Study Guide
Robert Dransfield
Sandrea Butcher
Jacqueline Peters-Richardson
Conrad Valentine
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Access your s~pport website for answers and
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lntrcduck:in
Section 1 The nature ol business
1.1 Tne developMent of barter and the role of money
1 .2 lnsfn.,ments of exehange
lnstn.,ments of payment
Private and publ c secto•s
6Jsness organsat O<'S and arrangements
Economic systems and the functional a-eas a' a
busness
1.7 The role and funct·ons of sfakehode•s In business
1.3
1 .4
1 .s
1.6
ac':vites
1.8 Eth cal and legal .ssues
1 .9 Unetnca! and 11,egal practices. Careers In me fed of
business
4
6
6
6
10
12
14
18
20
22
24
Section 2 lntemef orgenfoatlonal environment
26
2.1 F\Xlci,ons and respons<>I ties of rianagement
26
26
2.2 S mple organisa,ona: charts
2.3 Cnaracterrs(cs <t leade.-ship ano different leadersh p
styles
2.4 Conflict withn an organ.saticn
2.5 Resolv ng oonf<;t and gu del nes for ma IT.a ning
reations in the ¼lorkplace
2.6 Stratag es for mowa:ng employees and the role of
teamwork
2.7 Effect ve cc•rvnunoation strai:egies
Section 3 Eatabliahlng a bualn8""
3.1 The functions and cnaractensocs ri a typical e.,treprene<T
3.2 Entrepreneurs and decsion•making and reasms to
establish a ouslness
3.3 Setting vo a oosness and prepa,lng a business pan
3A Elerren:s of a ousiness pan and research nto me
estab!ishrr.en: of a bvsiness
3.5 Feasibility sti..:J es, panning and oo6fa: ng a bus ness,
regu'ation
3.6 The location of a business and the s gn f,cance of
co·ate--al n accessng cao1tal
Sections 1-3 Practice exam question,
30
32
36
38
40
40
43
46
49
52
55
58
4.1 Contrac-cS and the, character sties
60
62
6o
69
72
5.1 Fac10,sof proc!uct,on and industriesdevelooed from
5.2
5.3
SA
5.5
Caribbean natural resources
Production and produe1ivty
Types and tevels of cap1al and product on
Cottage ,ndustnes and small businesses
Bus•ness growth, lin'-<age Industries and me e~ec,s of
gfO',•••th on bus ness
Section 7 Logistics and supply chains
106
7.1 Logistcs and su;,p'y chains, and the dtain of d.str.outlon
7.2 Mulimodal and intermodal transoort
7.3 Transoort documents and the role of transl)Ort In
ma·kebng
7 .4 ;\dvantages and cha,lenges o' suppy Chan
operations and the irnoact on competitiveness
7.6 Probems enoountered in o str.t:ution and the imi)ac:
106
·, 10
ot CT
92
96
100
·, 12
115
118
Section 8 Business finance
122
8.1 Financal institutions
·22
124
8.3 F1nanca regu'ato,y bod es, and the re:ationshlp
be~,veen regu.ato,y cod es and fnancial lnstlt>JI ens
127
8.4 Managing personal income, and the d fe<ences
34
80
SecUon 6 Production
103
8.2 The functions and se'Vioes offe<&d by f rancial1nsttvtions
Section 4 Legel aspects or busfne88
4.2 Offer and acceptance, contract terminations o r
discharge, case examp,es
4.3 Bus•ness docu~ntatlon and business transactions
4A P·inc p es and t)':oes cf nsurance and how Insurance
facl 1a:es trade
6.3 Consumer beha>Acu; presentng gocds and
promoting sa~
6.4 Techn ques of selling, terns of sa:e and functions of
oonsurner 0 1 gan satlons
6.5 The roe and forms of customer seN.ce and
ntel 'ectuai prooe,t y r,ghts
Sections 4--6 Practice exam questions
72
74
76
79
82
Section 8 Marketing
86
6.1 Markets. ma<'<e:<19 and marxeu1g activtes
6.2 The rrarketlng moc
86
89
bet>,,-een savings and investments
8.5 Short•tem1 and long•te<m nnanclng, and personal
sources of capital
8.6 The purposes of base financial reoords for so,e traders
Section 9 The role of gov•mmant in an economy
130
134
138
142
9.1 Eoonom:c responsib!H:.es o# government, and how
governmen: ln1uences bus nesses to P'Otect the
errvrronment
9.2 The pu,x:ses of taxation, and the d f6fence between
d·,ect and indirect taxes
9.3 Govern-nent asslstar,oe for businesses, and the
sec al services provided by gov"&"nment
Section 10 Technology and the global business
environment
10.1 Bus ,ess technolog/and tne role of ICT n t:usness
10.2 Types of ICT, and thediference between
e•comme.-ce and e~o•.JSiness
10.3 How ICT can ,mprove eff,ciency, and the elhical
l'Tlp lcaoons of us ng ICT
10.4 Factors that dete·mine a country's slandard of l,vlng
and qua ty o' I •le
10.5 Naoonal income and Its varatlons, and the role of
eoucatlon n eccnomic oevelopmenl
142
146
150
164
154
156
160
164
168
10.6 Reasons 'or ntemational trade, and the functions of
reajor econom c lnstitut,ons and sys-.ems
1 a. 7 How eoonom•c instrtutions moact the Car bbean,
and the major eoonom,c prootems of the Car obean
10.8 So\Jtions to the ma;or eoonornic problems n the
Canobean, and foregn Investment
178
Sections 7-10 Practl~ exam questions
181
G'ossary
Index
184
170
174
189
This Study Guide has been developed exclus~1ely with
,he Caribbean Examinaticns Council (CXC"') to be
used as an additional resource by candidates, both in
and out of school, following the Caribbean Secondary
Education Certificate (CSEC~ programme.
It has been prepared by a team with expertise in ,he
CSEC<I> syllabus and examination. lre contents are
designed to support learning by providing tools to help
you achieve your best in CSEC~ Principles of Business,
and the features Included make rt easier for you to master
the key concepts and requirements of the syllabus. Do
remember to refer to your syllabus for full guidance on
the course requirements and examination format!
Features
As you work thtougn this Sludy Guide you will come
across the following features:
OBJECTIVES
You should be able to:
• explain the development of
barter
• describe the role of money.
The Objeciives boxes tell you which objectives from the
specification the content you are abcvt :o read relates to.
KEY TERMS
Barter: the exchange of goods
or services for other goods
and services without the wse of
money.
Double coincidence of
wants: two people w ho each
want what the other has 10 o'fer.
The Key terms boxes provide definitions of tne words or
phrases highlighted in bold in the text. Being able !o use
technical vocabulary will help you in your exam, and the
key terms are also collected together in a glossary at the
back of i he &udy Guide.
EXAM TIP
MA~e s«ve !jO« ca"'iole,,,,ti.fl:1 a""ol expl.&!i,,,,
sevevC1Lwci1:1s of ""'-ll/ei."'-0
J'CI !:J ~"'-tS. MCI ~e
s«ve ;:10« ca"'- CILso
~pLC1•"" the C1oivC1.,,ces
""' 1'"' !::I ~"'t S!jSte""'-s,
V?I¾ bC1vtev to "'-Otes C1.,_ol
co,=, to cheq«es a""ol
cCI vol s!::lste""'-S, to "-tw
te;h~Lo0t1 i.v.voLveol
W<tvi ""'--)'Cl!j""'-t"-t.
Exam tips are designed to help you overcome common
mistakes or misoonceplicns.
KEY POINTS
• Barter Involves an exchange o' goods and/or
services wtthout the use of money.
• The developmenl of money reouced the need
tor barter.
• Money is anything that can be used as a
generally accepted means 01 exchange.
The Key points boxes provide a very brief summary of the
key information fer each topic.
SUMMARY QUESTIONS
1 . How does the use of money overcome three
weaknesses of barter?
2. What properties do notes and coins have
that make them good forms o' money?
3. Explain how a $1o note serves each of the
four functions of money.
The Summary questions box contains questions you
can use tc test your understanding of each topic. The
answers are provided on tl'1e support website.
Command words
The syllabus is divided into ten sections, and each section
is based around specilic learning objectives. These are
a list of what you should know, understand or be able to
do as a result ol learning 1he principles of business. Tnis
study guide leads you through 1he objectives.
Each objective starts wtth a command word that tells
you what you need 10 do. Below is a list of the mos1
common command words, with a brief description of
1•/na1 each of them means.
• Define: Se! CUt a clear definition of wna1 a specific
term means.
• Differentiate between: Explain 1he difference
between one thing and another.
• Identify: Indicate what something is.
• State: Express some1hing clearly.
• List: Provide an appropriate list of particular aspects
er features.
The great thing about revising Principles of Business
is that i he principles you are learning about apply to
real-world con1ex1s. Every clay you witness business in
action. To help you revise, talk about wha1 you see wtth
your friends and the people ycu share your home witn.
Amaze them wilh your grasp of this exciting field. At tne
same time, follow the business news in your national
paper, on 1he Internet and in television reports. Keeping
fresh business news in your mind will help you to think
of examples when you are writing your assessments,
and will help to consolidate your learning of principles
and business terms.
This Study Guide is supported by a website which
includes answers to all of 1he questions in the book, as
well as electronic aotivtties to assist you In developing
good examination techniques.
• Outline: Set out 1ne key aspeC1s of something.
• On Your Marks activtties provide example
• Describe: Provide factual information about a
examina1ion-style short answer and essay iype
questions, with example candidate answers and
feedback from an examiner to show where answers
could be Improved. These activities will build your
understanding, skill level and oonfidence in answering
examina1ion ques!ions.
• Test Yourself activities are specifically designed
to Increase your experience of answering
multiple-choice examina1ion questions.
concep1, process or sequence.
• Interpret information: Show what the in!orma1ion
you are supplied wtth means.
• Construct: Use the specified format to draw or
design some1hing.
• Classify: Arrange according !o shared characteristics.
• Explain: Make an idea clear to the reader.
• Discuss: Present a reasoned argument, considering
the points for and against a position or explaining the
relative merits of an issue.
• Establish guidelines: Create a set of useful
guidelines.
• Evaluate: Assess in order lo make a judgment about
something, weighing 1he arguments for and against
and arriving at a measured conclusion.
Make sure 1hat you understand these command words,
so tha1 wnen you are laced with them in an assessmen1
you know what the examiner wants. Questions that
use command words like "evalua1e" and "discuss"
will usually be worth higher marks than questions that
simply ask for lists or ask you to identify some1hing.
Study skills
The key to revising is to start early and to plan your
revision In an organised way. Allocate sufficient tlme to
revising all ten sections of the syllabus so tha1 you bvild
up kllowledge across the whole syllabus. The reality
is tnat you will probably not be able 10 do as much
revision as you originally planned. However. if you are
organised and break up your revision into lots of small
sessicns, then you will look back and surprise yourself
by how much you nave covered!
So to recap:
• Revise regularly in small chunks.
• Study the lls!s and 1ables provided in this book to
support your learning.
• TI1ink about how command words hold ,he key to
specific objectives.
• Learn from :he real business world.
• Talk about business principles with others.
• Explore the On Your Marks aciivities to find ov't how
marks are awarded.
• Practise answering multiple-choice queslions wtth 1he
Test Yourself activities.
• Back yourself to do well.
This unique combination of focused syllabus con1ent
and interactive examination practice will provide you
whh invaluable support to help you reach your full
potential in CSE~ Principles of Business.
£A
~
Access your support webshe for answers and
addltior.al activities here:
www.oxfordsecondary.com/9780198437390
The development of barter
and the role of money
OBJECTIVES
You should be able to:
• explain the development of
barter
• O'escribe the role o' money.
Cowrie she"s we,-e an ear1y ~crrn of money
KEY TERMS
Development of barter
Barter: the exchange of gooos
In the days before money was used. people would exchange goods
through a process known as barter. Bartering Is the exchange of
goods without the use oi money. For example, a farmer might have
been able to exchange a sack of surplus grain for tvvo or three hens.
People still trade using a barter system, for example Vlthen you
swap (barter) an Item with a friend. However, bartering only works
effectively where there is a double coincidence of wants, such
as when George wants Sylvia's chickens and Sylvia wants George·s
corn, so they are willing to barter.
or services for other goods
and services without the use of
money.
Double coincidence of
wants: two people who each
want what the other has to offer.
Surplus production: output
1n excess of what a producer
requires tor his or her own use.
M oney: anything that serves as
a generally acceptable means
of exchange. includes physical
objects, e.g. cowrie shells
and paper money, as well as
caros and electronic forms of
payment.
Deferred payments :
payments that are made in the
M ure tor a current deb1.
The advantages and disadvantages of barter
Advantages
Disadvantages
People can access goods It requires finding someone willing to barter.
tha11hey do not produce so there is a double coincidence of wants
themselves
People can specialise in
producing one or a small
number of goods
There is no common measure of the
value of items (as would be the case with
money)
Surplus production can It ls difficult to "save" bartered goods In the
be traded
same way tha1you would save money
Advantages
Disadvantages
EXAM TIP
There is no need for
money
Certain goods cannot be broken up into
smaller units Qn 1he way thal money can}
yo« "'-eecl to be i:i bLe
Unlike mcney it is difficuh to transport certain
goods once they have been received
fo«r
f«~tio""s of "'M"'-et! :
to clescribe tne
IIS II ~i.wM_
The role of money
~Al>l.gt: V1,1.0Vl,lt:J is
ge.,.eri:iLLrJ i:icce-ptecl i:is
II forVI,\. of pi:i t:l Vl,\.e""t
Money is anything that is widely accepted or used In exchange for
goods. Notes and coins are an obvious example.
l4Mt of A()OC)~
Vtl L1,<es ca VI, be CIILCL<ltltecl
i.,. K""its of V1,1.0Vl,l1:J;
A subsistence economy is one In vvhlch people are able to provide
for their own wants and needs through farming and fishing,
supplemented by some barter trading. The early Carib people of the
Caribbean region subsisted In this way. However. over time as people
began to want different goods - particularly goods not produced in
their own area - they began to trade. Forms of money developed
such as cowrie shells and precious metals because these \II/ere
relatively scarce. Items used as money before coins and notes were
lntroduceo often shared certain characteristics.
Characteristic
Details
Scarcity
The ttem is valued because it is In relatively scarce
supply
VI/hen the ttem is accepted as payment then tt
serves as money
Acceptability
Portabiltty
Toe item needs 10 be easy to carry around
Durability
The ttem needs 10 be hard wearing and long lasting
Divisibiltty
The ttem needs 10 consist of untts so large sums
can be broken down into smaller untts
KEY POINTS
• Barter Involves an exchange ot goods and/or seMces without
the use of money.
• The development of money reduced the need for barter.
• Money is anything that can be used as a generally accepted
means ot exchange.
SUMMARY
.
. QUESTIONS
.
1. How does the use of money overcome three weaknesses of
barter?
2. What properties do notes and coins have that make them
good forms of money?
3. Explain how a $10 note serves each of the tour functions of
money.
of
• IIS
Q
recorcls cQ"" be Rtpt i.,_
KV\,lts, e.g . .J1, 10 cel>\.ts
II S II store
of VA~:
be stoYecl
foy f«t'<Yt use wniLe
"1M"-t1::f ci:i ""
•
Yetai"'i""9 its vi:iL"e
Qs i:i SUIMArd for
«eftma P"!1-Mt&: tne
vi:iL"e of i:i clebt ci:i"' be
ci:1Lc'<ti:1tecl i"' Vl,\.OV\,lr)
tl-1e"' pi:iicl bt:1cR
[.,., tl-1e f'<tKre """ terVl,l.s
of tl-iis VIIL«e.
V\.OW
"""cl
Instruments of exchange
You should be familiar with the following instruments of exchange,
which are used for making payments In exchange for goods and
services.
Barter
The exchange of goods and services for other goods and services
without the use of money.
Bills of exchange
A written order by one party In an exchange (the drawer) to another
(the drawee) to pay a given sum of money on the date set out in the
order, in payment for gooos received. Bills of exchange are typically
used in International trade as they give importers time to sell the
goods they have bought before paying for them, but the Importers
are still required to make a payment at a set date in the future.
Debt and creel~ cards have oecome a rro-e
popular instru-nent of exchange for indiv,dual
consu-ners than cash and cheqc.es
OBJECTIVES
You should be able to:
• Identify the Instruments of
exchange/payments.
KEY TERMS
Instrument of exchange:
the means through which a
payment is made, e.g. notes
and coins, cheques and
m-money.
Drawer: a person making out
a bill of exchange. such as a
cheque ordering lhe payment
of funds.
Drawee: usually the bank
responsible for following t11e
drawer's instruction to transfer
funds to the payee.
Payee: a person entitled to
payment by the drawee as a
result of lnst1uctions made by
the drawer.
Electronic transfer
A way of transferring funds from one bank account to another
automatically without the Intervention of bank staff. The money Is
transferred over a computerised network.
Tele-banking and e-commerce
Tete-banking enables the transfer of money from one account to
another using telephone communications. The person making the
payment will instruct his or her bank to make a payment irom his or
her account to another named account.
E-commerce is the process of buying and selling, usually through a
website. Buyers order goods and provide their bank details onllne.
setting out how much Is to be paid, from \11/hich account and which
bank card (usually a credit card) and where the goods are to be
delivered. Amazon and eBay are examples of e-commerce companies.
Cheques
A written instruction to a bank to make a payment on behalf of
a bank account holder, called the drawer. The drawer writes an
Instruction to his or her bank, which is termed the drawee. The
person that the cheque is made payable to is called the payee.
There are three main types of cheoue. A crossed cheque has t\11Jo
parallel vertical or diagonal lines drawn across it, indicating that the
cheque must be deposited into an account. An open cheque (which
has no crossing) can be signed over to a third party by the drawer
signing the back of It. An ale payee only cheque can only be pale
into the account of the payee named on the cheque (the words 'ale
payee only' are written between the vertical or diagonal lines on a
crossed cheque).
Money order
A form of payment for a pre-specified sum of money. Money orders
are a saie way of making a payment because the drawer must pay
the proVider of the money order with the sum for which the order is
made out. Money orders can be purchased at a post office and then
made out In the name of a chosen payee. The order consists of two
parts:
'."'A~e. S<.<ve l::JOI.(. C/;11'1,
• the money order
• a payment stub that is kept as a reoord.
icle.,.,tt.TI'.) a""cl ~1tpl.a i.,.,
sceveraL WAtJ,; of ma~i"'-0
Debit cards
Many bank account holders will be provideo with a debit card \ivhich
they can use to make payments to payees via electronic transfer. The
card provides details of a person's account (e.g. bank account number
and bank sort code). The card can be swiped or entered into a chip
and pin reader, enabling the aocount to be debited automaticaJly.
Credit cards
These are supplied by a 1inance company, which is an offshoot of a
bank. The card enables the drawer to make payments to a payee
using the card. The account holder is given a period of time before
they have to pay off the baJance on the card to the credit card
company. Essentially, credit cards enable credit payments, with
the credit being provided by a finance house. However, the credit
caro' company will charge a high rate of interest to their customers
(cardholders} for using credit services.
EXAM TIP
J>l:ltJ!¾l"'-tS. MA~e
SC<.<Ye lJO<.< cA"" aL,;o
~plai.,., tne aclva.,.,ces
""' J>A tJ "'1.l"'-t StJStems,
ft-om bartev to "-Otes """cl
coi=, to cneq<.<es """cl
cayi,l StJ,;tem,;, to ""ew
te~n"'-OLogtJ i"'-VOLVecl
with m -pAl:J!¾l"'-t.
Bank draft
For larger payments such as the purchase of a car, the seller might
want extra security that he or she will receive the money expected.
The seller might ask the person making the payment to pay with a
bank draft. This ls a cheoue made ou1 by the bank and drawn from
the bank's 1unds. The bank's customer will either have these funds
taken from his or her account, or will deposit cash with the bank with
the request to make out a bank oratt payable to the seller,
Telegraphic money transfer
This form of payment involves the transfer of funds and Is typically
used to transfer money overseas. A bank will send instructions to an
overseas bank to make a payment to a specified recipient on behalf
01 a customer.
KEY POINTS
• Payment methods have
become more sophisticated.
• Money and coins have
replaced barter for most
payments.
• Cheques, bills of exchange,
cards and mobile wallets are
widely used.
Bank transfers
This is a way to send funds from one bank account to another
anywhere in the worlo. Bank transfers are similar to telegraphic money
orders. To set up a bank transfer the details of the two accounts are
required. such as the names, acoount numbers and bank details.
M-money, mobile m oney and mobile wallets
Mobile money involves the use of a cellphone to transfer money
between bank accounts, as well as to make deposits In a bank,
withdraw funds from an account or pay bills. A cellphone can be
used to make payments. Payment card Information is stored in the
1orm of a mobile wallet on the cellphone. The data can then be read
by an electronic device belonging to a merchant, so that funds can
be debtted 1rom the purchaser's account in exchange for goods
and services.
SUMMARY QUESTIONS
1. What forms of payment
are often used for making
smaller payments?
2. Identify two forms
of payment used In
international trade.
3. How might a seller want
payment for an expensive
item?
Instruments of payment
OBJECTIVES
You should be able to:
• interpret information on
various instruments of
payment.
You should be able to identify some of the key details on a given
instrument of payment. Only four of the most common instruments
are outlined here but make sure that you can Identify key details on
other instruments such as debit cards.
Layout of a cheque
The image below shows the layout of a crossed cheq ue.
NATIONAL BANK
Dote
Poy
12/12/2018
John Smith
_Fi_ ,__
do"-1-'la-'rs_o_n.,_
1 _ ___,,________.....,
$
50.00
MARTIN DOE
?Ha,,.u,.
Soo c«t-
N:l/'IJ .11t NLmh.t
01 ·02·03
123 4 56789
z,.,,,
Some of the key details on this cheque are the drawee's name
(National Bank), the payee's name {John Smith), the drawer's name
(Martin Doe), the sum being paid ($50) ano the date on which the
cheque has been made out A crossed cheque has to be deposited
in a bank account: it cannot be cashed.
Layout of a bill of exchange
BILL OF EXCHANGE
Caribbean Exporters
Represented by
Bank of Barbuda
Dat e: 30 December 2020
KEY TERMS
Crossed cheque: a cheque
that has two parallel vertical or
alagonal lines drawn across
It. Instructions can be written
between the fines, such as
that the cheque can only be
reoeemeci by the person whose
name appears as the payee.
Sixty days after t he issue of this bill of excha11ge, pay to Bank of Barbuda
to the account of Caribbean Exporters the sum of S10000 for the value
received.
To: Royal England Importers
Valley Road, Southampton
Represent ed by HSBC Bank
Signed by: Travis McM;mua
(MD Caribbean Exporters)
Order: a written lnstrucl ion
binoing one party to pay a fixed
sum on an agreed settlement
date.
In the bill of exchange above, Caribbean Exporters have suppliec
$1 oooo worth of gooos to Royal England Importers. The bill of
exchange represents an order for Royal England Importers to pay this
sum of money In 60 days' time, by vvhich time they will have received
the goods. The money ls to be transferred from Royal England's HSBC
bank account to Caribbean Exporters· Bank of Barbuda account.
Layout of a credit card
EXAM TIP
Y°K l¾t:1 tJ be t:1ske&I
~o i&lew:i{}j ke1::1
,...,fo,-"':t:1tio"" H1t:1t &1p7'et:1 ,s
o"" Cl"" <"'-Strn""-t.,,t of
1'l'lt1mew:, sKch tis ti,ie
&lectwe,; &1,t1wee t:1.,,&(
)'&1!:Jee yoK s"101,tl&I &1lso
t:1ble to ~-pl&1i..., now t"1e
,...,strn"""e""t works.
?e
Key details on a credit card incluoe the name of the cardholder
(Winston Jones), the name of the bank issuing the card (Caribbean
Bank), the card number (16 digits), the date on which it was issued
and the date when it expires, and the type of card (MasterCard).
Layout of a money order
CAAIIIScAN
~!'OST
wlcilN~
19377013919
Poy lo the order of:
NEY ORDER
\'~r, f,,w,'ft, Doy
281 2 - 89 - 04
~lOffiot
U.S Oolb-1 Cir'd C•"~
2827 80
$980.00
James Brown
Amount tobepaid: ---'-'-"-'"'-""'-'-'"'-'-'=c.-'-"'=...,,e.=.'-'-'-'-"-===----NINE HUNDRED AND EIGHTY DOLLARS
Sig ned:
OJl(dat 0;t &ttka,. ~
:000008002:
1937701 3 919:
A money order is a payment for a specified sum to a specttied
person, which is pre-paid by the sender. This is a safe way to send
money and Is often used by people who do not hold a bank account,
or by those 'Nho want to transfer funds internationally. Key details
include the sender and receiver of the money order, the amount
being sent and the date.
KEY POINTS
• Means o' payment usually involve a drawer, drawee and
payee.
• The payment method enables the transfer of funos to the
payee.
• Bi:!nk deti:lils appear on most payment methods.
SUMMARY QUESTIONS
1. What are 1he key details
that appear on a bill of
exchange?
2. What are the key
differences between a bill of
exchange and a cheque?
3. What Information appears
on a creoit card?
Private and public sectors
OBJECTIVES
You should be able to:
• differentiate between private
and public sectors.
A distinction is made between private sector businesses (owned by
individuals or groups for their own purposes. usually with profit-driven
motives) ano public sector businesses (owned by the government,
usually for purposes that benefit the whole community).
KEY TERMS
Shareholder: someone who is
a part-owner of the business;
the shareholder will typically
have many shares.
Goods and services: a good
is a physical or tangible product
which can be used now or tater.
such as a car or bar of steel.
A service Is an activity where
work Is performed for others.
Examples Include supplying
orainage and water services.
Board of directors: a small
group given the responsibility
for governing a business.
In Barbados, b1ue government-run ouses compete with private-run ouses, min vans
and route taxis
The private sector consists of businesses that are owned by private
Individuals as well as businesses that are owned by shareholders,
i.e. people who have bought a share in the company (this means
they have the right to share in the profits of the company and to
appoint directors to run the business on their behalij.
The public sector consists o' services that are run by the government
(such as the public works department, the national health service
and the police service) as well as public corporations. which are
effectively government-ov11ned companies that provide goods and
services to the community (such as the Electricity Commission and
Water and Sewerage Authority In Trinidad and Tobago).
Differences between the private sector
and public sector
Private sector
Types of enterprise
Companies, partnersnips and sole
traders
\l\lho owns them?
Private individuals and
shareholders
V\lho manages them? Sole trader, managing partners or,
in the case of a company, a board
of directors for major decisions,
and a management board for
day-1o-day management
\l\fhere do funds come The owner's capttal, borrowing
frcm?
and shareholders' funds
\1\1110 gets the profits/
Profits are shared among the
surpluses?
owners. with some being
re-invested in the business
Objectives
More likely to be linked to
self-interest, such as making a
profit for the owrers
Public sector
Government departments and
public corporations
Governments on behalf of iheir
nations
A management board appointed
by a chairperson, who in turn Is
appointed by a government minister
The government
Any surpluses are either returned
to the government or re-invested in
,he enterprise
To provide goods and services that
benefit society, such as mail delivery
and road building
In some economies the majority of production is carried out by stateowned (i.e. government-ownedi enterprises. For example, In Cuba
large sections of industry are state owned. A benefit of this Is that
the government has been able to direct investment into the areas
that are seen as being in the interests of the wider society, such as
investment in agriculture.
In other economies, for example Barbados, the majority of
production is carried out by businesses in the private sector. The
assumption in these economies is that a strong privately owned
business sector will generate opportunities for people to work hard
to oevelop themselves and to provide the goods ar,d services that
society wants and needs.
KEY POINTS
• All economies have a public and private sector.
• 'The public sector is owned ano supervised
by the government, and seeks to achieve
communtty objectives.
• 'The private sector consists of businesses
owned by pnvate Individuals and shareholders
whose main aim is to make a profit.
EXAM TIP
Mtl~e S<-<re !:JOU CCII'\,
ide...,;i.fu cx11""'-pLes of
pubL,c sector 11...,d pri.vt1te
sector e""terprises
j_,,,_
tJOUY OW"'- COUMY!:J ,
SUMMARY QUESTIONS
1. Why might someone set up a business in
the private sector of the economy?
2. Who appoints the management board of a
public corporation?
3 . How do objectives differ between the
private ar,d public sectors?
Business organisations
and arrangements
OBJECTIVES
You should be able to:
• describe the various forms
of business organisations
and arrangements
(formation, management and
characteristics) In the private
sector.
A rrarket trader v.~1· often opwa:e as a sole tradw
The tables below summarise the formation, management,
characteristics, and advantages and disadvantages of private sector
businesses.
Sole trader
A sole-trader enterprise is the most common form of business. It
consists of one person running a business, although he or she may
employ a large number of people.
Formation
M anagement
Sole traders are easy to form since there are
few legal formalities. The name of 1he business
should be regislered, and depending on the lype
of business the propnelor may need to acquire a
heatth certificale if dealing with food, a licence if
selling liquor. or may need 10 regiS!er with the VAT
department if sales exceed a certain amo~nt.
The owner has complete control.
Characteristics Sole traders are usually small businesses that
require limlted capital, for example market stall
traders, graphic designers and mobile hairdressers.
Owners work for lhemselves bu1 can employ others.
Advantages
The owner can choose when and how he or she
works. The owner makes all 1he decisions and can
make them quickly. The owner enjoys ali 1he profit.
There is less paperwork to set up the business
than tnere is with o1her forms of en1erprise, sucn as
companies.
Disadvantages
The owner does not qualify for limited liability. It
can be difficutt to raise finance to fund the business.
The business will miss ou-! en the beneffls of largescale production. The entrepreneur needs to carry
out a wide range of specialisms, including ordering
s1ock, managing finances and marketing products,
some of which migh1 be oU1side their previous
experience and skill se1.
Partnerships
A partnership is a business associa1ion between two or more owners
of an enterprise, who actively share management and profits.
Formation
Partners usually create a partnership deed. This
sets out the responsibilhies of the partners to run
the business and how profits and losses will be
shared.
Management
"Ordinary panners" or "unlimited partners" manage
the partnership, whereas "sleeping partners"
or "limited partners" appoint others to run 1he
business.
Mos1 partnerships have between 2 and 20 people.
Mos1 partnerships have unlimited liability,
but there are special cases where partners can
have limited liability. (At least one partner must
have unlimited liabillty.) Partnerst,ips are often
found in professional practices (such as law and
accountancy) as well as small businesses.
Characteristics
Advantages
Disadvantages
Increased caprtal and sharing of respcnsibili,ies.
Better decision-making than with a sole trader
since 1here is shared knowledge and expertise.
Only special limlted partnerships can have limited
liability. Partners may 'all out. A partner canno1
transfer interest In the business without the consent
01 the other partners. Decision-making can be
slower than for sole 1raders, as more people are
involved.
KEY TERMS
Limited liability: a limlta1ion
on the sum that owners of a
business have to pay out to
meet ◊ebts. The highest sum
that owners would have to pay
is the amount they invested in
the business.
Unlimited liability: a business
owner is liable for some or all
of the debts of a business and,
as a result, may have to sell
personal possessions, such
as a house, to meet business
liabilities.
Sleeping partner: a partner
in a partnership business who
is not Involved in day•to-day
decision-making but provides
capital to the business in return
for a share of the pro'its. The
sleeping partner will benefit
from having limited llabilrty. In a
limited partnership there must
be at least one partner who has
unlimited liability.
Co-operatives
A co-operative is a business organisation formed by a group o'
"co-operators" who work together to achieve sl1ared objectives.
Profits are typically shared among the co-operators.
Formed by a grcup of co-operators (members} who
must regisier the co-operative.
Management
Run by a management board l<'il1ich is elecied by
co-operators.
