parties. A specialty contract must be signed by the parties sealed, for example with a company seal
and finally it must be delivered.
Simple contracts:
Be in writing
Oral
Implied by conduct
Consideration is the most important element
No special form
Examples of specialty contracts include:
1. Mortgages and leases for over three years
2. Sale of land
3. Contracts of insurance
4. Hire purchase agreements
5. Transfer of company shares
6. Assignments of copyright

Characteristics of a Speciality Contract

Conditions of Simple Contracts must be present.
Must be in writing
Signed by both parties
Stamped or sealed
Attestation or witness
Delivered by a promisor.
Delivery may be made subject to a condition to be performed later giving rise to a escrow.
Something of value, such as a deed, stock, money, or written instrument, that is put into the custody of
a third person by its owner, a grantor, an obligor, or a promisor, to be retained until the occurrence of a
contingency or performance of a condition.
An escrow also refers to a writing deposited with someone until the performance of an act or the
occurrence of an event specified in that writing. The directions given to the person who accepts delivery
of the document are called the escrow agreement and are binding between the person who promises
and the person to whom the promise is made. The writing is held in escrow by a third person until the
purpose of the underlying agreement is accomplished. When the condition specified in the escrow
agreement is performed, the individual holding the writing gives it over to the party entitled to receive it.
This is known as the second delivery.
Difference between an Offer & an Invitation to Treat
An invitation to treat is not an offer but an invitation to bid or bargain for an item. For example, at an
auction persons may bid on various items presented. An invitation to treat also occurs also when goods
are advertised for sale in the media or in shop windows. Goods in a shop window or goods advertised
are not an offer by the owners of the goods but are technically an invitation for interested persons to
make an offer.
Conditions under which Offer and Acceptance are communicated
An offer must be very clearly made. An offer can be made to one person, a group or to the whole world.
For example, offering a reward for a lost wallet is an offer to anyone finding the wallet. In cases where
there is a counter-offer the original offer is no longer valid. A counter offer is an implied rejection of the
original offer. For example: John offers to sell Paula a laptop for $10,000. Paula subsequently offers
him $8000.00 as she thought $10,000 was too expensive. Paula has rejected John’s original offer and
has made a counter-offer of $8,000.
Acceptance must also be clear. In the case of a counter offer a clear acceptance to the new offer must
be identified.
Contracts may be made orally, in writing or they may be implied.

Oral Contracts
Are based on what the parties said. For example, asking someone to wash your car for payment

Written Contracts
Both offerer and offeree must sign the contract document

Implied Contracts
Implied Contracts are made by the observed actions of the parties involved. For example, someone
who sits at a table in a restaurant and places an order has implied that he will pay for the food that will
be served.
Ways in which Contracts may be Terminated
Contracts may be brought to an end:
(a) By performance of the parties i.e. each party completing his obligations as stipulated by the
contract.
(b) By frustration i.e. an event through no fault of the parties that make one party unable to perform the
contract. For example: if one party suffers a prolonged illness which makes him unable to perform the
contract.
(c) By lapse of time i.e. if the time limit set for the contract to be executed by both parties has been
passed. For example, sellers of real estate usually require that the buyers pay the full balance on the
property within a certain time period after the initial down payment has been made.
(d) By the mutual agreement of all parties.
(e)If one of the parties become bankrupt after the contract has been signed.
(f) By changes in law i.e. where a legal contract is rendered illegal through changes in law.
(g) By notice e.g. some firms require that employees give at least one month notice when resigning
their positions.
(h) If one party dies.
(i) By breach of contract-When one party defaults on his part of the agreement i.e. he does not perform
his part of the contract.

REMEDIES FOR BREACH OF CONTRACT

Damages –compensation in case of a breach contract
Rescission –to cancel the contract to return parties to former state before contract by mutual
agreement of both parties
Restitution – Returning property, money and goods after a breach.
Waiver of Breach- Non breaching party acceptance of substandard performance
Limitation of Liability – a clause that limits liability to a certain point such as the purchase price
Specific performance – When damages are not an appropriate remedy the breaching party will have
to perform a specific act.
Liquidated damages- stipulated amount in a contract that the injured party would receive in the event
of a breach of contract.
Validity of Contracts
Mr. Larry was delighted to see a 50% discount on his favourite brand of shoes at a shoe store 15 miles
away. He took sometime off from work to travel to the store. When he arrived at the store he was told
that that the brand advertised was sold out but he could choose from other brands available. Mr. Larry
was very angry and requested that he be refunded his travelling expenses.
Is the owner of the store obligated to refund Mr. Larry his travelling expenses?
Answer
The advertisement appearing in the newspaper is not an offer by the store but an invitation to treat.
Therefore readers were being invited to make an offer for items advertised. The owners of the store are
therefore in no way obligated to Mr. Larry.
Hope stopped at a convenience store on her way home to purchase a few items. She handed the
cashier her credit card and was surprised when she was told that it declined. She apologized and
explained that she did not know why her card declined but she will call the bank in the morning. Susan
further explained that she had just enough cash with her to get home and so she could not pay for the
goods. The cashier was very angry and asked the manager to intervene. The manager insisted that she
pay for the goods.
Is Sandra obligated to pay for the goods?
Answer
Sandra has entered into a contract with the convenience store. She made the offer at the cashier
counter when she presented the goods to be cashed. The cashier accepted the offer by cashing the
goods. In this situation it is up to the manager of the convenience store to accept Hope’s apology.
BUSINESS DOCUMENTS
Why Documentation is Necessary in Business Transactions
Business documents provide information needed for the business to function efficiently.
Information is required for accounting purposes to ascertain whether profits or losses are being made.
Documents are also needed as evidence for example orders placed for goods and payments made.
Documents also provide information on commodities in stock and prices.
Business Documents for Various Purposes
Stock cards are used to keep a record of all stocks entering and leaving the stockroom. This procedure
ensures that stock level do not fall below a minimum resulting in the depletion of stocks.
Purchase requisition – This is a document sent by the purchaser or buyer to the seller requesting
goods that may be available.
Letter of Enquiry is sent by persons who wish to be informed of what goods and services and the prices
of these that a company offers for sale.
Cover letter (information received) – A response to a letter of enquiry with the supplier providing
details of their products through mediums such as catalogues.
Request for quotation – A request to quote for specific goods.
Quotation - The company may resend either a or a catalogue
Order (information provided) – order form or letter requesting the supply of specific goods.
A catalogue is a booklet with a brief description and pictures of articles for sale. Since a catalogue is
costly, some companies opt to send a instead. A quotation lists all the goods in stock along with their
prices.
(c) If there is an interest to purchase an item in the catalogue then an order letter is sent requesting
goods to be supplied.
The following three documents accompany goods delivered:
Delivery Note must be signed by the person receiving the items ordered. This is proof that goods were
delivered. A copy of the delivery note is given to the buyer.
Consignment note is sent when the firm does not have its own transportation. A transport company is
paid to deliver the goods. A consignment note will be prepared by the consignor (the sender) and given
to the transport company. It contains information about the destination of goods and the name of the
consignee (the receiver). (Proof of receipt by Transport Company)
An Invoice is a bill sent with goods delivered. Invoices may also be sent after goods have been
delivered.
Terms 5% 30 days – A Discount of 5% will be given if the customer pays within 30 days. E & OE –
means errors and omissions, i.e. if any mistakes were made on the invoice the company will make the
correction.
Pro forma Invoice is a temporary invoice. It is used in cases where funds are being borrowed from
financial institutions to purchase items. The institution may request a pro forma invoice as proof of
items to be purchased when the loan is disbursed. It may also be sent with goods not ordered and in
this instance is a form of advertising. If the customer is interested in the items sent, an actual invoice is
sent.
Credit note is issued to a customer when there has been an overcharge on an invoice due to faulty
arithmetic, when goods have been returned because of damage or refunds requested for goods not
received. A credit note is printed in red.
Debit note is sent to a customer whenever there is an undercharge or omission on the invoice.
Statement of Account is a document from a to a customer outlining all the transactions carried out over
a particular period. A statement is usually sent monthly.
A receipt is given for cash payment.
TERMS and Concepts-
C/PD – Carriage paid by seller.
FOB – Free on board. All expenses paid up until putting goods on the ship.
CIF – Cost, Insurance and Freight. All costs and expenses up until the port of destination
FAS – Free alongside ship. Expenses up until delivery to the docks. Loading costs not included.
Certificate of Origin – is a document used in international trade as proof of origin of the commodity. It
accompanies duty free goods to confirm that they were produced in the exporting country to prevent
non-member countries from taking advantage of the free trade agreement.
This document states the country in which the goods were manufactured. This is important for
Caribbean countries as goods from other Caribbean countries enter duty free. Goods imported from
outside the region are taxed.
Certificate of Health – This relates to the inspection of foods such as fruits and meat.
Carriage forward – This is where the customer pays for all expenses.
Franco- Free delivery by seller
FOR- Free on rail – Free until the nearest railway
Bill of Lading - The Bill of Lading is a contract of carriage between the seller of the goods (exporter)
and the shipping company transporting the goods. It is also a document of title as a copy must be
presented by the importer before he can claim the goods.
It includes the following information: The number of packages, the weight of each piece, the contents,
the port of departure and destination, the name of the ship, the senders name and address and
receivers name and address
Shipping Note - This document provides details about the goods to be shipped, e.g. type and number
of items and the destination of the goods.
The Airway bill – is used in the transportation of goods or other commodities by air. If you receive or
send items by courier service you are required to fill out an airway bill.
This document is used when goods are transported by air. It contains similar information as the bill of
lading. It is not a document of title and the consignee named need not have a copy to collect the goods.
Air consignment note is a receipt issued by an international airline for goods and an evidence of the
of carriage, but it is not a to the goods. Hence, the air waybill is .
Import License
This document gives a business permission to import goods into a county. It is used by governments to
restrict the importation or to limit the amount of certain goods imported. Quotas are sometimes used to
protect local industries as they specify the quantity of certain goods importers are allowed to import.
Dirty Bill
If the words dirty are added to the bill of lading, then the goods delivered are damaged vs a clean bill of
lading
Insurance Certificate – (Marine Insurance)
This document provides protection for the goods being shipped against loss or damage at sea.
h. Bill of Sight
This document is completed if for any reason the documents required for importing goods are not
available. It is completed giving details of the consignment and method of transportation.
Instruments of Payment
The instrument used to make payments will depend on:
The amount
The distance
Safety
Date when due
Urgency
Does the debtor have a bank account
Notes and Coins
Cheques
A cheque is an order to the bank to transfer payments from an individual’s account (the
payer’s/drawer’s account) to credit another individual’s account (the payee’s account) or to pay the
payee on presentation of that cheque.
Credit Transfer
A customer of a bank may use this system by instructing the bank to transfer money from his account to
an account at any other bank.
Standing Order/Banker’s Order
This allows regular monthly payments to be made from a customer’s bank account to a named payee.
The customer must complete and sign a standing order form instructing the bank to make payments.
Credit Cards/Debit Cards
This allows the card holder to make payments by simply presenting the card to the seller. A credit card
facility is actually a loan given to a customer and thus it is repaid at an interest. A debit card is issued
against a customer’s account balance and is therefore not a loan.
Postal Order
A customer may purchase a document known as postal order at the post office up to a specific sum.
The sender will have to fill in the name of the payee and the post office to which the order is being sent
for payment. This method may be used for both local and foreign payments.
Postal orders are cheques issued in specific values by a post office. The value of each postal order is
printed on it and a price depending on its value is paid for each. The postal order will be sent to the post
office of the payee as designated by the payer.
Money Order
These can be purchased from a bank or a post office. They can be used to make payments locally or
overseas, as they are made out in the currency in which they are to be paid. The payee will cash the
money order at his bank.
Telegraphic Money Order
The sender must first pay the sum to be sent over the counter of the post office. A telegram is sent to
the payee informing him to collect money at his local post office. He must present proof of his identity.
Bank Draft
This is a cheque that is used to make payments overseas. Bank drafts are obtained for a fee from a
bank and are made out to a named payee in foreign currency.
Sight draft
A type of bill of exchange in which the exporter holds the title to the transported goods until the importer
receives and pays for them.
Bill of exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter to an
importer requiring payments of a certain sum of money at a fixed future date. The time period allowed is
normally three months.
Letters of Credit/ Documentary Credit
This is a sent from an importer’s bank to an exporter guaranteeing payment to the exporter for goods to
be supplied. The exporter must present a clean bill of lading, certificate of origin and a certificate of
insurance to the importers bank.
Enables the exporter to receive money for the goods before the documents are given to importer.
Irrevocable Letter of Credit
Once an exporter receives this letter of credit the importer cannot cancel payments for goods to be
supplied without the exporter’s permission.

Documentary Bill
The documentary bill is intended to provide an overview of the order as well as to supply the buyer with
a document that can be used as the authorization to extend payment for that order. Typically, the detail
found on the bill will include information that is also reflected in the other documents prepared for the
order, such as the bill of lading, the certificate of insurance secured for the order, and a document
known as a certificate of origin, which clearly identifies the seller and relevant information about the
goods offered by that seller. In a sense, the bill serves the purpose of providing a summary of the
transaction by drawing on key information found in the other supporting documents.

