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PRINCIPLES OF BUSINESS

SECTION 1- NATURE OF BUSINESS

NAME__________________________________________________________

GRADE________________________________________________________

OBJECTIVES

i. Explain the development of barter

ii. Describe the role of money

iii. Identify the instruments of exchange

iv. Interpret information on various instruments of payment

v. Differentiate between private and public sectors

vi. Describe the various forms of business organizations and arrangements

vii. Differentiate among the types of economic systems

viii. Describe the functional areas of a business

ix. Identify the stakeholders involved in business activities

x. Discuss the role and functions of the stakeholders involved in business activities xi.

Explain the ethical and legal issues in the establishment and operations of a business

xii. Explain the principles that must be adopted in the establishment and operation of a
business

xiii. Explain the consequences of unethical and illegal practices in business

xiv. Describe the careers in the field of business

1.1 DEVELOPMENT OF THE BARTER SYSTEM

∙ Early people had a simple way of life, they would provide all their needs themselves without
the help of others, this is called direct production.
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∙ People would hunt animals and gather plants and berries. Some farmers would grow crops
and keep animals for the purpose of feeding themselves. They were living in a subsistence
economy [that is providing just enough to survive but there was no surplus for trade.].

∙ In time people began to improve their way of living by building permanent homes
and making tools to satisfy their way of living. They began to produce more goods
than required, thus resulting in a surplus.

∙ As a result of the surplus, people began exchanging goods for surplus of others. The
exchange of one thing for another without the use of money is called Barter.

ADVANTAGES BARTER
i. It allows people to get rid of any surplus goods and at the same time allows them to
obtain a wide variety of things they needed.

ii. It facilitated an improvement in the way people lived

iii. It allowed people to specialise in producing the thing they could do best

iv. It increased productivity and resulted in more surplus and further wealth

DISADVANTAGES OF BARTER

i. Coincidence of Wants
∙ An individual must have what another person needed and be prepared to exchange it.

∙ E.g. Jim wants to acquire shoes in exchange for wheat then he must find another
person who wants the wheat for the shoes

ii. An Exchange Rate

∙ This involves deciding on the right quantity of goods acceptable in the exchange
process.
∙ E.g. How many chickens should be exchanged for an axe-head/hammer

iii. Divisibility of Goods

∙ The rate of exchange would be difficult because some goods used could not be split
into smaller parts.
∙ E.g. if the price of a horse is equal to 10 shirts then a person having one shirt cannot
exchange it for the horse because it is not possible to divide the horse in small pieces
without destroying its usefulness.

iv. Storage of Wealth

∙ Many goods which had to be exchanged could not be saved for use at a future date
because they could not be stored for a long period of time.
 1.2 BRIEF HISTORY OF TRADING INSTRUMENTS

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1) Money is anything that is generally accepted as a medium of exchange and used to

purchase goods and services. Money is a legal tender- that means, it is acceptable as
a means of payment.

2) In early societies the barter system was used as a method of exchange in which one
good or service is exchange for another before a system of money was used.

3) The barter system allowed farmers and hunters to swap surplus goods, beads or
shells in exchange for goods they could not produce themselves. However, the barter
system had several limitations such as: double coincidence of wants, exchange
rates, divisibility of good and storage of wealth

4) To overcome the disadvantages of the barter system a common medium of exchange

had to be developed. The problem was solved with the use of money, gold and silver
were used as money.

5) Today money is in the form of notes, coins and other modern means of instruments
of exchange [bill of exchange, credit card, debit card, cheques etc.]

Characteristic of Money Functions of Money

Durable-does not rot or wear out easily A medium of exchange - for quick and easy

purchase

Divisible-so that change can be given A measure of value - to determine prices

Portable- it can be carried A store of value-it can be saved

In limited supply-this prevents people from spending A standard of deferred payment- it can be used to pay in

more without working to earn it the future

1.3 INSTRUMENTS OF EXCHANGE

∙ In today’s economy there are other trading instruments apart from money. These include;
barter system, bill of exchange, electronic transfers, telebanking, e-commerce, a cheque,
money order, debit cards, credit cards, bank – draft, telegraphic money transfer [t/t],
internet banking, mobile money and mobile wallets.

1.4 INTERPRET THE INSTRUMENTS OF EXCHANGE

∙ Barter System - a method of exchange in which one good or service is exchanged for
another, no money is used.

∙ Bill of exchange – a document that instructs one person to pay a fixed amount of money
to another at a future date.

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∙ Electronic transfers- involves the movement of funds from one account to another
electronically.

∙ Telebanking – carrying out banking transaction via telecommunications net- work,

customers can telephone from home/office and instruct the bank to make payments.

∙ E-commerce –the buying and selling of goods and services or transmitting of funds or
data via the internet. It involves business to consumer transaction or business to business
transactions.

∙ A Cheque- is a written instruction to the bank to transfer certain sum of money to the
account of the payee [person receiving the money].

∙ Money order -is used as a method of payment which is sold by the bank to persons who
wish to make overseas payment for good and services. It clearly states the amount to be
paid and the name of the person it is to be paid to.

∙ Debit Cards - are ATM cards issued by the banks that can be used to buy goods and
services. They are swiped by the shop assistant to obtain authorisation from the issuing
bank computer centre. If there is sufficient funds, the card is approved for purchase

∙ Credit Cards - are used to pay for goods and services on credit from a business, card
holders have a limit and cannot exceed that amount. The amount paid must be repaid by a
due date, if not interest rates are charged.

∙ Bank – Draft - is a cheque from one bank to another bank for payments in the name of a
particular person or organization. It is used to make payments for goods and service in a
foreign currency.

∙ Telegraphic Money Transfer [T/T] - is an electronic means of transferring money from

one bank account to another. The bank communicates by computer, telex or cable in
order to carry out the transactions.

∙ Internet Banking- allows customers to have direct access to their own accounts on-line
where they can check the balance on their accounts and make payments to suppliers.

∙ Mobile Money and Mobile Wallets - this is an app on the phone that is connected to the
individual’s bank account that allows paying for an item using your phone E.g. Grace
Kennedy’s PayPak
 1.5 DIFFERENCE BETWEEN PRIVATE SECTOR AND PUBLIC SECTOR

∙ The private sector is that part of the economy which consist of businesses owned and
operated by private individuals. [private enterprise]

∙ The public sector is that part of the economy which consist of businesses owned and
operated by the government. [public enterprise]

DIFFERENCES

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Private Sector Public Sector

Ownership private individuals government Aims to make profits to provide social
services Source of finance profits and loans the government
Distribution of profits dividends from profits are paid to 1.6 FORMS OF BUSINESS ORGANIZATIONS Sole
shareholders
Type of products goods and services demanded by Trader
consumers profits goes to the
Type of business sole trader, partnership, company, government
franchise, public goods such as street lights and health care Ministry
cooperatives of Education, Health, Agriculture etc.

∙ Definition- a business in which one person provides the capital and gets all the profit.

Characteristics

∙ Formation – no legal formation but the firm must be registered with the registrar of
companies
∙ Management – managed by one person

∙ Examples – retailing, hairdressing, catering services

Advantages

∙ Easy to set up, that is a small amount of capital needed and no legal formalities ∙
Owner has complete control and can take decisions quickly, he is not answerable to
anyone
∙ Owner keeps all the profits, this can be used to develop the business ∙ The
business is based on the personal interest or skills of the owner rather than
working for someone

Disadvantages

∙ Unlimited liability –owner’s personal assets can be used to pay off debts if the
business fails
∙ Usually experience difficulty in raising capital therefore the business remains small

∙ Owner usually work long hours and suffers all losses if the business fails ∙ Lack of
continuity- when the owner dies the business comes to an end

Partnership

∙ Definition - a business formed by 2 to 20 persons providing capital and shared

responsibilities

Characteristics

∙ Formation- the business must be registered with the registrar of companies, they must
submit a legal document called a partnership deed, that sets out the guidelines for
the operation of the partnership
∙ Management – managed by the partners

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∙ Examples of partnership businesses – law and accounting firms

∙ Types of partnerships: joint ventures, syndicates, and limited partnership

Joint venture: is a special type of partnership established to perform a

single business activity and closes when the activity has been completed.
E.g. NHT joins with the Matalons to build houses, where the
government provided the land and WICHON built the houses.

Syndicates: is a group of persons or business organization that are given

legal authority to carry out a specific business transaction. E.g. a group
of persons coming together to build a children’s park.

Limited Partnership: consists of a business that has both unlimited

liability and a limited liability partners.

Advantages
∙ Better management - partners may specialise and have different skills

∙ Better decisions- partners discuss issues before arriving at a decision

∙ Larger capital - more capital can be raised since more people contribute to the
running of the business
∙ Sharing of losses and problems –the burden is for all and not just one person

Disadvantages

∙ Unlimited liability – partners personal assets can be used to pay off debts if the
business fails
∙ Lack of continuity - new partnership will be formed upon death or resignation of a
 partner
∙ Delay in taking decisions - partners have to discuss issues before arriving at a
decision
∙ Lack of capital to expand – the capital is more than a sole trader, but it is still
difficult for the business to expand

Co-operative

∙ Definition- a business owned, controlled and operated by a group of users for their
own benefit.

Characteristics

∙ Formation- formed by a group of persons who might be producers or users of a

product or service.
∙ Management – a committee is formed to handle the day to day activities of the
business.
∙ All members have one vote and contribute to sharing responsibilities and decisions

∙ Cooperatives fall into two main categories mainly

- service cooperatives e.g. credit unions (St Catherine Cooperative Credit
Union), housing, marketing, insurance
- agricultural cooperative – assist members with different kinds of assistance
such as providing farm supplies/equipment, agricultural technology or transport
service.

Advantages

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∙ Betters decisions are made as members work together to solve problems and make
decisions
∙ Profits are shared in the form of dividends based on the number of shares held by
each member
∙ Members can trade with the cooperative society i.e. they can buy from them and sell
to them

Disadvantages

∙ Unable to expand due to limited finance – members do not have resources and
profits may be low
∙ Inefficient management - members may not have the experience of running a
business
∙ Delay in decision making – all the members have to be consulted on major issues

Franchise

∙ A business that uses the name, logo and trading system of an existing business. E.g.
Burger King, Pizza Hut, Dominoes, KFC, Federal Express, Wendy’s.
Characteristics

∙ Formation – the parent company (franchisor) is the owner of the franchise and the
franchisee has to pay a fee.
∙ Management – the franchise is managed by the franchisee, however, he/she has to
abide by the rules and regulations of the parent company.

Advantages

∙ Less chances of the business failing as a well-known name is being used

∙ Advice and training are offered by the franchisor

∙ Supplies are obtained from established suppliers

Disadvantages

∙ Revenues have to be shared with the franchisor

∙ Initial license fee is expensive

∙ There is no choice of supplier

Limited Companies

(i) There are two types of companies: private limited and public limited. (ii) A limited
company raises capital by selling shares and debentures. (iii)The business must be
incorporated i.e. it has a separate legal identity from its owners. (iv)A company has
limited liability, i.e. in case the business fails the shareholders will lose capital
contributed and not personal assets.

Private Limited Company

∙ Definition - a business with 2-50 shareholders who are often family members.

∙ Formation- the business must give the registrar of companies the following
documents: (i) the memorandum of association, (ii) the articles of association, and

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(iii) statement of authorised capital and then it receives a Certificate of

Incorporation to start operations.

∙ Management - by individuals/family members involved in the business.

∙ The company’s name must include the word limited (Ltd)

Advantages
∙ Limited liability – in case the business closes down the shareholders will only lose
their capital and not personal assets
∙ Can raise capital by selling shares privately to individuals

∙ It has a separate legal entity, that is, a company can sue and may be sued (but not its
owners)
∙ Greater continuity means that shares can be sold to someone and the company
continues

Disadvantages

∙ Too many legal formalities, this may be costly and time consuming ∙ Too many legal

requirements that is, end of year accounts must be published ∙ Selling of shares is
restricted to private individuals only and not to the general public

Public Limited Company/Joint Stock Company

∙ Definition – a business with at least seven members that offers shares to the public. It
must have the words ‘Plc’ or ‘Inc’ after the company’s name.

∙ Formation – the business must give the registrar of companies the following
documents in order to be registered; (i) the memorandum of association; (ii) the
articles of association; (iii) the statement of authorised capital and ; (iv) the
prospectus and then it receives a Certificate of Trading to start operations.

∙ Management - by a board of directors who appoints an executive director.

Advantages

∙ Limited liability – in case the business closes down the shareholders will only lose
their capital and not personal assets
∙ It can raise capital by selling shares publicly

∙ It has a separate legal entity, that is, a company can sue and may be sued (but not its
owners)
∙ Greater continuity – it does not close down on the death of a shareholder

Disadvantages

∙ Too many legal formalities – this may be costly and time consuming ∙ Too many legal

requirement – that is, end of year accounts must be published ∙ Risk of takeover- control
may be lost if another company obtain enough shares in the company

Documents that Must be Summited by Limited Companies

(i) Memorandum of Association

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 ∙ It governs the company’s relationship with the outside

∙ It contains: The company’s name with the word ‘limited’, the address, and the
objectives of the company

(ii) Articles of Association

∙ This document controls the internal running of a company

∙ It contains: procedures for calling annual general meetings (AGM), procedures

for election of directors and a statement concerning borrowing powers of the
company

(iii) Statement of Authorised Capital

∙ This is the maximum amount of capital which a company is allowed to raise

(iv) The Prospectus

∙ This is an invitation to the public to buy shares in a public limited company

∙ It contains the following information:

✔ information about the business venture

✔ objectives of the company

✔ details of the types of shares and the amount of shares being sold

✔ instructions how to apply for shares

Capital Structure of Limited Companies

(i) Authorised capital

∙ The maximum amount of share capital a company is allowed to raise through

issuing/ selling shares

(ii) Shares
∙ A share is a unit of a limited company’s capital. The two types of shares are
Preference and Ordinary shares

∙ When a person buys a share, he/she is given a share certificate and receives
dividend when the company makes profit
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100 X $200 = $2000

(iii) Debentures
∙ This is a loan given to a company from members of the public

∙ The person who lends the company money receives a fixed rate of interest
whether or not the business makes profit.

1.7 ECONOMIC SYSTEMS

∙ An economic system is the way in which a society allocates scare resources to

produce goods and services to satisfy wants of the population.

Types of Economic Systems are:

1. Traditional [Subsistence]
2. Free Market [Capitalist Economy]
3. Planned/Command or Socialist Economy
4. The Mixed Economy

. Traditional

∙ This is based on traditions and customs where nearly the entire population is engaged
in agriculture and produce enough food for their needs.
∙ E.g. in early societies, the Taino tribe produced enough food to satisfy their needs
using the barter system.