Characteristics The co-operators work together to achieve
shared goals that are usually related to farming,
manufacturing or retail. Each co-operator is entitled
to a share of the prcfits.
Advantages
Members work for themselves and make shared
decisions, although wilh some management.
Co-operators share the profits of the co-operative.
Some co-operatives have limited liability.
Disadvantages Members may lack managerial and technical
experience. Decision-making can be slow if
members are consulted.
Formation
KEY TERMS
Private limited companies:
companies that are owneo by
private shareholders and whose
shares are not openly traded on
a stock exchange. Shares can
only be bought and transferred
with the permission of the
board of directors.
Public limited companies:
companies wl1ose shares
are traded on a public stock
exchange. Buyers and sellers
can buy or sell these shares
through an intermeolary (a
market maker}. They can trade
shares wtthout having to get
permission from the board o'
directors.
Companies (private limited and public limited)
The word "company· suggests a group of companions who have
come together to set up a business. There are two main types
of company: private limited companies and public limited
companies.
Formation
Both private and public limited companies need
to be registered with the registrar of companies,
but fewer details are required to register a
private company. To be registered, a company
must have a memorandum of association,
articles of association, and a statement of
authorised capttal. Public limhed companies
must also have a prospectus.
Management
A board of directors will oversee major decisionmaking, while day-to-day management will be
the responsibility of professional managers.
Both private and public limited companies issue
shares, but private company shares can only be
bcugh1 wrih permlssiol"l frcm the board, whereas
public company shares can be traded on the
stock excnange.
Characteristics
Advantages
Shareholders have limited liability. Large sums of
capital can be raised by a company, enabling tt
to grow 10 a large size.
Disadvantages
Shares are not easily transferred wi!Pout the
consent of the directors. Decision-making can
be slow.
Franchise s
A franchise business is made up of a franchisor ano franchisees. The
franchisor is an established business (often a public limtted company)
with a well-known name and products or services.
Formation
Management
Characteristics
Advantages
Disadvantages
Set up through a franchise agreement between
!he franchisor and franchisee.
The franchisee runs the business with support
from the franchisor.
A franchisor grants a licence 10 a franchisee,
which gives them ihe right to use the
franchisor's trade name and methods In a given
geographical area. The franchisor takes a share
of !he profit.
The franchisee works hard to make a success
of the business, and starts with a recognised
trade name/logo/method of operating. There Is
increased income fer the franchisor.
The franchise agreement usually includes
restrictions on how the franchisee can run the
business.
EXAM TIP
M a~e s«re !:JO<-< ca.,,
exJ>Lai.,,,, viow a""!::J of tviese
fon-v.s of J>rivate sector
b«si.,,,e~ aye set "'-P, a.,.,i;1
!::JOK ca I'\, COl¾J>aYt tvie
ci,iayacteristics of ii""!::l two
of tl,iese b=i"'-t~es.
SUMMARY QUESTIONS
1. What are the main differences between sole trader and
partnership businesses?
2. Why are companies able to attract more funds than other
terms of business?
3. How might someone who wants to start a business benelit
' rom settlng up a franchise?
4 . Which of the following benefit from limi1ed liability protection?
a. Sole traders
b. Partners in an ordinary partnership
c. Shareholders In a private limited company
d. Shareholders In a public llmtted company
5. Why might vvorkers In a company that is due to close down
seek to take over the running of that company and form a
co-operative?
KEY POINTS
• Setting up a company
Involves far more paperwork
than setting up a sole trader
or partnership business.
• Owners of a company
have limited liabiltty (as
do members of some
co-operatives and some
partnerships).
• Sole traders and
partnerships often have to
oo a lot of management
themselves, vvhereas
co-operatives and
companies will often appoint
specialist managers.
Economic systems and
the functional areas of a
business
OBJECTIVES
You should be able to:
• differentiate among the types
o' economic systems
• describe the functional areas
ot a business.
Large sections c' agr culrural prc<lucticn In Cuba are p,anned and con:ro 1ed by cne
government
1
Economic systems
KEY TERMS
Traditional (subsistence)
economy: an economic
system In which people
produce just enough for their
own communal needs and do
not produce a surplus that can
be traded.
Command/planned/socialist
economy: economies in which
the government "commands"
or "plans" the economy, i.e. It
makes key economic ctecislons
on behalf of society.
Free market/capitalist
economy: economies In which
private individuals are tree to
choose how they spend their
money and what work they
do, and businesses are free to
choose what to produce.
The economic system is the way in which decisions In an economy
are made regarding what will be produced, how it will be produced .
and who will receive the benefits In terms of Income and a share ol
the goods and services produced.
The original people of the Caribbean region, the Caribs. lived in
a traditional (subsistence) economy where families ano' tribal
groups concentrated on prooucing enough for their own needs.
Some specialism would have occurred, for example making clay pots
or hunting Implements, and there would have been some trade.
In the modern economy of the Caribbean, a much wider range of
goods is produceo· and advanced technology Is used in the provision
of manufactured goods and services. Today, there are three main
economies.
Command/planned/
socialist economies
Mixed economies
Free market/capitalist
economies
Industries are owned
by the government
It decides what to
produce and how
goods and services
will be shared
between citizens.
Combines some
state planning
with a free market.
Decisions are
made by bo'.h the
government and
privaie businesses.
Businesses are owned
by priva!e individuals.
Decisions about what to
produce are made on
tne basis of supply and
demand.
The functional areas of business
Businesses are split into functions with responsibility for a specific
area of worl<. The five main functional areas are outlined belo\111.
Functional area
Details
Production
The production department converts raw
materials inlo finished goods. Production
managers will organise production so thal
resources are used efficiently.
Marketing
Marketing seeks lo find out wna1 goods and
services customers want to buy. 11 lhen attempls
lo ensure tha11hese goods meet cus!omer
requirements.
Finance
The finance department is responsible for
securing funds for the business, keeping
accounting records to show how funds are
used, and recording lhe sales and costs of
lhe business.
Human resources
(HR)
HR is responsible for areas such as recruitment,
!raining, managing wage paymenls, looking after
employee welfare, and managing disciplinary
systems.
Research and
Development (R&D)
R&D is responsible for ro€W product
development, as well as identifying new
techniques of production.
KEY POINTS
• The economy Is organised to decide what to produce, how to
produce It and who will receive the outputs.
• State planning involves government oeclslon-making, whereas
free enterprise is where decisions are made by private
individuals.
• Businesses are organised into specialised functional areas.
SUMMARY
QUESTIONS
-.
·~
1. What are the key points o' difference bet\veen a capitalist
economy and a planned economy?
2. ldentily the lype of economic system where:
a. all decisions are made by private Individuals
b. the government decides what will be produced.
3. Which business function would you associate \lltith the
following activities?
a. Advertising products
b. Choosing the machine layout In a factory
o. Recruiting new employees
EXAM TIP
Rel¾el¾bey ti-lat all
ecOV\.lll¾ces £.,,volve
a ""-cxtuye of state
pla""""'"-9 a""c;l fyee
evcte,,wcse but Sol¾e
Ii ave "'-OYt state co"'-tYoL
tliavc otheYs. Mafu suye
!'.JOU ca"' give speci-(,.c
exa ""-ples to iLltA.StYate
tliis. R>Y CXAl¾ple, Cuba
a.,,c;l C.u1:1avca "1ave 1%0Yt
gove"""":'-e.....t ow"'-eYsliip
llM dec~Sl,()V\,-l¾a~"-9
tl,Q"" Bavbados a..,.c;l
st Lucia.
The role and functions of
stakeholders in business
activities
OBJECTIVES
You should be able to:
• identify the stakeholcers
Involved in business activities
• olscuss the role and
functions of stakeholders
Involved in business
activities.
A stakeholder is an individual or group that has a oirect Interest in
the decisions that a business makes. Internal stakeholders are those
who are part of the business, such as shareholders, whereas external
stakeholders are not involved In the decisions and operations of the
business, fer example the local community. The key stakeholders
and their functions are outlined below.
St akeholder
Owners. This includes individuals
•
Suppliers. Suppliers will want to
• To provide businesses with raw
materials or components.
To oversee the setting up and
who have set up their own sole
ongoing management o' a
trader or partnersnip business,
business.
or those wno are shareholders in
• To provide S!art-up capital and
a company. They will want their
lo keep capital invested .
business to make a profit and to
• To provide vision and direction
have a good repvtation.
for the business, such as
appointir,g effective managers.
Employees. Employees will want • To provide labour input for
to work for a business that has
business operations.
tong-term prospects and provides • To contribute to the business
steady employment, good working
by creating high-qualtty outputs
cond~ions and decent wages.
through diligent work.
Consumers. Consumers will
• To puronase goods and
want a steady supply of their
services.
favourite prod.:ots at affordable
• To report unethical practices.
prices and a good quality,
delivered to convenient locations.
deal wtth businesses that place
large and regular orders, and
which pay promptly.
Communities. Communities
KEY TERMS
Stakeholder: an inolvidual or
organisation that owns one or
more shares In a company.
Business tax: a tax on the sale
or profits of a business.
Rote and functions
• To provide the workforce and
infrastructure for businesses.
• To influence businesses
regarding how 1hey impact the
local environment.
as stakeholders consist of the
people that a business comes
Into contact with In the localtties
In 1•/nich it operates. They are
directly affected by its decisions.
Environment. The damage that
• To provide a hospitable place
business activity does to the
for a business to set up.
natural environment needs to be
• To provide raw materials for
considered if the environment ls to
suppliers.
support tne business (and wider
society) in the long term.
Future generations. People
• To provide futvre customers
who are not yet born need to
and employees.
be considered by businesses
• To provide a reason why
because they are unable to
businesses should operate
vocalise their views.
sustainably.
Stakeholder
Role and functions
Government . Govemmem
• To trea1 businesses fairly by
regulating industries.
• To ensure that businesses
con1inue to supply lhe goods
and services needed.
has a key stake In ensuring
that business decisions impact
fairly on all stakeholders. The
government also benelils directly
in the form of business taxes.
EXAM TIP
M&ike S«.re l:JOt.<. e&11'1, gi.ve
""" exi:11"'-J>Le of &1 si.tL<&itiol'I,
w"1e_,-e seve,&1L st&iluhoLders
&ire :":'voLved ,l'I, &1 bt.<.Si.,,ess
deeisiol'I,. c&i"'- ijOL<
~de ....ti.ti:J tne st&i ke'1oLders
~Y\.VOLVec/ &IY\.d t"1ei., st&ike
'"'- the sitL<&itio""?
Stakeholder Interests often complement each other. such as when
a business makes profits for its shareholders by expanding and
creating employment for the local community. However, there are
other times when stakeholders are in conflict with each other. A
wise business will seek to take into account the interests of all its
stakeholders In order to keep as many of them happy as possible.
Examples of stakeholders in the Caribbean
hotel industry
You should be able to give examples of stakeholders in a specific
lnoustry in the Caribbean. Here is one example.
Owners
The hotel owners
seeking profitable
business
opportunhies
Consumers
Tourists who stay
in a hotel whi'e
on holday
Employees
Peop'e who wor'i<
in a hote'
----
~
Communities
People livlng near
a ho:el who are
Impacted by tts
exisience
Stakeholders in
the hotel industry
in the Caribbean
1----------
Environment
The natural
env,ronmem r.ear
1he hotel, such as
local coral reefs
--------
Suppliers
Providers of
laundry serv·oes,
entertainment,
food suopl es, etc.
Government
The government,
which wa~ts to boosi
na1ional employment
and tax revenues
-··SUMMARY QUESTIONS
1. How might the interests
o' the shareholders In a
company clash with the
interests of the following?
a. Employees
b. Future generations
KEY POINTS
2. Are some groups of
stakeholders more
important than others?
• A stakeholder Is an individual or group that is affected by
business decisions.
• All businesses have a number of Important Internal and
external stakeholders.
• Businesses should try to ensure a balance between the
Interests of their stakeholders.
3. w 1,o might be the
stakeholders Involved In
the decision to build an oil
refinery near to a populated
area? What might be the
issues?
Ethical and legal issues
OBJECTIVES
You should be able to:
• explain the ethical ano legal
issues in the establishment
and operations of a business
• explain the principles
that must be adopted In
the establishment ano
operations ot a business.
lv'.oney launoenng s a key ethical ~sue for b<ls ,asses
KEY TERMS
M oney laundering: concealing
Ethical and legal issues involved in establishing
and operating a business
the origins of Illegally obtained
money so that it appears to
have come irom a legitimate
source.
Business ethics are morals associated with doing the right thing In
a business context. A business needs to abide by laws established
both nationally and internationally, but being ethical typically involves
going further than the legal requirements.
Code of ethics: a set of values
An ethical and law-abioing business will be one that Is set up for
which describe how a company
and its people are expecteo to
behave in a moral way.
honest business purposes. Some businesses tail to meet the "honesty"
requirement. Three examples of such businesses are outlined below.
• Businesses that appear to be legitimate but are really a front for
money laundering activity. Money laundering l1appens when money
that has been gair.ed from illegal activities appears in the account
books of a firm as if it nas been gained from legitimate sources. Illegal
aetivities could include racketeering. handling s1olen goods, setting
up shell companies, embezzlement and bulk cash smuggling through
offshore banks.
• Businesses where the capital used to set them up has come from
illegal operations.
• Businesses that fail to keep accurate records in order to avoid paying
government taxes and national insurance.
In each of these examples, the business will have broken the la\,v and
behaved in an unethical way.
The principles that must be adopted in the
establishment and operation of a business
Business owners need to be aware of some of the key principles that
they can adopt when setting up a business.
Adoption of a business code of ethics
A code of ethics is a •.ivritten statement setting out the expectations
and principles governing the behaviour of an organisation. This
will form a key part of the training of employees, and will appear in
key company documents (such as an annual report) as \01811 as in
prominent locations. such as on the company's website. A code of
ethics sets out what the company believes in, such as being honest
when dealing with the public, investigating complaints. and treating
employees fairly and in line \01lth good industry practice.
Policies on environmental issues
A policy is a statement of intent on a particular issue. Policies
are written down and appear in readily available documents. An
environmental policy will set out how the company will act, for
example. In relation to eliminating or minimising pollution as well as
recycling waste. The policy will also set out how the people that
work for a company will operate In order to protect the environment
(such as the processes they engage with ln separating and handling
different types of waste). Companies are also likely to have a
range of other policies relating to ethical matters, such as an equal
opportunities policy and a data handling policy (see below).
Handling of personal information
Companies hanole a range of personal information about their
customers. employees and other stakeholders. They are legally and
morally bound with regard to what information they cannot make
available to others. In addition, a company is expected to show
customers and employees what information Is held about them If It
requested to do so.
KEY POINTS
'
• Ethical business behaviour Is about •right" or moral behaviour.
• Ethical behaviour o'ten Involves going beyond legal
requirements.
• A company can take measures to be more ethical, tor
example by setting up a cooe of ethics or creating ethical
policies. such as an environmental policy.
1. Can you think of an example where a business behaves
legally but could do more to be considered ethical?
2. What is the difference between ethical and unethical
business behaviour?
3 . Give three examples of unethical business behaviour.
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Unethical and illegal
practices. Careers in the
field of business
OBJECTIVES
You should be able to:
• explain the consequences of
unethical and Illegal practices
In business
• oescribe the careers In the
neld of business.
Tne conseqUE>nCes o' du'Tlplng waste In the sea ,ncluce heavy f nes fc• bus•nesses
and environ'Tlental darr.ige to the ocean
KEY TERMS
Fair Trading Commission:
the government department
responsible for monitoring the
ways that companies operate
to ensure honest and fair
dealing.
Strategy: the long-term plans
of a bu~lness concerned with
the use of large-scale resources
or funds.
Consequences of unethical and illegal practices
in business
Examples of unethical and illegal business practices are outilned below.
M isleading advertising
This is a common type of complaint maoe against merchants in the
Caribbean. Misleaoing advertising can lead to consumers buying
things that are not as good as they expect or that do not do what
is required. Most countries have a Fair Trading Commission.
where complaints of misleading aovertising will be Investigated by a
complaints officer.
Withholding of tax
Ali businesses w1th pro1its over a certain level are expected to pay
corporation tax, as well as to pay tax on the sale of goods (sales
tax) and to pay tax out of employee wages (Income tax). In some
Instances, companies will misrepresent the value of their sales or
profits or evade taxes completely. Failure to pay taxes on lime leads
to penalties. For example, in 2019 In Barbados the penalty for failing
to pay business taxes by the due date was BDs$500 plus 5 per cent
of the tax assessed and unpaid at the due date.
Unethical disposal of waste
Caribbean nations have clear rules about the disposal of waste, for
example regarding the handling of industrial waste and the separation
of different types of waste into different recycling containers. There
are legal requirements relating to how waste is disposed of. The
consequences of illegally disposing of waste include penalties such
as fines and even prison sentences for directors of companies that
have been negligent in their pollution of the environment.
Money laundering
Money laundering Is a serious issue in the Caribbean and all nations
have taken actions to combat it. For example, In Barbados money
laundering has been criminalised since 1998 under the Money
Laundering (Prevention and Control) Act. There Is a maximum fine of
US$1 million and a 25-year prison sentence. Other consequences of
money laundering include distorting business decisions, harming a
country's reputation, ano exposing people in the local community to
criminal activity such as trafficking and smuggling.
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Careers in the field of business
Various careers in the world of business are described below.
Career
Description
Advertising and
public relations
Compliance officers
\/Vorking in lhe advertising depanment of a company or in a specialist agency to create
advertising campaigns using a variety of media (TY, radio. posters, etc.)
Ensuring that a company abides by rules and laws associated with the industry in which it
opera!es. This will involve creating manuals and training staff.
Strategic planners
Collecting and organising information about an industry and its markets to enable key
plans (strategy) to be made for a business.
Ed.:cators (online
Educating and training those within a business by writing and designing online materials
and face to face)
and by offering workshops. demonstrations and lectures.
Information officers Providing information about a company and its products to slakeholder groups. Information
will appear in packs as well as in responses to emails and other requests for information.
Entrepreneurs
Establishing and running a business (usually a small or micro emerprise).
Human resources
Dealing with all aspects of employee management, ranging from recruitment and training
personnel
to redundancy and retirement.
Web designers
Creating content for the Internet by building web pages.
\lveb planners
Plam ing a website. This involves setting out the objectives fer a website and what areas It will
oontain. Planners will decide on technical details such as the software required to run a site.
Software developers Designing and building programmes for business, education and leisure ac1ivities. (Also
called programmers.)
KEY POINTS
SUMMARY QUESTIONS
• Businesses that carry out Illegal
and Immoral acts are likely to be
punished.
• Examples of Illegal acts incluoe the
non-payment of laxes, dumping of
waste and money laundering.
• There are many careers in
business including those involved
in in~ormaiion technology.
1 . What is money laundering ano what are the
consequences of car(Ying out this practice?
2 . dentify two possible consequences for a business of
creating pollution.
3. Explafn what Is Involved in two careers in business that
Interest you.
4. Discuss what can be done by the government of your
country to prevent unethical business behaviour.
2 Internal organisational environment
2.1
Functions and
responsibilities
of management
OBJECTIVES
You should be able to:
• describe the func11ons of
management
• outline the responsibilities ot
management.
f
A manager needs to balance seven <JiYo1 'unctions carefu Y
Functions of management
Managers supervise people. They also manage processes (the steps
KEY TERMS
Manager: a leader who is
expected to organise people,
resources and finances by
setting up systems and
proceoures In a logical and
efficient way.
Involved in completing tasks), other resources (such as components
and raw materials} and the business as a whole. Management
Involves seven main functions. which are summarised in the table
below.
Function
Descript ion
Planning
Managers create plans that set out short-term
and long-term goals and how i he resources will be
obtai~ed to achieve these goals. A plan consists
of a time frame, steps to be undertaken and the
responsibilities involved in carrying out the plan.
Organising
Organising means making preparations for events
and/or activities, and giving a clear structure to these
act1Vlties.
Directing
Dlrectlng means leading, for example taking
responsibility for getting things done and giving clear
directions and instructions.
Controlling
Controlling is supervising i he running of things.
It usually means settir,g In place controls that
determine how activities will take place, vvhich make
sure that things are done in the expected way.
Management: the process
o' bringing the factors of
production (human and nonhuman) together to ensure
organisational goals are
achieved.
Plan: a detailed proposal
(usually set out In writing) for
achieving something.
Controls: steps anCl
proceoures for supervising the
running of something.
Function
Description
Coordinating
This involves bringing together the various elements of
a plan or an organisation in such a way that they work
togetner harmoniously.
Delegating
Delegation means nanding over responsibility to others
for carrying out specified tasks and activities.
Motivating
Perhaps lhe most important role of management Is to
motivate others, I.e. to get them to work for you, for
themselves and for 1he organisation in a dynamic and
driven way.
Responsibilities
Managers have responsibilities to various stakeholders in an
organisation. The table below identifies these stakeholders and
management responsiblllties to them.
Stakeholder
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Management's responsibility
Owners and shareholders To manage the organisation efficiently so
as to create profits (in ihe case of private
sector companies) and surpluses (in the
case of public sector organisations).
Employees
To give clear direction and motivation, for
example by providing suitable working
cond~IO'lS and relevant training, and by
maintaining good communication and
relationships.
Society
To ensure that the organisation is socially
responsible by listening to the views of
different groups and creating local jobs.
Customers
To create systems that find out what
customers want and then provide them
with t'nese wants, and to make sure
complaints are acknowledged.
Government
To make sure that government rules a,'1d
laws are abided by and that taxes are paid
on time.
KEY POINTS
• Managers supervise people. processes, activi11es and
equipment.
• The functlons of management are what managers do, such as
oirectlng and motlvating.
• The responsibilities of management relate to 1he activttles that
managers are expected to do for stakeholders.
SUMMARY
QUESTIONS
. ..
'
1. Jameel says that the most
Important function of a
manager is to direct, wnile
Rosanne says that it is to
motivate. What do you
think Is the most important
function of a manager and
why?
2 . lden1tty three functions of
management that are closely
related. Show the links
between these functions by
giving an example.
3.
dentify two groups that
managers are responsible
to, and show how they are
responsible.
Simple organisational
charts
OBJECTIVES
You should be able to:
• construct simple
organisational charts
• Interpret simple
organlsat1ona1charts.
Construct simple organisational charts
An organisational chart Is a visual representation of how an
organisation is structured. It should show in a clear way the links
between an organisation's members, and the flow of responsibility and
authority through an organisation. The components and characteristics
of three types of organisational chart are outlined below.
Line organisational charts
Many businesses are organised Into departments. A line
organisational chart shows how authority flows from the top to
the bottom In a department. The example belov, shows the line
organisation structure in the production department of a company
that manufactures tin boxes (note that the general manager would
also manage other lines, such as marketing and finance).
General manager
I
I
I
Production manager
KEY TERMS
Supervisors
Line manager; a manager with
direct personal responsibility
for an individual employee
(sometimes referred to as a
"direct manager").
Staff manager: a manager
with specialist skills who
supports other managers In a
specialist area.
Subordinate: someone of a
lov,1er rank or position.
Line workers
Line and staff organisational charts
Line and staff organisation occ~irs v,hen a line manager gets
support from staff managers or staff specialists in order to carry out
his or her role more effectively. The staff specialists will be specialists
in their own field, such as information technology (for example
providing advice about rr systems) and human resources (for
example providing advice about recruiting and selecting new staff).
In the example below, the solid lines sho\,, line relationships and the
dashed lines show staff relationships.
HR staff -
,..
.....
,,- General manager',,
... ...
..- '..IT staff
-' ' Production manager -'
Supervisors
Line workers
Functional organisatio nal charts
Functional organisation involves structuring an organisation Into
functional areas of responsibility, such as marketing, production,
finance, and research and development. Each functional area would
then involve a chain of command, as shown in the example below.
Business un t manager
I
I
Marketlrg
manager
Finance
manager
Producilon
manager
I
Marketing
I
I
Production
R&D
employees
employees
employees
Finance
employees
manager
Other
managers
I
I
R&D
Other
empoyees
Interpreting simple organisational charts
Chain of command
The chain of command shows the lines of responsibility In an
organisation, for example from senior manager at lhe top, to middle
manager, to junior manager, to operatives at the bottom. A long
chain of command means there are many levels of responsibility In
an organisation. The chain of command in the diagrams above is
represented by vertical lines.
Span of control
The span of control of an individual is the number of people he or
she manages or supervises directly. The diagram below shows an
organisation with a narr0\11/ span of control {nobody is responsible for
more than two subordinates}. Choosing the best span of control
means finding a balance between having control over people below
you and being able to trust them. There is a limit to the number of
people who can be supervised well by one person.
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KEY POINTS
• The structure of relationships
In an organisation is
Illustrated in an organisational
chart.
• Line charts show direct
chains of command,
whereas line and staff charts
show how specialist staff
support line management.
• A narrow span o' control
Involves responslblllty for only
a few employees. whereas
a ,vioe span involves
responsiblllty •or many
employees.
SUMMARY QUESTIONS
1. Why might a line manager
benefit from specialist staf'
support?
2. What are lhe dangers o•
having too wide a span of
control?
3 . Draw the structure of line
management In your school
or another organlssition you
are familiar with.
Characteristics of
leadership and different
leadership styles
OBJECTIVES
You should be able to:
• outline the essential
characteristics of a good
leader
• discuss the ditferent
leadership styles.
An autoc,aoc leacersh.p style ,s sui:ed to the armed 'orces
Essential characteristics of a good leader
A good leader is someone who can get things done on time to a high
standard by motivated employees. The table below shows some of
the other characteristics of good leaders.
Characteristic
Description
Honesty
This is a quality that most subordinates
expect to see in their leaders. With
honesty comes trust and inspiration.
Flexibility
Good leaders will show a willingness to
change their plans or their ideas if they
prove to be wrong. They will respond to
changes in the business environment
and move the organisation into new areas
or directions when the need arises.
Focus
Good leaders will focus intensely on ,he
tasks to be achieved. rather than being
distracted away from the central purpose
of the organisation, the plan and the
needs of each situation. They will also
encourage focus from other members of
the organisation.
Trustworthiness
Good leaders will seek to build and
maintain trust. This involves doing what
they say they will do. It also involves
supporting others in appropriate sttuations.
KEY TERMS
Business environment:
external factors that have an
influence on the business, such
as the actions of competitors,
the market in which the
business operates. etc.
Characteristic
Description
Ability to make intelligent
decisions
The business world is a oomplex one, so
good leaders need to be able to make
intelligent decisions which are best for the
organisation and for all of Its stakeholders.
Intelligent decisions involve taking into
aocount different s1akeholder interests.
The different leadership styles
A leadership style is the predominant approach that an individual
uses when leading others.
Leadership style
Advantages
Rapid decisionleader commands and making. Good for the
tells others what to do. armed forces and
emergency services.
Subordinates know
1<1/hat is expected
from a leader.
Can lead to
dissatisfaction as
subordinates have no
lnpu1. Motivalion can
drop.
Democratic: Shared
Makes use of many
decision-maklng
ideas. Involves
involving a range of
consultation in
participants.
decision-making .
Laissez-faire:
Employees have
The leader lets
freedom to manage
subordinates "gel on
their own work within
with it' , leaving them to given guidelines.
sink or swim.
Decision-making can
be slow. May lead to
disagreement and
argument.
Lack of clarity can
lead 10 low motivation
and disagreement.
Charismatic: The
The leader's strong
personality may
Influence employees
to commit illegal
activities or breach
operating guidelines.
Decision-making
might be slow and
time consuming.
leader has a strong
personality or
charisma, inspiring
others to follow them.
Teamwork is
Employees are inspired encouraged as
to embrace changes
everyone works
In tr.e organisation
towards a common
regardless of the
goal.
consequences.
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Disadvantages
Autocratic: The
Employees develop
loyalty to the leader.
EXAM TIP
KEY POINTS
SUMMARY QUESTIONS
1. Why is lt Important for a
leader to be believeo to be
honest and trustworthy?
• Good leaders demonstrate key characteristics such as
honesty, focus, flex.ibllity and the ability to make intelligent
decisions.
2. Which type of leade<ship
• An autocratic leader tells others what to do.
• n democratic and talssez-taire leadership. other members of
the organisation also contribute to the decision-making.
3. Why might laissez-faire
leaders be less effective
than autocratic ones?
enables quick decisionmaking?
Conflict within an
organisation
OBJECTIVES
You should be able to:
• Identify potential sources of
con11ict within an organisation
• outline strategies used by
employers and employees to
galn an upper hand ouring
perlods of conflict.
Potential sources of conflict within an organisation
Conflict is inevitable In any form of organisation because people will
have different views about how things should be done. The important
thing is to manage conflict constructively. For example, If two
managers oisagree then It is important they listen carefully to each
other's point of view in order to arrive at a solution that is best for the
organisation.
Conflict may arise between different departments in a business.
particularly tt they have different priorities. Another key area of
conflict will be betv,een the interests of managers and employees,
for example in relation to working conditions, how much employees
should be paid. and other Issues such as opportunities for training
or promotion. Due to this the trade union (representing the workers)
and the employer's representatives will from time to time come
into conflict.
Trade unions may be 1n conflict with managenient about wages and/or w-ori<lng condf. ens
Strategies used by employers and employees
to gain an upper hand
KEY TERMS
Conflict: a serious
Employer strategies
Details
Lock out: The employer
This means that employees are not
able to do their work, and hence
do not receive pay for their work.
Employers need to be careful w'nen
using this stra1egy to make sure
'.heir actions are legal.
physically locks the doors or
gales of the premises.
Use of scab labour: T11e
The existing labour force is replaced
employer uses non-union labour and this will lead 10 intense hostility.
that is specifically brought in to Employers would only resort to this
replace the existing workforce. as an exlreme measure, and would
have 10 make sure it is legal.
Employee strategies
Details
Strike: To strike means to
A union may reques11hat tts
members strike to put pressure on
the employer. The consequences
of a strike for lhe employer are
lost production, sales and profits.
One strategy used by employees
is 10 phone in slck as a way of
withdrawing their labour without
losing wages (a "sick ovtj.
withdraw labour, i.e. 10 not
·work.
Work to rule: V\!orking strictly
to the rules of work set out in
a contract of employment. In
normal practice, some of these
rules are ignored or interpreted
loosely in order to speed up
v.rork.
Go slow: \/Yorkers reduce the
speed al wnich they perform
tasks.
The effect of "worki,ig 1o rule" Is
iO slow down production so tha1
reduced ovtpu1 and profit is made.
A union may Insist on applying the
finer details of rules in order to put
pressure on management.
It is quite easy in most types of work
iO reduce the speed at which tasks
are done In order to pu1 pressure
on management in relation to labo.r
issues svch as pay arid working
conditions.
KEY POINTS
• Conflict is Inevitable in the v,orkplace ano needs to be handled
constructively.
• Conflict often arises over differences In the aims of employers
and trade unions, such as over v,ages or working conditions.
• Managers can threaten a lock out or the use of scab labour.
Trace unions can use s1rategies such as strikes, go slow and
work to rule.
disagreement or argument
(within a business this Is
likely to be between different
departments or betv,een
managers and employees).
Trade union: an association
of employees that has been
torr>ied to protect and promote
the interests of tts members
and to achieve other Jointly
agreed aims.
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SUMMARY QUESTIONS
1. What actions can trade
unions take to create
pressure on management
to raise wages?
2, In what circumstances
might employers "lock out"
employees? What are the
dangers of doing so?
3. How might employer and
trade union actions Increase
conflict?
Resolving conflict and
guidelines for maintaining
relations in the workplace
OBJECTIVES
You should be able to:
• describe strategies for the
resolution of conflic t within
an organisation
• establish guidelines tor
the conduct of good
management and staff
relations In the workplace.