Promissory Note
These are instruments used in indicating the details to pay the creditor within a certain time. The note is
an unconditional promise made in writing by a debtor to creditor signed by the debtor indicating to pay
on demand or at a fixed date or determinable fixed time, a certain sum of money to the order of a
specific person or to a bearer.
Insurance and Assurance
Insurance: A legal contract in which an insurer promises to pay a specified amount to another party,
the insured, if a particular event happens and the insured suffers a financial loss as a result.
Insurance is a means of protection from financial loss. Insurance is generic for all types of insurance
and assurance. However, insurance differs from assurance in that insurance covers risks that may
occur e.g. theft, fire, accident etc., and assurance covers events that will occur such as death (that
must occur).
The parties to the insurance contract are the insurer (the company offering protection) and the insured
(the person seeking protection). Payments are made by the insured for this service. The price charged
for insurance is called a premium. The contract is known as the policy.
Insurance Principles
The purpose of insurance is to compensate persons insured who suffer loss. It is based on the principle
of indemnity, that is, to restore the insured to his original position before he suffered loss. Insurance
therefore as a principle neither makes the insured worse off or better off than before loss was incurred.
For example, if Mr. Green suffered damages valuing $500,000 subsequent to a fire at his home, he will
be compensated exactly $500,000 to repair his house.
Principles of Insurance
Indemnity- Restoring the insured to his original position
Insurable interest- The insured must have a vested interest in what is being insured. For example,
someone is not allowed to insure his neighbour’s house.
Utmost Good Faith- The insured must be truthful concerning the information pertaining to the policy
contract.
Proximate Cause - The damage caused must be close or proximate to the event insured against. For
example, if someone has an accident policy that includes death occurring as a result of an accident,
this person will not be compensated if death is caused by disease.
Contribution – This principle prevents persons insuring identical risks on the same property with
several companies and thus profiting if they suffer loss. For example, an individual may insure his car
with three insurance companies hoping to be compensated by all three. He will not succeed as the
insurance companies will each only pay a portion of the claim.
Average Clause – This clause sets a limit to the size of the compensation, which depends on the
proportion of the true value of the asset paid up by the insured. For example, a homeowner insures his
home for $100,000 which is half the true value of $200,000. His house was partially destroyed by fire
on the insurance company for $50,000 worth of damage. The insurance company only paid him
$25,000 as he was only insured for 50% of the true value of the house presently.
Subrogation -This is an extension of the principle of indemnity, that is, the insured should be reinstated
to his exact position before the loss. For example, if a vehicle is totally wrecked and the insurance
company pays the insured the value of the car, the wrecked vehicle will be claimed by insurance
company.

How does insurance Work?

How are insurance companies able to pay its clients large sums of money to compensate them for
loss? They operate on the basis of risk pooling. Premiums from large numbers of persons with the
same risks are pooled and only those who suffer loss are compensated. The insurance company can
predict the percentage of losses based on past data. The premiums charged are based on the number
of losses predicted plus the cost to operate the business and profits to be realized. For example, a
particular insurance company may insure one thousand persons for risk against car theft. Only two
percent of those insured may suffer loss and therefore the insurance company can afford to assist
those persons.
Types of Insurance Policies
[Link] Assurance
(a)Whole Life Assurance
Payment will be made upon the death of the insured. The beneficiaries of the insured will be paid.
(b) Endowed Assurance
Payments are made at the end of specific periods. The Endowment policies may be paid at the end of
twenty or thirty years or at the age of retirement. If death occurs before the end of the endowment
period insured, then the beneficiaries of the insured will be paid.
[Link] and Business Insurance
(a) Fire Insurance
Covers loss or damages to assets by fire
(b) Burglary Insurance
Covers loss due to goods stolen and damages to property caused by theft
(c) Bad Debts Insurance
Covers debts that cannot be collected
(d) Plate Glass Insurance
Covers the replacement of shop windows as well as any injury to staff and customers that may be
caused by its breakage
(e) Fidelity Guarantee Insurance
This protects a firm against loss due to the misappropriation of funds by employee, customers or other
persons.
(f) Employers’ Liability Insurance and Public Liability
Covers injury incurred by staff or visitors on a business location due to the negligence of the firm, e.g.,
customers slipping on a wet floor.
(g) Motor Insurance
Third party – Only third parties e.g. passengers are covered. The driver and car is not covered.
Comprehensive – Covers loss due to damages to the driver and third parties.
(h) Marine Insurance
This policy covers loss due to damages of ships and cargo at sea.
Importance of Insurance to Businesses
Entrepreneurs invest a wealth of resources into the start-up and continuous operation of a business. If
the entrepreneur suffers any form of loss such as fire or burglary etc. the business may take a long time
to recover. Insurance is therefore very important to the business community. The principle of indemnity
ensures that an entrepreneur receives enough compensation to continue the business with minimum
effects.
It encourages enterprise or industry by covering risk of business firms
Facilitates trade between countries whereby, businesses would be compensated for losses during
transit.
Provides a source of capital for business investors.
Provides coverage against personal risk when an individual is not able to manage it.
CHAPTERS 13 & 14
PRODUCTION
Factors of Production
The term ‘factors of production’ refers to the resources that are combined in the production process to
create goods and services.
These are:
Land - natural resources
Labour – human resource
Capital – man made resource
Entrepreneur – human resource
Land includes all natural resources such as soil, seas, rivers, forests, minerals, vegetation etc.
Labour is categorized as skilled, semi-skilled, unskilled or professional workers
Capital includes assets such machinery, equipment and vehicle owned by the company. Capital also
includes raw materials, finished and semi-finished, goods, bank and cash balances.
Entrepreneur is the owner and risk taker in a business venture. He is responsible for combining all the
factors of production.
Industries Developed from Natural Resources in the Caribbean
Caribbean countries have been blessed with a plethora of natural resources. The industries developed
from these natural resources have created employment as well as foreign exchange earnings from
exports.
Examples:
Crude oil is a natural resource of Trinidad. The petroleum industry employs nationals and earns foreign
exchange for the country.
Clay is found in abundance in Barbados. Pottery making is a large industry in Barbados.
Bauxite is found in abundance in both Jamaica and Guyana. The Alumina industry is an important
foreign exchange earner. Alumina is exported to be further processed to make aluminium products.
Guyana also has very large forest areas and has developed a very vibrant lumber and timber industry.
Lumber is used in the construction industry.
Limestone is processed to make cement in Jamaica.
Difference between Production and Productivity
Production is the process of combining units of inputs (natural, man-made and human resources) to
create output (goods and services) capable of satisfying human needs and wants.
Productivity is the increase of output from each unit in the production process. There are several ways
of achieving productivity. These include the training of workers and the introduction of machinery and
equipment into the production process.
Importance of Productivity
Productivity increases output. High productivity results in lower cost per unit of output resulting in higher
levels of profit for a business. For example, a factory worker can produce 10 items in an hour and he
subsequently produces 20 units in the same hour after some training. His productivity has doubled and
the business will benefit from a fall in unit cost as more units are being produces at the same costs of
production.
Higher profits for the firm will mean more funds available for its expansion, new business ventures and
community support. It may also wish to pass on the benefits of lower costs to consumers in the form of
lower prices.

Labour Productivity = Output / Number of employees = 200 watches/ 10 employees

= 20 watches per employee.
Effects of Migration
Migration is the permanent movement of workers from one location to the next in search of better
opportunities.
Internal Migration
Migration within a country e.g rural –urban migration. This is migration of persons from rural
communities to the city areas.
External Migration
Migration of persons from one country to another – For example, the migration of Caribbean people to
developed countries such as the United States and England.
Effects of Migration
Internal (Rural –Urban migration)
The loss of persons from rural areas impacts on the level of output and development of these areas.
It also impacts negatively on the level of commodities available for export form these regions.
The influx of workers in urban areas increases competition for jobs, houses, health facilities, schools
etc.
External Migration (Caribbean to developed countries)
Professional and skilled workers who migrate reduce the level of skills available in their countries
resulting in a brain drain effect. This will impact on growth and development.
They increase competition for jobs, houses, health facilities and schools in their new territory.
Money earned by Caribbean nations in foreign countries is sent home to support their families reducing
poverty and making foreign exchange available for their respective countries.
Caribbean professional and skilled workers contribute to the growth of developed countries
Role of the Entrepreneur: Decision Making Process
The entrepreneur organizes the factors of production to create goods and services. The most suitable
location, qualified workers, and the right equipment and machinery will ensure efficient production. It is
therefore important for him to make the right decisions concerning the employment of the required
resources for his business. He must also make decisions on systems and processes to be applied in
the production process.
Role of Capital in Production
Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and
continuously operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are so
called because they cannot easily be turned into cash.
Circulating capital or Current Assets includes raw materials, finished and semi-finished, goods, bank
and cash balances. These assets can easily be converted into cash.
Tools and machinery are necessary for products to be fashioned from raw material e.g. mineral mining,
oil drilling and lumbering. These assets also increase productivity for example sewing with a machine
as opposed to sewing by hand. Venture capital is needed for business start-up. The business owner
will need equipment, funds for promotion etc. to start the business. Working capital is the cash available
for the daily operation of the business. It is used to pay workers, utilities and purchase raw materials.

Levels of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the production
process that is just enough for the survival. This amount of production is therefore not adequate to meet
all needs and wants of a family, community or a country. For example, subsistence farming involves the
production of crops to feed the family and for survival. Wealth is not created as whatever is produced is
consumed.

Domestic Production
Domestic production refers to production that is more than survival level. It provides output that is
enough to satisfy domestic needs and wants. Excess is not available for export. However, production is
adequate to supply local demand.
Examples include:
Use of local forest resources to obtain lumber to produce furniture for domestic use.
Use of daily catchments of fish to prepare local dishes to be consumed by the citizens
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can
produce large quantities of output to satisfy local consumption and earn foreign exchange from export,
for example, the sugar and banana industries.
Trinidad and Tobago produces crude oil for export
Jamaica and Guyana Produces bauxite for export
Types of Production
Primary Production
This includes all kinds of extractive industries such as agriculture, mining, forestry and fishing.
Secondary Production
This is the second stage of production after extraction from the natural resources. It involves converting
raw materials into finished goods. This includes manufacturing such as assembling, baking, refining
and construction (building) industries.
Tertiary Production
This is the final stage which can be classified into Direct Services such as hairdressing, babysitting
and secretarial work and Commercial or Indirect services such as banking, insurance and
advertising. Service industries include transportation, communication and tourism.
Cottage Industry
Cottage industry is a generic term for any type of home–based production business. The term is
specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery. This
type of home–based business is not difficult to start as it requires little capital to purchase tools and
employs family members. These small scale businesses are important to an economy. They utilize
local raw materials such as clay for pottery, wood for carving and straw for baskets. They earn foreign
exchange from selling to tourist at craft markets and fairs. Examples also include:
Food Items – pastries, jams and jellies
Personalized services- sewing, hairdressing.
Importance of Cottage Industries:
Provide employment
Satisfy psychological need of the producer
Adds to family budget
Provides an opportunity to use one’s skills
Uses local materials
Improves skill base
Help to boost foreign exchange
Factors required for cottage industries to survive:
Materials must be readily available.
Training programmes must be readily available to pass on skills
Financial support through loans with low interest rates.
Supported by trade shows.
Linkage Industries
This refers to industries that are connected because they depend on each other to obtain or to sell raw
materials i.e. the output of one industry (finished product) is the input (raw material) of the other
industry.
Forward Linkage
If the final product or finished products of one industry is used in another industry as its raw material
then a forward linkage occurs. For example, sugar produced from a sugar factory is used by a bakery
to make pastries. Sugar is therefore the end product of one industry and used as raw material in
another. Other examples include agriculture and canning, lumber and construction and cattle farming
and meat processing.
A backward linkage occurs when the demands of an industry leads to the establishment of other
industries to produce for the needs of this industry. For example, the establishment of several
multinational fast food restaurants in the Caribbean has led to new businesses being established to
supply these restaurants with raw materials (vegetables, ground provisions, meats and paper based
products).
Benefits of Linkages:
Economic ties creates more job opportunities
Promotes innovation and use of new technology
Encourages large scale production for local and export demand.
Promotes cooperation
Leads to increased household incomes and foreign exchange.
Impediments of Linkages:
Lack of Venture Capital for primary sector development
Limited access to foreign markets
Investment in equipment and machinery can be expensive.
Factors that determine Business Location
The location identified for the operation of a business will impact on its success or failure. An unsuitable
location can result in high operational costs or low sales volume. Business owners must therefore
consider the following factors when choosing a location.
Geographical Factors
Climate, geology and terrain can determine the location of an industry.
Cool Climate for Coffee in Jamaica, Sea for fishing and Tourism in Antigua and St. Lucia.
The proximity to customers
It is important that business owners give customers easy access to goods and services. Shopping
plazas in very central locations are very popular locations for businesses. Many companies now opt for
selling online and therefore do not need to be centrally located.
The proximity to raw materials
It is more cost effective for a business that uses raw materials that are heavy and or bulky to locate
close to the source of raw material. For example, bauxite processing plants are located close to mining
areas and sugar factories are located close to sugar fields.
Availability to suitable labour supply
A business will need adequate number of workers who possess the skills suitable for the creation of its
goods and services. The availability of health facilities will also ensure a healthy workforce.
Adequate Infrastructure
Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good roads,
transportation, and communication facilities. Failures in any of the utilities and infrastructure can
severely hamper operations.
Government Regulations
Government may want to develop certain locations in line with their developmental plans as opposed to
protected natural areas.
Functions of a Small Business
Supplying goods and services that satisfy demand
Identifying a particular need in a market and developing a product that will supply that market need,
improves standard of living and increases the overall revenue (GNP) earned in a country. Small
businesses have the advantage over large businesses to identify changing market trends as they are
closer to the customers. They are also able to produce unique products to suit the needs of each
customer.
Creating employment
Small businesses account for a large percentage of total employment in Caribbean economies.
Making profits
The main purpose of starting and operating a business is to make profits. Profit makes it worthwhile for
the entrepreneur to continue business. Profit earned may be reinvested to expand the business.
Small Business
Advantages Disadvantages

Less layers of Management Unlimited liability

Personal interaction with clients Difficult to access financing

Less complicated to start High risk due to economic pressures

Able to source government assistance Unable to compete with cost savings

Can cater to niche markets better

Large Business

Advantages Disadvantages

Easier to access financing Greater bureaucracy

Experience economies of scale Increased barriers to communication

Able to spread risk Inflexible to market due to standardisation

Able to invest in R&D Impersonal dealing with clients

Effects of Growth on a Business
Small businesses that are efficient, creative and are cognizant of changing market trends are poised for
growth. Growth impacts on the business organizational structure and the business operations.
The creation of new posts and departments as a result of specialization and expansion will change the
organization’s structure. More workers will also be employed resulting in greater specialization or
division of labour (more workers will mean that tasks can be subdivided into smaller tasks).
There will also be an increase in the internal communication systems (telephone, mail etc.) to
accommodate this expansion. More factory and office space, equipment and furniture will be required
to facilitate expansion.
As the business expands it can take advantage of economies of scale. Economies of scale refers to the
benefits that firms are able to enjoy because of expansion.
Internal Economies of Scale
This refers to the benefits enjoyed by a firm because of its own expansion. These include:
Technical Economies of Scale - Expanding businesses will need to purchase machinery and equipment
to supply the level of output required. With the use of machines productivity will rise and the firm will
experience technical savings as unit cost of production will decline.
Marketing Economies – Expanding businesses can take advantage of bulk buying and receive
discounts on raw materials.
Financial Economies -Larger firms will access loans more easily and at a cheaper interest rate than
small firms since they already have established reputations and adequate collateral.
Managerial Economies -The employment of experts who will specialize in various management
functions such as marketing, personnel, accounting and production will increase efficiency and thus
output.
External Economies of Scale
External economies refers to the benefits enjoyed by a business because it is part of a well-organized
industry and not because of its own expansion. Thus any businesses whether large or small can reap
these benefits as long as it is part of an industry enjoying these benefits. Benefits include; government
subsidies offered to particular industries, tax holidays and reduced duties on items imported.
Internal Diseconomies of Scale
A diseconomy of scale refers to the disadvantages arising from the expansion, such as:
High Advertising Cost: This becomes a diseconomy when the percentage increase in a firm’s
advertising cost is much greater than the percentage increase in its revenue.
High maintenance cost for machinery and equipment.
Increased difficulty in controlling the organization.
External Diseconomies of Scale
Shortages of Raw materials
Decline in the Industry
Negative externalities such as pollution can affect businesses
Internal Growth
Expanding plant and equipment to full capacity
Increasing plant size
Creating or expanding product lines
External Growth
Horizontal mergers or vertical mergers
Formation of a conglomerate through the assembly of multiple businesses in the same industry.
Takeovers
Impact of growth on:
Organisational structure
Capital
Labour
Scale of production (economies of scale)
Use of technology
Potential for export
Economical and Social Implications of Technological Development
Technological development increases the quality and quantity of output. This results in the lowering of
unit cost of production which may be passed on to consumers in the form of lower prices. When goods
and services become more affordable the standard of living of citizens will rise.
Developing countries employ both labour and capital intensive methods of production. Labour intensive
industries include banana and craft and capital intensive industries include petroleum and bauxite.