Free Market

∙ Economic resources are owned by the private individuals with very little government
intervention. E.g. USA and Japan
∙ The consumer influences the producers’ decisions on what to produce

∙ Goods and services are bought and sold in the market

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Advantages

∙ Incentive to work is high, as a result, the labourer is free to work where he is paid the
best
∙ Competition among firms results in greater efficiency and reduced prices ∙
Consumers are free to spend their money in any way therefore the firm produces
more goods that are in demand
∙ A large variety of goods and services are made available

Disadvantages

∙ Great inequality with income and wealth, this contributes to poverty being a major
issue
∙ Large sums of money are spent on advertising, this creates an artificial demand for
goods
∙ Wealthy people have more economic power than the poor

∙ People’s basic needs may not be met e.g. health and education

Planned/Command Economy

∙ One in which all the resources are owned and economic decisions are made by the
government e.g. health, education
∙ E.g. countries with planned economy- North Korea, Cuba, China

Advantages

∙ Basic needs of the population are met

∙ There is little inequality of wealth and income

∙ There is less waste of resources

Disadvantages

∙ Private firms do not exist to compete with each other and force prices down

∙ There is less incentive to work hard to earn more or make profits ∙ There is
limited consumer choice

The Mixed Economy

∙ One in which economic resources are owned and controlled by both private and
public sector. E.g. Jamaica, Trinidad and Tobago
∙ E.g. the government provides services such as; defence, hospitals, schools, and
public health

Advantages

∙ The government is free to make laws to protect consumers from unfair trading
practices
∙ A wide variety of goods are provided by both government and private individuals
 Disadvantages

∙ Too much government intervention may result in conflict between private and public
sector
∙ State owned firms are allowed to operate inefficiently wasting resources

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(iii) Differences between free market and planned economic system

∙ In the free market economic system economic resources are owned by the private
individuals with very little government intervention while in the planned economic
system all the resources are owned by the government.

∙ In the free market economic system incentive to work is high while under the
planned economic system there is less incentive to work

∙ In the free market economic system there is great inequality with income and wealth
while under planned there is little inequality of wealth and income

∙ In the free market economic system people’s basic needs may not be met while in the
planned economic system basic needs of the population are met

1.8 FUNCTIONAL AREAS OF A BUSINESS

∙ Functional areas of a business refer to how the organization is structured for efficient
operation. This means that the activities of the business are grouped accordingly to
the nature of what is required.

∙ A small business will be managed by one person, however, a large business will be
managed by more than one persons with specific skills.

∙ Functional areas of business include: marketing, production, personnel, finance

and research and development.

Production

∙ This department is responsible for converting raw materials into goods and services
needed by customers to satisfy their needs and wants.
∙ The functions include: buying raw materials, ensuring high quality production,
storing material and finish products.

Marketing
 ∙ This department is responsible for finding out what customers want and how this
can be promoted and sold.
∙ The functions include: pricing the product, promotion and advertising, distribution
and selling and market research.

Personnel/Human Resource

∙ This department responsible for recruiting the right person with the expertise to carry
out the job, it is responsible for the employee’s welfare
∙ The functions include: recruitment of staff, staff training, disciplining of workers,
staff wages, sick leave and pension schemes.

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Finance

∙ This department is responsible for managing the finances and cash flow of the
business.
∙ The functions include: keeping up-to-date accounts, keeping cash flow records,
keeping within the budget and obtaining new finances.

Research and Development

∙ This department is responsible for seeking to improve its product or service in order
to maintain its competitive edge.
∙ The functions include: redesigning or rebranding, financial research, and conducting a
feasibility study

1.9 STAKEHOLDERS IN BUSINESS ACTIVITY

∙ It is important to identify stakeholders in a business so that the organisation knows

who depends on it for survival and knows who has an interest in the business.

∙ Stakeholder - an individual or group with direct interest in the operations and

performance of a business

∙ Examples of Stakeholders - employees, employers/owners, customers, suppliers,

government and members of the society.

1.10 ROLE OF STAKEHOLDERS IN BUSINESS ACTIVITY

Role of Employer/owner
 ∙ To provide goods and services of high quality and reasonable prices

∙ To manage resources (employees, raw material, equipment) efficiently

∙ To provide good working conditions, fair payment of wages etc.

Role of Employees

∙ To provide the labour needed to allow goods and services to be provided

∙ To efficiently use resources placed in their care

Role of Customers

∙ To purchase and use the products it was intended to be used for

∙ To provide feedback on the product through complaints and suggestions

Role of Government

∙ To protect customers through laws

∙ To provide law and order to allow legal business activity to take place

Role of the Society

∙ To provide local services and infrastructure to the business

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1.11 ETHICAL AND LEGAL ISSUES IN A BUSINESS

∙ Ethical and legal issues are laws and regulations that guides the decisions of an
entrepreneur. Ethical issues are basic principles of what is legally right.

∙ Legal issues refer to activities that are guided by the laws of a country. These laws
must be followed, or persons will suffer the penalties such as paying a fine or going
to prison.

∙ Ethical and legal issues relating to the establishment and operation of a business
include:

✔ ensuring that the business is a bona fide firm establishment and not using it as
a front for money laundering and other illicit activities.

✔ ensuring that capital is legally obtained and not tainted with illegal operations
as the source of funding.

✔ ensuring that national insurance contributions and taxes are paid

 1.12 THE ETHICAL AND LEGAL PRINCIPLES THAT MUST BE ADOPTED
IN THE ESTABLISHMENT AND OPERATION OF A BUSINESS

∙ Ethical and legal principles that must be adopted in establishing the operation of a
business include:

✔ adopting an organization’s code of ethics

✔ adopting good environmental practices

✔ handling personal information carefully

✔ getting a legal source of funding

✔ ensuring taxes are paid to the government

✔ ensuring that the business is registered

1.13 CONSEQUENCES OF UNETHICAL/ ILLEGAL PRACTICES IN BUSINESS

Advertising
∙ The law states that a business should create honest and realistic advertisements.

∙ Consequences of misleading advertising – the firm will lose customers as they

may boycott the product.

Payment of Taxes
∙ The law states that all taxes must be paid over to the state, this money will be used
for the development of the country.
∙ Consequences of not paying taxes - this may lead to legal actions being taken
against the business leading to heavy fines or imprisonment.

Environmental Issues
∙ The law provides guidelines about disposal of waste and packaging to be used
however, some businesses may go undetected for years.
∙ Consequences of unethical disposal of waste- this may lead to pollution in the
environment and fines being imposed by the courts.

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Use of Safe and Good Quality Raw Material

∙ A business should use safe and good quality raw material to make its products.

∙ Consequences of making cheap and unsafe product – this may create health
problems or a loss of customer support.

Not Accepting or Offering Bribes

∙ An entrepreneur should not accept or offer bribes, this will encourage the
customer that the business is always doing the right thing.
 ∙ Consequences of accepting or offering bribes - this may result in the entrepreneur
being fined or imprisoned.

Money Laundering
∙ A business should avoid the practice of money laundering, this is where an
entrepreneur receives money illegally through serious crimes such as drug trafficking
but makes it appear legal.
∙ Consequences of money laundering – this may result in the entrepreneur being fined
or imprisoned.

1.14 DESCRIPTION OF CAREERS IN THE FIELD OF BUSINESS

i. Advertising and public relations

ii. Compliance officers
iii. Strategic planners
iv. Educators (online and face to face)
v. Information Officers
vi. Entrepreneurs
vii. Resource Personnel
viii. Web designers
ix. Web Planners
x. Software Developers

Advertising and Public Relations [PR]

∙ An Advertising and PR job involves a number of activities, these include; ensuring

advertisements are posted, writing and editing press releases and newsletters as well
as answering customer service calls and emails.

∙ Job candidates applying for jobs in advertising and public relations must be proficient
in reading, writing and good communication skills.

Compliance Officer

∙ A compliance officer ensures that the business functions in a legal way while meeting the
objectives of the firm. They have to comply with product safety legislation and health
and safety legislations.

∙ A compliance officer needs to have good people skill because they need to talk to key
persons who create company laws to find out what is expected.

Strategic Planners
∙ They are responsible for identifying long and short-term goals of the firm and developing
ways to accomplish them.

∙ To be a successful strategic planner you must have excellent analytical skills, be able to
look at the company’s current methods and make improvement where needed.

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Education (online and face to face)

∙ The education sector provides rewarding careers such as teachers, school principals,
college lecturers, education officers, librarian among others.
 ∙ Teacher/lecturer provides education and training courses within an institution.

∙ Online learning, or virtual classes are offered over the internet and has become popular
because the student can learn the content at any-time convenient to them.

Information Officer
∙ An information officer is responsible for storing data, managing data, safe keeping of the
data and ensuring it is easily accessible.

∙ They should have good computer skills as most of their work involve using computers.

∙ E.g. the role of an information officer in a pension department of a company would

involve keeping an employee’s record of how much pension he/she has
contributed.

Entrepreneur
∙ An entrepreneur is someone who shows vision and creativity, taking the financial risk
of starting and managing a new business.

∙ An entrepreneur needs to have a number of characteristics in order to be successful, these

include; being self - motivated i.e. being able to push yourself to succeed, be willing to
take a risk and being flexible i.e. being willing to change when necessary.

Resource Personnel
∙ The human resource personnel is responsible for recruiting, screening, interviewing
and placing workers.

∙ They are also responsible for training, creating job descriptions, creating job
advertisements and creating questions that will be asked in the job interview.

ACTIVITY #1

Make brief notes on the following careers

a) Web designers
b) Web Planners
c) Software Developers

The description should include: definition, roles and skills needed . (15 marks)

REVIEW QUESTION #1

a) Define the term subsistence economy (2 marks)

b) (i) List TWO instruments of exchange (2 marks) (ii) Explain ONE difference between
the private sector and the public sector. (2marks)

c) State TWO characteristics of EACH of the following forms of business organizations sole
trader and partnership. (4 marks) [Total 10 marks]

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REVIEW QUESTION #2

1 a) (i) Identify the names of TWO franchises in the Caribbean ( 2 marks)

( ii)Explain ONE benefit of operating a franchise (2 marks)

(iii) Differentiate between the free market economic system and the planned economic
system (6 marks)

b) Describe ONE role of EACH of the following stake holders in business (i) employers

(2marks) (ii) employees (2marks)

c) (i) Identify TWO legal/ethical business practices (2 marks) (ii) Describe the consequences

of unethical business practice for EACH of the business practices named in c (i) above (4

marks)

REVIEW QUESTION #3 [CSEC January 2017/2018

a) Define each of the following terms

(i) Barter (2marks) (ii) Mobile wallet (2marks)

b) State two characteristics of cooperatives [2marks] c) Distinguish between EACH of

the following pairs of concepts

(i) Sole trader and partnerships (4marks) (ii) Private sector and public sector
(4marks)

d) State TWO characteristics of each of the following types of economic systems

(i) Planned economy (2marks) (ii) Free market economy (2marks) (iii) Mixed economy (2
marks)

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SECTION 2- INTERNAL ORGANIZATION

OBJECTIVES
 i. describe the functions of management

ii. outline the responsibilities of management

iii. construct simple organisational charts

iv. interpret simple organisational charts

v. outline the essential characteristics of a good leader

vi. discuss the different leadership styles

vii. identify potential sources of conflict within an organisation;

viii. outline strategies used by employers and employees to gain an upper hand during
periods of conflict

ix. describe strategies for the resolution of conflict within an organisation

x. establish guidelines for the conduct of good management and staff relations in the
workplace;

xi. identify strategies for motivating employees in a business

xii. evaluate the role of teamwork in the success of an organisation xiii.

outline strategies for effective communication within an organisation

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INTERNAL ORGANIZATIONSAL ENVIRONMENT

2.`1 FUNCTIONS OF MANAGEMENT
▪ Management is bringing together all the human resources and non-human resources in
an effort to meet the organization's goals.
▪ The functions of management are designed to create an environment in which the
goals of the organization can be pursued in an efficient manner. These include:

Planning

▪ This is concerned with defining goals for the future of the organization, deciding the

direction the business should take and the resources needed.

Organizing

▪ This involves bringing together the factors of production: land, labour, capital and
enterprise.
▪ It also means planning who is going to do a particular task and who is going to
supervise the job

Directing

▪ This involves giving instructions and getting people to work in an efficient and
effective manner.

Controlling

▪ This function involves monitoring the employee’s activities to determine if

the organization has achieved its target and make corrections if necessary.

Co-ordinating

▪ This function involves making all the resources in a business work efficiently to
avoid confusion and duplication of activities between departments.

Delegating

▪ This involves assigning a task to subordinates so that the manager can have more
time to devote to more important issues.

Motivating

▪ This is a process where workers are inspired to do their best and take responsibility for
their own work.

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FUNCTIONAL AREAS OF A BUSINESS (this section is brought over from chapter 1) ∙
Functional areas of a business refer to how the organization is structured for efficient
operation. This means that the activities of the business are grouped accordingly to the
nature of what is required.

∙ A small business will be managed by one person however, a large business will be
managed by more than one persons with specific skills.

∙ Functional areas of a business include: marketing, production, personnel, finance

and research and development.

Production

∙ This department is responsible for converting raw materials into goods and services
needed by customers to satisfy their needs and wants.
∙ The functions include: buying raw materials, ensuring high quality production,
storing material and finish products.

Marketing

∙ This department is responsible for finding out what customers want and how this
can be promoted and sold.
∙ The functions include: pricing the product, promotion and advertising, distribution
and selling and market research.

Personnel/Human Resource

∙ This department is responsible for recruiting the right person with the expertise to
carry out the job, it is responsible for the employee’s welfare.
∙ The functions include: recruitment of staff, staff training, disciplining of workers,
staff wages, sick- leave and pension schemes.

Finance

∙ This department is responsible for managing the finances and cash flow of the
business.
∙ The functions include: keeping up-to-date accounts, keeping cash flow records,
keeping within the budget and obtaining new finances.