Med ation 1s one way or resolvng an lndustria d spu:e
Strategies for the resolution of conflict
It is essential to have mechanisms in place to resolve conflict and to
make sure there are construclive v,,ays of dealing with disagreement
when it occurs. Two key strategies thal are used to resolve conflict in
labour disputes are outlined below.
St rategy
Details
M ediation: The two parties in a Mediation is a more informal
dispute (e.g. managemenl and
employees) stt down wtth a tnird
party (the mediator) to try to
reach an agreement.
process than arbttration and the
recommendations of the medialor
are not binding. The mediator will
1ry to arrive at a solution that is
beneficial to both parties.
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agree to present their case to
an independem arb~rator.
This is a more formal process where
the arbitrator will seek to find a
fair and legally binding solution to
the dispute. Before the arbitration
process the tvvo parties will need to
agree on 1he choice of arbitrator.
EXAM TIP
1
The value of trade union representation
By joining a trade union, individual workers are able to benefil from
being represented by a body that champions their rights. The "shop
steward'', who represents union members In their place of v,ork,
can utilise the resources and power of a trade union. Trade unions
represent their members' Interests In relation to securing fair wages
and better working conditions, and protecting against discrimination
and unfair treatment at work (such as being dismissed unfairly or
having money deducted from wages).
Grievance procedures
A grievance proced ure ls a procedure that can be used by
employees who have a complaint about their work, 'Norkplace or
someone they work with. Grievances might be related to:
• things that an employee is being asked to do unfairly as part of
their work
• terms and conditions of an employment contract, for example
terms of pay
• treatment at v,1ork, such as being overlooked for promotion
• discrimination, for example being bullied as a result of age,
gender or race.
Grievances can be sorted out formally or informally.
Informally
An employee can sit down with his or her line manager (perhaps In
the presence of a trade-union shop steward) to discuss and resolve
the issue.
Formally
Companies should set out the procedure for lodging a formal
complaint in a company handbook and on their human resources
websites. The person or group with the complaint should formally
set out the complaint in writing, with the date on which the issue
occurred. An independent mediator can be brought In to deal with
the complaint. if it cannot be resolved in this way, then tt becomes a
formal grievance which v,1ill be presented to an Industrial tribunal. This
Is a body formally set up to deal with grievances In the workplace
and to arrive at a Judgment.
Guidelines for establishing good relations between
managers and employees
KEY TERMS
Grievance procedure: an
official process set up to
deal with the complaints o•
employees about vvork-related
matters and relationships.
KEY POINTS
• Workplace disputes can be
resolved through Informal
mediation or more formal
arbitration Involving a third
party.
• Grievances are complaints
from employees that can be
sorted out through grievance
procedures.
• Managers can resolve con11ict
by listening to employees·
concerns, improving working
conditions and engaging
with trustworthy leadership
practices.
1. Identify two oifferences
between mediation and
arbttratlon.
2. List three common causes
o' grievance at work.
3 . What is the purpose of a
trade union?
Ways to est ablish good
working relations
Details
Establishing good
communication with
workers
Management ,,An benefh from having regular meeti~.gs wtth employees (and particularly
with trade union representatives) to discuss company goals and policies and to iiSle,' l to
employees' concerns. Newsletters and bulielins will also help to keep employees in the
picture. Grievance procedures should be clear, well publicised and documented.
Improving working
condttions
Employees are most likely to be coment when there is a good working environment
,hat Is safe and which promo'.es well-being, as well as there being suitable reSl
breaks, canteen facilities and olher conditions.
Motivating workers
Businesses that focus on motivating workers are likely to be more successful. for
example by offering opportun?.ies for training and promotion, rewarding employees
well and showing concern for 1heir welfare.
Practising good
leadership
Employees will want to be led by "good" leaders, such as leaders that are see<i to
be honest, approachable and trustworthy.
Strategies for motivating
employees and the role
of teamwork
OBJECTIVES
You should be able to:
• identify strategies for
Motillating employees in a
business
• evaluate the role of
teamwork in the success o'
an organisation.
Teamwor-<. orov des support for te-a11 '11erro&'s ano creates
a sense of shared pvrpose
Strategies for motivating employees in a business
Employers can use both financial and non-financial methods to
motivate employees {to drlve them to do something}.
Financial methods
The payment for a normal working week Is the basic wage or salary.
Many employees receive extra benefits on top of their basic wage.
either as money or In some other form.
Payment scheme
Key benefits
Flat rate: A set amount of pay for a sel number of
Easy 10 calculate. Cheap 10 run.
hours.
Time rate: A worker receives set pay per hour.
Enoourages workers to work longer hours. Easy to
calculate.
Piece rate: A worker is paid according to 1he number
Acts as an Incentive to employees to produce higher
levels of output.
of pieces of work (e.g. garments) completed to a set
standard.
Bonus: AA additional encouragement for achieving a
sel target.
Commission: Payment as a se: percentage of the
Rewards high levels of performance. Can be targeted
at high performers.
sales made by a salesperson.
Directly relates pay to sales made or other measures of
output.
Performance rate: Pay is related to meeting certain
Directly links pay to meeling or exceeding targets.
performance targets.
Profit sharing: Pay is related 10 the profils tha11he
company makes.
Enables employees to see rne direct link between their
efforts and company profits.
Non-financial methods
Non-financial rewards are re'erred to as fringe benefits.
A company car
Use of a
mobl'e phone
Hotel and food
payments when on
company business
Examples of
fringe benefits
Bursaries for
children's
educa1ion
Free o, subsidised
meals at work
Company heal!h
benefiis, e.g free
gym membership
EXAM TIP
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KEY POINTS
Fringe benefits often make it easier tor people to work (for example
by providing meals at work), help to top up wages {in the form of
benefits). make a job more attractive and convenient (for example by
providing a company car), and make employees feel more valued.
The role of teamwork in an organisation
Teamwork is the process of working collaboratively with others to
achieve shared goals. In many modern workplaces, such as car
manufacturing, banks and hotels, employees work together In small
teams.
Advantages
• Improves morale as employees enjoy more responsibility and
share that responsibility with team members. The team provides a
support network for team members.
• Employees can learn from others, as team members have olfferent
skills and abilities which they can pool to make better decisions.
• Tasks can be completed quicker, raising productivity and profit.
• Improves relationships at work with other people in the team and
with the managers who create the team.
• Increases flexibility at work If team members are trained to cover
each other's roles. This allows greater flexibillly In terms of working
hours and Job responsibilities.
Disadvantages
• Teams do not always get on and conflict may arise between team
members.
• Decision-making can be slower.
• A team that builds strong working relationships may resist the
goals of the managers of the organisation.
• Employees can be
encouraged to work harder
and better through payment
systems and additional fringe
benefits.
• A number of payment
systems are linked to
performance, such as
piece rates, bonuses and
commission.
• Working in an organised
team can help to increase
employee motivation.
SUMMARY QUESTIONS
1. Identify a payment scheme
that could be designed to
encourage both accurate
and fast work. Explain how tt
could achieve these goals.
2. Why m1gh t fringe benefits
encourage an employee
to take on the role of a
salesperson?
3. Identify a type o' business
where teamwork might
Increase the motivation ot the
workers, and explain how.
Effective communication
strategies
OBJECTIVES
You should be able to:
• outline strategies for effective
communication within an
organisation.
KEYTERMS
Transm itted: another woro tor
"sent".
Noise: any obstacles that
prevent a message from being
received clearly in the way that
it was lntendeo. Noise may
literally result from backgrouno
noise, such as people talking,
or it may refer to messages
being poorly woroed,
Encoded/decoded: to
encode is to put a message
Into a form thal enables it to be
transmitted. e.g. creating an
email on a computer screen.
The oecodlng process refers to
the reading and making sense
of a message that has been
transmitted.
Sender
information,
ideas, attitudes,
desired action
..
Effective commun·cation Is essentia1 to the smoo:h n.mning o• a businsss
The communication process and common
communication problems
Communication O.e. the passing on or exchanging of information,
ideas and feelings) is vital to business. Instructions, orders, lists and
spectticatlons all need to be transmitted Internally to others within
the organisation. The organisation also needs to communicate
externally (to people outside it) to place orders, find things out
and - very Importantly - to promote and sell a brand and tts related
products.
Communication involves sending a message or messages to a
receiver. The sender must select the best method of communication,
such as oral, written or electronic. The sender must then select the
best medium to send the message, such as email or telephone.
The communication process is shown in the diagram below.
Message
Medium
encoded by
channel of communication
e.g. cellphone,
face-to-face conversation,
text message
the sender
..
Message
Receiver
decoded by
understanding
of the message
and any action
required
the receiver
There are some common communication problems which can a1ise
in an organisation, as oullined below.
Common communication
problem
Description
Language
The sender may not be a good user of
language or may use jargon, unfamiliar
technical language and abbreviations.
Effective communica1ion should think
about ttle needs of the receiver, and be
clear and direct.
Emotional state
The sender er receiver may be upset or
angry, and set out a message poorly or fail to
listen carefully to a message. Receivers may
read or hear what they want to hear rather
than wha1was actually said in the message.
Communication method
The method chosen may be inappropriale
for the receiver. For example, cellphone
communications may break up or emails
may not get through. Sensttive topics may
be handled better in person than over the
phone.
Cultural differe'1Ces
The receiver's imerpretatlon of the
message may be different due to differing
cultural experiences end expectations.
Organisations need to have a good
understanding of the culture of tne countries
that they are communicatirg wtth.
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speci.fi.c l¾ess&1ge.
Strategies for effective communication
Effective communication depends on:
• clearly defining the objective of the message
• taking account o: the needs, attitude and knowledge of the receiver
• being aware of how distractions (noise) can distort the message
• selecting the best meoium for communication
• checking that the message has been understood through feedback
• listening to feeoback and responoing.
KEY POINTS
• Businesses communicate messages internally and ex1ernaliy
using a variety of communication meoiums, such as emails
and cellphone calls.
• Effective communication is vital to messages being
transmitted accurately.
• Communication can be- improve-d by clearly defining the
objectives ano purpose o' communication, using e'fectlve
communication meoia, s1nd checking that messs1ges have
been received and decoded accurately.
SUMMARY
QUESTIONS, .
'
1. What is communication?
2. What are the main barriers
to effective communication?
Explain one strategy tor
dealing with one of these
barriers.
3. What Is !he main difference
between Internal and
external communication?
The functions and
characteristics of a
typical entrepreneur
OBJECTIVES
You should be able to:
• de1ine the term "entrepreneur"
• explain the 'unctions of an
en1repreneur
• identity the characteristics of
the typical entrepreneur.
KEY TERMS
Alan Etr,.age rs Iha Canl:lbean enlrepreneu· who crealed the wortd's first lnta,net
sea·ch engine
Enterprise: a business
The functions of an entrepreneur
that has been created by
aspiring indiviouals. The term
•enterprising" refers to being
willing to try new challenges
and to take acceptable risks.
Business plan: a formal
written document setting out
the objectives of a business.
as well as key details about the
intended future running of the
business (such as marketing,
'inancing and structuring). It is
written for the owners and other
stakeholders such as lenders.
An entrepreneur is someone vvho is willing to take the risk of setting
up their own business enterprise. There are many good examples
of entrepreneurs in the Caribbean, including Michael Lee-Chin. who
went on to set up one of the world·s largest investment companies,
and Alan Emtage, vvho designed the world's first Internet search
engine (Archie) and built a company to develop this invention.
Entrepreneurs in the local community include owners of barbershops.
salons, taxis, minlmarts and other small shops.
The key functions of an entrepreneur are shown In the table below.
Key function
Description
Conceptualising
Entrepreneurs need to s1art with the development
of a new Idea, such as the Archie search engine.
and also think about what sort of b~siness they
want to create based on this idea.
Planning
Entrepreneurs must create a business plan
tnat shows now the concept can be taken to
marl<et, ar>d to outline how they V'AII operate and
finance the business. The plan should contain a
sequence of praC!ical steps which, if followed, wilt
make the business concept a reality.
Business performance:
how well a business does, as
measured by key indicators
such as sales and increases 1n
sales.
Key function
Description
Accessing funds
A key function of an entrepreneur is 10 acquire
funds for the enterprise. These will come from
personal sources such as savings or from
borrowing from lenders such as banks. The
capital needed to establish an enterprise is called
'venture capital'.
Organising
Enlrepreneurs need to nave the crganisational
skills required 10 organise 11-.e steps Involved in
setting up a business and then to organise the
day-to-day r\lnning of 1he business. This involves
obtaining the right mix of resources, such as
workers, raw materials and equipment.
Opera1ing
The operations of a business are the 1hings
that it does to supply goods and services, such
as turning on and running machinery, setting
ou1 stocks and goods, paying bills and serving
customers. Entreprena.rs need 10 ensure 1he
effective managemen1of many different business
operations.
Evaluating
business
performance
Entrepreneurs need to be able to evaluate
how well the business is doing, for example
by studying proftt and loss figures, and making
judgmems about the effectiveness of sales and
other aspec:s of business performance.
The characteristics of a typical entrepreneur
There are a number of personaltty traits and characteristics that are
associated wll h successful entrepreneurs.
Characteristic
Description
Creative
The ability to come up wtth new ideas and to find
solu1ions to problems.
Innovative
The ability 10 identify new methods and ways
of doing 1hings, as illustrated by technology
entrepreneurs in the Caribbean.
Flexible
The ability to make changes when things do not
work at first, and to lry out new approaches.
Goal oriented
Being driven to achieve resulls and having clear
targets in mind.
Persistent
Tre ability 10 keep trying, for example to keep
pushing for new investment and loans.
Persevering
The ability to work hard over long periods to
ensure the business is a success.
Propensity to take
calculated risks
Being willing 10 take sensible risks even 1hough
there is a chance of failure.
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The following table illustrates the characteristics of an entrepreneur
called Gabriel.
Gabriel set up his own fitness club. The club operates from a
refurbished two-storey shop and Includes fitness equipment - such
as cycling, rowing and running machines - a weight-lifting area. and
a well -stocked drinks machine. Gabriel has always been passionate
about keeping healthy and runs exercise classes at the fitness club.
He charges his members different tariffs for using the fitness club at
different times of the day.
Gabriel hires the equipment and pays rent on the premises. He has a
loyal group of club members, but has to work hard to make sure that
all members renev11 their subscriptions. He employs two fttness trainers
to work alongside him, as well as two part-time administrators to
manage tront-offioe operations and membership subscriptions.
Characteristic
Description
Creative
Gabriel developed the ooncept of tailored fitness by tailoring exercise classes to the specific
needs of his mixed group of members. People of all ages and people with disabiltties attend his
exercise classes, and each member has a personalised programme and personal trainer.
Innovative
As well as developing 1he tailored fitness ooncept, Gabriel has developed a range of protein
shakes made from locally sourced tropical fruits.
Flexible
Initially the fitness club contained just the hired fitness machines and members were
encouraged to use these machines in any way they wanted once they had received an
ind.;ction showing them how to use ihem safely. However, it soon became obvious that many
customers wanted iO be supported by personal trainers and so Gabriel altered the way the
business is run to focus on tailored fitness support.
Goal oriented
Gabnel set himsett the target of creating the most popular fitness club on the relatively small island
where he lives. Once he has achieved this he plans to set up new health clubs on other islands.
Persistent
The most important step in starting his business was to use the latest gym equipment. Many
companies were reluctan1 to hire o.rt equipment to an i0dependent outlel that was Just starting
up, but Gabriel persisted and now nas a good relationship with a US supplier.
Persevering
The fitness club had not been open for long when it was ravaged by a tropical storm, causing
damage to the building. However, ihe very next day Gabriel was at work making essential
repairs and witnin a week the business was up and running again.
Propensity to
Gabriel had to borrow money to set up the business and did not take a sala,y for the first few
take calculated mcntns. This was a calculated risk which he knew he must take to get his bllSiness off the ground.
risks
However, he reoognises the difference bel\'lleen a sensible risk, based on a well-formula1ed plan,
and a risk that would have devastating consequences ~ he failed. He knew tnat svooess was no'.
guaranteed. but his calculated risk paid off and today l,e is making a heahhy profit.
SUMMARY QUESTIONS
1. What is the difference
between an entrepreneur
and an enterprise?
2. 1/Vhat are the main ' unctions
of an entrepreneur?
3. Why are some individuals
more suited to becoming an
entrepreneur than others?
KEY POINTS
• An entrepreneur Is someone who sets up a business
enterprise and Is willing to take calculated risks.
• Entrepreneurs need to come up with an idea and then turn
that idea into a working business through careful planning,
operation and evaluation.
• Entrepreneurs are creative, hardworking and goal-driven
individuals.
Entrepreneurs and
decision-making and
reasons to establish
a business
OBJECTIVES
You should be able to;
• oescrlbe the role of the
entrepreneur in the decisionmaking process
• outline the role of the
entrepreneur in economic
development
• outline reasons v,hy an
lndlvloual may want to
establish a business.
An entreoreneur 1s someone •.vno ,s v-.il ng to ta)(e the risk of setting vo an enterprise
sucn as a wincisurt schoo'
The role of the entrepreneur in decision-making
An entrepreneur makes a number of key decisions when setting up
and running an enterprise.
Entrepreneur
role
Key decisions linked to this role
Conceptualising Whether to go ahead with the business idea. Deciding which
idea (ff there is more than one} will be mos! successful.
Planning
Wnere to produce the product. how to produee it, 1•/nat
size the enterprise shot,ld be, how to mar1<et and sell the
product, and many other planning decisions.
Aocessing
finance
How to raise finance, from whom to borrow. and how
much finance needs to be raised.
Organising
factors of
production
Wnich factors of production to use (such as how many
employees and what skills they need), how to combine
different factors, the composition of these factors (e.g.
labour intensive or capital intensive}.
Operating the
business
Everyday decisions about running the business. \f\lho will
manage the business?
Evaluating
How to evaluate the enterprise. \/,/hat criteria will be used
to judge business suocess?
Risk bearing
How much risk to ,ake and which risks are accep,able.
The role of the entrepreneur in economic
development
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The business sector - and particularly small businesses - plays a key
role in helping the development of Caribbean nations. as illustrated in
the table below.
The role of small
businesses
Details
Collaborating
Entrepreneurs work with other businesses (such
as suppliers) and wtth the government to create a
vibrant economy.
Providing goods
and services to
satisfy citize1s
People in the Caribbean enjoy the goods and
ser,ices provided by local enterprises. such
meat from local farms and textiles from clothes
manufacturing.
Creating jobs
Most of the employment in lne Caribbean Is in the
small business sector, although there are also jobs
created by international companies.
Contributing to
nation building
Small businesses pay dulies and taxes on sales
and profits that must be turned over to the
government. The government in turn uses the
funds to provide social goods and services (such
as schools ar.d health clinics) and to maintain
infrastructure (such as roads).
Caribbean countries like Jamaica and Trinidad are famous for the
contribution to economic gro111/lh made by small enterprises In a
wio'e range of different sectors, including music, fashion, information
technology and food.
Reasons for setting up a business
There are a number of reasons why people set up a business, as
outlined below using the example of Dylan's windsurf school.
Financial independence: Dylan was bored with working in a nineto-tive office job and receiving a steady income from his employer.
He decided to set up his own windsurf school, teaching tourists in
Barbados how to windsurf. He set up his school close to two wellknown tourist hotels. His family helped him to purchase two Compact
Wave windsurf rigs, which are very easy to carry round. He could
now run the business wtth no financial ties to anyone else, and the
more time he put into the business the more profit he could make.
KEY TERMS
Self-fulfilment: Dylan feels fulfilled In a number of ways because he
Self-actualisation: social
is 111/0rking for himself, working his ovvn hours and doing something
that he v,,ants to do rather than something he has to do.
psychologists use this term
to refer 10 the achievement
o' one's full potential through
creativity and independence.
Self-actualisation: We use the term self-actualisation to describe
situations where people's inner needs and aspirations are being met
so they feel creative. In this case, Dylan feels creative as a teacher
ano an entrepreneur, which is helping him to reach his full potential.
Increased income: When a business loea turns lnto a successful
enterprise. high incomes can be earned in the form of profits. The
good thing about Dylan's business Is that apart from the start-up costs
there are very few costs incurred in running his school. {Of course,
many businesses fail because they do not generate enough revenue.)
Increased control: Dylan ls able to decide where and when to
work. He can also decide how to organise his business and work
schedules, including how hard to work and how much to re-invest in
the business. Dylan enjoys being able to say, "I am my own boss!"
KEY POINTS
• Entrepreneurs are declsion-makers who rriake decisions about
how to raise finance, how to organise a business, how to run
a business <Jay to day, and how to evaluate the business's
effectiveness.
• Enterprises play a key role In creating vibrant Carlbbean
economies. They create jobs and opportunities as well as
goods and services.
• People set up a business to work for themselves, to become
financially independent and to reach their full potential.
SUMMARY QUESTIONS
1. lden11'y what you consioer to be the three most Important
decisions made by entrepreneurs.
2. Explain how a business that you know about contributes to
nation building.
3. Why might an Individual self-actualise as an entrepreneur
rather than as an employee?
Setting up a business and
preparing a business plan
OBJECTIVES
You should be able to:
• ou11ine the essential steps
that should be taken in
establishing a business
• ioentlfy the reasons 'or
preparing a business plan.
Steps for establishing a business
There are a number of fundamental steps that must be followed in
order to establish a working business.
St ep
Description
Conceptualisation
Rough ideas aboU1 a product must be worked
on until 1here is a clear definttion of what the
product is, how and where it will be sold
and who will be Its customers. Other details
that need to be thought through include the
management of tile business and how many
people to employ. A name for the business
must be chosen and there need to be feasible
ideas for how to promote the business. An
entrepreneur therefore needs to have both a
business concept (what the business will be
like} as well as a product concept (what the
product will do and look like).
Research
Research - also known as a market probe refers to finding out key details about the market.
such as who potential customers will be, how
many customers there are. why customers
might choose this good or service rather than
the alterna'.ives, and what prices to charge.
Identification of
resources
A business needs a number of resources in order
to set up its operations. An obvious starting poim
is financial resources. which will be required ln
order to purchase physical resources S\lCh as
buildings. machinery and equipmeni. Human
resources are !he people that the business
emplcys and consideration must be given to the
skill sets, experience and qualifications required.
Other resources include materials such as stocks
of raw materials, partly finished goods or finished
goods ready for sale.
Creation of a
business plan
It is important that an entrepreneur has a clear
KEY TERMS
Business conceptualisation:
developing and building a
picture of what a business will
be like, for example who will
own and run It. w hat It will do,
what it w,11 be called and from
\,vhere It will operate.
Product conceptualisation:
thinking up and then ' lashing
out Ideas for new goods and
services that can be produced
and sold by a business.
Market probe: carrying out
research to find out more
about customers and their
requirements, as well as
learning about 1he nature of the
competition before setting up a
business.
plan to follow. wnich maps out the development
of the business over the nex'. one to three years.
A business plan is also an impcrtant tool for
persuading others to provide start-up capita!
as well as ongoing finance. The entrepreneur
should create a strong business plan before the
business starts to operate.
Step
Description
Acquisition of funds
It is all very well having ideas and pla,' ls, but
without money an entreprenevr canno1 get the
business started. Vvhen setting up a business,
entrepreneurs must be highly proactive in
securing sources of finance (for example from
their own savir,gs, by borrowi~g from family
and friends, and by visiting banks and making
presentations iO Investors to secure capttal).
Opera1icn of the
business
One of the most exciting limes for a business
owner Is the launch of the business. Each of the
steps oullined above should be completed be'ore
a business can s1art to operate. However, there
need to be ciear plans and systems in place lo
operate the business from 1he first day. Many
things need to be organised such as business
documentation, storage of stock, creating a
smoo'.hly operating website, and dealing with
staff and customers. These and many o1her
things need to be organised by the entrepr~,eur
if tne business is 10 operate smoothly.
WHeRe WILL
I BEST THe
FINANCe
FROM?
~
WHO WILL I
EMPLOV ANO
Wl-4AT SKILLS WILL
THeC/ NeED?
There are many quesllO<ls that an entrepreneur needs to ask when setting uo a new en:e,-pr,Se
Rea sons for preparing a business plan
EXAM TIP
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~u.s[.,,ess J>L!l V\,. These
~V\,Cl.uc!e:
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Ytsea.-cn iV\,to ti-le
feasibit,ttJ of t 1'1 e
busi.,,,ess
Jacinta currently works in a well-known hairdressing salon and has
lots of customers who are loyal to her. She has therefore decided to
take the initiative to set up her own hairoressing salon called Jacinta's
Cuts. However, she knows she needs to create a business plan so
her new business idea is carefully thought through from the start.
She explains the reasons for creating a business plan In the
following way:
"First of all, I must carry out careful research to find out just how
feasible my business idea will be. I need to know:
•
•
•
•
how many customers I will attract
how much I can charge them
what my set-up costs and operating costs will be
how much finance I need and when, how I will acquire the finance,
and who I will acquire tt from
• whelher I will be able to grow my business so I can free myself from
any loans that I need to set up the business.
to C!ttr'lct pote""tiaL
'""vesto.-s
• to so«.-ce fi.,,,,'lV\,e,ivcg
• to 91.ticle t1'!e optYatio"'-5
of t 1'1 e bu.si "'-CSS w1'1 e""
l¾'lk,ci,cg clecisiovi..s.
"I will also need to attract an initial investor to help me finance the
start-up of my business so I can acquire premises and equipment.
Investors will want to check my plan works and that the numbers
add up.
"In adoition I will need some extra finance to purchase stock ana to
pay wages. To get this finance I will need to present my plan to the
bank so they can check that I have a reliable business.
"Finally, I need a business plan to help guide the future operations of
the business, for example setting out how and when I will carry out
marketing activi1ies, when I will hire new staff in the future and so on."
KEY POINTS
• There are a number of steps that businesses should follow
prior to starting up.
• These steps start with the business idea and the market probe,
followeo by finding ways of accessing finance. They also
include setting out the details o• how the business will operate.
• A business plan is created to give a clear view of how the
business will operate ano develop to its owners. Investors and
lenders.
..7SUMMARY QUESTIONS
1
1. What problems might arise It an entrepreneur fails to develop
business concepts or carry out a market probe before
starting up?
2. Why shoulo an entrepreneur plan operations before starting
to carry them out?
3. Who are the most Important people that a business plan
shoulo be created for and wny?
Elements of a business
plan and research into the
establishment of a business
II
rM NOT OON6 TO START UP
IN/ MA/ROR!SSll'IC5 805fNl!ff
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PHO PROFIT FOReCA9T~ FOR
UP TO TMR!i:t, <le.Ala
OBJECTIVES
~
You should be able to:
• describe the elements of a
business plan
• identify sources of
information for conducting
research Into the
establishment of businesses.
Many key details about me product or S8"-<ce need :o loe Inc ud'ed
" a business p:a,n
The elements of a business plan
A business plan ls a brlel but highly focused description of a
business, Including what it 'Nill do, who will run It, Its main objectives
and how these will be met. It typically includes the following sections.
Executive summary
The business plan should begin with a brief summary of the details
Included In the rest of the plan, enabling the reader to get a snapshot
view of the business its owners, the market, proposed financing,
proposed products and any plans tor future growth. This is known as
the executive summary. It will usually be written last, and it provioes
an overview of the complete plan and the proposeo business.
Operational plan
This shows how the business will be organised ano run. It includes
the name, address and legal structure of the business (for example
whether it is a partnership or company). It describes the business's
aims and objectives {such as to become the best-known name in a
specific market). The operational plan will give an overvie\,v of the
business's personnel (who will manage the business and how many
employees will be needed, with what sorts of skills). Operational
details \,viii also outline the names and reputation of any proposed
suppliers, as well as the equipment needed to start up and operate
the business.
KEY TERMS
Executive summary: this
Is also called a management
summary, and it is a short part
of a longer document that
summarises the key content of
the main document.
Operational plan : this sets out
the day-to-day tasks that are
required to run a business.
The business opportunity
This is a description o• the product or service. II may include sketches
and photographs, as well as a clear description of the product or
service and its key features. It is important to Identify aspects of the
proouct that make it special and different from rival products.
Marketing plan
KEY TERMS
Financial forecast: a
p1ediction o' the expected
financial position of a business
in the future, and the results
of operations and cash flows
based on expecteo conditions.
Primary research: \'then
researchers collect data directly
themseJves rather than using
existing published inforrriatlon.
Secondary research: when
researchers use existing
published Information as a
source of data rather than
collecting data directly
themselves.
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This should clarify who the potential customers are and how many
of them there might be. The marketing plan should set out figures
showing the total size of the market {the number of consumers) and
the percentage of the market that the business/product is expected
to win (this is termed the "ma1ket shaie"). The marketing plan should
identify the main competitors and the strengths and weaknesses
of competing products (when contrasted with the business's own
products). Details should also be given of proposed marketing
activities, such as advertising and promotion.
Financial forecast
The financial forecast identifies where the funds to set up and
operate the business will come from. This will be followeo by details
of proposed sales numbers and sales revenues. The key costs of
the business should also be set out. A "profit and loss forecast" will
set out the expected sales revenues, expected costs, and expected
profit or losses for the first one to three years that the business
operates. A "cash-flow forecast" will predict the funds coming into
and leaving the business each month tor at least the first year.
Without cash a business cannot trade, so it is essential to show that
the cash will not run out at any point.
Sources of information for conducting research
into the establishment of a business
An entrepreneur can carry out two different types of research when
setting up a business. Primary research is new research carried
out by the entrepreneur for his or her own purposes. For example, an
entrepreneur might create a questionnaire tor potential customers,
ask them to complete this questionnaire and then analyse the results.
Secondary research uses existing published research, such
as books about setting up a business, ma1ket research that has
already been produced by market research companies, government
publications about opportunities and grants for new businesses,
and so on.
The main advantage of prlmary research is that questions and other
research activities can be focused directly on the needs of the
entrepreneur carrying out or commissioning the research. However.
it may be costly and time-consuming to carry out this research.
The advantage of secondary reseaich is that the information is
already available and may be quite detailed. However, the reseaich
is not specifically tailored to the needs of the entrepreneur using the
research. and buying published research from a market research
company can be very expensive {although other information, such as
from government sources, may be free of charge).
The following table compares the adVantages of primary research
with the advantages of secondary research.
Advantages of primary
research
Advantages of secondary
research
Can be tailored specifically to the
questions the researchers wan1
answers to and the information
the researchers want to find out.
The Information has not been
ga1hered for another p.rpose.
The information already exists
In published form and it may be
very detailed, providing lo1s of
Information.
The information collected will be
fresh and up to date.
It may be cheap or free to access.
Can focus on the specific market
that is relevam to the company
commissioning 1he research.
Da1a may already be in an
electronic format, making tt easy
to analyse.
KEY POINTS
• A business plan outlines the business proposition, the features
of the market and the financing of the business.
• A business plan is fon,,aro looking and sets out In de1ail the
plans for the first, secono and third years o' the business.
• Entrepreneurs engage with a mixture of primary and
secondary research before s~rtlng up their business.
SUMMARY QUESTIONS
1. List six Important details that you would expect to find In a
well-constructed business plan.
2. Why is an outline of the market such a key aspect of
business planning?
3. VVhen researching a business idea. wnat would you consider
to be tv>,o of the most Important types of primary research
and tv>,o o' the most Important types of secondary research?
Feasibility studies,
planning and operating
a business, regulation
OBJECTIVES
You shoulo be able to:
• discuss the significance of
conducting a teasibility study
Into the establishment of a
business
• explain the relationship
between planning and the
operation of a business
• identity regulatory practices
instituted by governments
for the establishment and
conouct o' olfferent types of
businesses.
Reasons why a fea sibility study is important
Feasibility is concerned with answering the questions '\,viii it work?"
and "is it possible?". A 'easibility study can be carried out to find out
whether a business plan and proposed buslness Idea will work in
practice.