There are three methods of production:

Labour Intensive Production
This method of production utilizes mainly manual labour along with a limited amount of machinery
Capital Intensive Production
This method of production utilizes mainly machinery along with a limited number of workers.
Automation
Automation is the employment of machines in a continuous process of operation. This is the further
stage of mechanization. This production process is carried out automatically with little or no human
involvement. For example, the automated teller machine (ATM).
Mechanisation
This is the substituting of human and animal labour with machines such as robotics and computers to
produce more effectively.
Computer Aided Design (CAD)
Computer aided design is a computer software used in the product design process to produce designs
with greater accuracy, speed and flexibility. Its powerful computer graphics allow product designers to
produce 3-dimensional objects, which can be fully examined and tested before they are implemented.
Advantages include:
accuracy
speed
it is easier to make adjustments since changes are made on the computer
reduces cost of the design process

Computer Aided Manufacturing (CAM)

This involves the use of computers in a variety of manufacturing tasks. Computers are used to
coordinate every aspect of production, from design through stock control to production scheduling and
control. Benefits are increased productivity, reduction in waiting time, greater consistency, greater
flexibility, and improved coordination of operations, direct and flexible control of tools and materials,
and continuous flow of operations.

Computer Aided Instruction (Instructional or Teaching software)

Software application designed to instruct users on procedures and methods. It involves self-paced and
interactive instructions with on line testing and feedback. It identifies areas of weakness and provides
remedial work until the learner understands. Teleconferencing is possible.
Mechanization and Automation results in increased output but reduces the amount of labour required
in the production process. This creates unemployment in Caribbean countries. Workers must be
retrained for new developing industries such as information technology. New industries will absorb the
fall out of workers from other industries.

Advantages and Disadvantages of Automation and Mechanisation

Advantages Disadvantages

Increase productive capacity in a shorter time Increased unemployment

Reduce labour cost High initial investment

Reduction in defects High maintenance cost

Minimal need for supervisors Technical disruptions

Increased support to tertiary services Can only be used for large or standardised output

Machines become obsolete and depreciate

Implications of change from labour intensive to capital intensive:
Standardised products
Increased outputs
Greater efficiency
Fewer people employed
MARKETING
LECTURES 15, 16, 17 and 18
Difference between Market and Marketing
A market is any space within which trade takes place between buyers and sellers for a well defined
product. This space can be a produce market, a shop, internationally between countries or over the
internet.
Marketing is all those activities that facilitate trade. These include activities that identify consumers’
needs such as market research and those activities that satisfy consumers needs e.g., packaging and
distribution. Marketing activities therefore support the marketing of goods and services.
Institute of Marketing definition of Marketing: the management process responsible for identifying,
anticipating and satisfying consumer’s requirements profitably.
Marketing Activities
Market research – the process of gathering information about potential customers.
Packaging – creating a suitable package for product usage and for advertising
Branding - differentiating the product of a company from other brands and establishing loyal
customers.
Pricing - identifying the right price that will encourage sales
Advertising – methods used such as the media to inform and encourage the purchase of goods and
services
Sales promotion – short-term methods used to encourage consumers to buy during a specified period
Distribution - methods used to make the product available to consumers. For example wholesale,
retail or internet.
The Marketing Mix
The marketing mix also referred to as the 4 Ps of marketing, categorizes all the various strategies used
in the marketing of goods and services. These categories are product, promotion, pricing and place.
The purpose of the marketing mix is create perceived value for the customer or target market.
Product this includes product designing, packaging, labelling and branding.
Promotion advertising, public relations and sales promotions.
Pricing includes various pricing strategies and methods.
Place distribution of products.
Market Research
Market research is the gathering, recording and analysing of data to address the marketing problems of
a business. Market research must be specific to the problem of a business. The marketing problem
must therefore be clearly identified so that the appropriate market research may be conducted.
Reasons for Conducting a Market Research
Market research provides managers with current, relevant, accurate and reliable information
concerning competitors, advertising, distribution and potential and loyal customers. This information
assists managers in making decisions about packaging, product design, pricing, distribution and
advertising.
Consumer taste – Identification of consumer taste will enable the firm to produce goods and services
that will cater to the preferences of the consumer. Eg. Cadbury assortment of chocolates
Competition – Identification of the competing firms will allow the firm to adjust its marketing strategy to
gain a market advantage. Eg. Sell at lower prices than competitors.
Consumer Behaviour – Research on consumer behaviour will allow the firm to adjust their products and
services to changes in the factors that influence behaviour. Eg. Increased consumption of fish during
the Lenten season.
Factors that Influence Consumer Behaviour
The following factors will cause consumers to either increase or decrease their demand for a product.
• The price of a commodity
Consumers can afford to buy more of a good when its price falls and less when its price rises.
• The prices of other goods and services (substitutes and complements)
Substitute products are those that can be used alternatively as they satisfy the same need for a
consumer. For example, a weekly shopper may decide to purchase fish instead of chicken because the
price fish has fallen significantly less than the price of chicken. Therefore either fish or chicken will be
adequate for dinner. If by the next week the price of fish rises and becomes more expensive than
chicken then the consumer will opt for chicken.
Complements are goods that are used together e.g. bread and butter. If the price of butter rises then
its demand will fall and so will the demand for bread. Conversely if the price of butter falls, its demand
will rise and so too will the demand for bread.

Income of consumers
As income level rises consumers will demand more goods and services
• Taste and Preferences
A change in consumers taste for goods and services will impact their demand. For example, changes in
fashion will result in a drastic decline in demand for an outgoing fashion and a rise in demand for what
is trendy.
• Quality
A Consumer’s main motivation for the purchase of product may be the quality of the product rather than
the price. Eg perceived higher quality of Apple products
• Expectations of a future Rise in Price
If consumers expect the price of a commodity to rise in the near future, they will try to purchase more
now, before the price increases.
• Brand Loyalty
Brand loyalty will ensure a continuous demand for a product regardless of changes in its price or the
prices of other goods and services.
• Spending Patterns
Consumer spending surveys compile information on consumer spending patterns based on income
levels. This informs businesses of what goods and services are in demand.
• Changes in the size of the population
A population decline will cause demand to fall in a particular region. One reason for a population
decline in a region is migration.
How Price is Determined
The price of a good tells us the value of that product in terms of money. A rational consumer will try to
get the greatest value for money spent on goods and services. He will therefore weigh and compare the
prices of commodities before making a decision to purchase.
Prices in a market economy are determined by the level of demand and the level of supply for each
particular product.
The Price
Pricing objectives
Survival – low pricing
Current profit maximisation – price to maximise profit
Market share leadership – Low prices to gain market share
Product quality leadership – High prices for high quality to cover R&D.
Pricing strategies
Average cost pricing/ Cost plus pricing – total cost/total quantity + margin = price
Penetration pricing – low pricing
Loss Leader pricing- product priced at a loss to attract customers to purchase other profitable products.
Competition based pricing- pricing is based at or below competitor’s price.
Going rate pricing- price is set at the going market price to avoid losing market share eg. crops.
Psychological pricing- High price to gain perceive high value or pricing goods at $10.99
Predatory pricing – eg. price wars to remove competition
Price Discrimination- Charging different prices to different market segments eg children, elderly, peak
times for travelling.
Price Skimming- High pricing to reflect the high value or quality of the product.
Packaging and Presentation of Goods
Packaging refers to designing and producing the container that holds the product. A good package
must identify, protect and advertise the product.. It must provide information about the product i.e.
ingredients, amount of contents, price, the name and address of the manufacturer and instructions for
usage. The brand name is also displayed on the package.

Purpose of Packaging
Instant Brand recognition- easy to identify colors and brand logo on shelves.
Easy Distribution – package shape and materials allow for better packing, handling and
transportation.
Provides information to the consumer eg expiry date, ingredients, amount of contents, price, the
name and address of the manufacturer and instructions for usage.
A package must also sell the product. It must first attract customer to buy.
It must also make the product convenient to use. Therefore products such as toothpaste are best
packaged in a tube as it has to be squeezed out. Milk must be poured from its container. Egg
containers are so shaped to hold them securely.
Protect and preserve the product and end user- eg milk products from spoilage, child proofing
medicines.
Branding
A brand is any identifiable feature of a product which makes it different from its competitor. A brand
may be a name, term, symbol, design or combination of these. Examples of brand names include: Avon
and Colgate. A brand symbol e.g.
represents the Nike brand. A branded product will increase the value of the product in the eye of the
consumer and enable consumers to recognise a product instantly.
Labelling – Labels are important features of a product that provides customers with vital information on
grade, product description, ingredients, uses, caution, expiry date, date of manufacture and storage.
Copyright, Patent, Industrial Design & Trademark
Intellectual Property- is any creation of the mind. Songs, books, ideas, machine designs and other
inventions are the intellectual property of the person who has designed or created it. Copyrights,
patents and trademarks are used to protect the intellectual property of owners.
Copyright is a form of intellectual property right that legally protects the creators and innovators of
original works. Copyright protects creators’ expressions such as music, painting, movie, photograph,
writings etc. Individuals who wish to use works that are copyrighted must request permission from its
creator. Copyright law allows creators of original work to be paid for them. Other forms of intellectual
property rights are patents and trademark.
A Patent is the right granted to the inventor of a process, machine, technique, formula or other
composition of matter. It protects innovation. It also excludes others from making and selling that
invention for a number of years. For eg. a franchisee receives a special licence to reproduce the
product and must pay the fee to the franchisor
Trademark legally protects brand names. It gives the seller exclusive rights to use a particular brand
name.
Industrial design refers to the visual appearance of a product. It encompasses the shape, pattern,
color, and texture of an object, as well as its overall aesthetic appeal. Industrial design is an important
form of IP protection that provides exclusive rights to the visual and aesthetic elements of a product.
This protection allows designers and businesses to prevent others from copying or imitating the design,
ensuring that their creative work remains unique and commercially viable.
Product Life Cycle
A new product progresses through a sequence of stages from introduction to growth, maturity, and
decline. This sequence is known as the product life cycle and is associated with changes in the
situation, thus impacting the and the marketing mix.
The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the
graph below:

Product Life Cycle Diagram

Pre Introduction- Market research and product development

Introduction Stage
In the introduction stage, the firm seeks to build product awareness and develop a for the product

Growth Stage
In the growth stage, the firm seeks to build brand preference and increase share.
Product quality is maintained and additional features and support services may be added.
Pricing is maintained as the firm enjoys increasing demand with little competition.
Distribution channels are added as demand increases and customers accept the product.
Promotion is aimed at a broader audience.

Maturity Stage
At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The
primary objective at this point is to defend share while maximizing profit.

Decline Stage
As sales decline, the firm has several options:
Maintain the product, possibly rejuvenating it by adding new features and finding new uses.
Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche segment.
Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to
continue the product.
Methods of Promoting Sales
Promotion includes all forms of advertising, public relations and sales promotion.
Advertising is the paid presentation of goods or services through the media for the purpose of
encouraging consumer patronage. The media refers to television, radio, magazines, newspapers,
billboards, websites etc.
The Purpose of Advertising
• to attract attention and create awareness
• to inform and educate customers
• to increase sales
• to introduce new products onto the market
• build loyalty with customers
• to differentiate from competitors
Types of advertising

Informative Advertising
Informative advertising is often used when launching a new product, or for an updated or relaunched
product. The objective is to develop initial demand for a good, service, organization, or cause. It is used
when a new product is put on the market on when an old product has been re-launched or updated.
Informative advertising will tell the and marketplace about the product, explain how it works, provide
pricing and product information, and should build awareness for the product as well as the company.
The of the product and the company should be compatible and complementary. There should be
enough information to motivate the consumer to take some sort of action.

Persuasive Advertising
Marketers use persuasive advertising to increase the demand for an existing good, service, or
organization. The idea is persuade a audience to change brands, buy their product, and develop
customer loyalty. After the purchase, the of the product will dictate whether or not the customer will
remain loyal or return to the previous brand.
Persuasive advertising is highly competitive when there are similar products in the marketplace, and
products are competing for their share of the market. In this situation, the winning product will itself form
the competition and possess that are superior to, or compete strongly with, the competition.