Research and Development

∙ This department is responsible for seeking to improve its product or service in order
to maintain its competitive edge.
∙ The functions include: redesigning or rebranding, financial research, and conducting a
feasibility study
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2.2 RESPONSIBILITIES OF MANAGEMENT

▪ Businesses have a duty to demonstrate that they care about their stakeholders such as:
owners, employees, society, customers and the government.
▪

Management Responsibility to Owners

▪ To maximize efficient use of resources to reduce wastage

▪ To earn profit to pay dividends to shareholders

▪ To keep owners informed through annual reports

Management Responsibility to Employees

▪ To pay fair wages

▪ To provide good working conditions

▪ To offer training courses to develop workers

Management Responsibility to the Society

▪ To provide stable employment

▪ To avoid damages to the environment

▪ To sponsor special social/cultural events

Management Responsibility to Customers

▪ To charge fair prices

▪ To provide quality products

▪ To offer pre-sales and after-sales services

Management Responsibility to Government

▪ To observe all legal laws

▪ To pay all necessary taxes

▪ To provide all information required by government

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2.3 CONSTRUCTING SIMPLE ORGANIZATIONAL CHARTS

Organizational Charts

▪ An organizational chart is a diagram of the organizational structure

showing different management and employee positions in a business.

It also shows:
i. the levels of authority and the span of control
ii. the department the manager is responsible for
iii. a formal relationship in the organization

2.4 Interpretation of the Chart

▪ The most senior position is placed by itself with no other position at that level ▪
All positions with the same level of authority but different departments are placed on
the same level
▪ Span of control – the number of subordinates reporting directly to the manager. It can be narrow or wide

▪ Chain of command-the route through which authority is passed down from the chief executive

Types of Organizational Charts

Functional

▪ The functional structure is designed according to the functional areas of a business such as production,
marketing, finance. In this structure, the staff of the production department reports to the production manager.
[Example on page 82 – POB textbook]

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Line Organization
 ▪ Authority flows from the top-most person in the organization to the person in the
lowest rung. In these organizations a supervisor exercises direct control over a
subordinate. [Example on page 80 – POB textbook]

Line and Staff

▪ The line manager has ultimate authority in a firm and the staff managers assist
them in carrying out certain activities in the organization.

2.5 ESSENTIAL CHARACTERISTICS OF A GOOD LEADER

❖ A leader is someone who influences and directs workers towards achieving the
goals of the organization. The main characteristics of a leader are:

▪ Must have the ability to communicate with clarity - so that workers can understand
what is being said and not misinterpret the information
▪ Must be willing to listen - this will enable the leader to solve conflicts and problems

▪ Must be a critical thinker and be able to solve problems- being able to look at
alternatives before making a decision
▪ Must be able to motivate others to be self-driven- this enables workers to
accomplish a task quickly
▪ Must be creative- be able to come up with new ideas

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 ▪ Must have self- confidence - this allows the workers to have confidence in their
leader resulting in their willingness to follow his/her instructions

2.6 DIFFERENT LEADERSHIP STYLES

▪ Leadership styles refer to the way in which a manager makes decisions and deals
with his/her staff. Leadership styles include - Autocratic, Democratic and Laisser-faire

Autocratic

▪ One who takes decisions alone with no discussion, the workers are not involved in the
decision-making process. It is best suited for military service, army, and the police force

Advantages

▪ Makes quick decisions without the need to consult others so no time is wasted ▪
Supervises workers closely, this will eliminate the tendency for workers to ‘slack off
’resulting in increased productivity
▪ Takes full control of the organization and get persons to carry out the required

task Disadvantages

▪ The leader is a poor motivator- this demotivate workers who want to contribute
and accept responsibility
▪ This leadership style does not contribute to team building since the leader is

detached ▪ This leadership style leads to resentment and frustration among workers
who cannot pursue the goals of the organization

Democratic

▪ One who engages in discussion with workers before taking a decision,

this involvement can lead to better decisions
▪ It is best suited for small organizations where the organization’s goals require a
major commitment from the staff

Advantages

▪ Worker involvement is encouraged, this can lead to better decisions

▪ It facilitates a two-way communication which allows feedback from workers ▪

Job enrichment is more likely to be achieved because attention is given to workers
through involving them in decision making

Disadvantages

▪ Consultation with staff can be time-consuming since the views of many persons have
to be considered
▪ On occasions where quick decisions have to be made, this leadership style might not
be the best

Laisser-faire

▪ One who leaves colleague to get on with their work, such as tertiary institutions
where teachers are expected to facilitate students’ education.
 Advantages

▪ Little if any management supervision is required, this provides job enrichment ▪

It encourages horizontal communication, this encourages the staff to be innovative

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Disadvantages

▪ Delay in decision making due to numerous discussions and deliberations ▪

Laisser-faire approach by supervisors may be interpreted as a lack of care for the
workers

2.7 SOURCES OF INTERNAL CONFLICT IN AN ORGANIZATION

▪ There are some factors that can lead to dissatisfaction and conflict between
management and workers, which management should guard against or be prepared to
handle. These include:

▪ Levels of worker’s pay

▪ Working conditions e.g. long hours

▪ Unfair treatment of employees e.g. unfair dismissal

▪ Competition between employees regarding

performance/promotions ▪ Leadership style not suitable for

employees
▪ Breakdown in communication leading to a misunderstanding between
employer and employee

2.8 Strategies Used by Employers and Employees to Gain an Upper Hand During
Periods of Conflict

Employer’s Strategy to Settle Disputes

▪ Negotiations – are used to reach a settlement between the employer and

employee ▪ Public relations- this is using the media to gain public support for the
employer’s position
▪ Threats of redundancies- this is where the employer puts pressure on the union to reach
a settlement
▪ Change of contract – this is where the employer may change or issue a new contract

when old ones are due for renewal if the worker takes part in industrial actions ▪
Closure – the business or factory will be closed to solve the conflict leading to
redundancy and loss of profit to the owner
▪ Lockouts – these are short-term closures of the business to prevent employees from
working and being paid
▪ Employment of other workers – a firm may employ other workers to break the strike

Employees Strategy to Settle Disputes

 ▪ Go slow- a form of industrial action where worker’s work at a minimum pace, they
may lose their bonus pay.
▪ Work to rule - workers refuse to work outside of the precise terms of their

employment. ▪ Overtime bans – employees refuse to work more than contracted number

of hours. ▪ Strike actions – workers totally withdraw their labor for a period of time
leading to production stoppage.
▪ Picketing – demonstration by workers to gain support for their case.

2.9 Strategies for the Resolution of Conflict Within an Organisation ▪ A

grievance is an issue or dispute that workers take to their employer.

The following grievance procedure is taken to resolve a conflict:

1. Workers report the grievance to the trade union

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2. The union delegate organizes collective bargaining to resolve conflict with

Supervisors

3. If unresolved with the supervisors, then the union delegate will seek to resolve the
conflict with the top managers

4. If unresolved with top managers, then the matter is reported to the Labour Minister
for mediation or conciliation

5. If the matter is still unresolved, then the Industrial Disputes Tribunal [IDT], the
chief arbitration body is bought in to solve the problem

6. IDT hears the case from both parties and makes a rule or judgment on it

Role of Trade Unions

▪ A Trade Union assist workers in dealing with a conflict that arises in the workshop
between management and themselves, they help to settle disputes between workers
and management.

Purpose of Trade Unions

▪ To represent the worker's interest

▪ To negotiate on behalf of workers for better wage and salaries, fringe benefit, and
improved working condition
▪ To settle disputes between management and workers

▪ To educate their members about their rights and responsibilities

Key Terms

✔ Trade Union- is a mediatory body that helps to settle disputes between workers and
management
 ✔ Collective bargaining – negotiations between a representative of workers and employers

✔ Shop Stewart – a union representative

✔ Industrial actions – measure taken by the workforce or trade union to put pressure on
management to settle an industrial dispute in favour of employees

✔ Conciliation/Mediation – the use of a third party in an industrial disputes to encourage

both employer and union to discuss an acceptable compromise

✔ Arbitration – resolving an industrial dispute by using an independent third party to judge

and recommend a solution

✔ Grievance procedure- the agreed process of attempting to resolve an industrial dispute

2.10 Guidelines for the Conduct of Good Management and Staff Relations in the
Workplace

Management should:

▪ maintain good communication, this should involve feedback from employees to

management often referred to as two-way communication.

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▪ provide good working conditions such as: adequate ventilation, good lighting

and appropriate tools and furniture to motivate workers to work efficiently ▪

motivate workers in the form of praise/acknowledgement and providing
incentives to improve employer/employee relationships
▪ adapt good leadership styles to provide a sense of direction as this will motivate
the staff to work towards the company’s goal

2.11 Strategies for Motivating Employees in a Business

▪ Employees in the workplace can be motivated both financially and non

financially.

Financial Methods

▪ Providing a high income for workers will enable them to have a higher
standard of living, that is, they will be able to afford a nicer house and car,
better food, better clothes and more exotic holidays.

Non-Financial Methods

▪ Job satisfaction is a high motivator, this is where the worker enjoys and love
their job, the employee feels that the job they are doing is something they
really want to do.
2.12 VALUE OF TEAMWORK IN AN ORGANIZATION

Teamwork

▪ Team- work involves grouping workers together to work cooperatively to

achieve the same goal.

Advantages

▪ Team members can share ideas, so inexperienced workers can learn from
working with more experienced workers
▪ Fosters the participative approach, this gives a feeling of belonging

▪ Improves morale - group interaction and participation can motivate workers

Disadvantages

▪ Personality clashes may exist between team members

▪ More time is needed to make decisions and solve conflicts as more people are
involved
▪ Some persons may prefer to work as an individual and not as a team resulting
in some members doing all the work

2.13 Strategies for Effective Communication

▪ Effective communication in an organization is achieved by operating a two -

way flow of information: downward from management to inform workers and
upward from employees in the form of feedback.

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(i) Downward Methods

Main methods of downward communications are written and oral.

⮚ Written Communication is transmitted via; letters, memorandums, reports, minutes in a

meeting, bulletins and notice boards, emails etc.
⮚ Oral Communication involves face to face conversations, meetings, interviews,
telephone calls, public address systems and so on.

(ii) Upwards

Upward communication can be collected via direct or indirect methods

⮚ Direct- this is where the manager may talk to the worker on an individual basis. ⮚
Indirect- this can be done through suggestion schemes, appraisal systems and so on

Review Questions #1 (CSEC May/June 2018)

 a) (i) Define the term organizational chart. (2 marks)

(ii) State TWO rules that should be followed when constructing an organizational
chart. (2 marks)

b) Construct a simple organizational chart showing THREE levels and THREE

positions for a small private limited company. (4 marks)

c) List THREE duties of a personnel or human resource manager. (3 marks) d) (i)

Suggest THREE potential causes of conflict within an organization.(3 marks)

(ii) Explain the strategies that could be used to resolve conflict within an
organization. (6 marks)

[Total 20 marks]

Review Question #2 (CSEC May /June - 2017)

a) State TWO activities performed by each of the following managers

(i) Marketing (2 marks) (ii) Production (2 marks) (ii) Distinguish between ‘finance’

and ‘human resource’ areas of business. (4 marks) b) Describe EACH of the following

functions of management

(i) Delegating (2 marks) (ii) Motivating (2 marks) (iii) Controlling (2

marks)

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c) Explain ONE way in which management fulfills its responsibility to EACH of the

following groups of persons:

(i) Customers (3 marks) (ii) Employees (3 marks) [Total 20 marks]

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SECTION 3- ESTABLISHING A BUSINESS

OBJECTIVE

i. define the term entrepreneur

ii. explain the functions of an entrepreneur

iii. identify the characteristics of the typical entrepreneur

iv. describe the role of the entrepreneur in the decision-making process

v. outline the role of the entrepreneur in economic development

vi. outline reasons why an individual may want to establish a business

vii. outline the essential steps that should be taken in establishing a business

viii. identify the reasons for preparing a business plan

ix. describe the elements of a business plan

x. identify sources of information for conducting research into the establishment of businesses xi.

discuss the significance of conducting a feasibility study into the establishing of a business xii.

explain the relationship between planning and the operation of a business

xiii. identify regulatory practices instituted by governments for the establishment and conduct of
different types of businesses

xiv. outline the factors that determine the location of a business

xv. explain the significance of collateral in accessing capital to establish a business

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ESTABLISHING A BUSINESS
3.1 DEFINITION OF AN ENTREPRENEUR
∙ Enterprise – is another name for a profit making business or a company but it mostly
associated with entrepreneurial ventures.

∙ An entrepreneur is someone who shows vision and creativity, taking the financial risk
of starting and managing a new business.

∙ Entrepreneurship is showing enterprise skills of vision and creativity when taking

the risk to set up a new business venture.

3.2. FUNCTIONS/ROLES OF THE ENTREPRENEUR

Conceptualizing

∙ This is where the entrepreneur comes up with a new idea. It may be a new product, service
or improvement to existing ones or ways to fill a need rather than trying to find an
existing business.

Planning

∙ The entrepreneur should plan for the formation and operation of the business by stating
his objectives, targets and goals and ways of accomplishing them.

Accessing Funds

∙ The entrepreneur will find ways to finance the business, he may have to use his own
savings, obtain loans from banks, or obtain government grants.

∙ Organizing

This is the ability of the entrepreneur to bring people together, material and equipment in
such a way that he gets the work done.

Operating and Evaluating the Performance of a Business

∙ The entrepreneur must ensure that the day to day activities are carried out effectively.
He/she must assess how the business is performing and determine whether or not it is
achieving its objectives.

Risk Bearing

∙ The entrepreneur must accept the possible risk of success as well as accept the possible
risk of failure. If profits are made the entrepreneur is entitled to it, but he/she will bear the
loss if the business fails.

3.3 CHARACTERISTICS OF AN ENTREPRENEUR

∙ Creative- the ability to develop new ideas, or new ways of doing things and satisfying
needs.

∙ Innovative- developing a new idea or making changes to an existing one, such as

changing the way a product is delivered.

∙ Flexible and multi-skilled- the ability to react quickly to changes, being able to get on
 well with people and being good at handling money at the same time.

∙ Goal-oriented- the entrepreneur has a high need for achievement and to accomplish a
specific task or goal.

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∙ Persistent and persevering – the entrepreneur is determined and not easily deterred
from the target, he/she will make things work in spite of the risk.

∙ A risk taker- having a propensity to take calculated risks, he/she likes challenges, and
they are confident that they can be successful.

∙ Other characteristics include: humility, honesty, being highly motivated, self

sacrificing, and sociable.

3.4 ROLES OF THE ENTREPRENEUR IN DECISION MAKING (this the same as

functions of an entrepreneur)

3.5 ROLES OF THE ENTREPRENEUR IN ECONOMIC DEVELOPMENT ∙

Providing goods and services – this will satisfy the needs of the customers. ∙

Creating jobs - individuals can earn an income and improve their standard of living.