Why a feasibility
study is Important
Details
To ascertain
viability
A viable business will have sales revenues that
are greater than costs over a reasonable period
of time. It will also not run out of cash In tne short
term. Viability needs to be tested by calculating
costs and revenues in order to see whett:er the
profrts will be sufficient to put the business on a
sound footing and to pay off any borrowing.
To identify possible It is easy to overlook some of the costs of
costs attached 10 setting up and running a business. It is essential
the business
therefore to identify all of the different types of
costs (s~ch as wages and raw materials) and
how much they will be. If a business is unable to
cover costs for mere than a short period then it
will not be viable.
KEY TERMS
Viable: currently succeeding
(making a pro:lt) and likely to
continue to be a success.
Regulations: rules made by
local, national, regional and
International authorities.
To identify possible Elltrepreneurs cannot simply assume they can
sources of finance raise the finance required unless they have firm
written proof thal tnis finance will be forthcoming.
It is therefore important fer a business io
identify sources of finance and to ask for written
guarantees (such as written promises from banks
to provide loans).
The relationship between planning
and the operation of a business
Businesses need short-, medium- and long-term plans In order to
operate successfulfy.
Short-term plans
"Short term" typically refers to periods of up to one year. Most
businesses will borrow funds when they first set up and interest
will have to be paid on any loans. Businesses also often receive
supplies on creoit and these will need to be paid for (usually within
one month). Calculations can be made to predict the cash coming
in and out of the business each month for the lirst year. It is essential
to have enough cash to finance demands for cash payments (from
lenders and suppliers, as well as to pay wages).
Medium -term plans
The "medium term" will cover a period of one to three or four years.
The medium-term plan can seek to tackle any short-term issues or
problems, and targets can be set for what the business wants to
achieve in the period in question (such as to move to larger premises
or to Increase sales by 100 per cent).
Long -term plans
The "long term" covers a period of over fNe years. This plan v,1ill
establish broad goals for the business to achieve, such as to become
the market leader (the company with the highest percentage of sales
in a particular market). Long-term plans are more aspirational and set
out what the business hopes to become over time.
Regulatory practice concerning setting up
and running businesses
Businesses have to fol1ow regulations such as those re1ated to li'1'1itt1g pollution
Businesses need to know about and comply with the rules and
regulations related to setting up and operating a business. Some
of these rules are enforced by local government, such as municipal
(town and city) councils, village councils and parish councils (the
smallest area of government in Caribbean countries). These bodies
will have rules related to matters such as when vehicles can make
deliveries and how businesses must deal with their waste, among
other concerns.
As well as laws at a local level there are also national laws within
a country that a business has to abide by, such as to do with the
registration of the business, the need to complete tax forms and
pay taxes, and so on. At a wider level there are also regional laws,
such as those established by CARICOM (for example to do with the
export of goods to other countries in the Caribbean). Finally, there are
global rvles to abide by. such as those related to the maintenance
of international environmental standards and standards about how
goods should be produced safely.
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KEY TERMS
You should be familiar with the following government agencies and
policies that help to regulate business activity.
Central bank: the
Monetary and fiscal policies
government's bank. It oversees
the running of the financial
system In a particular country,
and licenses other banks to
operate in 1hat country.
The government (through the central bank) controls the quantity
of money in an economy and the interest rate for borrowing money.
This is known as "monetary policy". The central bank can stimulate
demand for business products by lowerlng interest rates and
making more money available. "Fiscal policy" is the government's
overall taxation and spending policy. Reducing taxes and raising
government spending will give a fiscal stimulus to the economy.
Raising taxes and lowering spending will have the reverse effect.
Consumer protection agencies
Caribbean governments have created consumer protection agencies
with the responslbill1y of protecting consumers against business
practices that harm them, such as making false claims about
products offered for sale.
Environmental policies
Environmental policies are designed to limit and eliminate negative
practices that hann the environment, such as dumping waste or
creating pollution that damages the local area.
KEY POINTS
• Before setting up a business, it Is Important to carry out a
feasibility study to see If the business will be successful.
• Plans are made to help a business achieve short-, meoiumand long-tenn goals.
• Businesses need to comply with local, national, regional and
global rules.
,.SUMMARY QUESTIONS:
.
-,!
1. Identify three things you would neeo to find out to check
whether a business is going to be viable.
2. Why is cash flO'.'t such an Important aspect of short-term
planning?
3. Identify one rule that a business might need to comply with
at each of 1he following levels; local, national, regional and
global.
The location of a business
and the significance of
collateral in accessing capital
OBJECTIVES
You should be able to:
• outline the factors that
oetermine the location of a
business
• explain the significance of
collateral in accessing capital
to establish a business.
Some bvs nessas have to be located nea· to raw materials, such as god mines
In GlJ'/ana
Factors affecting location
The location of a business is where it sets up and operates from.
There are a number of factors that should be taken into consideration
when choosing a suitable location.
Geographical factors
Geographical factors affecting the location of a business Include the
terrain ano layout of the land (for example, is there ready access to
road networks?). The climate may also be a factor, as countries that
are adversely affected by bad weather are less attractive for many
businesses. Another consideration Is the population density (industry
is attracteo to population centres that provide large markets and a
ready supply of labour).
Availability of raw materials and supplies
When raw materials and supplies are bulky, a business might locate
close to the source of these. For example, a company producing
steel girders might locate close to supplies of iron ore and coal,
which are heavy products that are reduced In the manufacturing
process. Food may be processed close to where it Is farmed In oroer
to reduce damage in transit and because processing lt will often
reduce Its volume and/or weight.
Infrastructure
Infrastructure is the underpinning system ot roads, buildings,
banks and other key structures in an economy. Businesses will be
encouraged by the existence of good infrastructure that enables the
production and distribution of goods. In countries and regions where
the infrastructure is well developed, this will make it quicker and
cheaper to produce goods and to get them to market.
KEY TERMS
Population centre: a place
where large numbers o' people
live, such as the city of Kingston
in Jamaica.
Power and water
KEYTERMS
Most businesses require steaoy power supplies and running water
to carry out their operations. Contrast this with the negative Impact
on businesses in regions where there are regular power outages
that stop production. Power can be accessed where there is a
smoothly operating national grid of electricity and gas pipelines, as
well as electricity produced from solar panels and other forms of fuel.
Similarly, businesses require well-organised and maintained water
pipelines. as well as sewage and waste management systems.
Telecommunications: the
Telecommunications
sending of information (In the
form o' words, sounos and/
or images), usually over long
distances, In the form of
electromagnetic signals by
telephone (including cellphones
and landlines), telegraph, radio
or television.
All modern businesses rely on a strong telecommunications
network, such as reliable and fast telephone and Internet connections.
Being able to communicate wtth others cheaply and ouickly is key
to the success of almost any business, particularly In a world where
global communications are becoming Increasingly important.
Collateral : an asset (such as
property or something else of
value) that a borrower provides
as security In order to get a loan
from a lender.
Transport
Good transport links are essential in getting employees to their place
of work. raw materials to where they are processed and goods to
the market. This requires a free-flowing road netv,ork, ready access
to port and airport facilities, and rall connections In larger countries.
Countries benefit when transport systems are linked and networked
together. for example through container ports.
Health facilities
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A health facility Is a location where healthcare is provided. such as a
hospital. doctors· surgery or emergency care centre. It is important
for all businesses to be located near to good medical facilities
that can be reached quickly, and this is particularly Important for
businesses engaged with dangerous operations such as drilling tor
gas or mining for oil. In addition. good healthcare facilities enable
employees to be healthier and therefore more productive.
l abour supply
The availability of the right type of labour is a key consideration when
choosing a location. For example, a foreign multinational seeking to
employ skilled engineering workers may choose to locate in a country
where such workers are in relatively abundant supply. Alternatively.
a company seeking unskilled labour (because It Is cheap to employ)
may locate where there is an abundant supply of this type of labour.
Governmental regulations
Government legislation prohibits the location of businesses in certain
areas. For example, factories are not allowed in residential areas or
areas where industrial pollution clearly impacts on valuable habitats
such as coral reefs. At the same time, governments will encourage
businesses to set up In designated "enterprise zones" where
companies may receiVe tax relief and other incentives.
The significance of collateral in accessing capital
to establish a business
It is often necessary to pledge collateral In order to secure capital
to set up a business and to acquire assets such as machinery and
equipment. Collateral is something that is pledged in order to serve
as security for the repayment of a loan.
Different types of collateral
Type of collateral
Details
Property
This is a common form of collateral. A business
may pledge the deeds to its buildings or land as
security for a loan or mortgage (a long-term loan to
purchase property).
Stocks
An entrepreneur may hold shares in companies
which can be used as collateral.
Bonds
Government bonds are invesiments in the form of
lending to the government. There are also private
sector bonds. An individual can use some or all of
tlleir bonds as collateral to secure loans.
Money
In order to secure a loan it Is possible 10 use
oasn that you already have as proof that you are
financially viable, agreeing to forteit a cash amount
should you fall behind on loan repayments.
Cash surrender on Someone with a l~e insurance policy can assign
life insurance
t11at policy 10 someone else ln return for a loan.
The lender can then cash in the Insurance
policy should the borrower fall behind on their
repayments.
Motor vehicles
A vehicle can be used as collateral to purchase
that vehicle under a hire purchase arrangement.
The hirer does not become the owner of the
vehicJe until the final payment is made. In other
instances, an iridMdual who owns a vehicle
outright can use that as collateral to secure a loan.
Appliances
Machinery, equipment and electrical goods can
be used as collateral.
The value of collateral
The value of collateral is the value that the asset used as collateral
will be able to command In a fair market. For example, if a piece of
land is useo as colla1eral then the value assigned to it is the financial
amount that the land is worth.
KEY POINTS
• Key factors affecting the location of industry and business
Include geography, access to markets and proximity to raw
materials.
• Business location ls also Influenced by government
regulations, the availability of power supplies and the qualny of
Infrastructure.
• Collateral is used to secure loans and Includes items such as
property and share certificates.
SUMMARY QUESTIONS:
.
,..
1. How might the factors
influencing the location of a
supermarket be similar and
different to those affecting
the location of a canning
factory?
2. How Is the availability of a
skilled labourforce likely to
afi'ect the location O'ecision
for a manufacturing plant?
3. Why do you think lenders
reouire collateral before
making a significant loan?
Practice exam questions
Paper1
1
\l\lhich of the following instruments of exchange
is most likely to be used lo purchase Imports
on credit?
C Tne cheque ca<1 only be paid l'liO lhe
payee's account
D The payee simply needs 10 present the
A Notes ar,d coins
cheq.,e to a bank for paymest
B A debit card
7 Which o' tne following Is an advantage of
C A bill of exchange
becoming a franchisee?
D An international money order
A A frar-chisee does not have to put capital
Into tne busi0ess
2 \l\lhich of the following 'orms of business
B A franchisor provides a franchisee wtth an
orgar isa1ion is rriost likely to benelil 'rom
limited liability?
establisned business name and products
or seNices
C A franchisee loses control over the
branding and image of the busi0ess
D A franchisee pays royalties on sales to the
franchisor
A A pubhc corporahcn
B A public compat'y
C A partnership
D A sole trader
3
4
The{)ha1n of comma"Ci In a" organisation is
also referred :o as 1he:
A Span o' control
8
Identifying and anticipating customer
requirements is tne responsibility of wnich of
the following departments h a company?
B Hierarchy
A Researcn and development
C Functional organisation
B Production
D Staff ma~agement
C Finance
An entrepteneur will always:
A Make a profit from enterprise actMty
D Marke:ing
B Stick to !he details set out In a
business plan
C Turn business ideas into working
enterprises
D Take a risk when setting up a business
5 A business plan should be written for:
A The business's owner and r.s customers
B The business's ow ,er and r.s funders
9
When managers delegate t" ey;
A Hand responsibility 'or carryirig out tasks
to subordinates
B Give direclions to otrers about what they
snould be doing
C Rigidly control ;he activities and processes
that take place in a business
D Pay lirtle or no attention to s.,gges:ions
made by subordinates
0
(tnose lending to the business)
C The business's customers and Its funders
D The business's owner, Its customers and
its funders
6
Which of the 'ollowlng Is an Important feature
of an ale payee only cheque?
A There 1s f10 crossing on 1he cheque
B The cheque can be exchanged for cash
10 When there is a narrow span of control 1n
an organisation:
A Managers con:rol 1ne activities of many
subordinates
B Managers sopeNise 1he tasks of J.,.st a
few employees
C Senior managers oversee 1he work of
all employees
D Managers perform a few organisational task$
11 When Is a busiress fTlOSt likely 10 set up near to
12 What is a government's overall :axa!ion and
where its market is localed?
spending policy called?
A \f\lhen raw materials are very heavy and
A Monetary policy
need 10 be processed before 1hey are sent
to market
B \f\lhen it is very important to get products 10
the end consumer quickly
C \f\lhen goods are prod\,loed for export by
sea to other coumnes
D \f\lhen goods are sold 1hrough e-commerce
chanr els
B ConsofTler policy
C Fiscal policy
D Environmental poli<.-y
Paper2
1 Devon owns a small relail outlet, supplying groceries and employing ten members of staff. It is In ihe
priva,e sector of the economy.
a
I Define l he "private sector" of an eoonomy. (2 marks)
ii State two reasons ,,rny1he government mlg,n privetlse an indus,ry. ("- marks}
b Identify 'our instruments of exchange that Devon might use to purchase supplies from a wholesaler.
(4 marks)
c
d
Describe two function,;11areas that might be part of the organisation of Devon's retail store. (4 marks)
Explain two ways 1ha, Devon might acquire capital if he wants to expand the busir ess lo open up new
re1ail outlets. (6 marks)
2 Harriet has recently sought to expand her hairdressing business, doubling the number of o..nlets from two
to lour. Up until now, she has managed both cf 1he outlets in what sne knows tc be an autocratic s;yle.
However. s'ie Is nm s~re whe1her tl1is management style will work in the new, larger organisation.
a
Define the term "autocratic manager". (2 marks}
ii Describe one feature of two management sfyles other tnan the autocratic rnanagemi;lnt style.
(4 marks)
b Outline 1wo essemial characteristics of a good leader. (4 marks)
c
Identify two stra1eg!es tnat Harriet oould use to motivate employees In her tiairdressing business. (4 marks)
d
Evaluate the role of teamwork in the success of an organisation like Harriet's. (6 marks)
3 Jason knows what he wams to do after leaving sctiool. He wants to se1up a surf school, ,eact,ing people
how to surf 1he waves on a popular beach near to his home, and operate from a small beach hut tha1
r e knows is available to hire. He would be able to borrow funds irom friends and relatives to sel up l he
venture Qnitially on a small scale).
a
I Define the term "en1repreneur". relating your .inswer to Jason. (2 marks)
ii Identify two characteristics of a 1ypical entrepreneur. (4 marks)
b Outline two reasons why an individ<x1I like Jason might want to set up an enterprise, {4 marks}
c
d
Identify ivvo sources of primary information and two sources of secondary Information thal can be used
to research the setting up of an enterprise. (4 mart<s)
Explain. with examples, the slgnificaPce of collateral when establishing a business. (6 marks)
Contracts and their
characteristics
OBJECTIVES
You should be able to:
• explain the concepl of a
contract
• Identify the types of contracts
• describe the characteristics
o' a simple contract
• describe the characteristics
o' a specialty contract.
A contract is a legal ag'°eerrert ~t-.veen two or more parties, 1tWovlng a promise
to do so'l'leth ng in return to• a valuable oeneft
KEY TERMS
Consideration: something of
value given up by both parties
as part of an agreement,
for example performance,
promises or money.
Under seal: this term applies
to a situation where legal
documents are differentiateo
from other types of document.
A seal is a legal riark which
signifies that the document with
the seal Is a legal document
and that it is blndfng.
Definition and concept of a contract
A contract is a legal agreement with specific terms between l'.ivo or
more people or entities. in which there is a promise to do something
in return for a valuable benefit known as consideration. The table
below shows what !his means in relation to the sale of a watch.
Th e two parties
Th e promise
The valuable benefit
(consideration)
Buyer and seller
To provide a working
walch
The money paid for
the watch
The purpose of a contract is to officially establish the agreement
that the two parties have made, and to fix their rights and duties In
relation to the agreement.
Offeror: someone v,ho makes
a proposal to another party
In the hope of entering into a
contract with them.
Offeree: someone who
receives a proposal from
anolher party Q.e. from the
offerer). f lhe oiferee accepts
the proposal he or she enters
Into a contract with the offerer.
Types of contract: simple and specialty
There are two main types of contract. Simple contracts can be made
orally or in writing, but not under seal as is the case with speclatty
contracts, as explained below.
Characteristics of a simple contract
A simple contract creates a legal obligation to do something or to
refrain from doing something. Simple contracts are made for many
different purposes in business. Examples Include to supply services,
to employ workers. to buy materials and to transport goods.
For a contract to be recogniseo and hence enforceable in law, there
are a number of key ingreoients required as shovm in the table below.
Characterist ic
Details
Offer and
acceptance
An offer is made in contract law when one party (the offerer) Indicates his or her willingness
to enter into a contract based on ,he terms established in the agreemeni. For example, a
cellphone company is the offerer when tt offers you a contract to supply you with cellphone
seivices for an agreed period. Onoe you, the offeree, accept tne contract then It becomes
binding. Acceptance arises when the offeree agrees to the terms established in the offer.
Competence of
parties
Both of the parties to a contract must be competent to form tne contract. For example,
there are certain areas where minors (under the age of 16) are not deemed to be competent
to enter into a contract, suoh as opening a cellphone contract. Contracts are also not valid if
one of the parties Is not of sound mind.
Intentions to
Cfeate legal
relations
Consideration
A oontract is only enforceable if the partles enter into an agreement that they see as being
legal. For example, if a friend agrees to see you tomorrow (an informal agreement) and does
not turn up, this would not be thought of as a legal agreement.
Consideration means iha1somet'ning o! value is exchanged by both parties in a contract. For
example, in an agreement 1"1!1ere one party makes a promise (such as to make payment) in
exchange for performance by the other party (such as lo carry out a seivice), the performance
is consideration for the promise and the promise is oonsideralion for the perlormanoe.
Characteristics of a specialty contract
Specialty comracts are deemed to carry more weight In law than simple
contracts. The validity of specialty contracts resutts from the way in
which the contract is formed. Specialty contracts are "signed, sealed
and oelivered". What this means In practice is that the contract Is
Signed by both parties, then sealed with a stamp or company seal and
delivered to the other party. Speclatty contracts have to be written Qn
contrast with simple contracts which can be oral, written or implied by
conduct). A company may want a specialty contract to be in place in
oroer to make sure the agreement can hold up In a court of law.
KEY POINTS
• A contract Is a legal agreement between two parties setting
out the terms of the agreement.
• A simple contract can be written or oral, and sets out the
terms or an agreer>1ent.
• A specialty contract must be written and signed, sealed and
delivereo.
SUMMARY QUESTIONS
1. 'Nhy do businesses establish contractual agreements when
dealing with each other?
2. Why might a business prefer to have a specialty contract
rather tl1an a simple contract?
3 . Distinguish between the following:
a. an otter and an acceptance
b. an ,ntormal agreement and a contract.
EXAM TIP
Mlllu suye
l'.JOU OQV\,
ex:pltl ii/\, kelj cA ,ffeYeVl.cts
betweel/\, a s,mpLe
C.O"'-tYaot a~ spec,aLttJ
oo.,,,tract. Rtmembev
ti-lat speciaLttJ coV1.tYaots
V\,eecA to be s,g "'-lcA,
sealu( a""cA cAeLiveYecA,
a.,.,c;A ti-la~ ti-lei;, oar..-l'.I
l¾DYt we,gl-lt ,V\, Legat
pYoceecA,"'0s tna ... si1M.pLe
COV\,tYllOts. Hive ]'UYCMl:lse
,agvee""-tV\,ts a""cA
•"'6uYt:l VI.Ct cov.,tvaots a re
GXa1M.pl..es of specillLtl-:J
COV\.tYClCts.
Offer and acceptance,
contract terminations or
discharge, case examples
OBJECTIVES
You should be able to:
• explain the conditions under
which offer and acceptance
are communicated
• explain ways by which
contracts may be terminated
or dlschargeo
• apply the principles of a
simple contract to cases.
Aooeotance of an o~er can be communicated veroal y er se: 01,,,'1 in writing
Communicating condition s of offer and acceptance
KEY TERMS
Offer: a proposal made
by one party to another
party, establishing his or her
willingness to enter Into a legal
binding agreement. The basis
of the offer will help to 1orm the
contract.
Acceptance: the act of
agreeing to take up (accept}
an offer. A situation where the
offeree agrees to the terms and
conditions set out by the offerer
In the contract.
There are two components to an agreement:
1. The offerer makes an offer, which Is a statement of the terms.
2 . Tne offeree accepts the offer.
Acceptance can only be made by the offeree, the person who has
been given the offer. It must be absolute and unqualttied {i.e. the
offeree cannot ado' new terms}. It has to be communicated to the
offerer by word of mouth or in writing, It must also be In the mode set
out in the offer. For example, an offerer might ask for acceptance to
be In the form of a signature.
A counter offer occurs when the offeree, the person who has been
given the offer, makes an alternative offer rather than accepting the
original offer. The offeree now becomes the offerer and the offerer
becomes the offeree.
EXAM TIP
Mt!R.e SuYe !'.JOU Ct!V\,
An offer Is a statement ct the terms of a contract. If the offeree
accepts the offer, they are willing to agree to these terms. Offer
and acceptance can either be set out in writing or communicated
verbally,
citfi,"'-t
the ten¾ "accepta.,,ce".
Ac.cepta""ce i.s ovce part!j's
a!'.)YteMtvct to accept tne
teYl'\,\.S of CIVI. offev V>1.acie b!j
aV1.ot"1eYpart!'.),
Ways in whi ch contracts can be terminated
or discharged
A contract remains ln existence until the point at which ii is
terminated or discharged. There are a number of ways in which a
contract can be terminated or discharged.
Types of discharge
The most common type of discharge of a contract is "discharge
by performance" . This occurs when the terms of a contract
are successlully completed by both parties. However, in some
circumstances the terms of a contract may prove unworkable and
the parties may agree to new terms being established.
Methods of discharge
The six main ways that a contract can be discharged are given in the
table below.
Method of
discharge
Description
Performance
All parties to an agreement perform their part of the
bargain. Complete performance occvrs when every
term in the contract has been discharged.
Breach
Breach occurs when one parly fails to carry ovt their
part of the contract. The wronged party can sue for
damages.
Agreement
The parties to a contract may agree to discharge a
contract even though all of 1he terms o' the contract
have not been met. In this lnslance, both parties
would be satisfied with what has been achieved.
Impossibility
A contract may be discharged because it is impossible
to complete, for example ff a farmer agrees to supply
vegetables to a supermar1<et bvt his crop is then
destroyed by a hurricane.
Lapse of time There is a period of time called "1he period of
limitation" that varies from country to country, whicn
sets out the periods of time in which specific contracts
should be completed. A contract can be discharged
r. it is not enforced within this time. For example, if a
claimant fails to make a claim within tnis period then
the contract is no longer valid.
Death
Conlracts can be discharged as a result of the death
of one of the parties. This particularly relates to
contracts for personal service.
Cases of simple contracts
The examples below outline two well-known cases in contract law
that it would be useful to be familiar with. In the Carbolic Smoke Ball
case, the court ruled that the company concerned had made
a contractual offer to all the customers who used their product. In
the /v1oulton v Kershaw case, the court ruled that a contract had
not been made because the company's aovert did not constitute
an offer. Such cases create case law.
KEY TERMS
Breach: when a contract is
discharged because one party
falls to carry out their part of the
contract lawfully.
Case law: faw that has been
established by following
decisions made by judges and
courts. Prev1ous judgments
set a precedent tor future
judgments.
Carlill v Carbolic Smoke Ball Company (1893)
The Carbolic Smoke Ball Company patented a smoke ball which they
claimed would stop anyone from catching influenza. They offered
£100 to anyone who caught the flu after using the smoke ball. Mrs
Carlill used it ano still caught the flu. She wrote to the company
claiming the compensation. They refused to pay, so she sued them.
The court held in her favour, taking the view that the company was
making this promise to anyone who used their product and was
therefore entering into a contract with them, rather than just making a
boastful advert.
M oulton v Kershaw (1884)
Kershaw sent a letter to Moulton stating that hls company was
authorised to sell salt at a given price ano "would be pleaseo to
receive your order". Moulton replied saying that they wanted to order
2 000 barrels. Kershaw then withdrew, saying he could not supply
this quantity. Moulton sued. However, the court held that the letter
did not constitute an offer but rather an advertisement tor an offer.
Therefore this did not involve an offer and acceptance and was not
the basis of a contract.
The term 'Invitation to treat' is used in business law to refer to a
situation in which one party invites offers. Therefore, Kershaw issued
an invitation to treat when he wrote to Moulton.
Remedies for breach of contract
The two most common remedies for breach of contract are:
• damages, a sum of money to compensate for losses incurred
• specttic performance, where the court instructs the party that has
failed to fulfil their contractual obligations to do what was expected
of them.
KEY POINTS
• A contract is formed when the o:feree accepts the terms set
down by the offeror.
• Acceptance can be set out In writing or by verbal means.
• A contract is terminated when ii ceases to be current, for
example because it has been completed or because it Is
impossible to achieve.
SUMMARY QUESTIONS
1. If you make an offer to supply goods to Jones, at what point
will a contract be formed?
2. Identify three reasons why a contract may be terminated
apart from completion. In each case, explain the reason with
an example.
3 . How might case law help courts to make judgments in
relation to contract law?
Business documentation
and business transactions
The importance of record keeping in business
There are many reasons why record keeping Is important In business.
• Records provide evidence of setting out the details of orders, quotes
for prices, quantilies ard types of goods, and the terms and conditions
under which goods will be supplied.
• Records give details of when goods will be delivered, have been
delivered, how much is owed and how much has been paid for goods
supplied.
• Records help a business to keep track of its dealings with other
businesses.
• Records set out details of taxes charged and taxes owed to ,he
government, such as sales taxes and purchase taxes (see chapter 9).
Tax authorities will need to see these records lo ascertain that tax dues
are being paid.
• Records will also be kept for audit purposes, for example for official
inspecttons of a company's financial records 10 check they are
accurate.
Some of the main documents that act as records for business
transactions include the following.
Document
Inquiry
Quotation/
price lisV
catalogue
Order form
Advice note
OBJECTIVES
You should be able to:
• explain why documentation
is necessary In business
transactions
• prepare business documents
for various purposes.
KEY TERMS
Who sends It
to whom
What it is
Quot ation : a document setting
Buyer to seller
Seller to buyer
An Inquiry into the goods offered
Details of the goods offered and their
prices/terms
out the details of goods that
can be supplied, at v,hat prices
and under what terms of sale.
This can act as an offer.
Pro forma invoice: "pro
Buyer to seller
Seller to buyer
Delivery note Seller to buyer
Invoice
Seller to buyer
Credit note/
debit note
Seller to buyer
Slalement
Seller to buyer
Payment
Buyer to seller
An order for the goods
Advises when the goods will be sent
and how
Sent with the goods, usually In the
form of a pro forma invoice, and
signed by the recipient of the goods
Sets out the details of the goods,
such as their quantities and prices,
and the total amount due
Sets out details of overpayment or
underpayment
Sent at the end of the month giving
details of documents sent by the
seller and balances owing/any
payments made
Part payment or full payment to settle
amounts owing on the statement
forma" literally means
•produced as a matter of
form". ti Indicates what the final
invoice will look like.
Credit note: a document
sent by the seller to the buyer
reducing the amount that needs
to be paid on an invoice. 'or
example because gooos are
damaged in transit.
Debit note: a ◊ocument
sent by 1he seller to the buyer
identifying adoitional money
that Is owed, for example
because there has been an
error in calculating how much
needs to be paid.
Preparation of business documents
Examples of four widely used business documents are shown below.
Pro forma invoice
PRO-FORMA Invoice
Date: _ _ _ _ _ __
Invoice number: _ _ _ _ _ __
Order num ber: _ _ _ _ _ __
Det ails of seller
(business send ing the goods)
E-m ail address: _ _ _ _ _ _ _ _ _ __
Phone num ber: _ _ _ _ _ __
Details of purchaser
(business receiving the goods)
E-m ail address: _ _ _ _ _ _ _ _ _ __
Phone num ber: _ _ _ _ _ __
Contents
Description
Quanti ty
Price
Tax
Price plus tax
Total
Terms: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Name: _ _ _ _ _ __
Signature: _ _ _ __
A pro forma invoice verifies an agreemenl between a buyer and
a seller. You can see lhe details of what is usually included in the
example above. A pro forma invoice shows the buyer what an aclual
sales invoice will look like, and may be used for example as a delivery
nole or advice note.
Purchase req uisition form
Purchase Requisition Form~
Department name
Vendor: _ _ _ _ _ _ _ _ _ __
Purchase order number: _ _ _ _ _ _ _ _ _ __
Date: _ _ _ _ _ _ _ _ _ __
Quantity
Description
Account to
be charged
Value (S)
Total
This purchase authorised by:
Articles or service received by:
Name: _ _ _ _ _ __
Name: _ _ _ _ _ __
Title: _ _ _ _ _ __
Title: _ _ _ _ _ __
Date received: _ _ _ __
A purchase requisition form is used by a department within a
business to make an order for supplies such as stationery or paper.
It is therefore an official order form.
Statement of account
Statement supplied by Green's Wholesaler,
Parad ise Boulevard,
Port o f Spain.
3 1 March 2019
Statement of account for Amin Stores
Date
Description of document
ortyp• ofentry
l/3il9
Opening balance
4/3/19
Invoice no 234
6/3il9
Paymen; by cheque
10/3/19 Invoice no 23S
Amount Amount
crodit
$
31/3/19 Closing balance
$
(640)
(200)
(840)
640
(743)
15/3/19 Credit note 72x
21/3/19 Invoice no 236
de,i-t
Account
(943)
113
(170)
(200)
(830)
(1 ODO)
(1 000)
KEY TERMS
Starting balance: the number
of goods In stock or the
financial state of an account at
the start of a tracing period.
Closing balance: the number
A statement of account highlights a serles of transactions that
have usually taken place over the period of a month. It will shO\'/ a
starting balance and closing balance. Note that, in the statement
of goods In stock or lhe
financial state of an account at
the end of a 1rading pe1iod.
of account above, brackets are used to Illustrate moments when
Amin Stores has a negative balance (for example, Amin Stores owes
Green's Wholesaler $640 on 1 March 2019} and when Amin Stores
owes money for Invoices sent to it (for example, Amin Stores is
sent an Invoice for $200 on 4 March 2019). Payments sent by Amin
Stores to Green's Wholesaler are recorded in the debit column as
positive numbers.
Stock card
STOCK CARD
Da te
Reference
Balance
Out
In
Qty. cost Value Qty. cost value
($}
i/4il9
18/4/11.9
M&IR.e suye l:JOU K:V\.OW &l"'ol
u ....oleyst&1""ol tl1e seque~e
of oiOCUl¾!"'-ts tl1c«t &!Ye
exc~c«""0eol betwee"" &1
buuey &lv.ol seLLeY ,.,._
CO""'-""'-erc,&1L tY&loit.
30/4/ 09
10
100
Sales
IS
28
10
.,
Sale.$
Closing
balanc.e
28
10
10
1$0
280
Sales
24/4/1.9 Purchases
28/ 4/19
10
10
420
26-0
JO
10
300
cost value
(S}
($}
50
10
soo
60
10
600
45
10
,so
73
10
73.0
31
10
310
59
10
$90
29
10
290
29
10
200
($}
balance
i 2/ 4/l9 Purchases
EXAM TIP
($}
Opening
•1/4/19 Purchases
7/4/ 19
($}
Qty.