Reminder Advertising
Reminder advertising reinforces previous promotional information. The name of the product,
testimonials of past customers, public response, and sales techniques are repeated in the hopes of
reminding past customers and garnering new ones. It is used to keep the public interested in, and
aware of, a well-established product that is most likely at the end of the .
Competitive Advertising
Promotes one product over a competitor
Defensive Advertising
Reacts to competitive advertising to maintain market share.
Forms of Advertising
Direct Forms Indirect Forms

Circulars Press: Newspapers, Magazines, Journals

Catalogues Television, Radio, Website, Social Media

Free Samples Cinema Screens

Souvenirs Posters, signs and wallscapes

Word of Mouth Point of Sale: Speciality shop display

Cell Phones Exhibitions, fairs, carnivals

Chat room Mobile Caravans

Sales Promotion
Sales promotion is a marketing strategy that is used to induce customers to buy immediately.
Examples of sales promotion methods are:
a. A sale on items.
b. Bargain packs/Bundling, e.g. ‘two for price of one’.
c. Coupons. These are printed in the daily newspaper or magazines. The holders of coupons are
allowed a discount on the items bought.
d. Games, e.g. guessing riddles
e. Contest. Purchasers may receive a prize if they are the winners of a contest.
f. Trading Stamps. These are given to purchases with each item bought. Booklets filled with these
stamps may be returned by customers for goods, services or money in exchange. This predates the
loyalty card.
g. Loss–Leader. A loss-leader is a product that is in high demand and is therefore used to attract
consumers to a business location by cutting its price very low. The business uses a loss leader to
attract large number of persons to its location so that other items will be sold. The profits lost on this
product will be made up on the high sales turnover of the other products that will be bought along with
the loss-leader.
h. Loyalty points- Loyalty points, often part of a broader customer loyalty program, are a marketing
strategy used by companies to encourage repeat business, improve customer retention, and increase
customer lifetime value. Customers earn points based on their spending, which can later be redeemed
for rewards like discounts, products, or exclusive offers.

i. Social media-
Social media plays a crucial role in promoting sales by increasing brand visibility, building trust, and
engaging customers. Social media impacts the business through:
Brand Visibility: Social media helps businesses reach a broader audience and increase brand
awareness through regular posts and interactions.
Customer Engagement: Direct communication with customers builds relationships, enhances the
customer experience, and boosts the likelihood of sales.
Targeted Advertising: Platforms like Facebook and Instagram allow for precise targeting, ensuring ads
reach the right audience, improving conversion rates.
Influencer Marketing: Partnering with influencers can generate authentic endorsements, influencing
followers' buying decisions.
k. Rebates are a type of sales promotion or incentive where customers receive a partial refund or
discount after making a purchase. Unlike immediate discounts, rebates require the customer to take
action—such as submitting a form or providing proof of purchase—before receiving the rebate.
Public Relations
Public relations activities are aimed at creating a favourable impression of a business in the eyes of the
public. Public includes its customers, its suppliers, the government and the surrounding community.
Public Relations activities include sponsorship of local sporting events, press conferences, special
awards, red carpet events, social media campaigns and donations to charity.
Techniques of Selling
These are methods used to sell products more effectively by focusing on each customer’s personal
needs. Selling techniques include:
1. Personal Selling
2. After-sale services such as warranty and installation
3. Merchandising
4. Good Customer Relations
Personal Selling
This is the use of sales persons to present and sell goods and services of a firm. Sales persons
promote a firm’s goods directly to a specific consumer. They locate new customers, provide display
services, demonstrate the use of products, deliver goods, collect payments and provide the firm with
feedback
After Sales Services
Customers are entitled to these services once they have made a purchase. They include delivery,
installation and warranty. These services are free and therefore usually encourage consumers to buy.
Merchandizing
Merchandizing refers to self-service methods of sale. This is used in supermarkets and department
stores. It allows for a better display of goods and creates a more comfortable shopping environment.
Good Customer Relations
Building good relationships with customers ensures customer satisfaction, repeat customers and
recommendation to new customers. The sales staff must be trained in the principles of good customer
relations. This entails, listening to customers being helpful and polite.
Terms of Sale
A business establishment may offer its customers various terms to settle accounts i.e the way that
payment are made for purchases.
Cash
This is preferable by most businesses and therefore customers are encouraged to make cash
payments. They are usually offered a lower payment amount for goods bought for cash.
Credit
Customers are allowed to pay at intervals over a short- term, usually one to three months to settle
outstanding balances.
Hire Purchase
Hire-purchase is a long term payment plan e.g. 24 – 36 months. Interest is charged to the customer
increasing the amount owed.
Cash Discount
A cash discount is a reduction in the price of a good that is paid for immediately or over a short period
of time by a customer. For example, if a an appliance store offers 5% discount on items bought for cash
then 5% of the sale price would be deducted from the actual bill
Trade Discount
A trade discount is the reduction in the price of a good given by a manufacturer or a wholesaler to a
retailer to allow the retailer to make a profit or to encourage bulk buying. Thus if an appliance
manufacturer offers 10% trade discount to retailers then 10% of the catalogue price or the quoted price
would be deducted from the retailers’ actual bill.
Layaway-
Layaway is a payment plan offered by retailers that allows customers to reserve an item and pay for it
over time, without receiving the item until the full price has been paid. It’s a way for customers to
purchase items they might not be able to afford upfront but still want to secure before they sell out or
prices increase. Once the full price is paid, the customer can take the item home.
Consignment
Consignment is a retail arrangement where goods are entrusted to a store or retailer to be sold on
behalf of the original owner. The store sells the products but does not take ownership until the items are
sold. The owner (or consignor) typically receives a percentage of the sale price, while the retailer (or
consignee) keeps a commission for facilitating the sale. If the items are not sold within a certain time
frame, they may be returned to the consignor.

Forms of Customer Service:

Customer service plays a critical role in maintaining customer satisfaction, loyalty, and the overall
reputation of a brand. There are various forms of customer service, each designed to meet different
needs and preferences of consumers. Here’s a breakdown of the forms mentioned:

(a) Warranty
A warranty is a guarantee provided by the manufacturer or seller of a product to repair or replace it if
necessary within a certain period after purchase, typically due to defects in materials or workmanship.

Purpose:
To offer peace of mind to customers that they will be compensated or supported if a product fails
within a specific time frame.
To demonstrate that the company stands behind the quality and reliability of its products.

Impact:
Builds trust and customer confidence.
Encourages purchases, knowing customers are protected if something goes wrong.
Differentiates a brand from competitors who do not offer similar guarantees.
(b) After Sales Service
After sales service refers to the support provided to customers after they have purchased a product or
service. This can include technical support, installation services, maintenance, and general assistance
with using the product.

Purpose:
To ensure customer satisfaction and loyalty after a sale is made.
To assist customers in getting the most value out of their purchase.
To resolve any issues that arise after purchase, such as product malfunctions or difficulty with use.

Impact:
Enhances customer satisfaction and brand loyalty.
Improves retention by fostering ongoing relationships with customers.
Can generate repeat business by providing value beyond the initial purchase.
(c) Feedback
Customer feedback is a process where customers provide their opinions and evaluations about the
product, service, or experience they’ve had with a company.

Purpose:
To gather insights about how customers feel about a product or service.
To help a business identify areas for improvement and refine its offerings based on customer input.

Impact:
Improves product and service quality by addressing common complaints and suggestions.
Provides a sense of engagement and value to customers, showing that their opinions matter.
Can provide valuable insights that guide business decisions and innovations.
(d) Online Chat
Online chat is a real-time communication tool on a website or mobile app, where customers can interact
with customer service representatives or AI chatbots to resolve issues or answer questions.

Purpose:
To offer immediate, accessible, and convenient support to customers while they browse a website or
use an app.
To provide quick resolution to customer queries without needing to call or email.

Impact:
Increases customer satisfaction by offering instant support.
Provides a convenient option for customers who prefer texting or chatting over calling or emailing.
Reduces the waiting time for customers compared to phone support.
(e) Toll-Free Numbers/Call Centers
Toll-free numbers and call centers are dedicated customer service lines that allow customers to reach a
company for assistance without incurring any charges for the call.

Purpose:
To offer personalized assistance over the phone for customers who prefer speaking to a
representative.
To provide help with complex issues that cannot be easily resolved online or through other means.

Impact:
Enhances accessibility for customers who are not comfortable using online services or need in-depth
assistance.
Builds trust by offering a direct line of communication.
Allows businesses to resolve complex issues in real-time, leading to better customer retention.
(f) Suggestion Box
A suggestion box is a physical or digital box where customers can leave their suggestions, comments,
or feedback about a company’s products, services, or operations.

Purpose:
To gather ideas and feedback from customers, employees, or visitors.
To make customers feel their opinions are valued and contribute to the business's growth.

Impact:
Provides direct customer insights, helping businesses identify strengths and areas for improvement.
Encourages engagement and community involvement, making customers feel heard.
Helps businesses stay responsive to customer needs and desires.
(g) Surveys
Surveys are structured questionnaires that businesses use to gather detailed feedback from customers
about their experiences with products, services, or brand interactions.

Purpose:
To collect quantitative and qualitative data on customer satisfaction and experiences.
To gain in-depth insights into customer preferences, opinions, and expectations.

Impact:
Provides valuable data that helps businesses make informed decisions regarding product development,
customer service improvements, or marketing strategies.
Helps identify trends in customer satisfaction or dissatisfaction, enabling businesses to act quickly to
resolve issues.
Encourages customer engagement by involving them in the process of improving products and
services.
Consumer Organizations
Consumerism is defined as the education and the protection of consumers to prevent their
exploitation.

Consumer exploitation includes:

overcharging
offering poor quality goods and services
short measurements and weights
Consumerism is practised by various groups in the economy: the government, private institutions, and
private firms.
Consumerism practiced by the government
This is done through various government agencies. These include:
1. The Consumer Affairs Commission – This institution was set up to disseminate information about
consumer rights and responsibilities as well as provide consumers with an avenue for redress if they
are exploited.

Consumer Rights
• The right to safety
• The right to be informed
• The right to choose
• The right to be heard
• The right to redress
• The right to consumer education
• The right to a healthy environment

Consumer Responsibility
• The responsibility to beware
 • The responsibility to be aware
• The responsibility to think independently
• The responsibility to speak out
• The responsibility to complain
• The responsibility to be an ethical consumer
• The responsibility to respect the environment and avoid waste, littering and contributing to
pollution.
2. The Fair Trading Commission – This agency was set up to administer the fair trading act. It is
concerned with matters such as; Tied selling (marrying of goods), misleading advertising (untruths
about goods and services presented for sale), untrue sale (an announced sale for which the price of
items remain the same).and the use of market dominance to squeeze firms out of the industry (For
example, large firms may drop the price of their goods so low that small firms are unable to compete
with them.)
3. The Bureau of standards -The bureau carries out regular checks on business enterprises to ensure
that goods and services offered for sale meet the standards stipulated by this institution.

Functions are as follows:

Protect the consumer or user against danger
Protect public health or industrial health, welfare and safety
Protect the environment
To ensure acceptable quality of goods
Research in relation to international quality standards
Examination and testing of goods
Establishment of quality standards
Collection and publication of data on specification and standards
Advising on quality control systems
Certification of goods that meet quality standards

4. The Ombudsman
The Ombudsman is a government official who protects the rights of citizens who may suffer any kind of
injustice from dealing with a government agency or a government official. For example, the
Ombudsman will investigate the death of a loved one due to the negligence of a public hospital. He/she
has the power to:
to summon witnesses to appear and give evidence under oath
to enter and inspect any government department or authority
to examine any necessary documents

Consumerism practiced by private Institution

• Local consumer groups
• Radio talk show hosts listens to consumers’ complaints

Consumerisms practiced by private firms

• Offering warranty/guarantees on items sold
• Labels carry information on ingredients, nutritional content and health risks that may be associated
with the product.
Links in the Distribution Chain
Manufacturers must find the most efficient ways of getting the goods manufactured into the hands of
consumers.
The channels/chains of Distribution
Channels of distribution refer to the means by which commodities reach the hands of consumers from
the plant of manufacturers. This may be done directly from the manufacturer to the consumer or
indirectly through middlemen such as wholesalers and retailers.
Types of Channels
1. Direct Channel – Manufacturer – Consumer
Goods are bought directly from the producer e.g. purchasing furniture from a manufacturer.
2. Indirect channels (a) Manufacturer – Retailer – Consumer
Goods are bought from a middle man e.g. a retailer. Retailers display goods, sell in small convenient
quantities and offer credit. They therefore aid manufacturers in moving goods quickly.
3. Indirect channel (b) Manufacturer –Wholesaler – Retailer – Consumer
The wholesaler is a second muddle man/link on the chain. The wholesaler purchases in bulk from the
manufacturer and stores them in large warehouses. They therefore assists manufacturers by moving
large amounts of items from plants. Retailers purchase goods from wholesalers and sell them in
smaller quantities to consumers.
Wholesaler
The wholesaler purchases goods in large quantities from producers and thus assumes some of the risk
of the manufacturer such as, warehousing goods.
Roles include:
Breaking bulk for sale to retailers
Warehousing facilities
Assumes risk: By buying larger quantities
Helps manufacturers advertise goods
Key source of market research
Maintain price stability by incremental releases of stock onto market
Retailer
They provide goods directly to the consumer. They possess ownership of the goods and bare all risk of
losses should demand fall or taste change.
Role:
Breaking bulk
Provides outlets to targeted markets
Provides credit facilities
Provides delivery service to customers
Gives technical advice on product
Provides aftersales service
Source of market intelligence
Methods of Retailing
There are several methods by which retailers can offer items for sale.
Community Shops and Convenient Stores
These locations tend to serve a particular community. Opening hours include all weekend days,
holidays and very late in the evenings. Costs for some commodities that are not government controlled
tend to be higher than other types of retail outlets. Community shops in particular cut and shape
products to suit customers and offer credit.
Department Stores
These stores carry a several lines of goods under one roof. A department store may feature a clothing
department, household items, stationery, hardware etc. It provides convenience to customers who can
pick up several items in one place, and allows the businessman the cost effectiveness of operating
several business entities in one location.
Mail Order
Companies that retail through mail order benefit from reduced operational cost of location and staff.
Since display areas are not required only an office and storage facility are necessary for the operation
of this business. Orders are made from catalogues and goods are delivered by courier or mailed to
customers. This saves time and effort of consumers to visit shopping locations.
E-commerce
Orders are made by customers over the internet from the websites of businesses. Payments are also
made over the internet. Packages are delivered by mail or courier.
Tele- marketing
Tele –marketers introduce the company’s goods and try to obtain orders via the telephone.
Vending Machines
These self-service machines are placed at various locations by their owners. Customers are required to
place the required funds inside these machines and are then instructed on how to make their choice.
The machine then dispenses the product. This type of business is very cost effective as owners may
only pay a fee for locating the vending machine.
Logistics and Supply Chain
Logistics
Logistics is the flow of funds, goods and information between origin and consumption. Logistics
involves information, material handling, production, packaging, inventory, transportation, warehousing
and often security.