∙ Contributing to nation building- by exporting goods thus earning foreign exchange that
will be used to buy more capital goods needed for further production.

∙ Collaborating- that is building partnerships with communities by contributing towards

community projects, this will help members of the community to improve their well
being.

3.6 REASONS FOR WANTING TO START A BUSINESS

∙ Desire for Financial Independence – the entrepreneur prefers to make his own decisions
in order to create their own wealth, not having to depend on another for limited
resources.

∙ Self - fulfilment – the belief that he/she will get more rewards i.e. more than if they were
working for someone else.

∙ Self-actualization- means to fulfil one’s potential and to become the best in the industry.

∙ Increased income - an individual can start a business to earn more money.

∙ Increased control of working life – that is, to become your own boss in making all the
decisions without consulting anyone.

3.7 ESSENTIAL STEPS FOR ESTABLISHING A BUSINESS

(i) Conceptualizing

∙ Identifying a possible business idea based on skills or hobbies or previous employment.

(ii) Research

∙ The entrepreneur will have to probe the market to find customer’s wants, who are its
competitors and to offer better customer service to attract customers.

(iii) Identification of Resources

∙ The entrepreneur has to identify his financial, human and material resources.

✔ Financial resources - the entrepreneur uses his savings or borrow money from
friends/relatives or the bank to finance his business.

✔ Human resource - the entrepreneur and his workers need the necessary skills that
will make the business successful.

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✔ Material resources- you will need good quality raw materials and the necessary
supplies if you are providing a service.

(iv) Creation of a Business Plan

∙ This is a detailed document that provides information on the purpose, the resources and
the main activities of the business. A business plan is important when you have to submit
it to a lending institution or a prospective investor.

(v) Acquisition of Funds

∙ Obtaining finance can be a problem as many entrepreneurs lack sufficient savings or lack
knowledge of financial support available.

(vi)Operation of the Business

∙ Once all the resources and finance are in place, the business can start trading.

3.8 THE BUSINESS PLAN

∙ A business plan is a written document that describes the rationale for starting a business
and the steps involved in starting and operating it successfully

Reasons for Preparing a Business Plan

∙ To ensure that careful research is conducted into the feasibility of the business.

∙ To attract potential investors, for example, persons who wish to purchase shares in the
company.

∙ To source financing when applying for a loan from a bank or any financial institution.

∙ To guide the operations of the business when making decisions -it gives clear objectives
of what the business hopes to achieve.
 ∙ It outlines resources needed e.g. machinery, labour, premises.

3.9 ELEMENTS OF THE BUSINESS PLAN

∙ The executive summary - is a summary that gives a clear picture of the main points of
the business. It contains: the type of business, objectives of the business, its owners, and
a brief description of the product.

∙ Operational plan- consists of the name, address, legal structure, personnel, suppliers,
and equipment needed

∙ The business opportunity:- is a description of the product or service.

∙ The Marketing plan - contains the organization of the marketing department. It contains
the market research, product strategies, pricing strategy, and promotional strategy.

∙ The Financial plan – contains the purpose for which finance is needed. It includes the
production cost, collateral, and the cash flow statement.

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3.10 SOURCES OF INFORMATION FOR CONDUCTING RESEARCH ∙ Market

research is important to the success of any business. Market research is the collection and
analysis of data about consumer preference.

∙ There are two main types of market research, these include primary and secondary
research.

(a) Primary Research

∙ Primary / Field research - refers to first- hand information that does not already exist.
Examples include:

i. Questionnaires – are given to shoppers to complete and hand back or internet

users to fill out online

ii. Interviews – can be street-based or telephoned based

iii. Observation - observe consumer behaviour example by identifying which shop

displays make them shop and buy.

iv. Product testing - is where consumers are asked to try a product or service offered
by the business and fill in a report card on their experience

(b) Secondary Research

∙ Secondary /Desk research- refers to the use of secondary data, that is, information
that already exists. Examples include:

i. Internet searches - involves searching the web for information on the market size of
the competitor
 ii. Government publications – such as publications on import/export data for
industries

iii. Brochures – that provide information about competitors

[Read textbook for advantages and disadvantages of each source]

3.11 FEASIBILITY STUDY

∙ A feasibility study is a report that investigates whether a new business idea is

worthwhile, will the idea work or is it likely to be profitable.

Reasons for Conducting a Feasibility Study

✔ to determine whether the business idea is viable /profitable

✔ to determine the possible costs attached to the project.

✔ to identify possible sources of finance

✔ to identify target market and demand for the product

3.12 THE NEED FOR PLANNING IN OPERATING A BUSINESS

∙ Planning is a decision- making process by which an organization decides what it

wants to achieve and how it intends to achieve it and in what manner.
∙ A business can make short term, medium or long-term plans.

Short Term Planning

∙ Preparing the business for the day to day activities, these may be for each day, a
week, or 12-24months.

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Medium Term Planning

∙ Preparing business for events that could occur within the next 3years. ∙ E.g.
decisions to use a particular sales promotion to keep up with a competitor.

Long Term Planning

∙ Preparing the business for events that may occur several years, that is up to 10 years
E.g. decisions to introduce a new product, or to undergo a major expansion.

3.13 LOCAL, REGIONAL AND GLOBAL RULES FOR CONDUCTING BUSINESS

∙ Government regulatory practices refer to legislative rules that must be followed by

persons who wish to establish a business.

Monetary and Fiscal Policies

∙ A government’s fiscal policy is where a governments’ spending and taxation policies
affects the individual in a nation and consequently a business.

∙ E.g. taxation policies can affect the amount of money consumers can spend, if
 consumers have less money to spend, there will be reduced revenue for a
business resulting in reduced profits.

∙ Jean pants $2000 + tax 15% = $300 ($2000 + $300) = $2300

$1200 +800 = $2000

∙ On a global level the monetary policy of another country can affect our wealth. E.g.
fiscal policies of another country may reduce income from exports to our country.

Consumer Protection Policies and Agencies

∙ Consumer protection laws are a form of government regulation that is aimed at
protecting consumers.

∙ They provide testing facility and publish information to promote consumer awareness
and guidance.

Government Environment Policies

∙ The central and local government encourage all businesses to adhere to the following
environmental policies in order to protect the environment. The following is a list of
policies:

✔ Factories are encouraged to locate outside of city centres

✔ Builders should use environmentally friendly material

✔ Businesses should use recyclable materials

✔ Factories are encouraged to reduce pollution and transport emission

✔ Food handlers are required to obtain a food handler’s permit

✔ Trade persons such as electricians must be licensed to ensure that they are
qualified for the job

✔ Professionals such as doctors, lawyers, accountants, pharmacist and some

engineers must register with their professional association

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3.14 FACTORS AFFECTING LOCATION

∙ A major decision that must be considered when establishing a business is its location.
The following factors should be considered when choosing the location of a business:

Geographical
∙ A business must be accessible and well positioned, this will have the potential for
high sales.

Availability of Raw Material

 ∙ Nearness of the raw material can reduce production cost, as there will be no need for
high transport cost in getting materials.

Power
∙ A business needs reliable low- cost suppliers of power to operate efficiently.

Water
∙ Fresh clean water supplies are needed for healthy living and countries with poor
water supply find it difficult to attract investors.

Health Facility
∙ A business should be located where there are good health facilities to keep the
workforce healthy and capable of effective work.

Transport Cost
∙ A business should locate near to the supplier of their raw material e.g. service
industries such as hotels and retailing need to be located near to their customers
so that transport cost will be less.

Labour Supply
∙ A business should employ the appropriate labour skills where needed, a shortage of
skilled labour may result in the labourer demanding high wages.

Government Legislation
∙ The government may provide grants and tax incentives to attract businesses to locate
in certain areas.

3.15 COLLATERAL

∙ Collateral is an asset pledged as payment for a loan if the borrower fails to make
regular payments.

∙ Collateral is security required by a lending institution to act as a safeguard in case the

loan is not repaid.

Different Types of Collateral

✔ Property – e.g. land, building

✔ Trucks, drilling rigs, computers, motor vehicle

✔ Natural resources e.g. gas, oil

✔ Stock such as shares in a company

✔ Money

Valuation of Collateral

∙ The borrower will try to suggest that the value of the collateral is high in order to get
a higher loan, however, it is the lender that puts a value on an asset being used as
collateral in order to decide how much can be lent.

∙ This value is based on expert advice or past price trends.

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Activity #1 Watch the video and answer the following questions
1) Identify the type of business [ sole trader etc.]
2) Identify the type of products being made or service offered
3) Identify the location /country where the business is located
4) State the raw materials used
5) Tell how many workers
6) State the type of production method / - human labour only/ or use of machine
7) State whether the business is involved in export trade
8) Identify reasons the entrepreneur started the business
9) Identify the roles of the entrepreneur in the society ( economic development)

Review Question #1 [CSEC June 2011 ]

a) Define the term feasibility study. (2 marks) b) Outline THREE reasons why a

feasibility study is important. (6 marks) c) State THREE roles of an

entrepreneur. (6 marks)

d) Discus TWO ways in which entrepreneurs contribute to the development of

country . (6 marks)

Review Question #2 [CSEC June 2016 ]

Janice retired after 15 years working as a loans officer at a commercial bank and has decided to
become an entrepreneur.

a) (i) Define the term ‘entrepreneurship’. (2marks) (ii) State FOUR reasons why a

person should start their own business. (4 marks)

(b) Identify FOUR stakeholders that could be involved in Janice’s business. (4

marks)
b) Describe TWO types of service Janice may be able to offer given her banking
experience. (4 marks)

c) Explain TWO ways in which Janice’s business can benefit the community. ( 6 marks)

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 SECTION 4- LEGAL ASPECTS OF A BUSINESS

OBJECTIVE

i. explain the concept of contract

ii. identify the types of contracts

iii. describe the characteristics of a simple contract

iv. describe the characteristics of a specialty contract

v. explain the conditions under which offer and acceptance are communicated

vi. explain ways by which contracts may be terminated or discharged vii. apply

the principles of a simple contract to cases

viii. explain why documentation is necessary in business transactions

ix. *prepare business documents for various purposes

x. evaluate the principles upon which insurance is based

xi. explain the various types of insurance policies

xii. explain how insurance facilitates trade

LEGAL ASPECTS OF A BUSINESS

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4.1 CONTRACT

▪ An agreement is an understanding or a mutual exchange of promises between two or

more persons.

▪ A contract is a specific legal binding agreement between two or more people in

 which there is an agreement to do something in return for a benefit
[consideration].

▪ A contract is enforceable by law, that is, if one person does not abide by the contract,
the other person may take legal actions.

Parties to a Contract

✔ Offeror- the person who made the offer

✔ Offeree- the person to whom the offer is made

4.2 TYPES OF CONTRACT

Two types of contracts include;

i. Simple contract
ii. Speciality contract

4.3. CHARACTERISTICS OF A SIMPLE CONTRACT

A Simple Contract

▪ A simple contract may be defined as written, oral or implied by conduct.

▪ Examples of a simple contract include; hiring a taxi, entering a store to purchase

items, and purchasing a life or general insurance policy [written contract].

▪ A simple contract is void or voidable [cannot be enforced by law] if one or more of

the following features are lacking:

a) offer and acceptance

b) consideration
c) legality
d) competence of the parties/capacity

(a) OFFER AND ACCEPTANCE

▪ A contract is formed when an offer has been unconditionally accepted. This

means that all the terms of the agreement must be accepted by both parties.

AN OFFER

▪ This is an indication by one party to the other that they are willing to make a
proposal and to be legally bound by it.

Conditions under which an offer must be communicated

i. The offer must be communicated to either to a specific person or to the general public ⮚
E.g. - Golda offers to sell her bracelet to Tomora, this is an offer made to a specific
person.
⮚ E.g. - Golda advertises that the first person who comes to her house on a specific
date and time will be able to buy the bracelet, this is an example of an offer made
to the general public.

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ii. An offer can be expressed in writing, oral or implied

⮚ Example of an implied offer - if you went to the dentist for some treatment, you
are agreeing in principle to pay for the treatment, if you are handed a bill and
refuse to pay, you would be in breach of a contract.

Invitation to Treat

▪ An invitation to treat is NOT an offer, it is an invitation to make an offer ▪ This

is a situation where an offeror invites other parties to make him/her an offer

Examples of an Invitation to Treat

✔ An auctioneer’s request for a bid

✔ goods on display in a shop or store with a price tag

✔ property advertised for sale

✔ an advertisement in the newspaper

ACCEPTANCE

▪ Acceptance is when the offeree [the person to whom the offer was made]
agrees to the terms of the offer made by the offeror.

Conditions under which acceptance must be communicated

i. Acceptance must be communicated:

✔ written- that is effective from the time it is written

✔ verbal- that is when the offeree says ‘okay I accept your offer

✔ by conduct – for example when a cashier puts your clothes in your bag and
accepts your money

ii. Acceptance must be unconditional/unqualified.

▪ The offeree cannot introduce a new term to the contract. E.g. if a seller offers a
used car for sale, you cannot say ‘I accept your offer on the condition that all
tyres are replaced’, this is not acceptance, but you have created a counter
offer.

✔ NB: a counter offer is when the offeree changes the term of the
agreement and it is equal to the rejection of the original offer and is not
legal acceptance.

iii. Acceptance must be within an agreed time, however, if no time period is stated, it
must be done within a reasonable period.

iv. Acceptance made through the post is effective once the letter is posted. E.g. an
acceptance letter lost in the post and which never reaches the offeror is still valid,
since a contract existed from the time of posting by the offeree.

(b ) Consideration

▪ Consideration is the benefit received by both parties either in the form of cash, goods
 or services.
▪ Consideration should be lawful since an unlawful act would be void [cannot be
enforced by law]
▪ E.g. Tom digs Jerry’s garden, in exchange, Jerry will repair his washing machine,
this is an example of a valid contract.

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(c ) Competencies of Parties [ Capacity of Parties]

▪ Competencies of parties or capacity in law means that the persons entering a contract
are eligible to enter into a contract.

▪ The following groups of persons are not eligible to enter contracts: minors (persons
less than 18 years old), drunks, insane persons, and prisoners.

(d) Legality

▪ All forms of contract must conform to the laws of the land. E.g. if Joe pays Michael
$500, 000 to deliver a tonne of marijuana and Michael fails to carry out his side of the
contract, then Joe cannot get the courts to force Michael to carry out his side of the
agreement.

▪ Illegal contracts include: contracts to commit wrongs or crimes or contracts involving

sexual immorality.