A stock card is used by a business to check how much stock there
is in the stores at any one time. It has five columns setting out:
SUMMARY QUESTIONS
1. A supplier mistakenly
overcharges for goods
supplied to a customer.
How can this be corrected
at a later date?
2. What details are usually
Included In a statement of
account?
3. Explain the purpose
of keeping business
oocuments
and records.
•
•
•
•
•
the date
a reference (for example trie balance)
a column for recording movement In (purchases)
a column fer movement out (sales)
the balance of stock.
KEY POINTS
• Business documents are useful for record keeping, for example
to inform trading partners about the state of their acoount. They
also provide records for auditing and tax purposes.
• A pro tonma or sales Invoice Is a list o' goods and services
prollided ano details about them, such as quantities, prices
and payment terms.
• A statement of account sets out details of amounts owing and
amounts paid, in oroer to show balances ano to record oetails
o' transactions over the period of usually one month.
Principles and types
of insurance and how
insurance facilitates trade
OBJECTIVES
[ Oient 2
You should be able to:
Client 1
Client 8
c rient 3
t - - - -...i
1+----0
Client 4
• evaluate the principles upon
which insurance is based
• explain the various types of
Insurance policies
• explain how insurance
facilitates trace.
crrent s
Client 7
Client 6
n this example, eight premiums are pad n and two Cia ms are pad cut
Principles of insurance
"To insure" means to provide cover against risk. This Involves
businesses and individuals paying a sum of money called a
premium Into an Insurance pool managed by an Insurance
company. Premiums are paid on a regular basis, such as monthly or
annually. In the event of a loss the insured is abte to make a claim tor
compensation to cover the losses incurred. Insurance is based on a
number of underpinning principles. as set out In the table below.
Insurance principle
Description
Pooling of risks
Those taking out insurance joinily share risks.
They each pay a smaJI sum inlo a central
pool, wtth tr e understanding that only some
of them will need to make claims.
\f\lhen an individual makes an hsuranoe claim
he or she will otten be asked to subrogate
{hand over ownership o~ the item to the
insurance company. For example, a person
migh'. hand over ownership of a car in the case
of a motor vehicle accident (the insurance
company will have already compensated the
Individual fer the loss on the ca~.
Subrogal ion
KEY TERMS
Premium: a sum of money
paio on a regular basis by the
insured Into an insurance pool.
Compensation: money paid
out of an Insurance pool to
cover a specific loss incurred by
an Insured person or company.
KEY TERMS
Liability: to be held legally
Insurance principle
Description
Proxima1e cause
This is :he inilial event or cause tha1 resutts
in an accident or loss occurring. De:ermining
proxima1e cause helps to establish liability.
Indemnity
The acl of placing someone who has
suffered a loss back In 1he position he or
she was in before the acciden1 occurred, for
example by providing compensation.
Utmost good fatth
The principle 1ha! parties involved In
insurance must be absolutely honest in
their dealings and explanations In relation
to events and responsibilities surrounding
insurance.
Where the insured has taken out insurance
with more 1han one insurance company
for 1he same event or happening, only
one insurarce company may pay out toe
compensation. This company is likely 10 seek
proportionate contributions from the other
insurance companies with whom the insured
has taken out insurance.
responsible by law.
Contribution
Insurable interest
The principle 1ha1you can only insure
something where you stand lo make a
personal loss, such as your own car or life
and no1 someone else's car or ltte.
Types of insurance policies
The two main types of insurance are life Insurance (paid out on
the death of the Insured) and non-life insurance, of which there are
a number of types that are relevant to business. These include
the following.
• Premises insurance: 10 cover buildings 1l1at may be sl ruciuraliy
damaged, such as during a hurricane.
• Fire insurance: to cover fire damage.
• Employer's liability: taken out by an employer 10 cover work-related
accidents 10 employees.
• Product liability: to cover damage to users or other people that come
into contact with 1he producis of a company.
• Public liability: to cover damage to members of the public caused by
business activity.
• Motor vehicle insurance: 10 cover aocidems and other damage to a
vehicle. II also covers accidents and damage caused by the driver of
the vehicle.
• Home-based business insurance: 10 cover employers who work from
home. tt can also be used to cover employees who worl< a1 home for
an employer.
• Marine insurance: to cover loss or damage to a ship or its cargo or any
other elemen1 of a mamlme business.
• Fidelity Insurance: 10 cover an employer against losses resulting from
the dishonesty of employees.
How insurance fa cilitates trade
Insurance lowers the risks of carrying out business and thus gives
businesses more confidence to take part in trade. For example,
insurance can provide compensation l'1hen goods are damaged in
transit, stolen, or even not paid for. Transport firms such as airlines
and shipping lines can Insure their fleets by taking out aircraft
Insurance or marine Insurance. When trading internationally, a
company can take out freight insurance so It can claim compensation
ii a parcel or container is lost or damaged.
A. specific type of trade insurance called trade credit Insurance
encourages traders to be bolder and to export more goods.
• The exporter pays a premium 10 the insurer.
• The exporter sells goods on credit to a foreign buyer.
• The exporter wails for payment. However, tt the buyer fails to pay
wit11in a certain time period (usually 180 days) then the insurer will
compensate the exporter up lo a certain percentage of what is owed
(for example 75 per cent).
KEY POINTS
• Insurance works on the basis of the insured pooling their risk.
Customers pay p1emiums into a central fund/pool managed
by an Insurance company,
• The Insured can make claims when losses occur.
• The principles of insurance (such as lnoemnity, subrogation
and pooling of risks) guide the way that Insurance is
conducted.
SUMMARY QUESTIONS
1. Explain how insurance benefits businesses.
2. Why might it not be a good idea to insure the same risk with
more than one insurance company?
3. For a business of your choice, explain three of the most
important business Insurances that this company could
take out.
EXAM TIP
M_&1lu_ SUYt 1:J~<-< CCII'\, "'Pl'LtJ
pn..,,ciples of <"'-SUYCll'\,Ce '""
speclfi.c ce1ses. Foy ~&lv,,cpte,
tne ow"'-er of &1 cLotnes shop
I-las"'"" '""S<-<YC!bLe lvsterest
'"" ner stoc~, a~ wne""
fitivsg &I ctaiv,,c foy a toss
she v,,cust do so'"'- absolute
hov.esttl (utv,,cost good
fe1itn) . TP!e compe>1.satlo""
sne Yee.elves foY tne tost
stoc~ w[Lt ]'l&I ce ner b&1c~
[.,, the ]'osltlo.,,, sne was
'"" befoye the toss occurred
(lvscl ev,,c..,,;.ttl) .
Factors of production and
industries developed from
Caribbean natural resources
OBJECTIVES
You should be able to:
• Identify factors In the
production 01 goods and
seNlces
• lden1tty industries oeveloped
from the natural resources of
Caribbean territories.
A restavrant or.ngs togeth9' the 1acto•s of and, laoour and captal to create a v•abie
enterprise
KEY TERMS
Factors of production:
the resources needed by
businesses to produce goods
and seNices.
Primary industries: industries
that extrac1 natural resources.
Factors of production
Business activity involves bringing together and using four main
factors of production.
Factor of
production
Description
Enterprise/
II is important to start wtth enterprise because it is the
entrepreneurial entrepreneur VI/no brings togetner the other factors.
skill
Entrepreneurial skill Involves having the knowledge
and drive to make an enterprise work (see chapter 2).
The reward for enterprise is profit.
Land/natural
resources
Land does not Just refer to a physical area of land,
svch as the land on which a factory is built or a piece
of farmland. It also refers lo any productive resource
that is provided naturally, such as coal and Iron ore
deposits, oil and gas, and fisn in the sea. A renewable
resource Is a resource tha1 can be replaced, although
not always immediately (e.g. 1rees grown ior logging
in a softwood plan1ation can be regrown with time); a
non-renewable resource cannot be replaced (e.g. oil
deposits). The reward ior owners of land is rent.
Factor of
production
Description
Labour
Labour refers to the provision of physical labour
(for example digging and stacking) and mental labour
(such as couming, calculating and designing). Labour
can be classttied as skilled (requiring extensive
training), semi-skilled (requiring some training) or
unskilled [requiring very little training). It lherefore
includes management positions and professional jobs,
such as doctor and lawyer, as well. The reward for
labour is wages.
Capital
Capttal refers to all man-made assets used in the
prodvclion process. It Includes bolh financial capital
(money) and physical capital (machinery, equipment
and buildings). The reward for capital is interest.
Industries developed from the natural resources
of Caribbean territories
The Caribbean is rich in natural resources, which means that many
primary industries are located in this region. Key natural resources
In the Caribbean include the following.
Industry
Resources
Agriculture
Sugar (Barbados), coffee (Jamaica), bananas
(Windward Islands), rice (Guyana), pineapples
(Trinidad), tropical fruits and vegetables
(througnout l he Caribbean)
Mining and
extraClion of
raw materials
Bauxite (Jamaica), gold and diamonds (Guyana), oil
and gas (Guyana and Trinidad and Tobago), cement
and conCfete (Jamaica)
Fishing
Fishing lakes place throughout the Caribbean, but the
most abundant location is Belize with 50 kilometres
of coastline and over 500 species of fish
KEY POINTS
• The four key factors of proouctlon are land,
labour, capital and enterprise.
• Enterprise brings together the other three
production factors to create a working
business.
• The Caribbean is rich In natural resources, with
a strong agricultural ano 'lshlng sector as well
as resources that are founo In specific countries,
such as gold and diamonds In Guyana.
EXAM TIP
l.,{,Se !X&I w,:ptes fro1M.
tJOUY OWV\, c.ouv,,,tr!j
to i.d.ev,,ti.-fl:j we11::1s Lv,,,
wlii.cl-1 the Ce1ri.bbe.i""
i.s ri.cn ;,.,,, v,,.iturt:it
reso...,rus. For CX.&11M.pte,
_J &11M.&1 i.c ci 1-1 t:i s extev,,,s i,v e
bt:iuxi.te viv,,,d, &1Lu1M.i.v,,,t:i
.,,,_;,.,,;,"'-0 opert:iti.o=,
t:1v,,,d. prod.uces l!'.Lue
Mouv,,,tt:ii"" coffee t:i""d.
ce>¾ev,,,t.
SUMMARY QUESTIONS
1. Identify the factors o' production that
would be used In agriculture. Use specific
examples In your ansv,er.
2. What are the rewards for the iactors of
production?
3. Identify one specific product (ano one
region where il Is produced in the
Caribbean) for each of the primary
Industries of agriculture, mining and fishing.
Production and
productivity
• differentiate betvveen
proouction and proouctivity
• explain the importance ot
proouctivity.
"Production• refers to the process of using resources to make
goods or services. The terms "level of production" and "output" re!er
to how many goods or services are being produced. For example,
we could say that a particular company has manufactured 5 000
units of a product this month. If output increases next month. then
we might be able to say that the output or level of production has
increased to 6 000 units. which would be a 20 per cent Increase In
output.
KEY TERMS
In this case we might want to know why the output has increased.
For example, is the business using more machinery. equipment and
labour? Or is tt using existing resources more efficiently?
OBJECTIVES
You should be able to:
Production: the process of
using materials (Inputs) and
transforming them In some way
to produce goods and services
(outputs).
Measuring productivity is a good way of measuring efficiency.
Productivity measures output per unit of input. For example, if a
worker produces 100 units in a week rather than the 50 produced
In previous weeks, v,1e could say that the worker's productivity has
doubled.
Productivity: how effective
Productlvtty can therefore be calculated with the following equation:
resources are in producing
goods.
..
quantity of outputs produced
product1v1ty = - - - - - - - - - quantity of Inputs used
Productivtty increases when outputs increase at a faster rate than
Inputs.
"
11
- --------
rv,ore advanced technology and n,aclllnery can hep to ,mprove orcduct'VI~/
Productivity of labour
The term "produc tivity of labour" is used to describe how efficient
labour Is at producing ou1put. There are a number of ways of
increasing the labour productivity of the existing labour supply, as
shown In the table below.
How to Increase labour
productivity of the
existing labour supply
Details
Human resources
development
Improved training, education and
organisation of the labour supply will
inCfease their productivity. Smarter workers
are able to apply more skills and to work
more efficiently. A heatthier workforce will
be able to work harder and with more
focus. Better working cond~ions w,11 also
encourage more effort.
A positive work ethic
Countries in whicil people work harder and
believe In the importance of hard work will
be more productive.
Use of capital
The vse of advanced machines and
techniques of production, as well as
well-planned factory buildings, enables
employees to produce more.
VVorkers need to be trair ed to use advanced
machines and techniques of produetion
to achieve tr e best results. For example,
when a factory introduces autcma1ion the
operators that control the equipment need
to have advanoed lnformatlol'l technology
and engineering skills.
EXAM TIP
you snouLol be ctbLe to
olisti""guisn betwu""
tne Level of pvool uctio""
(now l¾ucn LS pYoolue,eol)
ct""ol tne pvooluctLvitl::l
of pvooluc.tLO"'- (now
eff1,cie""t i.t LS) .
Land use and declining productivity
An increase in population and population density can lead to a
decline ln the productivity of land. For example, It can lead to
sea 1isheries being overfished, coral being destroyed, fresh water
becoming scarce, and in1rastructure being overused (leading to
electricity outages and more potholes in the roads caused by heavy
traffic) .
KEY POINTS
• The 1our factors of production are enterprise, capital. labour
and land.
• Productivity measures how much outpu1 can be produced
from a given level of input.
• Productivity can be raised by Improving human resources.
employing more advanced capital ano techni:;iues, and the
development o' a positive work ethic.
SUMMARY QUESTIONS
1_ Argue the case that
enterprise is the most
important factor of
production.
2. In what circumstances
might the level of
production rise yet
proouctivity fall?
3. How can human resources
be improved so as to
increase productivity?
Types and levels of capital
and production
OBJECTIVES
You should be able to:
• explain the role of capital
In production
• oitterentlate among types
ot capital
• classify the different types
and levels of production.
F xed caocal Is Important to any enterprise, and 1n the case of a farmer 11 w II 1ncluoe
farm equiprient such as a co11b ne harvester and tractor as ,,ve1as IT equl.orrent for
manag ng farm pl8fl{1ing
Capital
Capital plays a key role in modern business. As we shall see below
there are several types of capttal. In terms of production, capital
refers 10 items of machinery, equipment and buildings that go into
the proouction of goods. At a simple level, a screworiver or hammer
used by a mechanic would be considered a capital Item, as would a
large automatic proouctlon line.
Capital enables human labour to produce more and better-quality
goods. This is often as a result of computer-aided manufacturing
(CAM) where computers are programmed to produce gooos in a
precise and efficient way. Capital also makes it possible 10 complete
work in a timely manner that would take much longer or may not be
possible at all using Just human labour. Large cranes, for example, can
be used to lift huge girders when building bridges and motorways.
Fixed, working and venture capital
There are a number of types of capital, as outlined below.
Fixed capital
Fixed capital is durable equipment that can be used repeatedly in
the production process. For example, on a farm this would Include
tractors and combine harvesters.
Working capital
vvorklng capital Is the capital needed to pay tor the day-to-day
operation of a business. The amount of working capital available to
a business is calculated by deducting current liabilities from current
assets. Current liabilities are any debts that must be settled in the
short term (for example within the next year}, and include bank
Interest payments and money owed for goods bought on credit.
Current assets include all forms of short-term debts to the company,
for example payments for gooo·s that have been supplied on credit.
working capital = current assets - current 1/abilltles
Working capital also relates to the assets that are used up during
production. Examples Include raw materials like flour for a bakery ano
printer toner at a school.
Venture capital
Venture capital Is the money that venture capitalists (Investors)
provide to start-up businesses. A venture capitalist takes a risk in the
new business, and will only Invest if he or she receives a significant
proportion of the shares or ownership of the business (he or she
will also take a share of the profits). The venture capitalist in tum
contributes his or her own funds and experience.
Types of production
There are four main types of production.
Type of production
Details
Extractive (agricutture,
mining and fishing)
Ex1ractive indus'.ries "extract" or take out
natural products from the environment, such
as fruit and vegetables. coal, gas and fish.
Construciion (building) Building is important in creating the
infrastructure of an economy and might
Involve building roads, bridges, tunnels,
houses and factories.
Manufacturing
(assembling, refining)
Service (transport,
communication,
tourism)
This Involves making products from raw
materials and includes factory work such as
bottling and processing. Examples cf natural
resources from i he primary sector being
manufactured into products Include crude ell
from Trinidad being refined into petroleum,
sugar cane from Jamaica being processed
into refined sugar, and nutmeg from Grenada
is being processed into a packaged nutmeg
spice.
Today In many counlries service industries
acoount for most employment and
production. They include banking, Insurance
and tourism.
KEY TERMS
Service industries: Industries
made up oi ' irms that provide
services to people (such as
personal banking and domestic
insurance} and to businesses
(such as the tr.insport of goods
and business Insurance).
Levels of production
EXAM TIP
Make S<-<re tJO<-<
<-<"'-ole.-sta .,,,c:1, "1ow capital
"1elps to tra=f0 ,-.,,.,
prool <-<ctiovc to "1igl1e,- Levels
of )>YOol<-<ctivitti olue to t11e
effi.cievcc/'.J of pla ""t a""ol
""'-Clc"1ivcertl. yo<-< s"1o<-<Lol
be able to i:<,sti"'-0«ist,
~etweevc fi,xeol ca-pital t11at
is ol<-< rCI bLe Cl""°' Yll'\,\,CI Ll,'\,S
wit "1 i "'- t "1 e b<-<S i vce ss a "'-°'
wovki""g cap,tal t"1at
CO"'-tiv,,u.ciLLtJ c"1t:l "'0lS its
forn. .
As societies develop they go through four recognised levels of
production, as outlined below.
Subsistence
In a subsistence economy, people are self-sufficient and depend on
natural products such as berries and animals killed by hunting, as
well as simple agriculture. The early Carib people lived in this way.
Today some people still perorm subsistence farming by raising their
own animals and growing crops at home for their families. Settsufficiency and agricutture are key features of a subsistence economy.
Domestic consumption
At this level a society produces enough to meet the needs of the
people In a territory or country. Simple industries may develop such
as pottery, basket-weaving, food production and some mining of
materials. Most prooucts are produced and traded locally. The
benefits of domestic production include saving foreign currency
because products are not imported, more employment opportunities
and a country that Is more self-sufficient.
Surplus
Surpluses are produced when Industries start to become more
efficient and small factories and plantations start to develop.
Entrepreneurs look for ways to benefit from surplus products and
may search out new markets to sell to.
Export
SUMMARY QUESTIONS
1. How does capital help
goods to be produced
more efficiently?
2. Distinguish betv1een types
of produchon and levels of
production.
3. Why are subsistence
economies not able to
export?
The next logical step Is to export into overseas markets. Originally in
the Caribbean this would have involved trade with Europe, the United
States and SoU1h America. The export level and surplus level are
not to be confused, however. For example, countries like Barbados
produce sugar to export to the European market and import sugar
to satisfy local demand; In this situation, sugar is being produced
for export but not as a surplus. The advantages of both surplus and
export production are that foreign currency Is earned, large-scale
production is possible, more jobs are created and a nation builds
relationships with other countries.
KEY POINTS
• Capital is used to produce goods and services, ano Includes
machinery and plant.
• A modern economy has different types of proouction,
including extractive Industries, manufacturing and service
industries.
• As countries develop. proouctlon goes 1hrough the levels of
subsistence, domestic consumption. surplus ano export.
Cottage industries
and small businesses
Cottage industries
OBJECTIVES
A cottage Industry is one that takes place In people's homes. Cottage
Industries such as garment manufacturing are particularly important
in rural areas of the Caribbean. The key features of cottage industries
are outlined below.
Key feature
Details
Home-based
\/Vorkers can work from home rather then
in a factory
Mainly manual
People usually work with their hands, for
example by sewing, weaving or making
carpets
Small-scale
Workers use simple machinery, such as a
sewi,ig machine
Uses local raw materials
Materials are usually sourced locally
Uses family members as
labour
Cottage industries often involve several
members of the same family who pass en
their skills to the next generation
You should be able to:
• oescrlbe the characteristics
of cottage industries
• outline the functions of small
businesses
• oiscuss the advantages
and disadvantages of small
business.
Cottage Industries benefit an economy by using local raw materials,
they provide a source of income for local people and may attract
tourists who want to buy craft products as souvenirs.
Cottage ndvstnes. ncluding tnose manufactu•ing garments at home, are wdespread in the Car,bbean
The functions of small businesses
KEY TERMS
Micro enterprise: a very small
business employing only a few
people.
Niche market: a small but
distinct segment of a larger
market made up of people with
similar tastes. habits and buying
patterns.
A common way to define a small enterprise In the Garibbean is to
consider the number of people employed. For example, a micro
enterprise might be one that employs 1 to 5 employees while a
small enterprise employs 6 to 15 employees. The key functions of
small businesses are shown below.
Key function of a
small business
Details
To create employment Small firms create jobs in many industries,
for example in tourism, cate1ing, farming and
fisnlng, retail. textiles, electrical work and
plumbing, and IT and web design.
To provide services
that larger firms are
not willing to provide
Small firms will provide seNices ,hat large firms
do not see as being worth their time, such as a
dog walking service or a house cleaning service.
To cater for niche
markets
A niche market is a small segment of a larger
market It might for example cover specific
types of health food products. publications
about minority-interest sports or tennis
coaching for left-handed players. Small firms
can dominate nicl1es that large firms are not
prepared to cater for.
The advantages and disadvantages
of small businesses
Advantages
EXAM TIP
Mak-: sure !:JOU ca.,.
e><plai"" wl'1!:J ti'1ere are so
IM.&! ""!::I cottage ivcolustries
""" ti'1e Caribbea..,., a""ol
ti'1e i1M.porta.,.,ce of ti'1ese
illl.Clustries i"" provioli.,.,g
e1M.plo!::I IM.t"'-t (pci rticula rt!::I
for WOIM.tl'\, """ YUYCll &treas) .
you snoulcl be able to give
GX.&11M.ples of oliffere""t
cottage ivcolustries,
for e><&!>t<.pLe g&1r1M.e""t
"'-&!"'-~fcicture a""ol rep ai,;
weavi"'-0, bas)ut IM.t:ik,i.,.,g
Cl "'-ol C&! 11>et IM.&! k-£"'-CI.
~
Small businesses generate employment and Incomes, especially in
rural areas and economically depressed areas. In the Caribbean the
term "necessity entrepreneur" describes someone who has to set
up an enterprise In order to provide a basic living standard for his or
her family. The term often applies to women in rural areas where an
enterprise may be built around using agricultural products (such as
cooking or garment manuiacture).
Small businesses increase competttion for larger firms. They may be
able to undercut prices charged by larger firms because they have
fewer overhead costs (for example if they do not have to pay the rent
on factory buildings). Small firms are particularly effective in providing
IT services and web design.
Small businesses also Introduce new products and Ideas, particularly
where there is someone with the drlve and determination to put an
exciting new idea Into practice. In the Caribbean there have been
many Innovations In cuisine, IT applications and event planning as a
result of the activities of small businesses.
Disadvantages
Small businesses can lack expertise in certain areas. Running a business
requires a wide range of skills, such as In finance. people management,
marketing and administration. His unlikely that a small business owner
will have a high level o' competence in all of these areas.
Owners of small businesses sometimes lind it difficult to source
finance from financial lnstituiions. A key issue for small businesses is
working out how to raise finance, because a new business wtth new
Ideas is seen as a high risk by banks and other lenders.
Small business can also have a limited ability to service customers
due to unavailable resources. Different customers have different
requirements, so a lot of personal attention ls required to keep all of
a business's customers happy. This is very difficult in an enterprise
where the owner and a small staff have so many other things to
organise.
Agencies developed to foster the growth of small businesses In the
Caribbean include the Jamaica Business Development Corporation
(JBDC), the Small Business Association of Jamaica (SBAJ), the
National Entrepreneurship Development Company Limited (NEDCO),
and the Institute of Private Enterprise Development Limlled (tPED).
KEY POINTS
• A cottage Industry is one where people work from home,
usually making things with their hands and very simple
machinery.
• Small firms provide employment for many people, produce
goods that larger firms co not fine it worthwhile to produce
and often serve niche markets.
• Disadvantages o' small businesses are that they may lack
the full range of skills needed to run a successful enterprise,
and they may be ineffective at raising financial resources or
servicing customers.
SUMMARY QUESTIONS
1. Where are you most likely to find cottage Industries and
why?
2. VVhat difficulties might small businesses have in catering for
customer needs ano requirements?
3. What are the principle advantages of small businesses
compared to large businesses?
Business growth, linkage
industries and the effects
of growth on business
OBJECTIVES
You should be able to:
• explain how a business
grows internally and
externally
• outline the opportunities 'or
and benefits of developing
linkage Industries
• explain the effects of growth
on a business.
$pansh hotel chan H10has created a jom venturew,th theCanao an tour operate•
Transat A.T. Inc to bu Id hate's n Jamaica, o.inglng together the'r d ffe•ert expe·lences
of manag ng tounsm
KEY TERMS
Unit costs of production:
the average cost of producing
a good, or simply the cost of
producing one unit of output.
Production chain: the various
stages involved in producing
goods, from extracting the raw
ma1ertals to manufacturing the
products and delivering them to
sales ou11ets.
Business growth enables an enterprise to control a larger sector of
a market and to reach more customers. Producing on a larger scale
can also help to reduce unit costs of production . There are two
main routes to growth: Internal and external.
Examples of internal growth
A business can grow by Itself through its own 1inances in a number
of ways.
• By opening other outlets: Proiits can be ploughed back into the
opening of new outlets. Examples Include opening new stores (1or a
retail business) and new hotels (for a hotel chain).
• By employing more workers: A business can grow by taking on a
larger stafi, enabling it lo deal with more customers, to employ more
specialist labour and to carry out more work.
• By increasing capital: A business can borrow more funds through
loans, thvs enabling it to grow. Increased funds can be channelled Into
purchasing new fixed capital (more buildings and equipment as well as
technologies that are more advanced).
• By modernising: a business can upgrade Its facilities. For example,
upgrading plant may enable a factory to produce more products more
quickly, and refurbishing a store may increase sales by making it more
attractive to 0ustomers.
The key advantage of internal growth is that the owners of
the business retain control. Expancing the business provides
opportunities for more sales and profits.
Examples of external growth
External growth involves joining together with other enterprises. This
Is usually a faster v,,ay for a business to grow than by internal growth.
There are three main ways of ooing this.
Joint ventures
Two or more businesses join together to set up a new enterprise
which they own jointly. Joint ventures are common in international
business. For example, a us bottling company might join together
with a Caribbean bottler to create a new joint venture. The US
company benefits from the Caribbean company's knowledge of and
contacts in the local market. The Caribbean company benefits from
the technologies employed by the us company and the additional
capital brought to the table.
Mergers
Two or more businesses combine to form a single company, vvith
the shareholoers' existing shares being exchanged for shares in
the merged entity. Mergers help to pool ideas and skills while at the
same time making it possible to cut back on duplicated efforts (and
hence to cut costs).
Takeovers/acquisitions
This occurs when one business gains control of part or all of another
company. This will Involve purchasing at least 51 per cent of the
shares in the company being taken over. Companies that are seeking
greater control over a market will engage in takeover activity. Benefits
Include:
• a reduction in compelilion (enabling the firm carrying oUl :he takeover
to have a more dominant control of the market)
• advantages resutting from operating on a larger scale, leading 10 a
reduction in costs and allowing more advanced technology to be
employed
• being able to reduce 1he duplication of services and therefore cut
ooS!s, for example by reducing tne labour force.
Diversification
This occurs when a business moves into new areas. For example,
when an ice cream manufacturer also starts to manufacture soap
and detergent.
Opportunities for and benefits of developing
linkage industries
A linkage industry is one that is connected to another industry
because it provides supplies for It or it ls a market for Its finished
product. The two industries may also be connected in another way,
e.g. by carrying out research together.
Tourism Is an excellent example of an industry that has many links.
For example, a tour operator has links with alrtines, taxi firms, private
car hire firms, hotels, suppliers of soap and toothpaste, laundries,
sight-seeing companies. entertainment companies. energy suppliers
and so on.
EXAM TIP
Mct~e s«re t:JO« cct""
ol is ti"'-9 w. LS t,, ll etwee.,,
" l¾lYger - wnicl-i LS
" mw.tw.iil ctg..-eel¾l""t
betwee"" two fi,Yl¾S to
Yestrw.ctw...-e iv.to ct meygeol
btA.Si.,,,ess ct tct~eoveY,
"""°'
wne..-e O"'-t fi.r11,1, effectivelt:J
tct~es co,,,,t..-ol of """ott,,ey
co l¾'f'C! ""t:J·
Developing a picture of the Intricate links that exist within an
economy helps us to understand how businesses and Industries are
Interdependent (reliant on each other). National planning for growth
should take a view of hov, these links can be developed. The more
links that exist between the various Industries In a country, the more
employment and output will be generated domestically within a
nation.
Backward linking industries
To link backwards means making connections with companies and
industries that supply raw materials and components at earlier stages
of the production chain. For example, a firm that roasts coffee
beans can make direct links with the mills that dry the coffee and the
farms where the coffee is grown and harvested. Improvements In
processes carried out at the roasting stage can lead to an increase
in demand for milled beans, and may lead to a change in the
demand so that new types of beans are required. In some situations
a producer might seek to take more control over earlier stages of
production (e.g. where the roaster takes over the miller). However, in
many situations there will be scope for different business owners to
control each stage of the production chain and work together.
Forward linking industries
To link forvvards involves working together with companies and
industries involved in later stages of production. For example, a firm
that roasts coffee beans can work closely with firms that package,
label and advertise coffee, as well as those that distribute the finlsheo
coffee to retail outlets and export markets. If we follow this example
further we can see that coffee roasters can have strong forward links
to coF.ee shops, restaurants and hotels within the Caribbean region.
Illustrating linkages in the agricultural sector
The oevelopment of agriculture can have Important knock-on effects
through the linking of farming to other sectors of the economy.
Agriculture sector
Agriculh.Jral
machinery and
equipment
industries
Pesticides
and fertilisers
Industries
Technical
advice
Industry
'
Tropical fruit sector
Restaurants
Cake
and catering manufacturing
industries
industries
Fruit
canning
industries
Other food
procesSing
industries
Other sectors, including retailers and wholesalers
For example, developing new tropical frutts can lead to an Increase
in the demand for agricultural machinery and equipment, pesticides
and fertilisers, and the technical advice industries, as well as creating
more employment In the agricultural sector. At the same tlme, the
sale o: new tropical fruits will benefit other industries in the economy,
incluoing restaurants and catering companies, cake manufacturing
companies. 'ruit canning companies and other companies involved in
food processing. This is illustrated by the oiagram below.
KEY POINTS
The effects of growth on a business
There are many different effects that stem from the gro1>11th of a
business, some of which are outlined below.
Effects of growth
on a business
Details
Organisational
structure
The organisational structure will need to
take acoount of new components In the
organisation (some elements may need to be
out to avoid duplication). The span o' control
can widen and more levels may be added to
the hierarcny.
Capital
More capttal may be required from
sharenolders to finance growth, and new
physical capital such as more advanced
machinery may be required.
Labour
Growth will reqvire more labour and perhaps
more specialist skills, atthough with mergers
and takeovers some duplicated labour may
actually be ctt back.
Use of technology
Growth enables a business to employ
up-to-date and advanced technologies.
Potential for expert
Bigger firms are better placed to develop
the marketing capabilttles and information
tecnnologies needed to engage with
International exporting.
It can be challenging for a business to grow. Managing large,
complicated enterprises involving more raw materials, plant, outlets,
people etc. can be difficult. Growth can also have negative effects
on the wider economy, because large businesses have the power
to control supply and dictate terms to suppliers, and to undercut
competitors and squeeze out smaller business. Additionally,
when a large firm gains a monopoly position it may raise prices to
consumers.