Supply chain operations

Supply chain operations include the systems, structures and processes to plan and execute the flow
of goods and services from supplier to customer.

Components of Logistics:
Forward Flow
Logistics has been defined as that part of the supply chain process that plans, implements, and controls
the efficient, effective flow and storage of goods, services, and related information from the point-of
origin to the point-of-consumption in order to meet customers’ requirements

Reverse Flow
Logistics has been defined as the movement of product or materials in the opposite direction for the
purpose of creating or recapturing value, or for proper disposal

Inventory control
Inventory management is to keep enough inventories to meet customer requirements, and
simultaneously its carrying cost should be lowest.
It is basically an exercise of striking a balance between the customer service for not losing the market
opportunity and the cost to meet the same.

Warehousing
Warehousing is the storing of finished goods until they are sold. It plays a vital role in logistics
operations of a firm. The effectiveness of an organization’s marketing depends on the appropriate
decision on warehousing.
Transportation
For movement of goods from the supplier to the buyer, transportation is the most fundamental and
important component of logistics.
When an order is placed, the transaction is not completed till the goods are physically moved to the
customer’s place. The physical movement of goods is through various transportation modes.

Material handling and storage system

The speed of the inventory movement across the supply chain depends on the material handling
methods. An improper method of material handling will add to the product damages and delays in
deliveries and incidental overheads.

Insurance
This provides coverage against physical damage or loss of goods during shipping, whether by land, sea
or air or even during storage.

Activities involved in supply chain operations

transformation of natural resources – This involves the extraction of raw materials from the earth
and preparing of these raw materials to be converted to inputs for the manufacturing process.
movement and storage of raw materials – This involves the movement of raw materials from the
point of extraction to warehousing facilities where it can be stored and used at later time in the
manufacturing process
processing of raw materials and components into finished goods – The final product is eventually
made from the conversion of the raw materials to final product eg. Bakery products such as cakes and
desserts.
storage of work-in-progress and finished goods – After the goods are made they must be stored
before they can be distributed to wholesalers or retailers.
delivering the finished product from point of origin to the point of destination – this involves
getting the final product from the manufacturer through the distribution chain to the consumer.

THE DISTRIBUTION CHAIN

Wholesaler
The wholesaler purchases goods in large quantities from producers and thus assumes some of the risk
of the manufacturer such as, warehousing goods.
Roles include:
Breaking bulk for sale to retailers
Warehousing facilities
Assumes risk: By buying larger quantities
Helps manufacturers advertise goods
Key source of market research
Maintain price stability by incremental releases of stock onto market

Retailer
They provide goods directly to the consumer. They possess ownership of the goods and bare all risk of
losses should demand fall or taste change.
Role:
Breaking bulk
Provides outlets to targeted markets
Provides credit facilities
Provides delivery service to customers
Gives technical advice on product
Provides aftersales service
Source of market intelligence
Intermodal – is the movement of cargo from origin to destination by several modes of transport where
each of these modes have a different transport provider or entity responsible, each with its own
independent contract.. Multiple carriers contracted to fulfill a single journey.
Multimodal – is the movement of cargo from origin to destination by several modes of transport where
each of these modes have a different transport provider or entity responsible, but under a single
contract. A Single carrier contracted to fulfill a single journey.
Simply put, the key functions of both terminologies are the same, but the differentiation lies in the
contract and responsibility of the movement.

MODES OF TRANSPORT AND THEIR SUITABILITY FOR DIFFERENT GOODS

Air
Advantages
deliver items quickly over long distances
give high levels of security for sensitive items
be used for a wide range of goods

Disadvantages
• air transport can involve higher costs than other options, and is not suitable for all goods
• flights are subject to delay or cancellation
• there are taxes to be paid in each airport
• fuel and currency surcharges will usually be added to freight costs
• further transportation may be needed from the airport to the final destination

RAIL
Advantages
Rail transport is a cost-effective and efficient way to move goods.
Disadvantages
routes and timetables available can be inflexible, especially in remote regions
can be more expensive than road transport
mechanical failure or industrial action can disrupt services

ROAD
Advantages
Low cost
Extensive road networks
Possibility to schedule transport and tracking the location of goods
Safe and private delivery

Disadvantages
long distances overland can take more time
there can be traffic delays and breakdowns
there is the risk of goods being damaged, especially over long distances
toll charges are high in some countries
different road and traffic regulations on some countries

MARINE (CRUISE AND CARGO)

Advantages
• possibility to ship large volumes at low costs
• shipping containers can also be used for further transportation by road or rail

Disadvantages
• shipping by sea can be slower than other transport systems and bad weather can add further
delays
• routes and timetables are usually inflexible
• tracking the goods’ progress is difficult
• port duties and taxes
• further transportation overland might be needed to reach the final destination
• basic freight rates are subject to fuel and currency surcharges

PIPELINE
Advantages of Pipeline:
1. They are ideally suited to transport the liquids and gases.
2. Pipelines can be laid through difficult terrains as well as under water.
3. It involves very low energy consumption.
4. It needs very little maintenance.
5. Pipelines arc safe, accident-free and environmental friendly.

Disadvantages of Pipelines:
1. It is not flexible, i.e., it can be used only for a few fixed points.
2. Its capacity cannot be increased once it is laid.
3. It is difficult to make security arrangements for pipelines.
4. Underground pipelines cannot be easily repaired and detection of leakage is also difficult.

DIGITAL DELIVERY
This is the delivery or distribution of such as , , and . The term is generally used to describe distribution
over an online delivery medium, such as the , thus bypassing physical distribution methods, such as , ,
and videocassettes.

TRANSPORT DOCUMENTS
IMPORT LICENSES
BILL OF LADING
STRAIGHT BILL OF LADING
ORIGINAL - NOT NEGOTIABLE

Bill of Lading Number:

FROM:

1. Shipper / Generator Location 2. Shipper / Generator Mailing Address (if

different)

A Top Generator

Emergency Response Phone: Generator ID (if applicable):

TO:

3. Consignee / Facility Name and Address 4. Consignee / Facility ID#

Best Disposal MIK23321456

9. Notes:

DELIVERED BY:

5. Carrier/Transporter Name and Address 6. Carrier Transporter ID#:

A Great Transporter MIK987789987

7a. 7b. 8. Containers 9. 10. 11.

7a. 7b. No. Type 9. 10. 11.

Antifreeze 40 DM 2200 g Gallon

2.

3.

4.

18. Special Handling Instructions and Additional Information:

7a. 7b. 8. Containers 9. 10. 11.

By signing below, Shipper hereby declares that the contents of this consignment are fully and accurately described above by the proper
shipping name and are classified, packaged, marked and labelled/placarded, and are in all respects in proper condition for transport
according to applicable governmental regulations. As shipper, I hereby certify that the liquid industrial by-product(s) are fully and
accurately described on this shipping document, in proper condition for transport, and that the information contained on the shipping
document is factual.

SHIPPER (Print Signature Month Day Year

Employee Name)

Carrier / Transporter Signature Month Day Year

(Print Driver Name)

Consignee / Facility Signature Month Day Year

Acknowledgement of
Receipt (Print Name)

White Copy: Consignee/Facility Original ● Yellow Copy: Consignee to Shipper ● Pink Copy: Carrier/Transporter ● Green Copy:
Shipper Initial Copy
AIRWAY BILLS
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ROLE OF TRANSPORT IN MARKETING;

To fast-track sourcing of commodities
Transport enables raw materials and goods to be moved quickly from suppliers to producers and
sellers. This reduces delays in production and ensures that goods are available for sale when needed.
Example: A supermarket receives fresh vegetables daily due to efficient transport.

To ensure security of supply

Transport helps maintain a steady and reliable flow of goods to the market. Businesses can source
products from different locations, reducing the risk of shortages if one supplier fails.
Example: A company can import goods from overseas if local supply is limited.

To facilitate cost reduction

Efficient transport systems lower the cost of moving goods, especially when items are transported in
bulk. This reduces overall business expenses and may lead to lower prices for consumers.
Example: Shipping goods in large quantities reduces the cost per unit.

Physical Supply of Products

Transportation carries necessary raw materials to factory for production of goods and supplies finished
goods to consumers. It creates place and time utility of goods by transporting from one place to
another. It easily carries finished to the hands of those who need and use them. This significantly
increases aggregate sales of goods. In fact, transport is such a key of marketing, which helps in
carrying goods to the scattered consumers in different places, narrows the gap between producers and
consumers and facilitates to distribute goods to the consumers at minimum cost and time.

Importance of transport in domestic, regional and foreign trade.

Beside economic importance, transportation has also social, political and cultural importance. It
establishes social and utility by narrowing geographical distance. It consolidates social and cultural
utility and strengthens national integration. It helps to establish relationship with foreign countries.
Transportation also helps widen knowledge and skill in different sectors. In this way, it helps establish
social utility, uniformity and integrity and strengthens national security.

IDENTIFY ADVANTAGES AND CHALLENGES OF SUPPLY CHAIN OPERATIONS;

Advantages: better quality of life; wealth creation; new and innovative job opportunities including
entrepreneurship, for example, telemarketing.
Expanded sourcing opportunities. A world market offers businesses opportunities to secure a
diverse selection of workers, materials, and products. This larger selection of goods and services often
means the opportunity to select higher-quality or lower-cost options.
The opportunity to reach new customers in new markets. Just as globalization offers more
materials and laborers, it also offers new customers in new locations with new needs.
More room to grow. New technologies and a shrinking globe mean that it is easier for companies to
grow generally: to produce more, offer more, and sell more. Expanding borders also means expanding
businesses and corporations.
More opportunities to save money. Globalization’s biggest benefit is that increases options: options
for source materials, options for workers, and options for transportation. More options mean more
chances to save on spending and increase profits.
Disadvantages: globalization, counterfeiting, product complexity, rapid product obsolescence,
regulatory complexity, management blunders, changing market conditions, natural disasters, and
political instability.
Large-scale management issues. The opportunity to grow business goes hand-in-hand with the issue
of greatly increased supply chain complexity when it comes to management. Companies must scale up
all aspects of their business as it grows across borders, which can cause problems that stretch the
globe. Inventory issues and distribution issues are high on the list of problems encountered by going
global.
Greater risk. Having materials, factories, and customers all over the world means being at the mercy of
global events, from natural disasters, to port closures, to political uprisings. Globalization requires that
supply chain managers have detailed risk management plans in place and that they are prepared when
disaster strikes.
Global competition. You are not the only entity with access to supplies, products, and labor around
the world – you now have a lot of competition scattered across the globe. Globalization necessitates
that supply chains are highly efficient and and well-run in order to stay competitive in a global market.
Information collection challenges. With different aspects of your supply chain scattered around the
world, and with an increasingly complex process for getting products to customers, data collection and
oversight can be huge new challenges. While big data analytics is helping some supply chain
managers tackle the issue of information collection, it is still a large problem that has emerged
alongside globalization.
Legal issues. Operating across borders means operating in countries that very likely have different
laws and regulations. For example, secret product details may not be safe in China, where they have
less stringent intellectual property laws. In another example, a country where you have a factory may
have very different employment laws than another where you have an identical factory.

IMPACT OF LOGISTICS AND SUPPLY CHAIN OPERATIONS

(a) Logistics improve competitiveness
Logistics involves the efficient movement, storage, and handling of goods. When logistics are well
managed, businesses can deliver products faster, more reliably, and at lower cost than competitors.
This leads to improved customer satisfaction and repeat purchases.
Example: A company that delivers products on time gains a better reputation than one with frequent
delays.

(b) Competitive advantage

Efficient supply chain operations give a business a competitive advantage, meaning it performs better
than its rivals. This can be achieved through lower prices, better quality, or faster delivery.
Example: A firm with an efficient distribution system can keep shelves stocked, attracting more
customers than competitors with frequent stock shortages.

(c) Comparative cost advantage through outsourcing

Businesses can reduce costs and improve efficiency by outsourcing logistics to specialized firms.

(i) Second-party logistics (2PL)

This involves hiring a transport company to move goods (e.g., trucks, ships).
Impact: Reduces the need for the business to own vehicles, lowering costs and improving efficiency.

(ii) Third-party logistics (3PL)

This involves outsourcing multiple logistics functions such as transportation, warehousing, and
distribution to an external provider.
Impact: Allows the business to focus on core activities while experts handle logistics more efficiently.

(iii) Fourth-party logistics (4PL)

A 4PL provider manages the entire supply chain, including coordinating 3PL providers and optimizing
operations.
Impact: Leads to greater efficiency, cost savings, and better overall supply chain performance.
Example: A company importing concentrates relies on external experts to manage sourcing, transport,
and delivery.

IDENTIFY THE PROBLEMS LIKELY TO BE ENCOUNTERED IN DISTRIBUTION;

availability of airport, harbor and docking facilities
Delayed shipment,
spoilage,
misdirection of goods,
inadequate warehousing facilities,
lack of proper security measures,
industrial unrest
Ineffective communication.

OUTLINE MEASURES TO MITIGATE PROBLEMS IN DISTRIBUTION

Government intervention.
Communication network including use of the internet.
Insurance.
Selecting the most appropriate channel of distribution based on product.
Use handling services with good reputation.
Careful labelling and documentation.
Avoid holding large stocks.
Employing Security Company, use of security cameras.