4.4 SPECIALITY CONTRACTS

▪ Speciality contracts are also called a deed or contract under a seal

▪ Speciality contracts apart from being written must be :

✔ Signed – signed by both parties

✔ Sealed – seal imprint is placed on the document

✔ Delivered – all the parties to the contract must have a copy of the document

▪ Examples: mortgage agreements, land or property sales, and hire purchase

agreements

4.5 CONDITIONS UNDER WHICH OFFER AND ACCEPTANCE ARE

COMMUNICATED (see objective 4.3)

4.6 WAYS IN WHICH A CONTRACTS MAY BE TERMINATED

▪ A contract may be discharged or terminated when one of the parties is released from
their contractual obligation.

Methods of Discharge

▪ By breach- one party breaks the contract by failing to carry out its side of the
agreement
 ▪ By agreement- both parties agree to cancel the contract before it is completed

▪ By performance- both parties carry out their side of the agreement

▪ By frustration- one or both parties being unable to meet their obligations because of
circumstances out of their control
▪ Lapse of time- failure of a party to carry out its side of the contract within a
reasonable time
▪ By renunciation – one party carries out a portion and fails to carry on any further

▪ By death – if one party dies, the contract is immediately terminated

▪ By bankruptcy – if one party becomes bankrupt, the contract comes to an end

Breach of Contract

▪ Breach of contract is a refusal of one party to fulfil the obligation of the contract ▪
When one party breaches a contract, the innocent party is entitled to some form of
compensation.

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▪ Where there is a breach of contract the innocent party must be paid for damages, that
is, compensation must be given to the innocent person in the form of cash.

4.7 APPLY THE PRINCIPLES OF A SIMPLE CASE STUDY

Case Study #1

Daliah’s parents were present when her uncle promised to give her one of the most up-to
date cell-phones on her18th birthday. On that day however, her uncle refused to deliver
the cell phone. Daliah was so disappointed that she threatened to sue her uncle for breach
of contract.

a) Define the term contract. (2 marks) b) State three essential features of a

valid contract (3 marks) c) Explain the term breach of contract. (2 marks) d)
State whether Daliah would succeed if she sues her uncle. (1 mark)
e) Give a reason to justify your answer. (2 mark)

Ans: Daliah did not have the capacity to enter a contract when she agreed with her
uncle. She was not yet 18 years old. Only persons 18 years and over can enter into a
contract

[Total 10 marks]
Case Study #2
Muffin Man is a 21 years old artiste who performs both Reggae and Soca. He was
contracted by Irie Promotions Ltd to perform at a show July 29, 2019. He was given 10%
of his performance fee on the day he signed the contract. One day before the show Muffin
Man appendix ruptured. His agent called the promoters for Irie Promotions Ltd to inform
them that Muffin Man could not perform because he had to undergo surgery. Irie
Promotions ltd was forced to cancel the show and decided to sue Muffin Man for breach
of contract.

a) Explain TWO essential features of a valid contract present in the dealings of Muffin
man with Irie Promotions Ltd. ( 4marks) b) (i) Explain the term breach of contract (2
marks) (ii) State one way in which a contract can be terminated (1 mark) c) (i)Advise Irie
Promotions Ltd whether they would succeed in court against Muffin Man (1 mark) (ii)
 Give a reason for your choice (2 marks)

Ans: Even though Muffin Man was not sick at the time of the contract, he became ill
before the date of the performance. This situation was out of his control.(i.e.
frustration).

[Total 10 marks]

4.8 THE IMPORTANCE OF RECORD KEEPING

▪ Business documents are the official documents used in a business to help keep track of
all official and unofficial business transactions.

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Business documents are important because:

▪ they make the communication process possible and are used for reference purposes e.g. if

a customer queries a bill the filed copy can be used in clarifying any queries ▪ governments

require proper documentation for taxation and auditing purposes ▪ they provide a written

record between a firm and its customers e.g. receipts, invoices ▪ it prevents business persons
from forgetting important information to be used in the performance of their various task
▪ it saves time since relevant information can be located easily and can be extracted if
needed

4.9 PREPARING COMMON BUSINESS DOCUMENTS

Pro-forma Invoice

▪ A pro-forma invoice is a bill sent to the buyer when the seller requires payment in
advance of delivery when the seller does not know the buyer well.

▪ Before despatching the goods, the seller will send the buyer a proforma invoice, when
payments have been made the seller will then despatch the goods.

Purchase Requisition Forms

▪ This is a business document that is used within an organization when goods are
needed from the stock room.

▪ The purposes of the document are to help control the movement of stock and
to inform the firm on how stocks are used and by whom.

Statement of Account
 ▪ Is a summary of all transactions made between the buyer and the seller during the
month and it reminds the customer that payment is due.

▪ It contains: balance owing at the beginning of the month, the amount of invoice
issued, debit or credit notes issued, the net amount owing at the end of the
month

Stock Card

▪ This is a document that keeps information about the stock e.g. records of stock
received and issued and the balance at any given time.

▪ It contains: minimum and maximum levels of stock, amount of stock received,

amount of stock issued, and re-order levels.

*The Invoice

▪ The invoice lists the goods purchased and informs the buyer of the amount owed to
the seller.

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▪ It contains the: quantity supplied, price per unit, total amount owed, invoice number,
buyer’s order number, terms of sales, E & OE [errors and omissions expected] means
the supplier has the right to correct any errors at a later date

*Credit Note

▪ This is a document sent to a buyer if he has been overcharged due to: faulty or
damaged goods that have been returned or goods supplied in smaller quantities than
shown in the invoice.
▪ A credit note is sometimes printed in red to differentiate it from a debit note.

*Debit Note

▪ A document sent to the buyer if he/she is undercharged due to goods that were
delivered are not on the invoice, pricing errors made on the invoice or transport cost
omitted.

* NB these documents are not required in the POB syllabus

4.10 INSURANCE

▪ Insurance is a promise for financial compensation for a risk that may or may not
occur such as accidents, theft, or fire. Unexpected events may occur at times when an
individual cannot afford to restore themselves.

▪ Insurance policies may be obtained through an agent working for a particular

 company or through brokers selling insurance for a number of different
companies.

POOLING OF RISK

▪ Many persons faced with a risk, usually pay the insurance company a small amount
of money called a premium to form a large pool of funds.
▪ When a contributor suffers a loss there is enough money in the pool of funds to
compensate (indemnify) them.
▪ E.g. if a home-owner loses his house due to the risk of fire, instead of one person
bearing the loss, it is shared by several persons of a large group.

THE PRINCIPLES OF INSURANCE

Indemnity

▪ This means to restore the insured to where he or she was before the loss or
damage occurred. This principle does not apply to life assurance since no money can
compensate death.

▪ The principle of indemnity is not to make a profit from a loss, but to receive a fair
compensation.

▪ E.g. Charlette premises were insured for $100 000, later they were completely
destroyed by fire. The cost of rebuilding was $80 000. How much would charlotte
receive from the insurance company?

Subrogation

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▪ This is where the insurer after being compensated, surrenders the right of
ownership to the insurance company.

▪ E.g. if your car was completely wrecked in an accident, the insurance company would
compensate you, but they would take the wreck to ensure that you do not sell the
wreck and make a profit.

Contribution

▪ This occurs when more than one insurance company is liable for the loss, the
amount of loss is shared in proportion by different insurance companies.

▪ E.g. If you have insured your car with two different insurance companies and your
car was stolen, the two insurance companies would contribute half the value of your
stolen car and buy you a new car, so you are fully compensated. You cannot get a
car from each insurance company.
 Utmost Good Faith

▪ This principle states that the insured must give all relevant information about the
thing or person being insured, he/she must be truthful. Failure to give accurate
information may mean the insurance company may refuse to pay on the claim.

▪ Note: The insurance company must also give all relevant facts about the policy

Insurable Interest

▪ A person cannot take out an insurance policy to protect property in which they do
not have insurable interest.
▪ E.g. you cannot insure your neighbour’s house, it is not yours and you will lose
nothing.

Proximate Cause

▪ The insurance company can only pay out compensation if the loss suffered was
caused by the risk covered in the policy.

▪ E.g. if a person insures his house against fire but it was destroyed by flood, then he
cannot expect to get compensation from the insurance company.

4.11 TYPES OF INSURANCE POLICIES

(a) Life Assurance

(b) Non – life (Business Insurance)

(a) Life Assurance Policies

▪ Life assurance is a promise of financial compensation for events that must happen
such as death. Life assurance is the insurance of a person’s life or health. It is a form
of savings plan which benefits the dependants of the assured.

▪ The principle of indemnity cannot be applied under this coverage as no amount of

money can restore a person back to life.

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▪ Types of life assurance policies include; whole life, endowment policy and terms
policy.

(i) Whole Life Policy

▪ Provides payment after the death of the insured. The spouse or dependent
should benefit from this policy.

(ii) Endowment Policy

 ▪ Allows a sum of money to be paid, payable at a certain age or on death of
the policy holder, whichever comes first.
▪ Upon maturity, if the insured survives the period covered by the policy, then
he/she receives a lump sum of money.

(iii) Term Policy

▪ This is used by persons who need a mortgage on their home. In the event of
death, the policy is used to pay off the mortgage.

(b) Business Insurance Policies

(i) Fire Insurance

▪ Covers both domestic and business premises and their contents. It also includes
explosions, flood, burglary

▪ Premiums paid depend on the type of building, its layout and the nature of the
contents [e.g. flammable].

(ii) Liability Insurance

▪ Public Liability- provides coverage for firms which may have to pay claims for injury to
persons caused by their negligence.

▪ Employer’s Liability- provides coverage for employee’s having accidents on the

job.

▪ Fidelity Bond – provides compensation to a firm against theft by employees.

▪ Product liability- protects the business against claims by customers as a

result of unsafe/faulty goods being supplied by the business.

(iii) Motor Vehicle Insurance Policies

▪ Third Party policy- covers the cost of accidents with passenger and repairs to the
vehicle of other road users.

▪ Comprehensive policy: covers repairs to your own vehicle and others. Most
persons have a comprehensive policy.

▪ NB: Most insurance companies offer a “no claim discount “ - this is a reduction
in premiums charged for not making a claim over a set period.

(iv) Consequential Loss

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▪ Covers the loss of profit caused by being unable to use your business property
 due to a business interruption such as fire, flood, theft, vandalism etc.

(v) Goods in transit or cash in transit

▪ Provides coverage for loss/theft of goods or cash being transported.

(vi) Personal accidents

▪ Covers injuries to a person that prevents them from working.

(vii) Marine insurance

▪ Covers the loss or damage to the ship, cargo and passengers or crew.

(viii) Aviation insurance

▪ Covers aircraft against loss or damage to the aircraft, cargo and passengers or
crew.

4.12 HOW INSURANCE FACILITATES TRADE

▪ Insurance encourages businesses to trade knowing that some of the risk involved are
taken care of. Insurance facilitates trade by ;

✔ providing financial protection and compensation if a risk occur e.g. fire

✔ promoting business confidence that is, entrepreneurs can claim compensation if

some unforeseen event occurs

✔ providing a source of investment to insurance companies. Insurance companies

invest the money they collect as premiums to provide compensation to meet
insurance claims.

Review Question #1

a) Distinguish between insurance and assurance. (4 marks) b) State FOUR principles upon

which insurance is based. (4marks) c) Identify THREE types of insurance risks that a

business could insure against and state

how the business can benefit by insuring against those risks. (6 marks) d) State the

purpose of THREE business documents. (6marks)

[Total 20 marks]
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SECTION 5- PRODUCTION

OBJECTIVES

(i) identify factors in the production of goods and services;

(ii) identify industries developed from the natural resources of Caribbean territories;

(iii) differentiate between production and productivity

(iv) explain the importance of productivity;

(v) explain the role of capital in production;

(vi) differentiate amongst types of capital;

(vii) classify the different types and levels of production;

(viii)describe the characteristics of cottage industries;

(ix)outline the functions of small businesses;

(x)discuss the advantages and disadvantages of small business

(xi)explain how a business grows internally and externally;

(xii)outline the opportunities for and benefits of developing linkage industries; and,

(xiii)explain the effects of growth on a business.

PRODUCTION

PRODUCTION
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● Production can be defined as the making of goods or services that can be used or sold to
satisfy the needs and wants of people.

5.1 FACTORS OF PRODUCTION

● Factors of production are the resources needed by businesses to produce goods and services.
● The four factors of production are land, labour, capital and enterprise.
✔ Land - includes not only land but also natural resources found on and under the earth,
seas and air. E.g. water, gold, copper, diamond
✔ Labour - includes any human effort mental or physical that contributes to production for
which payment is made. E.g. repairing a road [physical effort], preparing accounts
[mental effort]
✔ Capital- resources that enables production of goods and services to take place. E.g.
machines, equipment.
✔ Enterprise- is shown by people when they combine other factors of production to form a
business. They aim to produce goods and services and sell them to make a profit.

5.2 NATURAL RESOURCES OF THE CARIBBEAN AND THEIR INDUSTRIES

Country Natural Resources Industry Product

Jamaica and Guyana Bauxite Bauxite Aluminium used

in pots and pans

Plaster used in
Gypsum Gypsum foot creams, black
board, fertilizers

Trinidad and Tobago Pitch Asphalt Road

construction
and shingles

Natural gas Petroleum Energy and fuel

Oil and natural gas Petroleum Petrol and by

products such as
plastic and paint

Guyana and Belize Forestry Construction Wood used in

furniture and
construction of
houses

Guyana Gold and Gold and Jewellery

diamond diamond Metal Metal and glass

products
Manganese

Barbados, Jamaica, Limestone Construction Cement products

Trinidad and
Tobago

5.2 DIFFERENCE BETWEEN PRODUCTION AND

PRODUCTIVITY Production
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● Production is the process of combining inputs (raw material) with human resources to
create goods and services to satisfy human wants and needs

Productivity
● Productivity measures efficiency, it is the amount produced per worker, this means that
the resources are being used in an effective and efficient manner.

● Sometimes an employer gives an increase in wages or a bonus to the employee to

encourage productivity. However, the employer has to ensure that an increase in
productivity does not result in reduced quality.

Productivity Format:
● Productivity = Output [Goods and services produced]
Input [Workers, money, machinery, raw material]

● Example: if a business produced 100 chairs in a week and there were 10 employees.
Calculate the labour productivity

Labour productivity = Output 100 chairs = 10 chairs per employee No. of employee 10
employees

5.4 IMPORTANCE OF PRODUCTIVITY

● Productivity is important because:

✔ it raises the level of output - which lowers the cost per unit of output resulting in higher
profits for the business
✔ it leads to an increase in sales and profits - thus leading to an expansion of the
business
✔ it allows a business’s product to compete more effectively in the foreign market
which will increase the country’s export

● An increase in productivity can be achieved via:

✔ encouraging human resource development - as better trained workers tend to

work faster and more efficiently
✔ providing good working conditions - which will motivate the workers to be
more productive
✔ encourage positive work ethics - such as encouraging workers to come to work
on time, and avoid absenteeism.