• A business can grow
Internally by ploughing
profils into Its expansion
or it can grow externally by
Joining together with another
business.
• Linkage industries are ones
in which businesses are
connected together either
backwards or forwards along
the production chain.
• When a business grows It
will need new organisational
structures and 1>11111require
more finance. It will also be
able to employ more capital
and new technologies.
1. Why might a firm want to
grow Internally rather than
externally? What woulo
be a benefit of external
growth?
2. How might a firm that
packages and bottles
fruit juices benefit from
backWards and for.1>Jards
linkages?
3. What potential difficulties
should a company consioer
when making decisions
about growth?
Markets, marketing and
marketing activities
OBJECTIVES
You should be able to:
• explain the concepts of
market and Marketing
• explain marketing activities.
The concepts of market and marketing
A market is any situation where buyers and sellers come into
contact. Examples include a street market, a supermarket, a fish
market and the main street of any town or city. Hov,,ever, markets do
not have to be physical places. Many transactions (deals between
buyers and sellers) take place today through online buying and selling
using the Internet (via a virtual market).
Marketing refers to activities carried out by a business to identify,
KEY TERMS
Market : any situation where
buyers and sellers come Into
contact.
Virtual market: the buying and
selling of gooos and seNices
through the Internet, rather than
a physical place wnere people
meet face to face.
Marketing: identifying
and anticipating customer
requirements in order to meet
these requirements and make
a profit.
anticipate and meet customer requirements in order to make a
prollt. Marketing includes market research as well as advertising and
promotion.
New trends In marketing include the following.
• Social media marketing: This Is 1he use of social media platforms and
websites (such as Facebook and Twitter) to promote products. For
example. Facebook users can pin adverts from major companies onto
their own Facebook pages or show tnat they !Ike an advert or product.
Viral marketing involves online marketing content being shared by very
large numbers of social media users.
• ln1egrated marketing: This is where customers are provided with an
integrated experience when they Interact with a company through
a range ol communica1ion channels, Including advertising, sales
promotion and social media marketing.
Marketing activities:
CNIIQJ-AMNITS'IOA-OIUTIOl'9AeCUrlQIII: ~
FOOi> CI-IOICQ?
operations planned and devised
by the marketing arm of a
company, designed to ' ind out
about and meet customer
requirements.
t
Mar<et resea•ch is an lmportan: markS:'19 actlv,t y that 1s des•gnecl to fmlcut mo·e
about consumer tastes and behav:our
Marketing activities
There are a number of marketing activities that all need to work
together In a consistent v,,ay in order to achieve the targets set out In
a marketing plan. These activities are described in the table below.
Marketing
activity
Details
Market
research
Markel research is carried out to fi11d out about the
characteristics of a market in order to meet market
requirements. 11 can be carried out 1hrough large-scale
surveys (questionnaires 10 ma11y people) or on a
much smaller scale, for example 1hro~gh face-to-face
interviews. Mar1<et researcl1 might aim to find out
about tne following.
• Consumer taste: what do consumers like and want
from a product? Wnicn colours, shapes, tastes, etc.
do they prefer?
EXAM TIP
• Competttio11: what are the competitors doing? This
Includes 1he prices they cnarge, which outlets 1hey
sell In, the characteristics of their products, etc,
• Consumer behaviour: what are the factors that
influence consumers to buy one product over
another? How do consumers buy products and how
does thelr buying behaviour change?
Pricing
Deciding on a price is a key marketing activity. It will
be determined by internal factors such as ,he cost of
making and selling an item and external factors such
as competiior pricing.
Packagir,g
The first time a customer sees many products Is
wnen 1/iey are packaged. Marketing should therefore
ensure that the packaging makes a product look
more attractive, enables easy slacking and transport.
protects the product and keeps tt fresh, and provides
details about how to use the product.
Branding
A key aspect of marketing is the creation of a brand. A
brand is a product er group of products with a unique,
consistenl and easily recognisable charac1er. For
example, we all recognise the Coca-Cola brand, not
only by its logo but by also by Its packaging (the shape
of 1r.e bottle, or the colour of the can) and the taste of
1he prod vet.
Sales
promo'.ion
Sales promotions are ac!ivities and techniques
designed to increase the sales of a product (for
example by offering free samples or a buy-one-gelone-free promotion). They usually only last 'or a short
period of time.
yo"' svio1-<lol be able to
clisti..,,g1-<isl-i betwee""
a IM.llrR.et (a place
wvieYe goocls aYe
bo1-<gl1t a""i;l sold}
&1M >1<.aYR.et,.,,g (ti-le
pYo~e~ of, icle""ti.fu '""0,
Cl "'-tLC!.patc"'-0 a V\,ol
1M.eeti.""0 c1-<sto>1<.er "'-tros
a""ol Yeq1-<ire1M.e"'-ls).
M arketing
activity
Details
Advertising
Marketing activity will seek lo identify tile best ways of
advertising products and brands in order !o increase
awareness of tnem. Advertising is designed to have
greater long-term effec1s than sales promotions.
Distribution
Marketing also involves identifying lhe best approach
to distribution, which is the movemenl of goods from
a source (such as a manufacturer) 1hrougn distribution
channels to lhe final cuslomer.
The N <e s•Noosh ,s an examp.e o' a d s:llCtlve iogo that forms a fundamental part of
the Ni<e orano
KEY POINTS
• Marketing involves identifying, anticipating and meeting
customer neeos and requirements in order to make a pro!lt.
• There are many oifferent types of marketing activities that will
contribute to a business's overall marketing plan.
• Marketing actiV1tles include market research as well as the
practical implementation 01marketing, ior example in the form
of pricing, promotion ano aovertlsing.
SUMMARY QUESTIONS
1. Identity five different types of markets. Explain now these
markets are similar.
2. Why does a business carry out marketing activities?
3. How does market research differ from other marketing
activities?
The marketing mix
The components of the marketing mix
Businesses woulo not exist without customers. It ls essential.
therefore, to find out what customers want and need. A business
then has to satisfy these needs by providing what can be called the
"four P's":
• product: the right goods and seNices
• price: at the righ1price
• place: in the right place
• promotion: by providing the right sort of encouragement.
The combination of these tour ingredients is called the marketing mix.
OBJECTIVES
You should be able to:
• oescrlbe the marketing mix.
KEY TERMS
Promotion: the publicising of a
product or organisation in oroer
to Increase public awareness
and sales.
Marketing mix: the four key
Oecisions that must be taken
In the effective marketing of a
product.
Pricing strategy: an overall
pricing plan designed to provide
the best price for a specific
market.
\-----101
The rna:ket,cg mix
Product
EXAM TIP
Products are said to have botl1 features and benefits.
Ma~e suve 1:1ou
u"'-,:;(eysta"",:;( tl1e
"Features" are the details of a product . For example, the main
features of a car might be that it Is blue, it has four doors, it has
pov,,er steering and it runs on unleaded petrol. A product must have
the right features for a customer to want to buy It.
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"be"'-t-fi-ts". A bev.e-fi-t i.s
wi,iat a COl¼uV>\.eY wav.ts
a pyo,:;!uct to do foy
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n,V>\.
well
be attyacte,:;( to pvo,:;!uc,ts
ti1at 7'Yovio(e ti1e best
OY
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gu,,:;!e migt,,t 11ave
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(a featf.<re), b"t ti1e
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Loo~,"'-9 foY a C-OVI.Ct.St
QV\-,:;( CLti!Y C-OVtYil0t
of ti-le specific,atio.,,
(a be.,,e-fi-t) .
"Benefits· are what a product does for tts customers {hov, it satisfies
their needs}. For example, tile benefits of a car might be that it Is
sa'e, it has enough room for the V'ihole family and it is cheap to run.
Benefits are also very important when making a purchase.
Price (pricing strategies)
For every product the price must be right. Pricing strategies might
be based on what it costs to make the product, the competition's
prices and how the ma~et Is performing as a whole. Businesses
often use the following pricing strategies.
Pricing strategy
Details
Cost-plus pricing
The price is related to the costs of production (for
example, i he cost to produce each un?. plus 30
per cent for profit}
Predatory/
destroyer pricing
A very low price is set in order to drive competitors
out of the market
Penetration
pricing
A low Initial price is set in order to win an early
share of the market
Premium pricing
A higher than average price is set to signal that ihe
product is a superior or luxury one
Skimming pricing
The price is se~ high when the product is first
launched and Is then reduced progressively In
order to win new groups of customers
Place
The goods must be in the right place at the right time. It is important
to ensure that products arrive when and where they are wanted. The
method(s) of selling must also be suitable for customers (for example
for a food product this might Involve choosing between a small
artisan shop, a large supermarket or the Internet).
A distribution channel is the means by which an organisation and its
customers are brought together at a particular place and time to buy
and sell goods. This may be in a shop, via the Internet or over the
phone. The organisations that are involved in the dlstribu1ion channel
are outlined below.
Organisation
Description
Manufacturers
Firms that make the goods
Vvholesalers
Firms 1hat store 1he goods in bulk. which they purchase
from manufacturers and then sell on to retailers
Retailers
Firms that sell the goods to the final consumers
Promotion
Customers need to be mao·e aware of the existence and availability
of the product. and this can be done through promotion. Successful
promotion helps a business to spread the costs of a product over
a large output. Promotion can be carried out In many different
ways, such as through advertising on television or radio, offering
competitions or special offers, and selling personally to individual
customers. Companies use a combination of different types of
promotion and this is referred to as the "promotional mix".
KEY POINTS
• A 1,vell-chosen marketing mix Is required to attract customers
to make purchases.
• The marketing mix consists of getting the right product in
the right place at the right price. supporteo by appropriate
promotions.
• The four Ps need to be blendeo together in the most
appropriate way for the particular product.
SUMMARY QUESTIONS
1. Compare the marketing mix for an exclusive brand of watch
such as Rolex with a standard, cheap watch.
2. Why does a pricing strategy neeo to complement the type of
product being marketed?
3. Why might promotion be required to support the marketing
of a new product?
Consumer behaviour,
presenting goods
and promoting sales
OBJECTIVES
You should be able to:
• describe the factors
that ln'luence consumer
betiavtour
• tdentify factors a'fecting
packaging and presentation
of gooos
• describe methods of
promoting sales.
Companies am to develop ad St nctve brano that ,nsoires ,O)'ll\y ano trust
KEY TERMS
Consumer behaviour: the
factors that irrlluence consumers
10 buy one proouct Instead o'
another, and hov, this behaviour
might change over time.
Trademark: something that
distinguishes one company's
proouct 'rom those of Its
competitors.
Factors that influence consumer behaviour
Groups of customers with similar characteristics can be divided into
separate groups known as segments. It is useful for marketers to find
out why similar customers behave in the way they oo. Characteristics
that can be used to group customers Into segments Include their
location, age, gender and Income. Understanding these different
segments can help companies to understano consumer behaviour.
This involves seeking to understand how consumers decide to make
a purchase, how they make the purchase (how they pay), how they
consume the product and what they do after purchasing the product.
Factors that Influence consumer behaviour are set out in the table
below.
Factor influencing
consumer behaviour
Details
Price
Are customers looking for a low-priced or high-priced product? How will
'.he price of the product affect a cus:omer's decision to purchase it?
Price of substttutes
Are consumers comparing the prices of similar products (substitutes)? Will
sales be hit badly tt your product is more expensive or cheaper than an
alternative?
Factor influencing
consumer behaviour
Details
Qualtty
Consumers have 1heir own view abou1 what constitutes quality in relation
to speoifio products. A quality prodvot is one that meets customer
expectations. Ii is important for marketers to identify what qualities
customers expeCl and what they are willing to pay for 1hese qualtties.
Taste
Consumer taste refers 10 the products and services tha1customers
deliberately choose over olhers, such as salads rather than burgers or
diesel oars ra:her than unleaded petrol cars. It is important to understand
customer tastes and how these change over time.
Tradition
Tradi1ion is where culture and beliefs are passed on from one generation
to another, and this often influences buying patterns. For example,
preferences for traditional Caribbean food may influence whioh types of
food are bought during a weekly shop.
Income (affordablltty)
A key influence on coflSumer behaviour is whether consumers are able to
afford products. Consumers on higher incomes will be able to afford more
expe1sive products. Rising incomes in the Caribbean mean that on the
whole people can now af'ord more expensive goods.
Spending patterns
Research into spending patterns enables marketers to identify what
products people like to buy, what products they buy together, how often
purchases are made and when they are most likely to be made.
Brand loyalty
A loyal customer is someone wno oontinues to buy a product from a
company over time, often because they trust the brand of a particular
business. All companies will try to foster this brand loyatty.
Factors affecting packaging and presentation
of goods
Common forms of packaging include paper, cardboard, plastic,
glass and metal. As outlined on page 87, packaging performs many
important functions, from promoting products to keeping them fresh
and safe.
Presentation
Packaging is used to present goods In ways that will auract
customers by:
• making a product look exching (e.g. cosmetics packaging)
• showing that goods are undamaged and new (e.g. a shoe box)
• allowing the consumer to view the product {e.g. a glass bottle
containing fresh sauce).
Use of brand names
A brand is a word, name or symbol, especially one which has been
registered as a trademark. It is used by a business to identify its
products in a distinctive way. For example, we all recognise the Shell
petrol, Coca-Cola and McDonald's logos. Having a distinctive logo
helps to attract and retain the interest of customers who value these
products. The brano can therefore be as valuable as the product
Itself.
Methods of promoting sales
Promoting sales refers to any method of publicising a company or its
products. The main types of promotional methods are outlined below.
Advertising
Advertising can be classified as "informative•, "persuasive" or
"competitive". The functions of advertising are to:
• provide information about a product, such as wha1 it does and how to
use it (informative)
• persuade customers to buy a product (persuasive)
• communlcale the brand Identity, such as the idea that a clothing brand
is abovt "outdoor living• and "adventure• (persvasive)
• generate dema,'1d by getling customers lo buy the product
(persuasive)
• keep customers loyal, for example by reminding them about the
benefits of the brand or product (informative and persuasive)
• enable price comparison, for example by allowing a company's prices
to be compared with a competttor's prices (competitive)
• show new trends, for example by showing Cl.lstomers the shape of
things to come (informative and persuasive).
Advertising takes many forms, including television commercials,
radio commercials, online advertising, newspaper and magazine
advertising, bus shelter advertising, posters, flyers and direct mall.
Promotion
Promotion is a way of spreading information about a brano, company
or specmc goods and services. Common types of promotion are
oulllned below.
Type of
promotion
Description
Trading
stamps
Paper coupons given to customers to reward their
loyalty when making purchases. Stamps can then be
cashed in when making new purchases.
Coupons
Voucilers enabling a cuslomer to claim a discount on
goods purchased.
Loyalty points
Points accumulated In proportion to money spent.
These are often recorded electronically and can be
cashed In on M ure purchases.
Rebates
A sum of money paid by the seller as a reduction, refund
or return on what has already been paid by the buyer.
Bundling
Goods and services can be offered togetner in bundles,
such as the purchase of a cable television including a
year's subscription to a selection of channels.
Loss leaders
Loss leaders are products that are sold by a
company al a loss to encourage buyers to purchase
other products made by the company, or to
encourage them 10 make future purchases of tne
good when tt is no longer sold at a loss.
Social media is another powerful way that companies can promote
their products. This involves using social media sites such as
Facebook, Twitter and YouTube to generate social meoia activity.
Companies can set up their own social meoia accounts (such as
a page on Facebook} and this enables them to communicate with
consumers and users of products. Companies might also create
interesting content that social media users want to share with each
other.
Public relations
Public relations {PR) involves managing the 11ow of Information from
an organisation to its "public" In order to build up the reputation
and Image of the company. Examples might include sponsoring
prestigious events such as awards for young business entrepreneurs,
sponsoring sporting events, and provioing business entertainment for
important clients.
Sales promotion
Sales promotion is a tool used for relatively short periods of time to
build brand awareness. Examples include "buy one get one free·
offers, price reductions and free samples.
Personal selling
Personal selling is where members of a salesforce interact with
customers directly in order to explain a product and how it works.
KEY POINTS
• Factors that Influence consumer behaviour Include lhe price
01 items, the Incomes o' consumers, tastes, preferences and
traditions.
• Packaging ls designed to protect goods, but just as
importantly it is also designed to promote and sell goods.
• Sates can be promoted through offers that make the goods
more attractive to consumers.
SUMMARY QUESTIONS
1. What factors might influence a consumer to purchase an
expensive brand of food seasoning?
2. How might the packaging used for cosmetics be different to
the packaging used for toilet rolls, and why?
3. What sales promotions woulo you use to encourage a
customer to subscribe to or purchase the following?
a. A cable television provider
b. A brand of well-known biscuits
EXAM TIP
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rec~~~ei,cd pvo....,oti.o"'-&ll
ac~•v•ties t ltiat wo«Lol be
$1,{ita ble fo,- pcirti.c..._l,IY
tl:jpes of goools, S'<.cl-1 as
televi.si.o..,, aolverti.si."'-g
a..,_ol pevso..,,cil seUi."'-0 fov
cci,- sales, or /il olvevtisi"'-0
a.,,,of )'YO....,otioa,,.,s ;...,,
.
'
specialist ""ewspcipers
av.of ""'-&1gazi..,,,es fo,- IT
gaolgets, etc.
Techniques of selling,
terms of sale and
functions of consumer
organisations
OBJECTIVES
You should be able to:
• identify the 1echniques-0f
selling
• explain the various terms of
sale
• list the functions o' consumer
organisations.
~Veil :ho•,ght o•JI merohanois,ng can he o oonsurrers to f nd p,o<Jucts qu,cker and
mo·e easily
The techniques of selling
Selling is the process of persuading customers about the meri1s of a
particular good or service In order to close a deal.
Sales staff and their approaches
Salespeople need to be perceived as credible. They need to apply
techniques and to present themselves In such a vvay that customers
will believe they are being made a genuine offer in good faith. Sales
staff need to be persuasive, but they should not try to sell people
things they do not want as they will either return the unwanted items
or not buy from that salesperson or company again.
Sales staff often use an approach known as FAB, which stands for
"features, advantages and benefits".
Features
The salesperson will explain important de1ails abou1 1he product, such as tts colour,
functions and size.
Advantages
The salesperson will explain 1•/na1 makes 1110 produCl better than other products or
previous models. For example, it Is quicker and lighter, or it has more features.
Benefits
The salesperson will explain how Irie product mee,s the needs of a specific customer.
For 1his the salesperson has to listen carefully to what the w stomer wants.
Another approach used by salespeople is the AIDA model:
• Attention: first gain the attention of customers, for example through
advertising.
• Interest win the customer's Interest by providing interes!ing
information about the product (this will Include listening lo what the
customer has to say to Identify what interests them).
• Desire: create a desire in the cus!omer to make a purchase. This can
be done by snowing that the product provides the benefits which the
customer desires.
• Action: the customer follows through and makes the purchase.
M erchandising and adjusting of pricing policy
M erchandising is an important way to encourage sales, and
relates to the way in which products are arranged and displayed in a
physical store (such as in the shop vvlndow) or In a virtual store (on a
website). Improving the accessibility and presentation of goods can
help to maximise sales.
Pricing policies also neeo to be adjusted to have the maximum sales
effect, and these can include the following.
• Competttive pricing: matcning or undercvtting the prices of
competitors.
• Premium pricing: charging an above-average price to reflect the quality
of a product and to make the product feel more e)(clusive.
• Bundling pricing: bundling together a number of products so that each
one becomes cheaper than if they were not in a bundle.
M ethods of retailing
There are a range of outlets for selling goods to the end consumer.
The most common examples are outlined below.
• Shops: these can range from large supermarkets and hypermarkets to
small, local "mom and pop• stores.
• Department stores: these can be found in major urban areas. They
are split Into different departments such as men's fashion. women's
fashion, toys, bocks, furniture and electronics. Tl-.ey tend to charge
higher prices than most oiher shops, but also tend to focus on betterquality goods.
• Mail order firms: these operate from large warehouses. They stock a
large selection of goods which are sold through mall order catalogues
delivered to households.
• E-commerce: this is the fastest growing form of retailing throughout
the world. It involves using a website as a "shop window" and then
various methods of delivery, such as door-to-door van delivery or
customer collection from a named location.
• Telemarketing: this refers to selling over the p~one. II involves a
salesperson making a sales pitch over the phone to new or e)(lsting
customers.
• Vending machines: these are coin-operated machines that display
goods such as candy, chocolate, polato chips and drinks. The
macniPe will be filled periodically with products and emptied of cash.
KEY TERMS
Merchandising: the way In
which proouots are arranged
in a physical or online store to
maximise sales.
The various terms of sales
EXAM TIP
You should be familiar with the following terms of sales.
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ex.plCILV\, VClr•OL<S terw..s
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IM.L~l,t be Clttrcict•ve for
seLL.""0 a spec•-fi.c t1:::1pe of
go_ool (for eKC11M.pLe, Cl ccir
""-•g"1t be sold o"" l1•re
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olow"" a deposit to use ti,,e
CCIY, w"1ilt the provioler of
t"1e car ca"" repossess it i.f
the bu1:1er fai.Ls to IM.Clk,e
hts or "1er pci1:1""-tVl-ts).
.
Terms of sale
Definition
Cash
A cash payment is where the seller e)(pects to be
paid in bank notes and coins, and may command a
cash discount (see below).
Credit
The buyer is given a period of time to pay for the
goods. The credit terms will need to be Slated
when the purchase Is made, for example regarding
whether 1here Is any interest on ihe payment.
Hire purchase
The buyer "hires" a good by paying a deposit and
instalments. He or she only becomes the owner of
the good once the final payment nas been made.
lnteres1 will be charged on the payments.
Layaway
The ttem is "laid away" or stored until tne final
instalment has been paid. The purchaser does
not own and cannot use the ttem until this final
instalment has been paid. A time period Is given for
full payment.
Consignment
Goods are sent by a supplier to a seller who will
typically only pay for :he goods when they have
been sold on to tile end consumer.
Cash and trade
discounts
Wrth a cash discount, the buyer is given a reduction
in fne price tor paying In cash. 1/1/ith a trade
discount, someone In a particular trade or industry
is offered a discount from his or her supplier. For
example, a builder is offered 1Oper cent off the
listed prices from a builder's merchant because :he
bl.filder is likely to make regular purchases.
Functions of consumer organisations
The rights and protection of consumers
Consumer organisations are groups that seek to protect the interests
of consumers against abuses such as unsafe products and false
advertising.
Consumer groups:
• provide a voice for consumers iensure consumers are heard)
• provide information to consumers about their rights (educa,e
consumers)
• inform consumers about products so they can make comparisons
(enable consumers to make better choices)
• represent consumers when lobbyi,ig government and business (ensure
decisions bene!iting consumers are made)
• work with businesses and government to improve safety standards
(ensure produets and seNices do not harm ccnsumers).
An example is the Caribbean Consumer Council, which is a privately
funded consumer group set up in 2005 to champion the rights of
consumers throughout the Caribbean. It also lobbies businesses and
governments to Improve consumer rights.
In addition, the government plays a role in protecting the interests
of consumers. For example. the Barbados Fair Trading Commission
identifies (and where necessary prosecutes) firms engaging in poor
practices such as deception.
The role of quality-control organisations like the Bureau
of Sta ndards
Each country In the Caribbean has a Bureau of Standards affiliated
to the International Organization for Standaroizalion (IOS) based In
Geneva, Switzerland. The IOS helps to educate and train companies
in how to create safe standards. for example with regard to the
builoing of a sate car engine or sate washing machine. Each country
then has a Bureau of Standards that is affiliated to the IOS, which
establishes Its own standards for the production of goods and
services.
KEY TERMS
Bureau of Standards: a body
responsible for setting quality
standards tor the manufacture
and production of goods and
services v,lthln a given country.
The role of the Ombudsman
The Office of the Ombudsman provides additional protection tor
consumers and businesses. It specifically seeks to help individuals
who feel they have been unfairly treated by a government official.
The role of metrication boards
From the 1970s onwards, metrication boards were set up in
Caribbean coun tries to facilitate the movement from the Imperial
measurement system to the metric measurement system. This
Involved moving from a system that uses pounds, ounces, feet
and Inches to a system that uses kilograms, grams, metres
and centimetres. lvletricatlon was seen as an Important part of
a Caiibbean single market, enabling businesses from different
countries to trade more easily with each other.
KEY POINTS
• A skilled salesperson will not only identity the features and
advantages o' a product but also the bene!its that it provides
for consumers.
• Terms of sale inch,1 de the delivery and payment terms agreed
between a seller and buyer, such as hire purchase and cash
sale.
• Consumer organisations seek to protect consumers by
championing their rights and by lobbying governments and
businesses tor better standards.
SUMMARY QUESTIONS
1. Identify two approaches a
salesperson could use to
entice a customer to make
a purchase.
2. Why might a customer
prefer to buy an expensive
good using layaway rather
than cash purchase?
3. Identify one good that you
think would benefit from
the publication of standards
for Its manufacture ano
explain one aspect of those
standards.
The role and forms of
customer service and
intellectual property rights
OBJECTIVES
You should be able to:
• outline the role of customer
service
• describe forms of customer
service
• explain the concept of
Intellectual property rights.
The role of customer service
Customer service can be defined as paying attention to customer
needs by delivering a high-quality service. Ideally customer feeoback
on the customer experience should be one of complete satisfaction.
Effective communication Is required in order to find out what
customers want and expect. This is illustrated with the case of a
restaurant. The person waiting on the table will take the order and
then seek to provide each course of the meal in a timely way, with the
food being to the standard expected. The waiter will ask questions
such as "Can I get you anything else?" and "Are you enjoying
your meal?" The customer service provider is therefore constantly
checking (communicating} with the service user.
Customer service is also a vttal part of coordinating the flow of
goods, services and Information to the customer. For example, a
customer sending a parcel overseas by means of a courier service
will be given details of how he or she can personally track the
different stages of the delivery of that parcel {usually online).
A wal:er n a restaurant w II reguany chec< that the seN,ce provided Is to the customer°s requ <erren':s
Forms of customer service
The table below shows the various ways in which customer seNice
can be provided.
Forms of customer
service
Details
V\!arranty
A warranty is a manufacturer's or service
provider's written guarantee of satisfaction,
promising to repair or replace unsatisfactory
items.
EXAM TIP
you sl-loutd be &1bte to
defi.,.e e=tol¾t.- service
&1:5i.sta "'-Ct &1""d advi.ee
)'YOV,ded btJ &I COl¾J>&I ""1::J
to ti-le people tnllt t.<se its
&ts
After-sales service
Tt,is refers to all of the help and information
that is provided to a customer after they have
bought a good or service (such as t11e servicing
of a car or the repair of a computer).
Feedback
Feedback is following up to find out how
satisfied a consumer is wi1h their purch.ase (by
text, email or another form of communica1ion).
Online cha1
This is a particularly effective way of interacting
with consumers who are comfortable using
information technology. It involves online
discussions abou1 the use of and satisfaction
with a product.
Toll free numbers/
call centres
Large companies often have tr eir own
dedicated call centres to deal with customer
ser✓ice Issues. These calls will often be "toll
free", meaning the customer is not charged for
the call. This can be a useful way of gatnering
feedback as well as solving any Issues with a
purchase.
Suggestion box
This approach has largely been replaced by
those described above. It involves consumers
posting their comments in a suggestion box.
Surveys
This is a structured list of questions delivered to
a representative sample of customers. The aim
is to find 001 their views on customer service
and potential areas for improvement.
The concept of intellectual property rights
When a person comes up with a new idea, he or she should tile the
intellectual property lights for the Idea before someone else copies it.
Intellectual property rights protect original ideas that are turned into
products, brands and works such as music recordings or books.
Some of the different subsets of intellectual property rights are
describeo below.
)'Yoducts. Make sure t:Jo«
ci;i.,. &1Lso give suitable
ex&1 v,,cpLes. of custol¾eY
se"';iee, s«en &Is tl-wo«g l-i
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,
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feedb&1ek. St.<.YVetJS,
KEY TERMS
Type of Intellectual
property rights
Details
Trademark: something that
Trademark
A trademark is something that diS1inguishes
one company's produc1 from another. The
symbol $ shows a registered trademark.
Copyright
Copyright is protection provided for music,
dis11nguishes one company's
proouct from those of its
competitors.
Copyright: protection provided
tor authors, composers and
artists.
lyrics, books, plays, pholographs and other
types of work. ll is represented by the symbol ~ .
Patent
A patent grants exclusive rights to tne
produclion, sale, use and even importation of
something for up to 20 years.
lnduS1rlal design
A design right protects a design from being
copied. An industrial design consists of any
shape, colour or pattern that makes a product
unique. Examples include the iconic CocaCola contoured bottle and Lmle Trees air
fresheners.
Patent: this grants exclusive
rights to the production, sale,
use and even importation of
something, and can last for up
to 20 years.
KEY POINTS
• Giving customers a high-quality service involves listening and
conforming to their requirements.
• There are a number of ways of providing customer service
including warranties, helplines, surveys and after-sales service.
• Intellectual property rights are the rights of a person
or company to use Its own ideas wtthout the worry o'
competition for a set period of time.
SUMMARY QUESTIONS
1. How does customer service make a product more desirable?
2. loentlfy two ways of providing customer service whlch
demonstrate close attention 10 listening to customer
requirements.
3. How will a i irm benefit from registering a trademark or
patent?
Practice exam questions
Paper1
1
Tne purpose of a contract is ;o:
A Fix the rights and duties of the panles
Involved In relatloe to an agreement
B Establish rules and procedures to follow
should one party to an agreement fail
to carry out their responsibilities
C Create a loose arrangement through wr1lch
buyers and sellers can in!eract to buy
and sell goods
D Set out In a court of law tl'e terms of an
agreement betwee"l two parties
2
Which of the following business documents
would be sent by a seJler to the buyer?
A An Inquiry
6
A A simple contract
B A comract of employment
C A specialty contract
D A void contract
7 The term "capital" in the context of business
assets re'ers lo:
A Stores of goods
B Raw materials waiting 10 be processed
C Machinery and equipment
D Short term debts to another business
8
B An on;jer form
C Payment
Whlcn of the following provides a definition of
workir,g capttal?
A Durable cap~al equipment
B Capital provided 10 new entrepreneurs
C Current assets minus current liabilities
D Machinery and equipmert used to support
workers
4
Which of the following is associated wnh
quantitative rather :han qualital ive market
rese<1rch?
A A survey
B Personal interviewing
C Foe.is group studies
D An Individual case stvcly
5
Which of the following are examples of sales
promotions?
A business produces 1 000 U'11ts each month for
a total cost of $10 000. What is the unrt cost?
A $10 000
C $100
D An Invoice
3
What 1s a oon:ract that needs to be signed,
sealed and delivered called?
9
B S1 000
D $10
A shop crea1es an attractive wim;low display.
The process of designing the layout of the
window is described as:
A Merchandising
B Perso<1al selling
C Bundling
D Sales promo1ion
10 Which of 1he following retail ovllets is operated
from a large warehouse?
A Mom and pop stores
B Departmen1 s:ores
C Mall order distributlor centr13s
D Chain ste<es
11 W,.at wilt a firm seeking to wi0 market snare
'or a new product by engaging In penetration
pricisg do?
a "buy one get one 'ree• offer
ii special price offers for a limited period
A It wilt charge a price which Is broadly In line
iii point of purcl>ase displays
A I and ii only
B It wilt charge a premium price that reflects
:he nigh qualrty of the product
B I and Ill only
C ii and iii only
D l,ilandlil
with the price of competing prodvcts
C I; will set a price that is the cost of making
the product plus 20%
D It will set a tow price initially to generate
interest from consumers
Paper2
1 Michael is In the process of setting up a new re1ail outle11o provide designer clothes in Port of Spain. As
pan of the process, he will need to sign a contract to lease premises tor a minimum of two years. which
will require an ol.lllay of a deposit of $5 000 and a fixed rental charge of S1 000 per calendar montn.
a
b
Explain what a comract is and wily Michael needs to sign one. (2 marks)
Describe two characteristics of the above contract (assuming that it is a slr1p1e contract), (<t marks)
Ii If 1he company granting ,he lease had Instead required a specialty contract tc be signed, explain
two ways In which the arrangements for the contract woold have differed from a simple contract.