IMPACT OF INFORMATION TECHNOLOGY ON

LOGISTICS AND SUPPLY CHAIN OPERATIONS.
Global Positioning Systems (GPS)
Logistics management, when distracted driving is an issue, helps fleets locate vehicles to update
vendors and customers regarding shipments. Updated GPS systems are able to, without showing
roadways that don’t really exist or roadways that are not complete.
Geographic Information System (GIS)
GIS as a tool can be used to map manufacturing, warehouse locations, clients, supplier locations and
distribution centers, showing product supply or manufacturing facilities. Geographic Information
Systems helps in analyzing and representing the information visually, allowing for greater
understanding of the operating environment around the corporate. GIS can be used to analyze the
routes. Route analysis helps us to generate the most efficient route (best route / shortest route) that the
vehicle should take between the company and it supply chain link. Alternative routes can also be
generated and analyzed. Alternative routes help in rerouting of the supplies in case of problems (either
man –made or natural) on one route. GIS helps in identifying the locations of new depots and
warehouses based on the factors like source of incoming materials and the target market to which the
stocks will move that is the different links in the supply chain.

Portnet
Portnet is an electronic information system used in ports to manage and coordinate shipping and
trade activities.
Portnet connects key parties involved in trade, such as:
Shipping companies
Customs authorities
Importers and exporters
Port authorities
It allows them to share information digitally in real time instead of using paper-based systems.

Impact on Logistics and Supply Chain

Faster Processing
Reduces the time taken to clear goods at ports, speeding up the entire supply chain.
Reduced Paperwork
Minimizes manual documentation, lowering the risk of errors and loss of documents.
Improved Coordination
All stakeholders can access the same information, improving communication and planning.
Cost Reduction
Less delay means lower storage and demurrage costs for businesses.
Greater Transparency
Users can track the status of shipments and documents, improving accountability.

Telemarketing, e-commerce
Increasing transparency into all operations through the internet and mobile devices.
Omni channel retailing, keeping customers involved in management decisions and reducing downtime
by using all the resources of the company to fill more orders.
Enhanced reverse logistics, increasing customer service and giving warehouse managers a means of
handling returns regardless of their origin.
Automated inventory systems, ensuring stock levels are appropriate, and self-optimizing slotting
systems that can tell warehouse managers what needs to be moved, as well as when and where.

Global logistics providers such as Fedex, DHL, and Amazon Logistics

Global logistic providers now allow for logistical services to be provided at a much lower cost than in
previous decades and encourages businesses to outsource their logistic needs to these global
providers. These firms have enhanced their technically capabilities and economies of scale to offer
global logistical services at competitive rates. They have also utilized efficient systems that would for
large scale, complex logistical task to be undertaken with relative ease.

Logistics Hub
A Logistics Centre is the hub of a specific area where all the activities relating to transport, logistics
and goods distribution – both for national and international transit – are carried out, on a commercial
basis, by various operators.
Logistics hubs, for example, Jamaica is a premier logistics node within the Americas set up to capitalize
on the trade and business opportunities that will emanate from the expansion of the Panama Canal.
With strategic investment and global partnerships, the Jamaica logistics hub will include:
maritime and air cargo logistics hubs;
strategic storage, handling and processing points for bulk commodities;
expansive special economic zones facilitating assembly, warehousing, sorting, distribution and other
value-added services, particularly for industries catering to time-sensitive and high-value cargo;
aviation-related maintenance repair and overhaul, ship repair and dry-docking;
a robust digital network to support efficient global value chain tracking and tracing as well as
e-commerce operations.
BUSINESS FINANCE
Financial Sector
The financial sector is made up of agencies such as:
Government financing agencies
Central bank,
Commercial banks,
Mortgage companies,
Credit unions
Insurance companies
Building societies - A building society is a type of financial institution that provides banking and other
financial services to its members. Building societies resemble credit unions in that they are owned
entirely by their members.
Micro-lending agencies – eg Island Finance
Unit trust, stock market.
Development banks (Caribbean Development Bank, Agricultural Development Bank)
A commercial bank- is a financial institution that provides a range of financial services to individuals and
business clients. They accept deposits and give loans. The bank pays a percentage to the depositor as
interest or gain on the deposit. In essence they borrow a surplus of funds to lend to those who are
experiencing a shortage.
Role of Financial Institutions
Commercial bank accepts money deposits and therefore provides a safe place for saving money.
Offering loans and overdraft to persons who need financial assistance.
Assisting customers to easily make payments through standing orders, current accounts and debit
cards.
They also offer investment opportunities such as mutual funds, annuities and stocks and bonds
Services offered by Financial Institutions
Commercial banks provide advisory services to clients who wish to borrow a loan to make
investments and persons who wish to purchase securities.
Safety deposit boxes at the bank are used to store safely items that individuals deem as highly
valuable.
Selling travellers cheques.
Credit cards allows persons to purchase items by using funds that the bank makes available. There is
a limit to how much the bank makes available to credit card holders.
Offer a variety of deposits- Money can be deposited in a current account upon which cheques can be
drawn or a fixed deposit account where a higher interest rate is earned. Foreign currency can also be
deposited.
Credit facilities (loans) can be provided through deposits where through using a cash ration a portion
of the deposits are kept in the bank while the rest are loaned.
Money Transfers (remittance services) from depositors account to another account. This called a
standing order. They also facilitate bank drafts and letters of credit.
Trustee work - Any individual or company who manages assets on behalf of another. For example, a
bank may hire a trustee to distribute funds from a loan to the borrower.
Offering settlement services such as authorizing credit card payments
Cheques:
Essential data on a cheque:
The date, payees name, the amount, the signature, personal cheque account number, other data
(counterfoil, branch number)
Types of cheques:
Bearer cheques- Paid to the person who bears or presents the cheque.
Order cheques – Paid to the person that the cheque instructs payment to.
Open cheque – can be cashed over the counter and can be cashed by the wrong person
Crossed cheque – can only be paid into a bank account.

Jamaica Deposit Insurance Company (JDIC).

JDIC works in close collaboration with the (BOJ), the regulatory and supervisory agency for
deposit-taking financial institutions. It receives copies of the Bank’s on-site examination reports as well
as all other information relating to the safety and financial soundness of insured institutions
(Policyholders)
Financial Services Commission (FSC)
The mandate of the Financial Services Commission (FSC) is to supervise and regulate the securities,
insurance and private pensions industries.
In doing so the FSC oversees the registration, solvency and conduct of firms and individuals doing
business in the securities and insurance (Life and General) industries.
The FSC oversees these entities by administering a number of statutes and accompanying regulations.
The FSC also handles customer complaints and provides the public with important financial information
Supervisor of Insurance
To protect the interest of the public, whether as a consumer or third party. This is done through the
monitoring of insurance entities and pension administrators to ensure financial stability and use of fair
business practices while carrying out their business operations.
Administration of the Insurance Act and Regulations
Licensing of Insurance Companies and Insurance Intermediaries
Ensure the payment of appropriate annual fees
Monitor statutory departments and statutory funds
Review annual financial statements submitted by insurers and intermediaries
Ensure overall compliance by all licensed insurance entities with requirements of the Insurance Act and
Regulations
Role of regulatory bodies
To monitor, control and guide various industry sectors in order to protect consumers.
Functions of regulatory bodies:
To enforce regulations and licenses of various financial activities, including depository, lending,
collection and money transmission activities.
Functions of the Central Bank
The Central Bank has the sole authority to issue notes and coins.
The Central Bank is a banker to the government as it keeps the government accounts.
It manages the national debt.
It is a banker to all banks as commercial banks must keep an account with the central bank.
A lender of last resort-The commercial banks and all other financial institutions can count on the central
bank for financial assistance.
It is a financial agent for government. The government uses the Central Bank to carry out its economic
policies. These policies are known as monetary policies.
Relationship between the Central Bank and Commercial Banks
The Central Bank is the head of the financial system. All financial institutions including commercial
banks are regulated and monitored by the Central Bank.
All commercial banks must keep an account with the Central Bank. These balances are used for
cheque clearing purposes between banks. Payments for cheques between banks are set off at the
Central Bank’s clearing house. The Central Bank can also demand commercial banks to deposit a
certain percentage of their total deposits with the central bank in order to control the money supply.
(Setting the cash reserve ratio)
The Central Bank is a lender of last resort and will aid commercial banks when needed. The Central
Bank dictates the interest rate that commercial banks can offer by setting the bank rate. This is the
interest rate set by the Central Bank and the rate at which commercial banks and the Central Bank do
business, e.g. loans offered by the Central Bank to commercial bank.
Direct controls and requests are also issued. These might include the reduction of loans to particular
industries. This could be the form of verbalised encouragement (moral suasion) or measures such as
increased interest rates on certain loans.
Central Bank may demand special deposits from the commercial banks, which are for fixed time
periods. Although these earn interest it means that there is less money for commercial banks to lend
out.
Strategies to Manage Personal Income
Subsequent to the deduction of taxes and other statutory payments the income earner must manage
his money to maximize its use. He must exercise and develop habits of careful spending and saving
techniques. A good money manager will budget.
A budget outlines how much of an individual’s income is to be spent on his various expenses; it
disciples an individual to live within the constraints of his personal income. The process of preparing a
budget involves the record keeping of past expenditures, and making decision based on these about
future expenditures. Priorities must be set to meet basic needs and a systematic plan for savings to
achieve future goals.
Financial advising provides financial advice or guidance to customers for compensation. Financial
advisors, or advisers, can provide many different services, such as investment management, income
tax preparation and estate planning.
Sources of Short & Long Term Financing
Short-term capital may be accessed through the money market. Institutions in the money market
include commercial banks, merchant banks, credit unions and discount houses. Borrowers are required
to repay within a short-term e.g. 1 to 5 years.
Sources of Short term financing include:
Personal sources eg. personal savings, credit cards and redundancy payments
Trade credits and Promissory Notes
Unsecured loans (no collateral required) and overdrafts
Secured loans
Loans from family
Loans from government agencies such as NEDCO
Advances from customers
Crowd funding eg Kickstarter, Patreon
Long –term capital may be accessed through building societies, the stock exchange, unit trust
companies and development banks. Borrowers are given a much longer repayment periods e.g. up to
20 years.
Sources of Long term financing include:
Shares
Secured loans
Debentures
Loans from government agencies
Mortgages
Savings and Investments
Savings is defined as money set aside or not spent from ones personal income. Money saved is most
effective in an interest bearing facility such as a commercial bank to keep up with inflation which
reduces the value of money over time. Other forms of savings include, the credit union, insurance
and partner (meeting turn, sou sou, box hand).
Investment is defined as methods of increasing wealth. It differs from savings as it involves risks.
Earning from capital invested is usually much higher than interest earned on savings. Forms of
investments include: unit trust companies, mutual funds, the stock exchange and starting a
business.

Types of bookkeeping systems

Single Entry - is a method of bookkeeping relying on a one sided accounting entry to maintain financial
information. Used for simplicity.
Double Entry - means that every business transaction will involve two accounts (or more). Both a Debit
and Credit entries will be used.

Financial Statements and their purpose

Income statement or Profit and Loss Statement
Allows owners, shareholders and partners and investors to identify whether or not the business is
profitable. Investors would only invest in a profitable business while owners must justify the
continuation of the business.
Balance Sheet or Statement of financial position
The Balance Sheet illustrates the businesses net worth through its assets and liabilities. If the Net
Assets are significant then there is little chance that the business will fail. Investors and owners use this
statement to assess the performance of a business.
Cash Flow Statement
This statement gives information on the liquidity of the business or its ability to possess and retain liquid
cash for the operation of a business. Liquid assets such as cash are important as goods and services
have to be acquired in order for a business to be successful. If a business cash outflows are greater
than its inflows then this indicates low level of performance for the business.
Establish business in the zones legally allocated to reduce the impact of noise and air pollution in
residential areas.
Being part or initiating environmental projects such as beach clean-up and planting trees.
Use of renewable sources of energy (solar, wind, thermal)
Use of non-hazardous materials in the production process.
Ways by which Government Regulates Business Activities
Businesses operate within a legislative framework. Some of the laws that govern businesses are:
Statutory Deductions eg. National Insurance, health surcharge, income tax (PAYE) corporation taxes.
Labour laws eg. Occupational Safety and Health, Equal Opportunities, Minimum wage, Maternity
Benefits.
Environmental Laws eg. Certificate of Environmental clearance and zoning laws.
Consumers must be protected from business owners who are eager to sell without taking into
consideration the well-being of customers. Consumers must be protected from overcharging, poor
quality goods and services and short measurements and weights.
Consumers are protected by legislation delegated to various government agencies. These agencies
include:
1. The Consumer Affairs Commission- aids consumers with redress
2. The Fair Trading Commission- investigates cases of tied selling and misleading advertising.
3. The Bureau of standards – set standards for goods and services to be sold on the market.
4. The Ombudsman- investigates injustices suffered by citizens from dealing with a government
agency or official.
Consumer Protection Laws
The Food and drugs Act
The Standards Act
The Public Health Act
The Weights and Measures Act
The Processed Food Act
The Hire Purchase Act
Hire Purchase Law
Buyers and sellers must sign the hire purchase contract. The seller must state the cash price, down
payment and monthly instalments and total to be paid. Goods cannot be repossessed by the seller
once the buyer pays up to three quarters of the hire purchase price.
Price controls
Price controls are levied on certain good and services to prevent from increasing prices. For example
basic food items such as corn meal, flour, rice and sugar.
Zoning Laws
These laws protect the environment by identifying certain wildlife areas that should not be disrupted by
development. Therefore, areas are designated for factories, shopping centres and residential, away
from protected wildlife.
Taxation
Firms that pollute the atmosphere, rivers and seas are charged a tax for the harm caused to the
environment. This forces firms to find methods to reduce pollution to avoid this penalty.
Waste Disposal
This refers to the disposal of hazardous substances, packaging and recycling.
Taxation
A tax is on the individual or business entity. It is a compulsory payment made by individuals and
businesses to the government.
Taxes must be:
Fair and equitable
Economical in terms of administrative costs
At convenient times so as not to interrupt the individual or business functioning
Implemented with the full knowledge of persons being affected.
Purpose of Taxation
Taxes are mainly used to finance the expenses incurred by government to manage an economy. These
expenses include: health care, education, garbage collection and operating government business
entities. Taxation is also used by government for several other purposes.
To reduce pollution by taxing offending firms
To discourage unhealthy lifestyle e.g. a tax on cigarettes
To protect local and infant industries by taxing imports
To achieve greater equality of wealth and income. Revenue from taxation is used to help the very poor
e.g. providing food stamps.
To improve the balance of payments (BOP) by increasing the duties charged on imported goods.
To control spending in an economy thus reduce inflation
To redistribute income through expenditure on social welfare programmes.
Direct and Indirect Taxes
Direct taxes are paid by individuals directly from income earned or on the value assets owned to the
income tax department.
Types of Direct Taxes

Income Tax
This is a tax on earned income- individuals pay a percentage of their income.