5.5 ROLE OF CAPITAL IN PRODUCTION

● Capital as a factor of production refers to the machinery/tools that enables

production to take place, capital is therefore important, as it allows more goods to
be manufactured that could not be produced by labour alone.
● Example - capital (the equipment) is needed in deep sea drilling, using human effort
(labour) only could not achieve this.
● NB: Capital intensive production uses more equipment and less people resulting in an
increase in productivity while labour intensive production uses more labour and less
machinery.

5.6 TYPES OF CAPITAL

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● Fixed capital- assets such as buildings, machinery which will be kept for a long time and
used many times in the production process.

● Working capital - includes stocks of goods and cash needed for day to day running of
the business.

● Venture Capital - is finance provided to new or small business with the potential for
growth by wealthy investors.

5.7 TYPES AND LEVELS OF PRODUCTION

● TYPES OF PRODUCTION
a) Primary Production [Extractive Industries]
● Primary production is the first stage of production, it involves extracting raw material
from above or below the earth’s surface. E.g. oil drilling, natural gas, fishing, agriculture

b). Secondary Production [Construction and Manufacturing Industries] ● Secondary

production involves converting raw material from the extractive industries into the desired
product e.g. extracting wood to make a chair, crude oil is used to generate electricity, and
bauxite ore is converted into aluminium.
● Secondary production consists of two types: Construction (e.g. bridges, roads, building)
and Manufacturing (e.g. furniture, cars, food products)

c). Tertiary Production [Service Industries]

● Tertiary Production are industries that provide a service and not a physical product.
● Tertiary production can be divided into direct services and commercial services ●
Examples of direct services (personal services) dentist, teachers, doctors ● Examples
of commercial services: advertising, banking, transport, insurance

● LEVELS OF PRODUCTION

a) Subsistence Level
● Goods are produced to meet the basic needs of the group/family, there is little or no
surplus products to be sold to pay for other products.

b) Domestic Level
● All products are produced for local /domestic market, mainly from local resources
● It does not involve any level of import from countries or exports to other countries

c) Export Level
● This is a situation in which a country produces goods to be sold outside of the country
● It creates jobs and the income from export is used to import other goods and services

d) Surplus Level
● This is where a country produces goods to satisfy the local market as well as surplus
goods that can be exported to other countries.

5.8 CHARACTERISTICS OF COTTAGE INDUSTRIES

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 ● An industry where the creation of products and services is home- based or
community based rather than factory based where the business is usually small. ●
They rely on manual labour rather than expensive machinery
● They offer employment to family members
● They use local material like wood, clay, recycle materials to reduce waste E.g. products
made include: leather-craft, embroidery work, floral arrangements, basketry, making dolls,
making pastries, tailoring, hairdressings, barbering, making jams and jellies.

5.9 SMALL FIRMS

● A small business is owned by private individuals and has a relatively low number of
employees and sales.

Functions of Small Firms

● It creates employment and thus income for individuals who will be able to improve their
standard of living.
● It provides services that large firms are not willing to provide example a bicycle repair
shop.
● It provides a Niche market that does not interest a large firm for example an event
planning service (e.g. wedding and parties) and beauty services (e.g. hair - dressing). ● It
creates profit which is the main reason that an entrepreneur takes the risk in creating and
operating a business.

5.10 ADVANTAGES AND DISADVANTAGES OF A SMALL

FIRM Advantages
● It provides goods/service that a large firm may not provide e.g. repairing a bicycle ● It
increases competition for larger firms and encourage them to become more efficient,
example a large firm may be forced to offer free delivery services if a small firm was doing
it first
● It provides employment especially in rural areas by recruiting workers as many large
firms operate in towns or cities
● Small firms sometimes introduce and develop new ideas for goods and services (for
example, event planning).

Disadvantages
● Small firms may lack expertise in certain areas so they have to pay for outside
expertise because they cannot afford to employ a specialist. E.g. an IT specialist ● The
owners may find it difficult getting a loan from financial institutions compared to larger
firms.
● Although they provide personal services, they cannot always provide sufficient after
sales services.

5.11 GROWTH OF A BUSINESS

● Many large firms that exist today started as a small business and have grown. There
are various ways a business can grow mainly - internally or externally.

Internal growth
● Internal growth occurs when a business expands through using its profits to invest
resulting in further expansion. Examples of internal growth are discussed below:

✔ Opening other outlets - for example if a retailer has been successful in operating
a bakery, he could open another branch at a different location.
✔ Employing more workers - a large firm can employ specialist staff that would
further contribute to greater profitability.

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 ✔ Increase in capital - that could be used to invest in buying equipment that can
produce more products efficiently.

External Growth
● External growth occurs when one firm takes over or merges with another. Examples
of external growth are discussed below.

✔ Joint ventures -this is where two or more businesses pool their resources to
achieve a particular goal. E.g. a small business that has created a unique product
may enter into a joint agreement with a large firm to sell its product through the
larger company’s distributor.

✔ Mergers (amalgamation) – is where two or more companies merge into a single

business so as to expand their operations in order to diversify and make more
profits.

✔ Takeover/acquisition- is a where the control of one business is taken over by

another business by purchasing 51% of its shares.

5.12 LINKAGE INDUSTRIES

● Linkage industry is one that is linked with another, that is, one industry produces
something that another needs. It is sometimes called a ‘screw driver’ industry or ‘spin
off’ industry.

Forward linkage
● When one industry provides raw material for another
● E.g. Farmer provides raw material [hide] 🡺 tanners produce leather products 🡺
leather items sold to wholesalers or retailers
● E.g. Farmer 🡺 food canning factory 🡺 tourist industry

Backward Linkages
● When the demand of one industry leads to the development of another industry ● E.g.
the tourist industry depends on food canning 🡺 food canning factory depends on the
farmer.

Advantages of Linkage Industries

● It provides increased employment opportunities resulting in an improvement in the
standard of living of persons employed.
● It assists regional sufficiency this reduces dependence on imported goods.
● Income earned is spent in the economy such as in the hotel industry where a tourist
buys items from local craft vendors.
● It forges closer Caribbean links at social, economic and political levels e.g. Jamaica
buys pitch that is a by-product of oil from Trinidad.

⮚ Examples of industrial linkages in the Caribbean can be seen in the table below. The
industries on the left supply materials for the industries on the right.
Crude oil (refining) Petroleum, plastics, asphalt

Sugar cane Confectionary, rum

Livestock Hides, leather goods

Asphalt Road, buildings

Fruit, vegetables Canning

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Iron Steel and metal

5.13. EFFECTS OF GROWTH OF A BUSINESS

● A business growth refers to an increase in size and profitability over a period of time
resulting in a larger and stronger business.
● As the business grows it will have an effect on the following items:

Organisational Structure
● As the business grows the number of departments and managers will increase,
resulting in an increase in the communication network in the organization.

Capital
● An expansion in a business will lead to an increase in the demand for capital which is
needed to finance the day to day activities of the firm.

Labour
● As the business grows there will be an increased need to employ more specialist to
carry out certain functions.

Technology
● As the business grows the technology used, tends to become more sophisticated. E.g.
an outdated computer program has to be upgraded to the latest version.

Potential for Export

● A small firm will meet local demands but as the business expands it looks for
overseas markets to export it goods.

See revision questions below ��

REVISION QUESTIONS

Question 1

(a) (i) What is meant by the term 'extractive production', give TWO examples of
extractive production. (4 marks)

(ii) Identify TWO examples of service industries in the Caribbean. (2 marks)

(b) Explain what is meant by EACH of the following terms.

(i) Capital intensive production

(ii) Labour intensive production (4 marks)

(c) Differentiate between EACH of the following pairs of terms: (i) Production and

productivity (4 marks) (ii) Subsistence production and domestic production (4 marks)

d) Identify two features of a small business (2 marks)

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 [Total 20 Marks] Question 2

(a) (i) List TWO levels of production and explain the main difference between them.
(4 marks)

(ii) Outline ONE main difference between primary and secondary production giving

one example of EACH. (4 marks)

(b) (i) Discuss TWO features of cottage industries. (4marks) (ii) List FOUR factors
of production. (4 marks)

(c) Define each of the following:

(i) Forward linkage

(ii) Backward linkage (4 marks) [Total 20 Marks]

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SECTION 6 - MARKETING

OBJECTIVES
 (i) explain the concepts of market and marketing;

(ii) explain marketing activities

(iii)describe the “marketing mix”;

(iv)describe the factors that influence consumer behaviour (v)

identify factors affecting packaging and presentation of goods

(vi)describe methods of promoting sales;

(vii)identify the techniques of selling

(viii) explain the various terms of sales

(ix)list the functions of consumer organisations

(x) outline the role of customer service;

(xi) describe forms of customer service;

(xii)explain the concept of intellectual property rights

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MARKETING

6.1 THE CONCEPTS OF MARKET AND MARKETING

 (a) (i) Market
∙ A market is any situation that brings buyers and sellers together for the purpose
of exchange.

(ii) Types of Markets

∙ A consumer market is a market for products and services that are bought by
individuals.
∙ An Industrial market involves the sale of goods between businesses not the
general public.

(b) (i) Marketing

∙ Marketing is all the activities that enable trade to take place in a profitable and
efficient way.

(ii) New Trends in marketing

∙ Social media marketing- is a form of internet marketing that gains attention
through social media sites such as Twitter, You tube, Facebook, Link-in and
many others

∙ Integrated marketing – this is a method that creates a unified strategy that

promotes a brand across multiple media (television, radio, and social media)
so that the message is similar in all approaches.

6.2 MARKETING ACTIVITIES

∙ Marketing activities include : market research, pricing, packaging, branding, sales

promotion, advertising, and distribution. Each of these activities will be discussed
below:

a) MARKET RESEARCH

∙ A market research is the collection and analysis of data about the consumer’s
preference and competitors. It is important to research any new market you are
moving into to avoid wasting time and money on failed projects.

(i) Consumer Taste

∙ A consumer’s taste refers to the products and services that consumer’s chooses over
others.
∙ Market research helps to rank individual choices and assist the firm in making better
decisions about the products/services offered.

(ii) Competitor
∙ Market research helps a firm to obtain information about their competitor in order to
make better designs, offer competitive prices, and become more effective.
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(iii) Consumer Behaviour

∙ Consumer behaviour is a study of the public reactions towards a product. ∙ Market
research helps a firm to understand what prompts a consumer to purchase a particular
product and what stops him from buying it.

(b) PRICING

∙ Pricing is the monetary value of a good/service or the amount asked for the
product/service
∙ Pricing strategy is a way of finding a competitive price of a product or a service.
Strategies include:

Pricing Strategies

(i) Pricing at a Premium

∙ This is where a business sets its cost higher than their competitors. This
strategy is most effective in the early days of a product’s life

(ii) Pricing for Market Penetration

∙ This penetration strategy is used to attract buyers by lowering the prices on
goods and services. This is used by big companies to pull customers away
from their competitors.

(iii) Cost Plus Pricing

∙ This is the simplest method, it involves using the cost of producing a single
item and then adding overheads cost and a profit margin to arrive at a selling
price. 1000 + 300+ 200= $1500

(iv) Price Skimming

∙ This strategy involves setting prices high at the introductory stage of the
product. It helps the business to maximise on sales at the introductory phase of
the product.

(v) Bundle Pricing

∙ A small business may sell multiple products for a lower rate than consumers
would face if they bought each item individually. It is an effective strategy
for unsold items that is taking up space.

c) PACKAGING

∙ Packaging is the way in which a saleable product is wrapped/ displayed or

presented to the customer.
∙ Labelling is an important part of packaging this may be a small tag attached to the
product.

Forms of Packaging

∙ Forms of packaging include boxes, glass containers, plastic bags, paper, metal
cans, cloth [crocus bag]
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Presentation/Benefits of Packaging

∙ It enhances the appearance of the product - e.g. it should look bright, attractive
and different from its competitor
∙ It protects and preserves the products – e.g. wrapped to protect the product ∙ It
provides information - e.g. ingredients, description of the content, location of the
business etc.
∙ It makes it more convenient for the consumer to handle – e.g. easy to carry and
transport
∙ It promotes the product – e.g. it carries the firm’s logo and brand name to allow
customers to identify the product

d) BRANDING

Use of Brand Names

∙ A brand name is a symbol, colour, name or trade mark that distinguishes a product
from its competitors.

Reasons for Branding

∙ It helps to create customer loyalty, that is the faithfulness of a customer to buy a
particular brand regularly
∙ It is easier for the firm to promote the product resulting in an increase in sales ∙
Branding leads to returning customers, if a firm delivers what their brand promises,
the customer will return
∙ Having a strong brand helps the firm to charge a high price especially if the product is
of a high quality.

e) Sales Promotion
∙ Sales promotion is a process used to persuade the consumer to buy a product and
make repeat purchases which will increase sales.

∙ Examples of Sales Promotion

Free Samples - are mini replicas of the product, usually take place at trade fairs,
exhibitions and supermarket.
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Coupons - are detachable tickets that entice the holder through the probability of
receiving something.

f) ADVERTISING
∙ Advertisements are messages paid for by those who send them and are intended to
inform or influence people who receive them.

Advertising Functions

∙ Build a firm’s image which will attract more customers

∙ Highlight special events such as sales, or features of the product

∙ It provides factual information such as the benefits and where the product can be
found.
∙ It is persuasive, it tries to entice the consumer to purchase the product by using
emotional and psychological appeals. E.g. use of sexual appeal adds

Forms of Advertisements
∙ Informative - gives detail information about the good or service

∙ Persuasive- uses a variety of techniques to persuade people to buy a product or

service regardless of whether they need it.
∙ Competitive - tries to influence the demand for a particular brand

g) The Distribution Chain

The distribution chain refers to the route used in getting the product from the producer to
the consumer in a convenient way.

∙ (i) Producer ⇨ Wholesaler ⇨ Retailer ⇨ Consumer

∙ (ii) Producer ⇨ Wholesaler ⇨ Consumer

∙ (iii) Producer ⇨ Retailer ⇨ Consumer

∙ (iv) Producer ⇨ Consumer

(i) The Producer/Manufacturer

∙ The producer is the person who converts raw material or semi-finished goods into
finished products or services.