{4 marks)
c
Michael also requires hsurance before setting up In business. Explain two steps that he would take to
secure Insurance. (4 marks)
d Explain how 1he insurance principles of insurable in1eres1 and utmoSt good fatth would be involved in
the Insurance contract. (6 marks)
2 B.lrbados Bottlers is a small bottling company carrying out botillng operations for soft-drinks
mam,1acturers. In recent years, the company has been producing Increasing numbers of bottled drinks.
but productivity per employee nas remained constant. A business consultant has recommended that
employing more auiomated bottling melhods wculd nelp lo increase productivily at tne plant.
a
b
Identify four factors of production that Barbados Bottlers would use, (2 marks)
D1stingJish between production and productivity in the context o' Barbados Bottlers. (4 marks)
Ii Explain r ow it is possible l hat production nas been increasing but productivity remains constant.
(.a marks)
c Give two reasons why Barbados Bottlers might benefit from increased productivity. {4 marks)
d Explain tvvo ways in whicli the use of aUtomated production methods might increase produ01ivlty.
(6 marks)
3 Ahmed has developE,l;I a new pump for fittering dir.y water so that rt Is purified lo become clean. orinl<able
water. He believes that his product will be a suc;cess In providing clean supplies of water in rural areas. He
has already earned out trials of the pump. and would now like to carry ou1 some market research to find o-rt
what people In rural are.as ll'link o' tnis idea.
a
Defl0e the following terms:
I Markel research (2 marks)
ii Promotion (2 marks)
b State two specific questions that could be used by Ahmed when he undertakes market research.
(2 markS)
c Explain how each question in part (b) would be helpful to Ahmed. (4 marks)
d
Describe two types of promotions that Ahmed could use which might be effective in raising
awareness of the p~mp. (4 rnarks)
ii Explain two addr.ional aspects of the marketir>:J mix (in addition to promotion and the product iiselQ
that Alimed could use i o mak.e his business idea a success. (6 marks)
4
Pearline and a small group of friends have rece<1tly been made redundant. The small textile factory where
lhey have worked for many years and which was located In the rural area where they live has closed.
Ralr er lhan finding new paid employment working for someone else, i hey have decided to creale a
cottage industry of their own producing tie-dye 1-shirts and other textiles.
a List four features of a cottage industry like the one lhat Pearline and her friends are setting up.
(L marks}
b Explain two beneltts of cottage industries for people v,/no live in rural communities. (4 marks)
c
Explain two problems Pearline and lier friends might face when seltmg up a small-scale enterprise like
the or e described above. (6 marks}
d
Discuss two advantages for a nalior al economy of navlng a 1hrivirg cottage industry seclor. {6 marks)
5 Bradley own a small business that retails high-qualify balhrocm and kitchen tiles, as well as the products
used to install tiles. He sells from a small retail unil located In a shopping mall, but is looking to develop
new ways of selling to increase sales. A business consultant has suggested he engages wi:h e-commerce
and looks at new selling arrangements.
a
Define e-commerce (2 marks)
ii Describe two advantages of e-commerce that would enable Bradley's business ,o sell more tiles.
(4 marks)
b Bradley's business consullant thinks li'at Bradley will make more sales if he allows credrt sales. Discuss
the difference between cash sales and credit safes. (4 marks)
c
Explain now lntrodvcing a layaway scneme would enable Bradley to sell more goods. (L marks)
d Discuss ways in which Improved customer service WCl.>ld enable Bradley to Increase sales of Jiles.
(6 marks)
6 Party Catering is a small catering company li'al provides catering for pnvate funclicns such as birthdays
and weddings. The company buys r1os, of its supplies from a catering wholesaler called Wholesale
Supplies. P,irty Catering has recenlly put in .i bulk order 'or bread rolls. fancy cakes, and assorted drinks
10 Vvholesale Supplies.
a OJtllne tl'lree reasons why a company like Party Catering crea1es business documents. (6 marks)
b List four details thal Wholesale Supplies would include on an Invoice when charging Party Catering for
goods supplied. (4 marks)
c Wholes.ile Supplies makes an error when charging Party Catering 'or goods supplied, charging $50 for
biscuits they did not supply. Explain how can this error be put rignt through use of a specific business
document. (4 marks)
d Party Catering has taken out several types of busif'ess Insurance to cover Its calering activities.
Describe tnree different types of business ir,sura,'1ce 1hat Party Calering could 1ake out. (6 marks)
Logistics and supply
chains, and the chain
of distribution
OBJECTIVES
You should be able to:
• explain the 1erms "logistics"
and "supply chain
operations"
• describe the links In the
chain of distribution.
There are many actMtles lnvollfed n gro,Ning onions, cannng on on soup and
daliver,ng ,t to the market
KEY TERMS
Logistics: the coordination
and organisation of complex
operations.
Flow of goods: the movement
of goods either forwards or
backwards along the supply
chain.
Logistics
LogiS1ics Involves coordinating and organising the flow of items
between their point of origin and the point at which they are
consumed. The "items'' might Include materials, equipment, supplies
and finished goods. Many processes are Involved In organising
this movement, including sharing information, handling materials,
production processes, packaging, storage {including warehousing),
transport and security arrangements.
E-commerce: buying and
Supply chain operations
selling goods electronically via
the Internet.
The "supply chain" refers to the steps Involved in getting products
and services to the end consumer. "Supply chain operations" thus
refers to the management of these steps. It Is the integration of all the
business processes involved in moving goods and services from the
original suppliers, through the suppliers that add value to the original
goods and services, to the end consumer.
The components of logistics
The major components of logistics are outlined below.
Component of logist ics
Details
Forward and reverse flow
of goods
The fcr."lard flow of goods involves
1he stages of gathering raw materials
and supplies, making 1hem Into finished
packaged goods, then transporting and
storing them on their way to tne consumer.
The reverse flow of goods involves moving
Items In l he opposile direction. For
example, collecting unwanted items so
111ey can be reused er recycled.
Slorage of goods
Goods will usually be stored in central
locations as part of their journey forwards
or backwards. For example, tney may be
stored in a warehouse.
Services such as
Insurance
Insurance and o:her distnbution sef'Aces
provide cover for the goods during transit
and storage.
Information services
lnformal ion will need to be managed and
shared between destinations (such as
pricing, delivery dales and the methods of
1<ansport used).
Packaging
Packing goods in ways that make them
easier 10 load and transport. For example,
using strong, stackable boxes that can be
carefully labelled for dispatch and delivery.
Inventory management
Inventory is a comple1e list of the stock a
business holds. Inventory management ls
all about organising how stock is stored
and accessed, as well as decisions abOUt
how mueh stock is held.
Activities involved in supply chain operations
There are many activities involved in supply chain operations. The
table below illustrates these through the example of onion soup.
Supply chain activity
Details
Transformation of natural
resources
Onion seedlings are cultivated in a warm,
moist compost mix in polytunnels.
Movemen1 and storage of The onions are harves1ed and taken in
raw materials
1ractonrailers to tne storage units.
Processing of
raw materials and
components into finished
goods
The onions are dried and 1ransported
10 a soup manvfacturing and canning
plant, where 1hey are boiled with other
ingredients to add flavour. The soup is
then bottled or canned.
Supply chain activity
Details
S1orage of work-inprogress and finished
goods
The canning plant will have a large storage
facil~y to hold cases of onions lha1 are
waiting to be processed, as well as to
store finished cans of soup.
Delivering the finished
product from point
of origin to poin1 of
destination
Transpcrt will be required al each stage of
the process to move the seedlings, onions
and cans of soup from one place to ano1her.
The poim of destina!ion will be shops and
restaurants.
Links in the chain of distribution
Manufacturer
Wholesaler
Retailer
Traditionally a chain of Cistribution involves the following links to get
the goods from their point of origin to their final destination:
• the manufacturer: the firm that makes the goods
• the vvholesaler: an in1ermedlary that s1ores the goods (the wholesaler
might also perform other operations such as packaging and labelling)
• the retailer: the business that sells the goods to the end consumer
through a range of outle,s, from supermarkets to small "mom and
pop• stores
• the consumer: 1r.e person who uses the end produe!.
However, today there are a range of atternative distribution channels
such as the following.
Manufacturer
Manufacturer
Retailer
V\lebsite
Consumer
Consumer
Manufacturer
Consumer
Consumer
Simplifying the chain of distribution, for example by cutting out the
wholesaler, helps to cut costs so that more profit can be taken
directly by the manufacturer. This ls particularly the case with
e-commerce, where a manufacturer can cut out wholesalers and
retailers to deal directly with consumers. Alternatively, an a-trader like
Amazon can purchase supplies from lots of manufacturers and deal
directly with consumers across the globe through its website and
associated logistics system.
The differences between traditional commerce and
e-commerce
Traditional commerce focuses on the exchange of goods or
seNices in person. E-commerce involves buying and selling goods
electronically via the Internet. The following table highlights some
of the significant differences between traditional commerce and
e-commerce.
Traditional commerce
E-commerce
ProceS$lng
Transaelions are
transaC1ions processed manually, by
a persol'l.
Transactions are proceS$ed
automatically. by a computer.
Accessibility
Limited, to opening
hours.
Unlimrted, available 24 hours
a day, 7 days a week, 365
days a year.
Physical
inspeclion
Goodsoan be
Inspected physically
before purchase.
Goods cannot be inspected
physically before purchase.
Customer
interaC1ion
The customer talks to a
person face to face.
The customer inleracts with a
computer screen.
Payment
Goods are paid for with
cash,cheqve, debtt
card or credit card.
Goods are paid for with
credtt card or debit card.
Delivery
Instant, as goods
can be handed to the
customer.
Takes time, as goods have to
be delivered to the customer.
KEY POINTS
• Getting goods and materials to where Ihey are needed is
highly complex and needs to be managed carefully through
logistics.
• There are many steps and processes In log/sties including
managing Information, organising transport, taking out
Insurance and other activities.
• Channels of distribution are the links from manufacturers to
wholesalers, retailers {and e-tallers) and the 'inal consumer.
SUMMARY QUESTIONS
1. Descnbe 'Ive logistics activities that would be involved In
organising the shipment of motor vehicles from Brazil to a
motor trader In the Caribbean.
2. Explain the role of Information management In the logistics
process.
3. Compare and contrast one traditional method of distributing
goods (a tradltlonal distribution channel) with a more modern
methoo using e-commerce.
EXAM TIP
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specit1list w'1olest1ler
t'1t1t pack.ages, Lt1beLs,
prices ""'"cl cli.stribr.<tes
products for the
""-tl"'-r.<fiictL<rer).
Multimodal and
intermodal transport
OBJECTIVES
You should be able to:
• olstinguish between
multlmooal and intermodal
transport.
Ar transport is e'ficient for carry:ng ghter, s:"11aJ1er and more valuab e lte'lls such as
u•gent pharrraceut:cal supp es and je•.vellery
M ultimodal and intermodal transport
When goods are transported to a relatively distant destination,
several forms of transport may be required along with several
journeys. It is Important to establish who takes the responsibility
for the goods and journeys involved.
KEY TERMS
Multimodal transport:
involves two or more modes
of transport, but the exporter
deals wit11 a single carrier who
is responsible tor the whole
journey.
lntermodal transport: the
delivery o• cargo using two or
more modes Of transport.
Digital delivery: the electronic
delivery o' information and
content, usually via the Internet.
The term multimodal transport refers to a situation where goods
are transported under a single contract (involving at least l'..vo
different modes of transport). The carrier is responsible for the entire
carriage, even though it is performed by several modes of transport
(such as air, sea and rail}. Different firms may be used to transport the
goods, like a roao haulage firm and a shipping company. However,
there will be a single contract or bill of lading covering the whole
journey.
In contrast, intermodal transport involves using several modes
of transport where each of the stages will involve a contract with a
different carrier. The goods are usually sealed In one container for
the whole journey, which can be lttted easily onto a lorry, ship or
train. The advantage of lntermodal transport is that the freight does
not have to be hanoled when changing modes. This speeds up the
transportation and reduces the likelihood of damage or theft.
M odes of transport and their suitability
for different goods
The table below shows the aovantages and disadvantages of
different modes of transport tor carrying different types of goods.
Type of
transport
Advantages
Air
The fastesl way of moving
The mosl expensive
goods over long distances.
way of carrying goods.
Remote deliveries are
particularly bulky or heavy
possible. A cheap way of
goods. Fuel cor,sumption
carrying small, valuable items. is expensive.
Rail
Not disrupted by traffic
congestion. Services are
usually frequent Relalively
fast over long distances. A
useful way of carrying heavy
goods like iron ore and steel,
as well as bulk liquids.
Tied to fixed rotrtes
and l imetables. Very
expensive to inslall. Slow
when compared with air.
Can only be used over
relatively flal lerrain.
Road
Flexible In 1erms of routes
and times. Door to door.
Easy loading and unloading.
An excellent way of carrying
many types of goods to
retailers and end consumers.
The weather can disrupt
journeys. Expensive for
long dislances. Traffic
jams can cause delays.
Disadvantages
Marine
Enables the transport of
(cruise and r eavy goods across seas
cargo)
and oceans. Very large loads
can be carried (such as a
passenger liner carrying cars,
boxed goods, luel and other
products). Economical over
large distances. A very safe
melhod of lransport.
Relatively slow over long
distances. Unfavourable
weather/slorms can cause
disruption. Cusloms and
excise reslrictions mean
goods might need to be
checked at several ports
before reaching tneir final
deslinaiion.
Pipeline
Expensive to inslall. A
relatively slow method
of 1ransport over long
diSlances.
Digital
delivery
An efficient way of
transporting bulk liquids
or gases (like oil and
natural gas).
Digital delivery is a fast
melhod of transferring
information and content (e.g.
photographs and docvmen1s).
Not appropriate for
1ra0sferrlng physical
goods.
KEY POINTS
• Multlmodal transport Involves a single contract where one
carrier 1$ responsible tor all stages of the journey. In contrast,
lntermodal transport Involves setting up several contracts tor
olfferent carriers along the journey.
• With lntermodal transport, goods are usually sealed in
containers.
• Key considerations In choosing a transport method are the
speed and cost of delivery.
EXAM TIP
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~
.-. .,, --···-..
-- -~
SUMMARY QUESTIONS:_
1. Outline one situation where
an exporter may want 10
use lntermodal transport ,
and another where an
exporter might prefer to use
multimodal transport.
2. Identify two ways of
transporting heavy goods
over long distances.
3. In what ways might
pipelines be-seen as
an expensive mocte of
transport, and In what ways
are they a low-cost mode of
transport?
Transport documents and
the role of transport in
marketing
OBJECTIVES
You should be able to:
• Interpret Information on
transport documents
• explain the role of transport
In marketing.
Transport documents
There are several types of documents that are required to transpcrt
goods. particularly to overseas destinations.
Import licence
Licence to import goods
2019/ 3428
In line with the Import Control Regulations 2006, a licence is
hereby granted to:
Letitia Lotions PLC
Box 204
Port of Spain
To Import into Trinidad and Tobago duri ng the year 2019 the
following goods:
Tariff code: 38
Description ofgoods: Barbados Cherry Infusion
Country ofarigin: Barbodas
Value: $20 000
Goods: 2 000 sachets
Port: Port of 5poin
Signature:
R. Singh
(Authorised Officer)
Date: 1 J.:inu.1ry 2019
KEY TERMS
Import licence: a permit •rom
Ari import licence is a permH from a government body giving
needs to be signed by a carrier
to form a receipt 'or the goods
it \0/ill be carrying.
permission for goods to be imported into a country. It is required
for goods such as certain agricultural products, meoicines and
chemicals. Import licences help to control the import of certain Items
and to protect home industries from foreign Imports. The requirement
to have an import licence can also help protect health and the
environment; for example, ensuring certain animals are only imported
with a special licence ensures the health of local citizens and local
species is protected.
Airway bill: the air-transport
Details on an import licence typically include:
eouivalent of a bill of lading.
•
•
•
•
a government body giving
permission tor goods to be
Imported Into a country.
Bill of lading: a document that
the name of the importer
the country of origin of the goods
the type and number of goods
the Import licence number.
An import or export declaration Is another type of document setting
out the types and quantities of goods being imported and exported.
Bill of lading
EXAM TIP
Bill of lading
Bill of ladi ng number:
Carrier:
Shipper/Consigno r:
Date:
Consignee:
The ketJ i:ispects of i;i biLL
of Li:icl i"'-0 tni:it !jou 11\,/!tcl
to ~"'-OW i:ire:
• it is i;i sig "-tel
clocu"'M.,,,t thi:it
i:ic~""owteclges ti1i:it
goocls 11i:ive bee""
Loi;i cl eel
Item code (HTS):
Det ails:
Quantity:
Weight:
Terms:
Total:
· it serves i:is
i;i
clocu""'-e"-t of titLe to
t11e gooi;;(s.
Prepaid:
Collect:
Carrier:
Shipper:
Pick up date:
Pick up date:
Signature:
Signature:
Received in apparent good order
Received by:
• it wiLL covcti;ii"- cleti:iils
of t~e co.,,tri:ict of
ci:in••i:ige
Signature:
A bill of lading is a document acknowledging the receipt of goods
by a carrier (often a ship's captain). It acts as a receipt from the carrier
to the person consigning (sending) the goods. Representatives from
the carrier, the shipper and the receiver must sign it. The bill of lading
sets out the details of the goods being carried ano acts as proof of
shipment for customs purposes.
Airway bill
An airway bill is the equivalent of a bill of lading and is used for the
transport of goods by air. It is a receipt issued by an international
airline and acts as evidence of the contract of carriage. Similar to a
bill of lading, the airway bill will have a specttic reference number so
that the consignment of goods can be tracked.
The role of transport in marketing
Where products will be sold is a key consideration in marketing, and
this involves thinking about which modes of transport are best suited
to getting the products to their final destinations.
The bene'lts of having a fast and efficient transport system are
illustrated in the following table.
Fast-i raok sourcing of
commodities
Transport makes tt possible for goods
to reach markets quickly. For example,
mass production of agricullural products
becomes possible when they can be
transpor.ed to markets quickly and still
remain fresh.
Ensuring security of supply
A well-organised transport sys1em en51.,res
a reliable and efficient supply of materials
and goods. This helps to ensure a smooth
production process (for example, time
Is no1 losl because a late delivery of raw
materials is holding up production).
Cost reduction
Fast and efficient transport helps to
minimise tne costs of dis1ribution and
these reduced costs can be passed
on to 1he consumer. Because of this,
countries like Jamaica continue 10 build
transport hubs, sucn as container ports,
to drive national competitive advantage.
The importance of transport in domestic, regional
and foreign trade
Domestic trade takes place within a country. Regional trade takes
place between a country and regional partners (such as between
different countries in the Caribbean). Foreign trade involves exchange
beyond this regional grouping, such as between a Caribbean country
and the USA.
KEY POINTS
• Pape1V1ork Is requlreo to
support the transport of
gooos.
• Import licences and a bill of
transport (bill of lading/air.,yay
bill) are required for Import/
export purposes.
• Transport speeds up delivery
and reduces the cost to the
consumer of most gooos.
Within the Caribbean, road transport is key tor domestic trade.
Regional trade is likely to involve transport by sea (goods are rarely
carried by air within the Caribbean unless they are very important
or need to reach remote, inaccessible locations). Foreign trade also
relies heavily on sea transport (particularly for petroleum products).
but air transport plays a vital role here too.
SUMMARY QUESTIONS
1. Sonia Is exporting goods from Port of Spain to New York.
What transport documents will she need to produce to
support the movement of the goods?
2. Why might a country insist that goods arriving at its airports
are supporteo by the relevant documentation?
3. What is the difference between domestic and foreign trade?
Advantages and challenges
of supply chain operations
and the impact on
competitiveness
Advantages of supply chain operations
The table below outlines some of the advantages of effective supply
chain operations.
Advantage of
De tails
effective supply
chain operations
Better quality
of life
People can enjoy more goods from a wider range
of sources, giving more choice and variety, often al
lower prices.
New and
Innovative job
opportunities
Many ne,i,1 jobs are created lhrough Sul)pty chain ,vork,
such as jobs In organising logistics or coordinating
the shipment of goods. There is also scope for
entrepreneurial openings such as setting up small,
specialist road haulage firms. er sellir.g goods
through telemarke:ing and new online channels.
Wealth creation
Effective supply chail1S enable countries to become
wea~hier, wi'lich in turn means that standards of living
can rise. For example, Barbados operates logistics
hubs tntough Its passenger and container ports,
creating lots of jobs and enabling all firms in the counby
to benefrt from the el'eclive transpcrt inks it has with
the rest of the Caribbean and the world at large.
C hallenges of supply chain operations
Some of the challenges associated with supply chain management
are outlined below.
Challenge of supply Details
chain operations
Globalisation
Global suppty chain management is concerned
wtth developing efficient global suppty chains.
However. in many countries (includi,ig some in the
Caribbean) pcor infrastructure and logistics can
weaken tne effeCiiveness of global supply chains.
Counterfeiting
The development of global trade has resulted
in more counterfeiting. This refers to tne false
labelling of products and passing off inferior
products as If '.hey are the "real thing".
OBJECTIVES
You should be able to:
• iO'enlify advantages ano
challenges of supply chain
operations
• explain the impact of log,stics
and supply chain operations
on the compelltlveness of
business.
Challenge of supply Details
chain operations
KEY TERMS
Outsourcing: hiring a business
outside a company to carry out
services or produce goods on
behalf of the company.
Specialist logistics
company: a company with
considerable experience of
managlrig the supply chain.
These companies can be hired
by other companies to manage
their logistics work.
Product ccmplexity
Many modern products are extremely complex,
involving lots of components provided by many
suppliers. This means there is more potential for
"glttohes" along the supply chain.
Rapid product
obsolescence
Some products beoorne dated far more quickly
'.han in the paSl, as they are replaced by new
products and new manufacturing systems
and approaci1es. This means the supply chain
needs to be regularly rethought and redesigned.
Regulatory
complexity
There are many regulations governing the
movement of goods and these vary between
oountries. LogiSlics planners need to be aware
of 1hese regulations, particularly when It comes
to international trade.
Management
blunders
Managers sometimes get the design or handling
of the supply chain wrong. Examples include
not obtaining sufficient information about
oustorner requirements and creating systems
that over-handle freight.
Changing market
co~dltions
The demand for a product frequently rises or
falls. Failure to keep up with these changes
In demand can lead to an insufficient or
excessive supply of the product, which is not
oost-effeotive for the business.
Natural disasters/
polltical ins1ablllty
Natural disasters such as hurricanes and
earthquakes can make tt very difficult lo
manage ,he supply chain in a smooth way. The
more stages in the supply chain, the greater the
scope for ,hese problems. Polttical lnSlability
also affects the supply chain, as a cnange of
government or a weak government oan lead to
industrial unrest and civil disobedience.
The impact of logistics and supply chain operations
on the competitiveness of business
There are many positive impacts ol logistics and supply chain operations
that can give a company an "edge" compared to its competitors.
Efficient logistics can improve competitiveness. Organising the
supply chain and logistics efficiently can speed up the manufacture
and delivery of goods and reduce costs, thus allowing a business to
compete better wtth its rivals. Well-managed logistics may help to
give a business a competitive advantage, where ft is able to produce
and distribute a similar good at a lower cost than rival gooos.
Outsourcing can also make a business more competitlve by
allowing It to concentrate on what tt does best (making or selling
goods). DlstribU11on-related activtties such as transport and storage
are often outsourced.
The business that outsources its activities is the tirst party. Another
three parties can be involved in ou1sourcing. These are:
• the seccnd party: the end user of a good or service (a customer)
• the third party: a business responsible for managing an aspect of !he
supply cnaln (such as a road haulage company}
• the fourth party: a specialist logistics company that takes over
most of the logiSlics management, such as organising paperwork and
customs clearance.
E)
Pw1ea:,ple Ex;:,oners Ltd
(-!a,Talca)
-e
rransport&d by
I
expc,1S pineapples
~
Road Haul9ge Ltd
(-,amaioaj
~,..,,,, : la
I
to
and transpon&d
by
!
!
~
Exo1.c Fn;lt Buyec Ltd
E3
Loglst.cs
~ y l td
~
$11,pplng Company Ltd
(UK)
......
,...,
KEY POINTS
• Ef'ective logistics and supply chains create jobs, provloe
better-quality and more varied gooos, and raise living
standaros.
• There are m,iny challenges In the efficient organisation of the
supply chain, including the complexity of transport and trading
regulations, the unpredictability of the weather and consumer
demand, and the need to update supply chain arrangements
regularly.
• Organising and managing an effective supply chain helps to
give a business a competitive actvantage.
SUMMARY QUESTIONS
1. Identity three major types of employment arising from
logistics and supply chain operations.
2. Explain three challenges that could arise when crganlsing the
supply chain for a Caribbean trutt that ls to be exported.
3. Why might an exporter employ both third and fourth parties
in tts loglstics operations in order to gain a competitive
advantage?
EXAM TIP
/via~ SKYt
1::101<.
ca,,.,
snow now a.,., t fftct•ve
Sl<.j>j>L!::J cl-ta • .,., CYtCite.s
t1%pLo1::1""-el'\t, i"'-CYCA.ses
weattl-t, avcci )>Yovicles
access to ""-DYt VAYieci
Avscl bettey j>YOci1,<cts.
~owevei; Yt""-tl¾bey
ti-tat •t also co,,,,.,es
witn cnaLLe"'-eles
SKCl-t as l¾tll'\,/;lg•"'-0
~ne co""'-pL(J(•t!::J of
ivsttYV\,/;lt•o""aLtYacie
A ""cl l<?.ttp•"'-g "-1' w•th
cna ""0""'-0 COV\.Sl<.""-eY
citl¾Ci~ .
Problems encountered
in distribution and the
impact of ICT
OBJECTIVES
You should be able to:
• Identify the problems
flkely to be encountered In
distribution
• outline measl 1res to mitigate
problems in distribution
• outline the Impact o'
Information technology on
logistics and supply chain
operations.
Sat navs 8'Mpli'y transport 1ourneys and routes, help ng drivers to get produc:s
to custofTlers qu c!<!y and 1n a good condl: en
Problems encountered in distribution
There are a number of problems that may be encountered when
distribuling goods.
Relationship between the availability of airport, harbour and
docking facilities and the efficient distribution of goods
If a country has large international airports. ports with deep-water
docking facilities, large warehousing facilities and high-quality
logistics providers then goods can be distributed quickly and
efficiently. However, countries not blessed with these advantages
will find that logistics are tar more complicated and the costs of
distribution are much higher.
Problems encountered Causes and results of these p roblems
In distribution
Delayed shipment
Caused by poor weati1er condttions,
breakdowns, missing paperwork, etc.
Resutts in late delivery to customers.
Problems encountered Causes and results of these problems
In distribution
Spoilage
Caused by insufficient packaging, bad road
condttions. etc. Resutts in the goods being
damaged.
Misdirection of goods
Caused by poor labelling or inadequate
paperwork. Results in the goods being sent
to the wrong localion.
Inadequate
warehousing facilities
Caused by a lack of space and equipment,
poor temperature conlrol, etc. Results in the
goods being damaged.
Lack cf proper securtty
measures
Caused by a lack of security personnel
or cameras. facilities that are not looked
overnight, etc. Resutts in goods being
damaged or stolen.
lndus'.rial unrest
Caused by angry workers going on strike.
Results In the movement of goods being
blocked.
Ineffective
communication
Caused by lost or inaccurate paper.'lork,
unclear messages, etc. Results in the supply
chain running less smoothly.
Measures to mitigate problems in distribution
Some of the approaches and solulions lhat can be taken to help
solve dislrlbution problems are given below.
Solution
Details
Government
inteNention
Tl1e government of a coumry can Invest In
roads, ports, airports and other elements
of the transport network, as well as in the
infrastructure for ICT communications
Communication
networks including
use of the Internet
Logistics providers and supply chain
companies can invest in more complex ICT
systems that help to improve communication
Insurance
Taking out Insurance helps to provide cover
against spoilage and delays in the supply
chain
Selecting the most
Companies should choose the best channel
appropriate channel of for dislnbuting a particular product (for
distribution
example, a company might decide to cut out
the wholesaler and sell directly to customers
to improve efficiency and costs)
Use nandling services If a business uses !he services of a distribution
wtth a good reputation company that has a good reputalion,
tne goods are more likely to get to their
destination on time and undamaged
EXAM TIP
Make suye l:'.JO'<
ca...., icie1M:i'/J:j tne
)>Yoblev,,,.s e"'c.ou.,..,tereci
i.,,_ ciistYib'<tiovc
11 "'-ci tl1e specific
soL'<tioV\.S. for eac.11
)>Yoblev,,,. . Foy ,_av,,,.pte,
c.ov,,,.v,,,."""'ci:itio...., issuts
ca"" be '""'-)>Yoveci bl:'.J
bette~ tA.Se of tCT foy
omen"'-0 i;i....,c( cieLiveYl:'.J,
i:i """' tl1e l¾iscietiveYl:'.J of
goocis ca...., be cov,,,.batteci
bl:1 acicirtssi"'-9 cieLiveYies
l¾OYt
a~CtA.YateLl:'.J
us,"'-0 effi.cie.,..,t
ciel,veyl:'.J co""'-pt1veies tnat
""'-i:tke tA.Se of si:itellite
vci:ivigatio"" &I"'-"' otl.1 er
tecl1vcologies.
i:i ""~
Solution
Details
Careful labelling and
documentalion
This 1-«!lps to prevent goods from being
misdirected or held up in the distribution
process
Avoiding holding large Manufaeluring and distribuling only the parts
slacks
and goods 1hat are needed avoids damage
and unnecessary storage costs
Increasing security
Employing a security company and using
security cameras can help to reduce
vandalism and theft
The impact of information technology on logistics
and supply chain operations
The table below outlines some of the ways that Information
technology contributes to logistics and supply chain operations.
Impact of information
technology
Details
Global Posrtioning
System (GPS)
An accurate way of finding direc1ions,
enabling drivers to plan quicker (and thus
cheaper) transport routes. GPS allows people
iO pinpoint their exact position using satelll1es
that orbtt the earth.
This is software that can be used for the
geographical planning o• logistics. It helps
with 1he rot.rting of vehlcles and managemen1
of logistics over a relatively large gecgrapnical
area. GIS simplmes directions and maps to
make vehicle tracking and planning routes
much simpler. It can identify the shortes1 and
least conges1ed routes for carrying particular
consignments of goods.
Portnet is an ICT system that supports 1he
shipping oommunily by handllng tne booking,
scheduling, tracking and documenta1ion of
freight that is carried by international shippers.
The development of electronic
communications has led to new supply chain
patterns, with goods being sold over 1he
telephone (telemarketing), through 1elevision
shopping channels and via online websites.
These sales are then distributed by logistics
and transport providers who deliver the
goods to customers' doors.
Global logis1ics providers are companies tha1
act as lhird parties, nandling logistics on the
behatt of those wanting to send or receive
goods internationally. Examples include
FedEx, OHL and Amazon Logistics, all of
which use ICT a11he heart of their sys1ems.
Geographic
Information
System (GIS}
Portnet
Telemarketing and
e-commerce
Global logistics
providers
Impact of Information
technology
Details
Logistics hubs
A lcgistics hub is an area around a port of
entry 1hat focuses specifically on logistics
opera11o~s, such as handling containers,
storing large quaniities of goods in
warehouses, organising documentation and
so on. Countries seek to set up these nubs
because they create many jobs. For example,
Jamaica ls currently seeking to become an
important logistics hub In the Caribbean. An
effective logistics hub will require tne use of
sophisticated ICT.