Corporate Tax
This is a tax on the profits of companies

Capital Gains Tax

This is a tax on the proceeds resulting from the sale of assets, e.g. houses, land etc.

Capital Transfer and Estate Duties

This is a tax on the transfer of property (gifts) and on legacies (death duties)

Other Direct Taxes

These include: stamp duties, motor vehicle duties land taxes, etc.
Indirect taxes are paid to the income tax department through the of goods and services. These taxes
are levied on consumption and therefore are paid by individuals when purchasing commodities.

Value Added Tax (Ad Valorem Tax)

This is the tax levied on goods as each stage of production. This tax generally is known as a General
Consumption Tax (G.C.T.).

Purchase Tax
This tax is placed on specific goods at retail outlets. These include gasoline, tobacco, rum etc.

Excise Duties
A tax placed on goods manufactured within a country. This tax is paid by the manufacturer of the
product.

Customs Duties
This is a tax on imports i.e. goods entering the country.
Regressive, Progressive and Proportional taxation
Progressive Taxation
A progressive tax system levies a higher percentage of tax on high income earners compared to lower
income earners. This ensures that higher income earners pay a larger proportion of their income than
lower income earners.
Regressive Taxes
A regressive tax system levies a smaller percentage of tax on higher income earners compared to
lower income earners. This results in higher income earners paying a smaller proportion of their income
in taxes than lower income earners. For example, a purchase tax of 10% charged on a commodity
which values $100 is bought by a high income earner who receives $10,000 weekly and also by low
income earner who receives $1000 weekly. Both income earners will pay $10.00 in taxes. This $10
represents a much higher percentage of the lower income earner’s pay which is .01% than the higher
income earner which is only .001% of his income
Proportional Taxation
Under this system all taxpayers pays the same proportion of their income in taxes. The same
percentage tax is levied on both high and low income earners. Therefore if the percentage tax charged
is 10% of income then each person will pay that proportion of their income.
Government Assistance Offered to Businesses
The survival and growth of the business sector will reduce unemployment, increase GDP and foreign
exchange earnings. This sector must therefore be supported and encouraged by government.
Financing - Government assists local businesses by providing loans at low interest rates.
Protecting local industries - Custom duties charged on imported goods to protect local producers
Tax concessions - Reduced tax rates or tax holidays offered to industries will encourage production.
Subsidies - The cost of production is subsidised to reduce this cost to producers. For example, a
subsidy offered on fertilizer to farmers.
Promotion - Local and international trade shows as well as general advertisements promoting business
locally and overseas, for example, advertisements encouraging tourist to visit the region.
Training - Government agencies set up to provide technical and managerial training.
Research and information centres
Government departments usually conduct market research and are able to provide information to
businesses in terms of potential markets, new technologies, trade agreements business registration
process and the legal framework.
Impact of Social Services Provided by Governments
These services are provided by government to ensure the well-being of all citizens.
Education
An effective national education plan will ensure that the innate skills, talents and abilities of individuals
are harnessed and developed to their fullest potential. High levels of literacy and numeracy will
increase productivity.
Health
The economic development of any nation is dependent upon its population being physically and
mentally healthy. For someone to be productive he or she must be in good health.
Roads and Transportation
Proper Infrastructure such as roads, railways, sea and airports coupled with an efficient transportation
system are important to a country’s economic activities. Roads and transportation facilitate trade of
goods and services.
National Insurance Scheme
National Insurance Schemes protect the elderly and other categories of vulnerable persons within a
society. The elderly have contributed to the development of a nation and must be adequately provided
for when they no longer a part of the labour force.
TECHNOLOGY AND THE GLOBAL BUSINESS ENVIRONMENT
Business technology - refers to applications of science, data, engineering, and information for business
purposes, such as the achievement of economic and organisational goals. The main element of
technology is the idea of change, and how it can affect business and society.
Role of technology in business:
ICT is considered to be all uses of digital technology that exist to help individuals, businesses and
organisations use information. So ICT is concerned with the storage, retrieval, manipulation,
transmission or receipt of digital data. Importantly, it is also concerned with the way these different uses
can work with each other.
Ways in which technology has influenced banking and commerce:
Through the introduction of Automatic Teller Machines (ATMs) and Automated Banking Machines
(ABMs) which facilitate the deposit and withdrawal of funds, as well as other services without having to
go into a bank to access teller services. The location of ATM machines in hotels, petrol stations, malls
and supermarkets adds to the convenience of customers who can transact business without having to
wait in line at a bank.
The practice of on-line banking which enables customers to access their accounts from home and other
locations using personal computers. This facility enables customers to check their balances from the
comfort of their homes and permits easy and convenient payment of utility and other bills. Customers
with more than one account can also use this facility to transfer funds from one account to another.
Through electronic commerce (ecommerce). Using the internet, individuals and businesses are now
able to make business transactions via the World-wide web, without having to visit a physical brick and
mortar store. E-commerce has given rise to many on-line stores which permit customers to browse for
products and pay for them electronically.
Types of technology:
Traditional
Productivity tools, for example: -
Word
Excel
Database software: Access
Presentation software: PowerPoint, Prezi;
Graphics software: Adobe Photoshop
Specialist applications:
Accounting: QuickBooks.
Computer Aided Design (CAD).
Management Information Systems.
Digital communication technologies:
Internet and mobile.
E-Commerce and E-Business:
In both cases, the e stands for "electronic networks" and describes the application of electronic network
technology - including Internet and electronic data.
E-commerce covers outward-facing processes that touch customers, suppliers and external partners,
including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and
supplies for production and procurement of indirect operating-expense items, such as office supplies. It
involves new business models and the potential to gain new revenue or lose some existing revenue to
new competitors. interchange (EDI) – to improve and change business processes.
E-business includes e-commerce but also covers internal processes such as production, inventory
management, product development, risk management, finance, knowledge management and human
resources. E-business strategy is more complex, more focused on internal processes, and aimed at
cost savings and improvements in efficiency, productivity and cost savings.
Ways in which technology can improve business:
(i) Speed and time;
(ii) Easier storage;
(iii) Improved sharing of information; and,
(iv) Automation.
Benefits of technology to business:
Reach more potential customers, develop a business relationship with potential customers;
Streamline operations, reduce costs, improve efficiency, maximise profit, minimise waste, devote talent
to core business instead of overhead;
Provide better service to customers;
Support better relationships with key partners; and,
Allow customers to better guide the business.
Consequences of unethical use of ICT:
Security;
Privacy;
Intellectual property infringement;
Impact on humans; and,
Distraction.
NATIONAL INCOME ACCOUNTING &
INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTS
(Social Accounting and Global Trade)
Factors that determine a Country’s Standard of Living
The standard of living is defined as the level of wealth experienced by a county which is indicated by
the average disposable income of the population, ownership of capital equipment, the level of research
and access to modern technology and the quality and quantity goods and services enjoyed by citizens.
Level of goods and services available: goods and services are needed to satisfy the needs and
wants of a society.
Average disposable income: per capita GNP reveals the average amount of earnings of each person
in an economy.
Ownership of capital equipment: Capital goods/investment goods are used to create consumer
goods and services locally and for export.
Access to modern technology: countries with a high standard of living must have access to modern
technology to remain competitive maintain a high productivity level.
Research and technology leads to innovation and increases production.

Difference between the standard of living and quality of life

Whereas the standard of living is measured by physical quantity (tangible), a country’s quality of life is
determined by the quality of goods and services enjoyed by citizens (intangible). These include: safety
(low crime rates), good diet and nutrition, environmental quality, quality of health and educational
facilities, life expectancy, rate of infant mortality and the access to public utilities such as water.
Also the standard of living is mainly determined by the per capita income while the quality of life is
determined by intangible subjective factors.
Alternative measures of the Standard of Living
The Human Development Index (HDI) (Per capita income, literacy rates, inflation)
Physical quality of Life (infant mortality rate, literacy rates, life expectancy)
Measure of Economic Welfare (NI + merit goods – demerit goods)
National Income
The national income of a country is the total income earned by that country from the production of
goods and the provision of services in a given year after deducting depreciation. It therefore measures
the level of economic activity of a country within a year. Note depreciation of assets is taken into
account when measuring national income.
It can also be defined as the total money value of goods and services produced by a country over a
year.

Circular Flow of Income

Businesses produce and households consume. Households owns the factors of production (land,
labour capital and enterprise). Firms must purchase these factors of production to produce. Wealth
flows from one form to another as follows:

Income = Expenditure = Output

Gross Domestic Product (GDP)
GDP is the total money value of all output produced within a country over a year. The word ‘domestic’
refers to income earned from local production only.
Gross National Product (GNP)
GNP is the total money value of all output produced over one year, both within a country and from its
overseas investments.
Therefore GNP = GDP + overseas earnings by nationals (Net Income from Foreign Assets)
Net Income from Foreign Assets- also called Net Property Income from Abroad. This is calculated by
subtracting payments to foreigners owning local assets from income received from assets held abroad
by citizens. This figure can be positive or negative.
Net National Product (NNP) or National Income (NI)
NB: The definition for national income includes adjustments for depreciation (reduction in capital
stock).
National Income (NI) = GNP- depreciation
Since GNP figures do not accurately measure the standard of living, the following indices may be used.
Per capita GNP
This is calculated by dividing a country’s GNP by its total population. That is,
GNP
Total population
Thus if a country’s GNP is $40,000,000 and its total population is 5,000, its per capita GNP would be
$8,000.
40,000,000 = 8,000
5000
Thus each citizen enjoys on an average $8,000 worth of goods and services.

Impact of National Income on Standard of Living and Quality of Life

An increase in National Income is usually due to increased output of goods produced, increased
incomes or increased expenditure. These are all indicators of positive growth in the economy hence
giving an increase in the standard of living. If the incomes are not evenly distributed then the standard
of living of the population will be uneven. Additionally an increase in the incomes of the population does
not mean that their quality lives have improved as access to clean water, health care and education
may have received little or no investment.

THERE ARE THREE METHODS OF CALCULATING NATIONAL INCOME

Expenditure Method
The total expenditure incurred by the society in a particular year is added together to get that year’s
national income.
Components of Expenditure:
personal consumption expenditure
net domestic investment
government expenditure on goods and services, and
net foreign investment
The equation for NI using this approach is:
C: Household spending
+ I: Capital Investment spending
+ G: Government spending
= GNP (at market prices)
+ Exports of Goods and Services
Imports of Goods and Services
= GNP (at factor cost)
Depreciation
= National Income

The Income Method: adding factor incomes

The net income received by all citizens of a country in a particular year, i.e. total of net rents, net
wages, net interest and net profits. (GDP at factor cost).
It is the income earned by the factors of production of a country.
Add the money sent by the citizens of the nation from abroad and deduct the payments made to foreign
nationals (individuals and firms) (GNP at factor cost) or Gross National Income (GNI).
Here GDP is the sum of the incomes earned through the production of goods and services. This is:
Income from people in jobs and in self-employment
+ Profits of private sector businesses +
+ Rent income from the ownership of land
= Gross Domestic product (by factor incomes)
+ Net Property Income from Abroad
= GNP
Depreciation
= National Income
We can also add income from Government Activities.
Only those incomes that come from the production of goods and services are included in the calculation
of GDP by the income approach. We exclude:
Transfer payments e.g. the state pension; income support for families on low incomes; the
Jobseekers’ Allowance for the unemployed and welfare assistance, such housing benefit.
Private transfers of money from one individual to another.
Income not registered with the Inland Revenue or Customs and Excise. Every year, billions of pounds
worth of activity is not declared to the tax authorities.

Product (or Output) Method

The market value of all the goods and services produced in the country by all the firms across all
industries are added up together.
GDP
+ Exports
• Imports
= GNP
• Depreciation
= National Income
Process
The economy is divided on basis of industries, such as agriculture, fishing, mining and quarrying, large
scale manufacturing, small scale manufacturing, electricity, gas, etc.
The physical units of output are interpreted in money terms
The total values added up. (GDP at market price)
The indirect taxes are subtracted and the subsidies are added. (GDP at factor cost)
Net value is calculated by subtracting depreciation from the total value (NDP at factor cost).
Economic Growth and Development
Economic growth is the expansion of national income. The rate of expansion is usually measured
from one year to the next. Economic growth can be achieved if countries increase their capacity to
produce. It is a quantitative increase in production.
Economic growth can be generated by:
The discovery of new resources
The more efficient use of existing resources
Improvements in technology
Improved labour efficiency
Negative Growth – This situation exists when there is a fall in productive capacity from one period to
another. It may also describe a failure of the economy to expand production.
Growth without Development- Economic growth can occur without development. While the economy
expands and the National Income increases the poverty and unemployment rates has increased as
well due to unequal distribution of income, corruption and fraud.
Economic Development- This describes qualitative changes in the economy. It refers to
improvements in the standard of living, human capital development and the enjoyment of freedoms. It is
sustained economic growth accompanied by policies that bring about structural changes such as
increase in exportation, decrease in importation, lesser dependence on foreign aid and important
infrastructural development. These changes will allow for higher levels of national income. Measures of
economic development include: Human Development Index, Infant mortality rate, literacy rates.

Role of Education or Human Resource Development (HRD)

In Economic Growth and Development
Investment in education is important for a country’s economic growth and development. Education
increases productivity as individuals who are trained and knowledgeable will be more efficient which
leads to increased output and increased economic growth. Education is the process of imparting
knowledge, skills, beliefs and cultures to empower and influence behaviour.
The long-term returns to investments in human capital such as; on the job training, coaching, mentoring
and e learning will reduce poverty.
International Trade
International trade consists of exports and imports between countries, which should cause an
improvement in people’s living standards through the principle of comparative advantage.
Comparative advantage is the idea that countries benefit from specializing in the production of goods
at which they are said to be more efficient.
It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place
between nations.