(ii) Wholesaler
 ∙ Is the middleman who buys goods from the producer in large quantities and sells in
smaller quantities to the retailer.

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Functions of a Wholesaler

∙ Risk bearing- wholesalers take the risk of storing goods that may not be wanted by
customers or may become obsolete or out of fashion, or the prices may fall forcing them
to sell at a loss.

∙ Warehousing- wholesalers store goods and keep them until they are required by the
retailers ensuring them a ready supply of goods when needed.

∙ Breaking bulk- wholesalers buy goods in large quantities and repackage them in smaller
quantities and sell them to retailers.

∙ Transport- wholesalers pick up goods from the manufacturer and at times deliver goods
to the retailer’s premises in their own vehicles.

(iii) Retailer
∙ The retailer is a business that buys from the producer or the wholesaler and sells directly
to the consumer.

Functions of a Retailer

∙ Breaking bulk - retailers buy goods in bulk from the manufacturer and sells them in
smaller quantities to the consumers.

∙ Providing useful information – information gained from customers about the products
will provide feedback to the wholesalers and manufacturers.

∙ Providing presales and aftersales services - presales is checking the appliances that they
are working before they are sold. After buying the goods, some retailers offer repair
and maintenance services which is known as aftersales services.

Factors that Influences the Method of Distribution

✔ The type of goods, the value of the goods, who is the product for, and the
location.

6.3 MARKETING MIX

∙ Marketing mix is a collective term that refers to a range of marketing techniques and
strategies a firm uses to reach its target market.

∙ It consists of 4 elements - Product, Pricing, Place, Promotion [4P’s]

 (i) Product
∙ Product is an item that is produced to meet the needs of the customer in terms of quality,
durability, performance and appearance.
∙ There is no need to market a product that is not needed by the customer

(ii) Pricing
∙ Pricing is the monetary value of a good/service or the amount asked for the product ∙ If
the price is too high the customer may not buy the product, if it is too low they also may
not purchase it because they may think the quality is inferior.
∙ Firms may use various pricing strategies to enter the market as discussed above. (6.2)

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(iii) Place [Distribution]

∙ This is concerned with getting the product to the right place using the appropriate
distribution channel.
∙ If the product is to be successful it must be distributed in a place that is accessible to
potential customers.
∙ E.g. Producer- Retailer- Consumer

(iv) Promotion
∙ Promotion is a method that a firm uses to make the consumer aware of the product. ∙
It helps to inform the customer about a product, create an image about the product or
encourage existing customers.

6.4 FACTORS THAT INFLUENCE CONSUMER BEHAVIOUR

∙ What makes consumers behave in the way they do when they make their purchase
decision? There are several factors that influence consumer behaviour as seen
below:

∙ Price –generally the higher the price of a good, the consumer will buy less of that
product, however, if the price of the product is reduced, the customer would purchase
more.

∙ Price of substitutes – a substitute is one that can be bought instead of another one. When
the price of a product’s substitute increases then the demand for the first product will
increase.

∙ Quality - a consumer may ignore price and pay high amounts for a product if they are
getting good quality.

∙ Taste- people’s taste differ, therefore marketers must be aware of the various preferences.

∙ Tradition- some people will purchase a particular brand/product due to family tradition
such as buying Grace Foods products only.
 ∙ Income (affordability) – when a consumer’s income rises, expensive goods will become
more affordable. In contrast when consumer’s income fall, they tend to purchase cheaper
goods.

∙ Spending patterns- marketers need to identify patterns so they influence consumers e.g.
some customer always shop at a favourite store.

∙ Brand loyalty – marketers try to build brand loyalty to prevent consumers from switching
to another brand.

6.5 FACTORS AFFECTING PACKAGING

i. Presentation – the package presents an important role in marketing the good, it’s
presentation should be eye catching and informative .

ii. Branding – gives the product a symbol or design that helps the product to be easily
recognized.

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6.6 METHODS OF PROMOTING SALES

∙ Methods of promoting sales are strategies businesses use to tell customers about the
product and get them to buy the product through advertising, public relations, sales
promotion and personal selling.

(a) Advertising
(i) Functions and forms of advertising (see above)

(ii) Sales promotions such as:

✔ Trading stamps and coupons- a stamp/coupon is given by some stores to a

customer according to the amount spent and can be exchanged for various
articles.

✔ Loyalty points - loyalty program rewards customers who buy from a business
on a regular basis, this encourages the customer to return frequently.

✔ Rebate - is an amount paid by way of reduction, return, or refund on what has

already been paid or contributed.

✔ Bundling – is offering multiple products for sale as one combined product .E.g.
Flow offering extra services to the basic phone line such as internet access

(iii) Loss leaders - are items with huge discounts used to attract customers to the store

(iv) Social media – can be used to promote a firm’s brand or products through social
media such as Face-book, Instagram, Linked-in, and Twitter.
 (b) Public Relations

∙ This is gaining free publicity by inviting members of the press and other media to
the business and special functions.

Examples of Public Relations

∙ Press release to draw public’s attention to company’s product

∙ Offering special awards such as scholarships for children

∙ Offering expense paid trips to long service members or employees

∙ Sponsoring sporting and cultural activities

c) Sales Promotion (see above)

d) Personal Selling

∙ Involves the sales person moving from place to place with their products

∙ It facilitates direct contact and immediate feedback

∙ It allows the customer to buy on credit from the seller

∙ Telemarketing can be considered as personal selling, as banks use this facility to make
arrangement for loans with customers

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6.7 TECHNIQUES IN SELLING

(a) Sales Men and their Approaches

∙ Selling techniques refers to the methods that sellers use to make potential
customers aware of their product.

∙ Various selling techniques include:

✔ Cold calling or telemarketing – selling to an unknown persons

✔ Warm calling – contacting someone you know

✔ Hard selling – selling a product that may not be needed

✔ Soft selling – using gentle persuasion to convince a buyer

✔ Solution selling – helping people to choose the right product

✔ Customer selling- technique that focuses on different types of

customers .

(b) Merchandising and Adjusting of Pricing Policies

 ∙ Merchandizing is the presentation of goods in a shop, examples include:

✔ a well laid out shop that encourages customers to walk around

✔ colourful dramatic window displays

✔ well stocked shelves with banners and labels indicating price

✔ foods that can be taken out of the package to allow customers to see and touch
them

(c ) Methods of Retailing/Distribution Outlets

∙ Shops – these are small retail outlets which sells a variety of goods referred to as
sole traders, corner shops and convenience shops

∙ Department stores – are retail outlets that are divided into different departments
that sells a variety of product lines e.g. Woolworth

∙ Mail order- potential customers are asked to buy goods through the post,
telephone or online. E.g. goods displayed in a catalogue can be ordered and
delivered by post to the consumer’s home.

∙ E-commerce – buying and selling goods and services via the internet and
distributing them by post, pay-pack or some other courier service.

∙ Telemarketing – buying and selling goods or services over the phone to make
contact with potential customers.

∙ Vending machines – self- service machine that use coins to purchase a drinks or
snacks located at convenient places 24 hours a day.

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 ∙ Supermarket- these are large self -service stores selling mainly food and small
household items. They attract customers by offering specials and cutting prices
on certain items.

6. 8 TERMS OF SALES

∙ This involves the methods of payment you expect the customers to pay for
purchases e.g. cash, cheques, credit card or debit cards.

Advantages Disadvantages

Cash -Quick and convenient payment amount owed, this increases

the profits of the business
-No risk of none payment -Risk of money being stolen -Fake notes may be used

Trade credit - Giving customers time to pay for goods, this

encourages them to buy more -the customer may not pay, so cash is not collected
-Interest is charged on the immediately, this slows down cash flows for the business

Hire Purchase instalments -Interest payment increases the cost

- Goods are paid for by of the item
The customer is offered credit and instalments
agrees to pay for the goods in -The goods do not belong to the
regular - The buyer enjoys the use of the buyer until last instalment is paid
goods while paying for it

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Layaway -The customer makes a deposit the buyer defaults
and is protected against price
Goods are reserved for customer fluctuations
until they can pay for it -The customer receives the goods
only after full payment is made
Consignment
-The person is known as the
Where goods are placed in the consignee gets a portion of the
possession of another person to -The consignee has the right to return
revenue the good to the supplier if it does not
sell -The seller can repossess the item if sell without any obligation

Cash discounts -Cash discounts encourage the customers to 6.9 FUNCTIONS OF CONSUMER ORGANIZATION
pay on time,
resulting in an increase in Consumers
sales -The full selling price is not received so the business
makes less profit

Trade Discounts -Trade discounts encourage the customers

to buy in bulk,
resulting in an increase in -Trade customers may resell the product thus taking the
sales and profits sales from the business

∙ Refers to any individual or group that derives satisfaction from goods and services
through the process of exchange.

Functions of Consumer Organizations

∙ Consumer organizations are advocacy groups that seek to protect people from
corporate abuse like unsafe products or false advertising. Consumer organization
consists of private and government organizations.

∙ Examples of consumer organizations are private organizations and government

agencies which are discussed below.

(a) Private organization - are institutions which educate and lobby for legislation to be
put in place to protect consumers. E.g. Consumer Affairs Commission addresses the
concerns of the consumer and organise consumer affairs and prepare publication.

(b) Government agencies- such as the Bureau of Standards and the Ombudsman.

(i) The Bureau of Standards

∙ It ensures that the goods produced are sold in good condition and are properly
packed and labelled.

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 ∙ It sets high standards for which the producer must abide if the goods are to be
accepted in the market.

.(ii) The Ombudsman

∙ An independent person appointed by the government to investigate any

injustice suffered by individuals dealing with government departments who
then makes recommendations to correct wrong doings.

6. 10 ROLES OF CUSTOMER SERVICE

∙ Customer service is the assistance provided by a business to those people who buy or
use its products or services.
∙ It provides an opportunity for the business to provide customer loyalty and customer
satisfaction

Roles

∙ Provides information so the customer is well-informed about the choices available to

them
∙ Practice adherence to copyright laws to avoid being sued or prosecuted ∙
Communicate effectively with customers with courtesy calls by contacting customers to
find out what they think about the product
∙ Providing credit facility, delivery services or discounts to customers when necessary

∙ Refund or replace a product if a customer is dissatisfied with a product they have

purchased

6.11 FORMS OF CUSTOMER SERVICE

∙ Warranty – is a promise issued by the manufacturer to repair or exchange the product

within a specified period in the event that the product does not function as intended.

∙ Aftersales - refers to all the help and information that a business provides to a
customer after they have bought a particular product. E.g. repair services, information
follow-up.

∙ Feed-back - information/reactions to a product/service which is used as a basis for

improvement.

∙ Toll free number/Call Centres - this allows callers to reach the business without
paying for the call.

∙ On Line Chat – allows the customer to talk with someone about the difficulties they
are experiencing with the product they have purchased.

∙ Suggestion Box -used for collecting information from customers about how the
business can be improved and it shows that the customer’s views are important.
 ∙ Surveys - used to find out how satisfied customers are and how the business can be
improved.

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6.12 CONCEPT OF INTELLECTUAL PROPERTY RIGHTS

(i) Trade Marks

∙ A trade mark is a registered brand or trade name, it may include a combination of a

name, slogan, logo or colours that identifies a company’s product or services.

(ii) Copy- Right

∙ Copy right is the ownership by persons of certain types of design, written work or
music. E.g. the following symbol indicates when a copyright exists ©.
∙ Copy right products cannot be reproduced for commercial use without permission
from the owners.

(iii) Patents

∙ Patent is the right granted to an inventor of a machine, formula, or technique. ∙ A

business that wishes to use the invention must seek permission from the inventor. ∙ A
person must receive a special licence to reproduce the product and must pay a fee.

Revision Questions

Question 1

Maggie recently bought books, shoes and clothes from an online

company. (a) (i) Define the term ‘e-commerce’. (2 marks)

(ii) State TWO advantages and TWO disadvantages of ‘e-commerce’. (4

marks)

(b) OutlineTWO reasons why firms offer trade discounts. (4 marks) (c)

Maggie plans to buy a refrigerator from a local store.

Discuss any TWO of the following ‘terms of sale’ options that are available to

her:

-Hire purchase

- Lay away plan

-Trade credit (6 marks)

(d) Given that Maggie buys the refrigerator and it stops working after one month. Advise her of

TWO actions which she may take to get compensation from the store. (4 marks) [Total 20

marks] Question 2

To succeed in business, firms must be conscious of their pricing and selling techniques. (a)

State FOUR selling techniques used by sales men to contact their customers. (4 marks) (b)

Explain the following pricing techniques used by firms to increase sales.

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(i) Cost plus pricing (2 marks)

(ii) Penetration pricing (2 marks)

(c) Define EACH of the following terms of sales:

(i) Cash discount (2 marks)

(ii) Trade discount (2 marks)

(iii) Hire purchase (2 marks)

(d) Justify the use of EACH of the following methods as a means of increasing the sales of

insurance products:

(i) Personal selling (3 marks)

(ii) Advertising (3 marks)

[Total 20 marks]
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SECTION 7 - LOGISTICS AND SUPPLY CHAIN

Objectives

i. explain the term logistics and supply chain operations

ii. describe the links in the chain of distribution

iii. distinguish between multimodal and intermodal transport

iv. interpret information on transport documents

v. explain the role of transport in marketing;

vi. identify advantages and challenges of supply chain operations;

vii. explain the impact of logistics and supply chain operations on the competitiveness of
business;

viii. identify the problems likely to be encountered in distribution

ix. outline measures to mitigate problems in distribution; and,

x. outline the impact of information technology on logistics and supply chain operations

Reverse Flow of Goods (Reverse Logistics)

● Reverse logistics deals with moving the product from the consumer to the point of
origin. E.g. a product may be returned by the customer due to a defect or product
recall.

● Reverse logistics is also the re-use of products and materials e.g. recycling,
refurbishing, repackaging the products and at the same time helps in the safe disposal
 of waste.

Storage of Goods
● Storage of goods involves holding and protecting commodities for later use. Goods
will be kept in a safe and secured place for when needed.

Services
● Services such as insurance and related information between destinations. Insurance
provides coverage for losses caused and protects against risks.

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(b) Activities involved in Supply Chain Operations

(i) Transformation of natural resources- e.g. a manufacturer taking the produce

from the farmer and processing them in some way

(ii) Movement and storage of raw materials – e.g. transporting and storing the raw
material

(iii) Processing of raw materials and components into finished goods

(iv) Storage of work-in-progress and finished goods

(v) Delivering the finished product from point of origin to point of destination

7.2 THE LINKS IN THE DISTRIBUTION CHAIN

● A distribution channel is a chain of businesses through which goods and services pass
until they reach the final consumer. It includes manufacturers, wholesalers, retailers, and
even the internet.
 (i) Producer
● Their job is to grow or mine raw material to supply to the manufacturer who
transforms the raw material into the finished product.

(ii) Wholesaler
● They buy in bulk from the producer or manufacturer and sell in smaller quantities to
the retailers (breaking bulk).

(iii) Retailer
● They buy from the producer or wholesaler and sell in smaller quantities to the
consumer.

(iv) Consumer
● They are the final purchaser of the product that is supplied in a variety of ways such
as by a retailer or online shopping.

Producer Wholesaler Retailer Consumer

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7.3 DIFFERENCES BETWEEN MULTIMODAL AND INTERMODAL TRANSPORT

Multimodal Transport Intermodal Transport

● This is where a single carrier is ● This is where multiple carriers are

responsible for getting the goods to responsible for getting the goods to its
its final destination using several final destination using several modes
modes of transport (rail, road, sea, or of transport (rail, road, sea, or air).
air)

● A carrier is a shipping company e.g.

Jamaica Freight & Shipping
Company)

Modes of Transport and their Suitability for Different Goods

(a) Air
● It carries goods and passengers through airways by using different aircrafts like passenger
aircraft, cargo aircraft, helicopters, etc.

Advantages Disadvantages
● It is the fastest mode of transport. ● It is more expensive than other
modes of transport.

● It is very useful in transporting ● It is not suitable for transporting

goods and passengers. heavy and bulky goods.

● It is accessible by any other means. ● It is affected by adverse

weather conditions.

● It is the most convenient mode of ● It is not suitable for short

transport during natural calamities distance travel.
like earthquake and floods.

(b) Rail
 ● Transportation of goods and passengers on rail lines through trains is called rail transport.

Advantages Disadvantages
● It is convenient for travelling ● It is expensive for carrying goods
long distances. and passengers over short distances.

● It is faster than road transport. ● It is not available in remote parts

of the country.

● It is suitable for carrying heavy ● It has a fixed time schedule and is

goods in large quantities over long not flexible for loading or unloading of
distances. goods at any place.

(c) Road
● Roads are the means that connect one place to another on the surface of the land.
Advantages Disadvantages
● It is a cheaper mode of transport ● It has limited carrying capacity, this
as compared to other modes. is not economical for long distance
transportation of goods.

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● Perishable goods can be transported at a faster speed ● Transportation of heavy goods or goods in bulk by
by road carriers over a short distance. road involves high cost.
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● It is a flexible mode of transport as ● It is affected by adverse weather

loading and unloading is possible at conditions e.g. floods, rain,
a destination. It provides door-to- landslide, etc.
door service.

(d) Marine (sea)

● Water transport refers to movement of goods and passengers on waterways by using
various means like boats, steamers, launches, ships, etc.

Advantages Disadvantages
● It is used for transporting bulky and ● It is reliant on other forms of
heavy goods transport to deliver its cargo from the
port

● It is a safe mode of transport as ● It is a slow- moving mode of

accidents are rare transport, not suitable for
perishable goods

● The cost of maintaining and ● It is adversely affected by

constructing routes is very low weather conditions

(e ) Pipelines
● In modern times, pipelines are used for various purposes. This is the most convenient as well as economical mode of
transport for petroleum as well as natural gas in comparison
to road and rail transport.

Advantages Disadvantages
● Safe method of transport. ● Maintenance and installation cost
are high (expensive to build)
● Best to transport water, natural gas, and ● Only certain type of goods can
oil be transported.
 ● It can be erected on land or underwater ● Risk of damaging pipe lines due
to road repairs

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Pipeline on land Crude oil pipe line under the sea (f) Digital Delivery

● The term digital delivery refers to the electronic delivery or distribution of data such as
audio, video and software games via a variety of devices such as the web or mobile
phone.

● It also applies to the practice of completing and submitting forms online and making
payment to purchase items such as passport, driving licence and renewal and hotel
reservations.

7.4 TRANSPORT DOCUMENTS

Import licence

● This is issued by the importing country giving permission for the import of certain
products in certain quantities.
● It contains the name of the importing country, exporting country and quantity imported.

Bill of Lading

● These are documents used when transporting goods by sea, it contains details of the
goods, port of destination and carriage terms
● Purpose of the bill - a document of title of ownership of goods, it serves as a receipt for
goods shipped, and it indicates the conditions of the goods shipped.
● Three copies are made for importer, exporter and the ship’s captain.

Airway Bill

● These are documents used when goods are sent by air transport containing details of
the goods and its port of destination.
● Purpose of the bill- it serves as a receipt for goods sent by air.

7.5 THE ROLE OF TRANSPORT IN MARKETING

● Transportation is the means to carry people and goods from one place to another. The
functions of transport in marketing will be discussed as follows:

(i) Fast- Track the Sourcing of Commodities

● Transport plays a very important role in the making of the products, it ensures that the
raw materials required in the production process can be transported to the manufacturer
quickly.

(ii) Security of Supply

 ● An organized transport system in the supply chain will ensure that the goods get to the
right place at the right time ensuring security of supply.

(iii) Cost Reduction

● When transportation is organized efficiently, transportation cost will be less , thus
enabling a business to be more competitive.

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(iv) Mobility of Labor

● Transportation provides mobility to labor, this means, transport takes the workers to and
from the factory so that production can proceed smoothly.

(v) Transport in Domestic, Regional and Foreign Trade

● The type of transportation used in the domestic market (locally) utilizes various forms of
road and rail transportation methods. Transport allows person to trade locally and
provides locals with a wide range of goods and services.

● Regional trade will include road, rail, sea and air transport.

● Foreign trade utilises various modes of transport that involves road, air, rail and sea. It
involves importing and exporting and helps a country get goods that may not be available
locally.

7.6 ADVANTAGES AND DISADVANTAGES OF THE SUPPLY CHAIN

OPERATIONS(SCO)

Advantages

Improved Quality of life

● The supply chain allows people to access things that will improve their quality of life,
such as televisions, cars, refrigerators, medical supplies etc.

Employment Opportunity
● The supply chain provides job opportunities such as production, transport, packaging,
storage, marketing and advertising etc.

More Shipping Options

● SCO helps a company to determine the best way to ship their products, while also
reducing costs at the same time.

Disadvantages

Globalization
● If the supply chain is not highly efficient and well run , they will not be able to stay
competitive in a global market.

Natural Disasters and Political Instability

● Globalization involves having customers and factories in other countries, this mean that
 your business will be impacted by events in other countries such as natural disasters and
political instability.

Regulatory Complexity
● There will be different laws and regulations with which the marketer must comply with.
● E.g. where a company has a factory in another country , employment laws in the home
country may be different from those in another country.

Product Obsolescence
● Many products have shorter life span than in the past and leads to product obsolescence.

Management blunders

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● Management blunders such as not having enough information about a customer in terms
of when and where they want a delivery.

7.7 THE IMPACT OF LOGISTICS AND SUPPLY CHAIN OPERATIONS ON THE

COMPETITIVENESS OF BUSINESS

(a) Competitive Advantage

● Competitive advantage is generally gained by offering customer service of greater value

with lower prices and superior benefits. Logistic aims to meet the customer’s demand at
the lowest possible cost.

(b) Logistics Improve Competitive Advantage

● Logistics can put a company ahead of its competitors by ensuring effective and efficient services
such as delivering the right products quickly to the right place and at right price.

(c) Comparative Cost Advantage Outsourcing

● Comparative cost advantage is being able to produce a commodity at a lesser cost than
other businesses. Logistics can achieve this aim through outsourcing.

● Outsourcing is a situation in which a company employs another organization to do some

of its work, rather than using its own employees to do it. Business outsourcing includes
transportation or storage of good etc.

● Companies may handle logistics on their own (first party logistic) but increasingly, many
are turning instead to second party, third party and forth party also kown as logistic
service providers (LSP).

(i) Second Party Logistics(2PL)

● After expanding, a firm may use the services of a second party logistics provider (2PL).
2PL provides basic functions such as transportation and warehousing.

(ii) Third Party Logistics (3PL)

● 3PL offers a variety of logistics activities services such as, warehousing, consultancy,
and delivery to various destinations .E.g. FedEx and DHL

(iii) Forth Party

● Fourth-party logistics offers a comprehensive service in the supply chain, that is, they
offer the same services as 3PL providers and as well as more for a client.
● E.g. sorting out transport requirements, storage , insurance, delivery, custom clearance
etc.
Benefits of Outsourcing

● Saves on time and cost – this reduces your need to invest in transportation, warehouse
 and storage facility

● Use of experts - the LSP uses the latest developments in logistics software, technology
and other techniques to assist a client

● Freedom to focus on your core business - using a professional third party can remove
some unneeded stress

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7. 8 PROBLEMS IN DISTRIBUTION

(a) The Relationship Between the Availability of Airport, Habour and Docking Facility

● Seaport and airports are vital for a country’s international trade. A country must have the
necessary infrastructure such as road and railway lines that can be connected to seaports
and airports to enable effective distribution to take place.

(b) Problems Encountered in Distribution

● Even though some countries have appropriate infrastructures in place there are some factors that
they may encounter that causes problems in distribution. These include:
✔ Delayed shipment
✔ Spoilage of goods
✔ Misdirection of goods
✔ Inadequate warehousing facilities
✔ Lack of proper security measures
✔ Ineffective communication
✔ Industrial unrest

7.9 MEASURES TO MITIGATE THE PROBLEMS IN DISTRIBUTION

Government intervention

● The government may issue legislations related to distribution and employ inspectors to
ensure that they are being observed or they can also publish recommendations of good
practices to be observed.
Creating a Communication Network

● Delayed deliveries can be reduced by using a range of internet communication

technology that facilitates better management of distribution routes.

Insurance
● Insurance provides protection against a risk that may or may not occur, distribution
problems can be overcome by insurance as it provides monetary compensation to the
sender of the goods if they are destroyed or damaged.

Choosing the Right Channel of Distribution

● When choosing the distribution route a number of factors must be considered such as the
nature of the product. E.g. perishable good requires a fast channel and items such as
jewelries would require a secure channel.

Other Measures
● Other measures that can be used to mitigate problems in distribution include: using a cargo
handling service that has a good reputation, ensure careful labeling and documentation of
goods, avoid holding large stocks, employ a security company or use of security cameras.

7.10 THE IMPACT OF TECHNOLOGY ON LOGISTICS AND SUPPLY CHAIN

 OPERATIONS

● Choosing the right technology for various logistics activities is very crucial to any
business to gain competitive advantage in today’s competitive market.

● Forms of technology include: GPS, GIS, Portnet, Telemarketing, Ecommerce, Logistic

providers such as; FedEx, DHL, Amazon, and Logistics hub.

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Global Positioning System (GPS)

● Global Positioning system (GPS) can tell where you are, and where your most important
assets are located.

● GPS as a part of the supply chain management will allow a company to plan the shortest
and best possible route for the vehicle to follow, this reduces fuel cost and time wasted.

(a) Geographical Information Systems (GIS)

● Geographical information systems (GIS) is a software that provides an advanced visual
picture or geographical data such as street maps and location tags via social media. It
allows the user to make intelligent and strategic decisions.

● E.g. typically used in highway maintenance and accident analyses, this helps in
developing better road infrastructure.
(c ) Portnet

● Portnet is a computer tool which enables the electronic processing of all documents for
release and clearance of all goods in international transactions.

● Portnet aims to help ports and shipping company to manage the complexity of the entire
shipping process via the internet.

(d)Telemarketing /Ecommerce

● E-commerce allows customers to shop using online stores rather than physical stores. As a
result, the delivery of goods and packages are delivered by distributing companies.

● The impact of E-commerce on the supply chain is significant as distribution centers will
now take over services of the retail shop due to customers not buying from the physical
stores but rather from online stores.

(e) Global Logistic Providers

● Global logistic providers such as FedEx, DHL, and Amazon play a vital role in
transportation in the supply chain operations. These companies are responsible for goods
and materials going across international borders.

FedEx

● FedEx provides an express delivery service carrying packages around the world in rapid
delivery time.
● Accessing the FedEx site allows a customer to book a delivery slot, find out the cost, find
out delivery time and any other information.

DHL (Dalsey, Hillblom and Lynn - founders of DHL Worldwide Express) ● A

pioneer in global express shipping, DHL's international network is linked to over 220
countries and territories.
● DHL supply chain provides a detailed on-line website that offers delivery services to its
customers.
 Amazon

● Amazon has built an effective delivery system. Amazon’s success lies in having: (i) An
expert warehousing strategy (ii) a number of delivery options offered (iii)manufacturing its
own products and (iv) utilizing automation and robots to pick and pack orders as well as
stacking and storing inventory.

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(f) Logistic Hub

● A logistic hub is a location that acts as a center to deal with activities related to
transportation, organization and distribution of goods for national and international trade.

● Jamaica’s logistic hub will include the following; maritime and air cargo logistics, storage,
sorting and distribution, aviation repair and maintenance, ship repair and dry docking etc.

● Benefits of a logistic hub to Jamaica:

✔ it will be the 4th hub comparable to Singapore, Dubai and Rotterdam

✔ it will facilitate increased volumes of transshipment cargo

✔ it will create numerous jobs such as; maintenance, assembly, machinery repair and
dry docking etc.

Review Question #1
(a) Define the following terms.
(i) Logistics- logistics refers to the commercial activity of transporting goods to the end
consumer (2 marks)

(ii) Supply chain - can be defined as the steps involved in getting the product or
services to the end consumer.
(2marks)
(b) Figure 1 shows a traditional chain of distribution for a certain product.

Manufacturer Wholesaler Retailer Consumer Figure 1. Traditional chain of distribution

Identify EACH link in the chain by placing the correct name in EACH box above. (4 marks)

(c) List TWO problems that are likely to be encountered in the distribution of goods. Goods can
be faulty. Spoilage of goods can be encountered

(4 marks) (d) Suggest ONE appropriate mode of transportation for each of the
following products.

(i) Fresh meat from processing plant to supermarket Road transport- Cargo Truck (1
mark)
(ii) Cement from factory to construction site - Road Transport (1 mark) (iii) Oil from

oilfield to refinery- Pipeline (1 mark)

 (iv) Bauxite from mine to processing plant- Road (1 mark)

(e) (i) Define the term outsourcing. Outsourcing refers to how a company uses other
members from outside the business to distribute their goods. (2 marks)

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