Absolute Advantage
The capability to produce more of a given product using less of a given resource than a competing
entity.
For example, consider again Country A and Country B. The opportunity cost of producing 1 unit of
clothing is 2 units of food in Country A, but only 0.5 units of food in Country B. Since the opportunity
cost of producing clothing is lower in Country B than in Country A, Country B has a comparative
advantage in clothing.
Thus, even though Country A has an absolute advantage in both food and clothes, it will specialize in
food while Country B specializes clothing. The countries will then , and each will gain.
Absolute advantage is important, but comparative advantage is what determines what a country will
specialize in.
Reasons for International Trade
Lack of certain natural resources to produce essential goods. Oil which is important to economic life
must be imported into countries that do not possess that natural resource.
Lack of capital, technology and specialist labour to manufacture certain goods on a large scale. For
example, Caribbean countries import machinery equipment and vehicle.
Differences in climatic conditions, e.g. many tropical countries import grapes and strawberries as
these produce need cool climates to survive.
Differences in the cost of production between countries. This reason is based on the principle of
comparative advantage which states that benefits will be gained from trade if countries produce goods
in which they have a relative advantage. Therefore, if two countries both produce cars and coffee but
each is more efficient at producing or produces either at a lower opportunity cost either car or coffee,
then trade can take place. The country that is more efficient at producing coffee should put all its
resources into coffee and import cars from the other country that is efficient in producing cars.
To earn foreign exchange to pay for imports.

Promotes necessary political connections between countries

Advantages of Int. Trade Disadvantages of Int. Trade

Increase utilization of productive capacity for Protection required by local firms

export

Increased employment for increased output Dumping of goods by developed countries

Improved standard of living due to increased Underdeveloped local industries

variety of goods

Increased quality of goods due to competition

REGIONAL AND GLOBAL BUSINESS ENVIRONMENT
Stages of Economic Integration
Preferential trading area – a free trade area or trading bloc giving preferential access to goods from
different countries eg. Tariffs
Free trade area – a group of countries eliminate barriers between each other eg. Tariffs and quotas and
may have different policies with members outside the area eg. increased tariffs.
Customs Union- free trade area with a common external tariff for non-members.
Common Market- a Customs Union with agreeing to adhere to the same product regulations and
freedom of movement of the factors of production. This is also called the single market when licences,
entry permits and taxes have been removed from trading.
Economic Monetary Union – a Single Market with a common currency.
Complete Economic Integration- final stage of economic integration; complete merging of policy making
with group decisions made on matters concerning all member countries.
Economic Institutions and Systems
Caribbean Community Common Market (CARICOM)
A common market is an association of countries that have joined together to bring about the
harmonious development, continuous economic expansion and increased stability of the countries
involved. CARICOM was formed in July 1973 when Barbados, Trinidad and Tobago, Jamaica and
Guyana signed the treaty of Chaguaramas. Since then the following Caribbean countries have joined:
Antigua and Barbuda, Belize, Dominica, Barbados, Suriname, Grenada, Montserrat, St. Kitts & Nevis,
St. Lucia, St. Vincent and the Grenadines and Bahamas and Haiti.
Associate members of CARICOM are Anguilla, Bermuda, British Virgin Island and Turk and Caicos.

Objectives of CARICOM
Improved standard of living.
Expansion of trade.
Joint negotiations internationally.
Co-ordination on foreign and economic policies.
Full employment of labour and other factors of production.
Economic integration.

Impact on the Caribbean:

Allow for increased trade between Caribbean countries because of the removal of trade restrictions
such as quotas and tariffs.
Improved standard of living.
Caribbean Single Market and Economy (CSME)
The CSME was established in 2006. It seeks to transform the common market into a single market and
economy. It was established to deepen the integration among Caribbean states and to respond
effectively to the challenges and opportunities globally.

Objectives of CSME:
Deepening economic integration.
Free trade of services.
Free movement of capital, labour and the freedom to establish business enterprises anywhere within
CARICOM states.
Widening of membership.
A common currency/single currency.

Impact on the Caribbean:

Increased economic growth amongst Caribbean states.
Reduced cost of goods between member states.
Caribbean Development Bank
The CDB is a regional financial institution. It finances regional projects that contribute to the economic
growth and development of the region. Sectors financed by the CDB includes: infrastructure, tourism,
mining and refining, agriculture, agriculture, manufacturing, health and education.

The objectives of the Caribbean Development Bank are:

Supporting regional and local financial institutions
Assisting borrowing member countries to optimize the use of their resources
To mobilize financial resources regionally and internationally
To support capital markets
Stimulating growth
Supporting business activities

Impact on the Caribbean:

Stimulation of business activity and improve economic growth.
Maintain economic and social stability.
Improved infrastructure and social services
The World Bank
The aim of the World Bank is to reduce poverty worldwide. It therefore assists developing countries by
providing loans for projects such as housing, infrastructure and industry. The World Bank provides long
term loans for developmental purposes. It is used interchangeably with the International Bank for
Reconstruction and Development (IBRD). However, the IBRD is only one of the five agencies of the
World Bank.
The five agencies of the World Bank are:
International Bank for Reconstruction and Development (IBRD) (loans)
International Development Association (IDA) (interest free loans and grants)
International Finance Corporation (Private sector investment)
Multilateral Investment Guarantee Agency (MIGA) (provides insurance on investment)
International Centre for Settlement of Investment Disputes (ICSID) (Arbitration and conciliation)

Impact on the Caribbean:

Stimulation of business activity and improve economic growth.
Maintain economic and social stability.
Improved infrastructure and social services
International Bank for Reconstruction and Development (IBRD)
The International Bank for Reconstruction and Development (IBRD) is a global development
cooperative owned by 189 member countries. As the largest development bank in the world, it supports
the World Bank Group’s mission by providing loans, guarantees, risk management products, and
advisory services to middle-income and creditworthy low-income countries, as well as by coordinating
responses to regional and global challenges.
The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects
that seek to improve transportation and infrastructure, education, domestic policy, environmental
consciousness, energy investments, healthcare, access to food and potable water, and access to
improved sanitation.

Impact on the Caribbean:

Improved infrastructure and social services
Organization of American States (OAS)
The OAS was established for the main purpose of increasing interdependence and solidarity, and
promoting regional co-operation and the peaceful settlement of disputes among the member countries.
These countries include: North and South America, Canada and the Caribbean.

Impact on the Caribbean:

Improved international relationships between member states.
World Trade Organization (WTO)
The WTO is an international organization that monitors and regulates trade among the nations of the
world based on trade agreements by member states. The WTO replaces the General Agreement of
Tariffs and Trade (GATT).
Their main aim is to encourage the free flow of trade among nations.
Their objectives include:
discouraging unfair trading practices e.g. export subsidies and selling products below cost to gain
market share
settling disputes among members
environmental protection
monitoring and reviewing the trade policies
increasing trade

Impact on the Caribbean:

Allows for Caribbean states to have greater access to international markets.
Allows for economic growth
Improves standard of living.
International Monetary Fund (IMF)
The International Monetary Fund is an international organization that aims to promote global economic
growth and financial stability, to encourage international trade, and to reduce poverty.
Activities involve:
Surveillance
The IMF collects massive amounts of data on national economies, international trade, and the global
economy in aggregate, as well as providing regularly updated economic forecasts at the national and
international level.
Capacity Building
The IMF provides technical assistance, training and policy advice to member countries through its
capacity building programs. These programs include training in data collection and analysis, which feed
into the IMF's project of monitoring national and global economies.
Lending
The IMF makes loans to countries that are experiencing economic distress in order to prevent or
mitigate financial crises. Members contribute the funds for this lending to a pool based on a quota
system.

Impact on the Caribbean:

Allows for Caribbean states to access financing for further economic growth.
Improves economic growth
Increased institutional strengthening through capacity building and technical advice.
Economic and Social Problems in the Caribbean
INDUSTRIALISATION
This refers to business activities such as production and manufacturing on a large scale. Major heavy
industrial activities in the Caribbean are in areas such as oil drilling, natural gas extraction and bauxite.
Problems involve: the disposal of industrial waste, reliance on primary production, capital intensive
nature of activities, high energy costs, and opportunity cost of investment in these areas.
UNEMPLOYMENT
Globalization has contributed significantly to unemployment in the Caribbean. With the removal trade
barriers, some industries have not been able to compete globally. The lack adequate skills that are
required for the new industrial paradigm for example, information technology skills have also
contributed to the problem of unemployment.
A high level of unemployment among the young people of the Caribbean may result in various social
problems, as survival may depend on illegal activities.

Types of Unemployment
Disguised unemployment- a worker is working less than the amount of ours in a normal work week
and not seeking additional employment in the remaining hours
Seasonal Unemployment – Persons are employed only when the season for certain types of
economic activities comes around eg. During the Carnival Season.
Casual Unemployment – Refers to persons who work on an on-and-off basis.
Cyclical Unemployment- Unemployment that occurs as a result of the cyclical nature of the economy.
People are laid off during a depression or recessionary period. Unemployment is reduced during
periods of boom.
Technological Unemployment- Unemployment that occurs as a result of the adoption or
implementation of technology or more capital intensive means of production. Increase automation and
mechanisation results in less need for human capital.
Structural Unemployment- Unemployment that occurs as a result of the long term changes in the
economy and results in decrease demand for a good or service eg. Movement away from agriculture
based production to tertiary production.
Frictional Unemployment- Unemployment that occurs as a result of the period of time between one
losing or leaving a job and subsequently finding one.
Residual Unemployment- Unemployment that occurs as a result of persons not having the capacity to
undertake or engage in employment.

Reasons for unemployment

firms e.g. multinationals closing down
lack of investment to create new businesses
lack of skills training
POPULATION DENSITY / OVERPOPULATION
A situation where there is an excess of persons living in a defined area.
Population density Refers to the average number of people living on every square kilometre in a
country. The formula used for calculating population density is:
Density of population = Total population
Area (sq. km.)
Increases in population may be caused by:
Increase in birth rate
Lower mortality rate
Migration
Net Natural Increase = If birth rate exceeds the death rate.
Very high population densities can indicate overpopulation. This occurs when the facilities in a location,
are not able to serve the number of persons in that location. This will cause heavy competition for jobs,
schools, health facilities etc. as well as reduction in the standard of living and increased poverty and
crime.
MIGRATION
Caribbean people migrate to first world countries in search of opportunities such as employment and
education. When skilled and professional workers migrate, Caribbean countries may experience
shortages in critical areas such as health care. Loss of skilled workers from industry will also retard
growth and development. Social problems may arise when children are left in the care of grandparents
and other relatives who have challenges to discipline them.
URBANISATION
A situation where persons move from rural areas to settle in cities and towns. Problems occur in that:
The rural- urban drift results in fewer persons being left in rural communities. This reduces the labour
supply in those communities. Urban communities will tend to become overcrowded.
Government can reduce urbanisation by:
Develop policies and give incentives to owners to spread industries and businesses throughout the
country and not only concentrated in the towns and cities.
Develop infrastructure such as roads and water in rural areas.
Improve rural life to encourage persons to want to continue to live there.
Require persons who because of living in the rural areas have obtained training, to stay and develop
these areas.
Loan schemes for rural business owners.
DEBT BURDEN
This arises from a country’s borrowing to finance deficits. Eventually the country has to repay the loan
with interest and a substantial amount of revenue generated has to go towards financing this loan from
institutions such as the IMF and World Bank. Many Caribbean countries have high debt- to-GDP
ratios. This ratio is the amount of national debt of a country as a percentage of its Gross Domestic
Product. High debt-to-GDP can stifle an economy as a large portion of its GDP is consumed in debt
payment and very little is left for investment in the economy. A very low debt- to- GDP ratio is desirable
for economic growth and development.
SOURCING CAPITAL AND RAW MATERIALS
While the Caribbean might be rich in certain natural resources such as bauxite, oil and gold the region
lacks other very important resources such as capital and entrepreneurial skills. Capital is important as it
increases production through the use of machinery, equipment and money invested. The spirit of
entrepreneurship is necessary for the creation of new business ideas and entrepreneurship skills are
important for the successful running of the businesses. FDI and domestic savings can be utilized to
raise the necessary capital.
ECONOMIC DUALISM IN THE REGION
Economic dualism occurs in countries where there exist two opposite economic sectors. One sector is
characterized by development, capital intensive industries, large scale farming and technological
advancement, and the other sector is characterized by subsistence farming, labour intensive industries,
handicraft industries and simple trading means of survival.
Division in the economy is as follows:
Technologically advanced eg. Large scale manufacturing and tourism, Finance, Insurance,
Petroleum, Mining.
Technologically retarded eg. Cottage Industries, Small Scale manufacturing, Peasant agriculture.
Possible solutions to Economic and Social Problems
Access to Foreign Direct Investment (FDI)
Foreign Direct Investments refers to capital investments into factories, machinery and equipment by a
foreign company or an individual. FDI is important for the development of Caribbean economies as they
are challenged by their high debt- to-GDP ratios and increased global competition for export earnings.
Attracting foreign direct investment is a way for Caribbean countries to obtain capital for growth and
development.
FDI can be done in two ways:
Selling securities to foreigners or through portfolio foreign investment – Shares are offered on
the international stock market and foreign firms are allowed to buy shares but does not control the firm.
Direct foreign investment – Investors set up their business in the country.
Benefits of FDI include:
Employment for nationals
Increased access to global markets
Introduction of advanced technologies and processes
Improvement in human resource skills
Disadvantages
Most of the profits are sent to the foreign country
In the long run balance of payments will deteriorate
Foreign investment has the potential to create dualism.
Development of human resource
Investment in human resources is imperative for Caribbean economies to compete globally. Improving
the value of human resources through education and training will increase the productive capacity of
Caribbean countries.
Development of manufacturing sector
The manufacturing sector creates value added products which increases export earnings for Caribbean
economies. Developing the manufacturing sector therefore will impact on the potential economic
growth of a country.

Methods of developing the manufacturing sector:

Encouraging Foreign Direct Investment
Retooling
Research and development
Technological advancement