KEY POINTS
• Modern port and airport 'acilltles provide businesses and
countries with considerable cost and time advantages in
distributing goods.
• Problems associated with distribution incluoe poor
warehousing, weak communications and ineffective transport
systems.
• ICT can be used to enhance logistics, for example through the
use of GPS and Portnet to Improve the transport of goods.
SUMMARY QUESTIONS
1. ldentl"y three problems associated with distribution and
suggest one approach to dealing with each problem.
2. Explain how the development of a logistics hub might:
a. benefit importers In a country
b. help a country to become wealthier.
3. Describe two Innovations In Information technology that
benefit the logistics process.
Financial institutions
OBJECTIVES
You should be able to:
• identify various financial
Institutions.
KEY TERMS
National debt: the total
amount owed by the
government as a result of its
borrowing over time.
Monetary policy: the
deliberate alteration by the
government of the quantity of
money in the economy, and the
price (Interest rate) of borrov,ing
or 1endlr19 money.
M utual organisation: a private
organisation owned by Hs
policyholders, depositors and
other customers. The profits
are distributed as dividends
according to the amount of
business that each customer
has oone wnh the mutual
organisation.
The BanKof Jama·ca is me central bq.nk In Jamaica, w th overal responslb 11:y
for regula:ng the Jamaican monetary and fnancial sys:em
A financial institution carries out business dealings that involve
financial and monetary transactions, such as taking deposits, lending
money, managing Investments. providing insurance and many other
activities. These institutions can be owned privately or owned by the
government. Some of the different types are outlined below.
Central banks
The central bank is established by the government ano its main role
is to help the government run of the financial system In a country.
II is a nationalised organisation owned by the government. Other
responsibilities include:
•
•
•
•
•
•
managing government borrowing
managing the national debt, Including making repayments
setting interest rates
issuing notes and coins
supervising and limi1ing tne lending of otner banks
advising the government on monetary policy.
Commercial banks
A commercial bank Is a privately owned bank that provides seNices to
businesses and individuals. These seNices include accepting deposits
of funds (for safekeeping), making a range of short- and long-term
loans (on which the bank charges Interest) and managing customer
accounts (so they can make withdrawals and payments). The range
of commercial bank services is described in more detail on page 125.
Commercial banks typically make a profit by charging a higher interest
rate on their loans than the interest they pay to depositors.
Non-bank f inancial institutions
Credit unions
A credit union is a type of co-operative run by Its members for
the benefit of its members. Credit unions offer savings accounts,
current accounts and loans to their members. There are many credtt
unions in the Caribbean and they are often created for a particular
occupational group, such as teachers or police officers. Credit unions
are not-for-pro'it organisations.
Insurance companies
An insurance company accepts risk on behalf of people that
pay premiums into a central pool. The company will then pay
compensation in the event of a loss by a policy holder. The insurance
company calculates the likelihood of losses occurring (such as fire
loss and accident loss) in order to charge premiums that enable it to
cover possible losses while making a profit at the same time.
Building societies
Building societies are financial Institutions set up as mutual
orga nisations and owned by their members. They originally lent
capital for the building of houses and the purchase of property.
Today building societies have taken on additional functions more
closely associated with commercial banks. such as providing foreign
currency and offering bank cards.
EXAM TIP
R.t»<.e»<.bey ti1a t a
Cot.<V\A:11::f'S ce"-tYa Lba.,,,k:
.
1 · »ct~
Cl "',::l ptiV\A:s ti1e
V\,Clttev.'s Ct.<YYeV.CtJ
~. 11elps tne gove=~ v.t
rt1ise snoyt-teY»<. avi,cl
~"-g -t~Y»c f,.M"'Ci"-g
'"" CO"::j t.<Ctio"' with
tne tyeas..11:J
3 ·
Yeg ..tates the
activities of otheY
ba "-ks i...., tne
COt.<"-tY!::J.
EXAM TIP
Make Su ye t)Dt.< CCI"'
iclevi,tifu &1t Le&1 st HiYee
fuvi,ctiovi,s of e&1ch of
t11 e ketJ f,.Mvi,ci.&1 t
L"'-Sti.tt.< tio=.
Micro-lending agencies
These are institutions that offer credit on a very small scale to
lnoividuals and small enterprises, particularly to people who find it
difficult to borrow from larger institutions. The rate of interest may be
higher than at a commercial bank. but the sums are much smaller.
Micro-lending is very important In supporting small, rural enterprises.
Government agencies
Government development banks provide low-interest loans and
grants, usually to entrepreneurs. An example is the Agricullural
Development Bank in Trinidad and Tobago. which provides low-Interest
loans and grants to farmers and the fishing Industry. Government
agencies also play a role In provioing insurance to exporters.
KEY POINTS
• Financial institutions exist primarily to manage financial ano
monetary transactions.
• The central bank is the government's bank. There are also
other government agencies ihat provide financial services,
such as development banks.
• Private financial Institutions include commercial banks, credit
unions, insurance companies, builcing societies and microlenolng agencies.
SUMMARY QUESTIONS
1. Identify three key tu11cllons
of each of the following.
a. Commercial banks
b. Credit unions
c. Micro-lending agencies
2. How Is the work of an
Insurance company
Olfferent from that o' a
building society?
3. Moses is a teacher who
wants to save money to
buy a house. What three
financial institutions might
provide savings accounts
that he can deposit his
money with? \II/hat factors
might influence his choice
of instttution to save with?
The functions and
services offered by
financial institutions
OBJECTIVES
You should be able to:
• describe the functions and
seNices offered by financial
lnstilutlons.
An ATM Is fo\lnd en a bank wall or n a o,,ssy .ccation (svch as a mall), and enables
C\1$:omers to check the r acoount de:a s ano wrthdraw money
Functions offered by financial institutions
Financial institutions provide a wide range of functions for individuals,
businesses and governments. The main ones are shown below.
Provioing
loans
and credit
Helping
customers to
make
investments
Key functions of
financial institutions
Making
payments
on behalf of
customers
Looking after
customers'
deposits and
savings
Financial
functions
Details
Loans/credtt
faciltties
Businesses and individuals frequently need 10
borrow money or purchase goods and seNices on
credtt, for example wnen expanding 1he business
or purchasing new, expensive machinery. They cari
apply for a short-term or long-1erm loan from a
bank, credit union or olher form of lending agency.
Savings and
depostts
Individuals and firms need somewhere to keep
1heir money safe so 1hey can save money for
future spending. Oper,ing a savings or deposit
account will provide a saver wi1h a reward in the
form of regular interest.
Making payments Banks and credit unions provide a range of ways
10 make paymen1s, including by cheque. electronic
payment and bank card.
Investments
Financial advisers provide advice and support
for investment activities, such as purchasing
stocks and shares in companies and investing in
government bonds.
Services offered by financial institutions
Financial institutions also provide a wide range of seNices tor
inoivlduals, businesses and governments. as shown in the table
below.
Financial
services
Details
Night safe
deposits
A night safe is a storage box on !he outside of a
bank. It is used by traders to store cash takings
and other valuables overnight.
Online banking
Online banking allows customers to manage 1heir
bank accounts using the lnterne1. Money can be
depostted and transferred frcm one accoun11o
another online. Customers can also check 1heir
balanoe and view a bank s1atement.
Advisory services Rnancial lns!itutions provide advice 10 customers
about Investment decisions and offer r elp when
choosing a private pension schem e.
Credit and debit
cards
Trustee work
A credit card Is a small plastic card issued by a
bank or other financial institution, which allows the
purchaser to buy goods and pay for them later. A
debit card is similar but when tt is used the goods
are paid for Immediately from funds in 1he card
user's bank account.
A bank can aCl as a truSI for someone else (such
as a deceased person or a charity), managing
inveS1ments and making outstanding payments.
This also scmelimes includes managing real es1a1e.
KEY TERMS
Private pension scheme:
a non-government pension
scheme where an Individual
deposits regular sums Into a
pension fund, entitling them to
receive a payment on retirernent
or at a set age.
PayPal: an American company
which runs a vvorlowlde
payment system that supports
onllne money transfers. PayPal
acts as a payment processor
for online sellers (a-traders).
Financial
EXAM TIP
C"'-S«Ye tnQt i:JO« R-"'-OW
Q""ol cQ..,, expLQ'"" the
d[ffeye"'-ce betwee"" tne
f<.<"'-ctio"'-S of fi,JMI "'-CtQL
t"'-Stit«tio"'-S ti"-°' t'1e
s ervic~ of co11,o,cerciciL
bQ"'-k,s.
SUMMARY QUESTIONS
1. Identify ano explain three
functions that are common
to a credit union and a
commercial bank.
2. Ramesh runs a small
grocery store that is open
until late in the evening, and
also sens some popular
householo items through
an online website. Identify
and explain four services
provided by a commercial
bank that will be particularly
helpful for his business.
3. Distinguish betv1een a
settlement service and a
remittance service offered
by a financial instltution.
Details
services
Depostt boxes
A deposit box is a locked container located In a
bar,k's vautts, and is used for S!oring a customer's
valuables (such as jewellery and gold}.
ATM/ABM
An ATM or ABM is a machine often placed on
tr e o.t.side wall of a bank, which dispenses casn
when a person places his or her card Into a slot In
the machine.
services
E-trade
E-trade refers 10 buying and selling onhne.
Financial institutions manage the payments
associated wtth such trading, For example,
millions of people use an online payment service
called PayPal to make onllne payments.
Settlement
services
Settlement services are ones that enable
payments to be made betvveen one cuS!omer
(which may be an individual or a business) and
another.
Remittance
services
The term "remittance" commonly refers to a sum
of money sent by someone working abroad back
to their own country, to their own or another
named account.
Opening a bank account
Today it Is very easy to open a bank account with a commercial
bank, credit union or other banking Institution. A customer needs
to prove their Identity with, for example, a passport and provide
evidence of their address. Sometimes they must also provide proof
of employment. They will need to make an initial deposit of a sum
of money stipulateo by the financial Institution. Opening a current
account enables a customer to make payments to others by cheque,
debit card or bank transfer. Opening a savings account enables a
customer to save for the future, with Interest added to the money
they deposit.
KEY POINTS
• The main functions of financial instttuhons are to hold
customer deposits, manage savings, make payments for
customers, lend customers money and help customers with
their investments.
• There are rriany services ottered by financial institutions, such
as provloing the means of making a payment, providing safe
ways of depositing money and provlding Investment adVlce.
• Some financial services are concerned with making payments.
Some are concerned wlih depositing money {in a savings
account), while others are more specialist, such as carrying
out trustee work or providing advice on investments.
Financial regulatory bodies,
and the relationship
between regulatory bodies
and financial institutions
OBJECTIVES
You should be able to:
• describe the role and
'unctions of financial
regulatory bodies
• describe the relationship
between financial institutions
and regulatory bodies.
•
The central bank regulates the supply o' rotes and ooins 1n an eoonorny in orde:
to support staole eoonom o develoo110nt
The role and functions of financia l regu latory bodies
Financial regulations are rules that govern the running and
organisation of the financial services sector of the economy. The
regulators are the people and organisations that create the rules.
Financial regulatory bodies are government organisations, some 01
which are outlined below.
Financial
regulatory body
Details
The cen1ral bank - The cen1ral bank oversees the priming of no1es
the key manager o1 and oolns. with the aim o1 ensuring 1hat there is
the financial sySlem eno~gh money 10 enable business 1ransactions
but not enough 10 cause ln11ation (a general
Increase in the level of prices). The central bank
also licenses 01her banks. To obtain and keep a
licence, banks must act within the guidelines se1
out by the central bank.
KEY TERMS
Regulatory body: an
organisation that creates
rules and makes sure that the
industry It regulates keeps to
these policies and rules.
Financial
regulatory body
Details
A depostt insurance
body - for example
the Jamaica
Deposit Insurance
Corporation (JDIC)
The JDIC is an insurance scheme where the
government guarantees the money held in
banks. Funds deposited by businesses and
individuals Jnto Jamaican banks are 1herefore
safe (in Jamaica, funds of up to J$600 000 are
guaranteed).
A financial services
commission (FSC)
- for example the
Financial Services
Commission oi
Jamaica
The FSC supervises and regt1lates 1he finaPcial
sector (including insurance companies, pension
funds and securities) to make sure the public's
money is looked after in a safe way.
The role of regulatory bodies
The central bank and the FSC monitor and control the activities of
banks, credit unions, pension funds, insurance companies and other
financial institutions. They check that these companies have sufficient
funds to meet the reouirements of their customers, and that they
offer their customers sound prooucts. The central bank and FSC
set out rules about how much these companies can lend. They also
guide financial Institutions, for example by providing literature about
sound financial practice.
Functions of regulatory bodies
Regulatory bodies carry out the following functions:
•
•
•
•
•
•
•
•
KEY TERMS
Liquid assets: assets (what a
business owns or is owed) tha1
can quickly be converted into
cash.
Liquidity assets ratio:
the quantitative relationship
between liquid assets anc all
assets in a financial Institution.
regulating tne issue, supply and availability of mor ey
enforcing financial regula1ions from the government
registering financial Institutions
enforcing licences 'or various financial activities, such as lending and
depositing money
advising the government on mone1ary and fiscal matters
providing statistical data to 1he government and 1he public
promoting stability, public awareness and public confidence in 11-.e
financial institU1ions
supervising 1ne opera1ions of all financial insthvtions, especially
commercial banks.
The relationship between financial institutions
and regulatory bodies
The main ways in which regulatory bodies interact with financial
Institutions are explained below.
The central bank
For a central bank to have control ever the banking system and
the supply of money In a country, It needs to be able to control
bank lending. Commercial banks must always keep cash and ether
liquid assets In order to be able to meet day-to-day withdrawals
by customers. From experience, banks know what percentage of all
of their assets should be in cash and what percentage should be In
other liquid assets.
The central bank can Influence bank lending by varying the liquid
assets ratio. For example, say that commercial banks keep 25 per
cent of their assets in liquid forms. If the central bank then insists that
commercial banks increase this ratio to 30 per cent. the banks will be
forced to reduce longer-term tending and replace this with shorterterm loans.
Another way the central bank can regulate commercial banks is
by varying the bank rate. This is the rate of Interest at which the
central bank will lend to other banks. The other banks will set their
own interest rates just above the bank rate. The central bank can
therefore Influence the amount of bank lending in the economy by
adjusting the bank rate (raising it If It wants to reduce bank lending
and lowering it ii it wants to increase bank lending).
A third way the central bank can regulate commercial banks is by
changing the minimum reserve requirements. Commercial banks
are required to depostt a set amount of funds in the central bank
(called the minimum reserve requirement). When the central bank
wishes to reduce bank lenoing, it will increase the minimum reserve
requirement of the banks.
EXAM TIP
you s"1oul,;( be tible to
e.xp Lili,.,._ t "1 t1 t fi. "'-ti "'-Ci ti L
Ye9ult1tio"'-S &1Ye
Yules ,govey""i"'"' t"1e
~
~u "'-"."L~ of fi,"'-tl "'-Cit! L
L"'-Stitut,o""s, ciVl.d t"1&1 t
ketJ YegultitoY!j bot<,es
llYe t "1e ce""tY&1L bci..,,k
ti"'-,;(
t "1e fi."'-Cl"'-Cttll
seyv,ces C01M.1M.issi.ov,,.
The central bank also controls bank lending through open market
operations. It regularly issues treasury bills (short-term government
securities), which are bought by the financial sector. Increasing the
value of the treasury bills Issued means commercial banks have
fewer liouid assets so they have to reduce lending to the nongovernment sector. The central bank can also use moral suasion to
reduce bank tending, with the chairman of the central bank talking
to the leaders of commercial banks and persuading them to reduce
their lending.
The financial services commission
The financial services commission (FSC} of a country regulates the
providers of financial services that are not monttored and controlled
by the central bank. The purpose of thls regulation is to safeguard
the public against illegal or unauthorised financial services operating
In a country. The FSC will license businesses such as insurance
companies, pension funds and credit unions.
The supervisor of insurance
The supervisor of insurance Is responsible for the overall regulation of
the insurance industry w'rthln a country, in conjunction with the FSC.
KEY POINTS
• Flnancial regulatory bodies are government organisations
that establish rules and supervise the way In 'Nhich financial
institutions are run.
• The central bank has overall responsibility for supervising the
lending activities of commercial banks and other financial
institutions.
• The central bank regulates the lending actlvitles of the banking
sector, as well as Influencing this through the bank rate.
1. The central bank believes
there is too much lending
laking place in the
economy. Identify three
actions It could take to
reduce lending by the
commercial banks.
2. Why is tt Important to
license financial Institutions?
3. Why oo comme1cial banks
need to have liquid assets?
What determines the
proportion of liquid assets
compared with non-liquid
assets held by a bank?
Managing personal
income, and the
differences between
savings and investments
OBJECTIVES
You should be able to:
• outline ways used by
individuals to manage
personal Income
• differentiate between savings
and Investments.
Ways to manage personal income
A person ·s income is the money he or she receives (often on a
regular basis} as a result of employment, Investment and other
inflows. A person can manage their income ln the following ways.
Budgets
A budget is a plan for the future which is set out in numbers. It shows
anticipated income and outflows of money. A simple example is
Illustrated below, showing Carnell's personal budget from January to
June 2020. He plans to take a holiday In April. but intends to build up
his accumulated savings so that he has over S4 000 to put towards
buying a car In July.
Jan
Inflows of money ---►
Other inoome
M ay
June
1 000
500
1 200 1 000
500
400
BOO
500
1 200
400
1 000
400
Expenses ($)
100
300
200
100
350
200
100
350
100
100
500
500
100
350
200
100
350
250
Savings account
deposits
900
1 050
850
200
950
700
Accvmulated
savings
900
1 950 2800 3000
3950
4 650
Cellphone
Food and drink
Enlertalnmen'.
Income minus expenses -+
Apr
Income($)
VVages
Outflows of money - --
M ar
Feb
Savings($)
Advantages of budgeting include making sure inflows are greater than
outflows and being able to plan ahead, for example by budgeting in a
way that allows for savings to be accumulated for a holiday.
Savings
Savings are the part of an income that Is not spent. They can be kept
as cash or deposited in a bank account. People builo up savings
either to make a future purchase (sucl1 as a new washing machine)
or to provide a store of funds that will protect against a future loss
(such as having to pay for car repairs}. Saving in a bank Is a good
way of keeping money safe, and this also helps a person's money to
grow through interest rewards.
Investment
VVhereas saving can be seen as a form of inactivity (refraining from
spending), Investment is a more active use of money. The purpose of
investment is usually to make a gain from the rise In value of an asset
over the long term (for example, people might invest in gold ingots as
they believe their value will Increase over time). Investment can also
provide flows of Income such as dividends from shares. Examples of
investments are g~1en on page 132.
Financial advising
Most large banks will provide financial advice to customers about
how to manage their money, including information on savings and
Investment. Today there is care'ul regulation covering the sort of
advice that can be provided and the customer is expecteo to make
the final choice. In the past some financial products were mis-sold, for
example investment schemes where the financial adViser stood to gain
a commission from recommending particular investment products.
Differentiating between savings and investments
EXAM TIP
Forms of savings
Some of the popular forms of saving In the Caribbean are outlined
below.
Forms of saving
Details
Sou-sou (also
oalled meeting
turn. partner and
box hand)
This Is a traditlonal form of saving In the
Caribbean. A group of people build up a shared
pool of savings, deciding how much will be paid
in and when. Each week, one member will receive
a "hand' (all of the money). Members may opt to
receive a hand at a particular time or may appoint
a treasurer who decides when members receive
their hands. Sou-sou works on the basis of group
pressure and is a good way of saving for tnose
who do not have or want a bank account.
Deposits
In financial
lnstitulions
Savers can deposit their money In a financial
institution. They could use a deposit account,
which pays little or no interest bvt Is easy to
wrthdraw and make payments from. Or they could
use a savings account, which will earn more
interest but may be 1'8rder to withdraw money
from. Some savings accounts also expect the
customer to deposit a set sum into the account on
a regular basis.
Short-term fixed
depostts
A fixed depostt account is one where regular sums
need to be paid into the account. Only after a set
period has elapsed can the depostt be withdrawn
along wtth the accumulated interest. Should the
depositor want to withdraw earlier than the fixed
date, he or she will lose a large chunk of the
interest accrued.
Rel¾tl¾ber H1&1"' """
iVI..CliviclKcil C&!VI. L(Se
~1A.rpl1A.s f1A."'-cls Clctivet/:J to
"""vest or p&1ssivel1:J to st:lve.
KEY TERMS
Deferred Income: Income that
cannot be used until a 'uture
date.
Capital gain: an Increase In
the value of an asset. which
Is realised when the asset is
sold for more than its purchase
price.
EXAM TIP
~a~ sw.,·e ~ow. ca II\,
olishv..gw.i.sn betvvee""
s avi.""g, wl1i.cn i.s
wi.t1111ololiv..g f,-ol¾
~l'e""oli.~ •~01-1,t.t, a ""ol
'""vesti,.,,g, w11icl1 i.s
seek.i.vsg to v>ca)u a Yttw.,-,.,.
a"'~ a capital gai.11\, b~
~ctivel~ pw.rcliasiv..g
~""vestv>cell\.tS, for l!X"11¾ple
•"" sflayes, bovci;(s llll\.ol
, bills.
Forms of investments
Investment is a type of deferred income in that Investing (and
not spending) now will lead to financial rewards in the future.
However, Investing is a risk-associated activity because sometimes
investments lose money rather than making a financial gain, for
example when the share price o' a company falls.
There are three main ways of investing.
Form of Investing
Details
S1ock marke'. shares Shares In companies are traded on the stock
exchange. When a company performs well then
its share price will go up. Someone holding
shares that go up in price can cash them in and
make a capital gain . Shareholders also benefit
from a dividend (share of profrts) :hat is typically
paid out at six-monlh intervals.
Governmenl
securities Qncluding
bonds and
debenlures)
A gove<nment security is a piece of paper
showing that an investor has lent the
government money. The government will repay
the loan at a luture da'.e, and in the mean!ime it
pays the investor a rate of interest. Government
bonds are a form of long-te<m borrowing by the
government. Investors can buy bonds for less
than their face value. When the government
redeems (pays) the bond, the investor will
receive the face value. A debenture is a form of
loan to a business which is repayable at a fixed
dale and pays a fixed rale of interest.
Gove<nments can also borrow on a short-term
basis. They usually do this by Issuing treasury
bills for sale on the open market. A ireasury bill
has a fixed date for repayment (e.g. in ,hree
months' time) and the redemption value is
specified (e.g. $10,000). A financial ins:itl/iio'l
makes an offer to buy a l reasury bill for less
than the redemption value (e.g. $9,500). In this
way, purchasers earn Interest, buying at the
discount rate and waiting until lhe redemption
dale to claim the redemption value.
Mutual funds
A mutual fund is a professional ir1vestment
company lhat pools money from investors and
:hen invests the money In a range of shares.
The mutual fund will usually specialise in
particular types of shares, for example shares in
Caribbean companies.
..a."\l.o
s
---
·---
-
- ~ IM:Otponned
____ .
---·
----·
----·
--,_...
-,...,..........._
-- GL~m.:ti~~]fflgK_
<:=~
. .,,...,__.,._
:::::IJ..
....
--
A share c,;-t,f,cate. Buyng sha·es n a ooropany is one form of Investment. The returns
reoe11ed by the nvestor depend on how we the company does
Ri sk to the investor
Investors have to decide how big a risk they are prepared to
take. They must weigh up risk versus return. Some investors are
risk averse and only willing to take a small, calculated risk. Other
Investors are willing to take bigger risks, hoping to make high returns.
For example, Lavinia is risk averse and looks to buy government
bonds and shares in well established "sate" businesses, hoping to
make a return of 4-5 per cent per year. In contrast, l ulu Is far more
brash and confident and wants to buy shares In new start-ups,
hoping to make 20 per cent returns. However, the companies that
l ulu invests in are far more likely to fail.
KEY POINTS
• People save In order to be able to make future purchases.
to keep their money sate ano to have a safely net to protect
against unforeseen future spending. People invest In order to
make a capital gain and to receive fresh income In the form of
interest and divioends.
• Saving schemes Include ,nlormal sou-sou networks as well as
bank savings accounts.
• There are a range of investment opportunities Including
shares, debentures and bonds.
SUMMARY
QUESTIONS
.
.
1. How does a personal budget enable an individual to manage
his or her spending?
2. Why rriight an Individual change his or her saVlngs Into
investments?
3. What is the difference between a capital gain and Interest?
Short-term and long-term
financing, and personal
sources of capital
OBJECTIVES
You should be able to:
• explain the, concepts of
short-term and long-term
financing
• identify personal sources
o' capital for setting up a
business.
Businesses need finance in order to purchase stock and equipment,
ano to pay day-to-day operational costs such as wages, raw
materials, supplies and energy. A distinction is made between
short-term (less than one year) and tonger-term {over one year)
i inanclng.
Types of short-term f inancing
Type of short-t erm
financing
Details
Trade credtt
Most businesses buy at least some of their
ma1erials and stock on credit ,erms from other
traders. This gives them a sel period of time
before they need to pay for the goods.
Commercial bank
loans
Loans can be secured for short-term purposes.
Typically the loan will be repaid (with Interest)
over an agreed period of time at regular intervals
{such as monthly).
Promissory notes
A promissory note is a signed document that
contains a written promise to pay a stated
sum at a specific date to a certain person. A
business may use this as an alternative means
of borrowing money from someone other than a
bank.
Instalment credit
Instalment credit is credit granted on the
understanding tnat it will be repaid al regular
Intervals. An example is hire purchase, where the
hirer of an Item pays a deposit and then pays
regular instalments.
Indigenous credtt
or private money
lenders
These systems of financing are used when
borrowers do not have access to sources of
funds from commercial bar,ks. An example is
sou-sou.
Advances from
customers
A business might ask a customer to pay for
some or all o' a job up front in order 10 help with
tts cash flows. For example, a furniture maker
might ask for up-front payment so rt is able to
purchase the materials needed to make the
furniture.
Type of short-term
Details
financing
Fac1oring
When a business supplies goods on credtt, it will
hold a number of Invoices that are waiting for
payment Should the business need cash before
tne settlement date on an invoice, tt can sell the
right to collect the debt to a factoring company
(for less 1l1an the face value of the Invoice).
Venture capitalists
These are rich individuals seeking to invest in
new business enterprises. They provide an
injection of cash in return for a share in the
business.
Crowd fvnding
A business can secure funds from lots of
Investors (a crowd) by seeking financial inputs
from them, for example by publicising the
business on a websne.
Angel investors
These are rich individuals willing 10 supply
funding 1o growing enterprises. They typically
provide fewer funds than venture capitalists and
play less of a role in 1he company.
Overdraft
Finance provided by a bank up to an agreed
limit allowing a bank cvstomer to withdraw funds
over and above the amount they hold In an
aocount.
Credit card
A credit card enables a user to make payments
financed by a credit card company up to an
agreed limit.
crow
p
Cro>Nd fund ng ,s a tyoe of f nancing :hat ,s usua ly carried out on ne
Types of long-term financing
KEY TERMS
Development bank: a financial
institution that provides loans
and grants to businesses
to help •..vlth the process of
economic growth.
EXAM TIP
Y0 -< sno-tlci be C1ble to
ciisti"'-0-<isn betweev.
t ne v.eeci foy s11on:-t eY""'f-<v.ci,"'0 Civcci lo"'-0-teel¾
f-<""ci'"'-0· F-oY eKC!l¾ple,
~I-ion: t~YI¾ f-<vcdiv.9
ts Yeq-t,veci to stCln:
Cl b-<Siv.ess, to cieal
wttl1 CC!sl1-~ow iss-tes
(tel¾poYCIYtJ skon:C1ges
of CC!sl1) av,,d to PCltJ
D-<ts.tavcdi"'-0 bills,
wl1eveC1s Lo"'-0-teYI¾
f-<v.ds Cl ve veq-tiYeci to
cieveLop Cl v.ci 0YOW Cl
"'r
bKS i v.ess i v. t 11e Lol¼'\eY
ttYIM..
~
Type of long-term
financing
Details
Loans from
government
agencies
Development banks in various Caribbean
countries provide loans for new and growing
businesses tt they can prove they have a clear
business plan and are likely to succeed.
Mortgages
A loan to purchase property and/or land. The
loan is typically made over a long period of time
(for example 20 or 25 years), and is provided by
a building society or bank.
Debentures
A piece of paper acknowledging a debt. The
borrower must repay ,he debt plus Interest by a
certain date.
Shares
Documents setting out part-ownership of a
business. The shareholder provides funds to the
business in return for regular dividends (a share
of the profits).
Insurance
Insurance companies provide cover to
businesses against possible losses.
Investment and untt
trus1s
lnvestmen1 companies pool ,he investmem
funds of lots of investors, which they then lend
to businesses. A unil trust Invests in companies
and sells units representing these investments
to investors. Specialist managers manage these
investments.
Long-term loans
In addition to government loans, individuals and
businesses can take out loans for more than one
year with a commercial bank. The loan may be
required to be secured by collateral (a secured
loan) or without security (an unsecured loan),
A customer may have to pay more interest on
an unsecured loan than they have to pay on a
secured loan.
Personal sources of capital for setting up
a business
To set up a business, entrepreneurs can use one or more of the
tollo\vlng sources of capital.
• Friends and family: This provides funding from parents, siblings and
the wider family,
• Pe<'sonal savings: This is easier than pitching for loans and investment,
bl.11 depends on the entrepreneur having built up a pool of savings.
• Governmen1 grants: Governments provide grants to support
en1erprises (for example to support new businesses in ,he ICT sector
or rural emerprises). These grants are no1 expected to be repaid.
• Loans: This involves securing a loan for a fixed sum from a financial
institu1ion, to be repaid over time with Interest.
• Equity: This involves raising funds by Issuing shares in tne company.
Shares are issued in set denominations, such as a S10 share in
CompanyX.
• Venture capital: This involves selling a stake in an enterprise to a venture
capttalis1 in return for them ownir,:J a percentage of the business.
• Crowd funding: This involves securing funds from a range of investors
by publicising the business on the Internet.
KEY POINTS
• Businesses need both short-term and longer-term funds.
• Examples of short-term funding lncluoe short-term toans,
trade creoit, aovances from customers, funding from venture
capttalists and funding from angel investors.
• Examples of long-term funding Include government grants
and private-sector loans, mortgages, debentures ano shares.
SUMMARY QUESTIONS
1. Yin Qiang ls on the point of launching a new plumbing
business but urgently needs extra cash to purchase stock.
Identify and explain three sources of short-term funds that he
could secure.
2 . Yin Qiang ls also seeking to buy premises to store supplies
and equipment. Identify and explain two sources of longterm funding that he could secure.
3. Explain three sources of funds that Yin Qiang could have
drawn on to set up his business In the first instance.
The purposes of basic
financial records for
sole traders
OBJECTIVES
You should be able to:
• Identify the purposes of basic
financl,il recoros for sole
traders.
Types of bookkeeping systems
A bookkeeper Is someone who records the day-to-day financial
transactions of a business using bookkeeping systems. Some of
these systems are outlined below.
Single and double entry
The most common bookkeeping records are for the day-to-day
purchases ano sales made by a company. Details of these are kept
In a purchase ledger and a sales ledger. (A ledger is an accounting
book, although of course today most financial records are recorded
electronically using bookkeeping software.)
A third ledger (the general ledger) will record other transactions mace
by a business (such as the purchase of machinery and equipment).
Bookkeepers will also operate a cash book for recording the cash
transactions of a business.
Single-entry bookkeeping is where a single entry is made Into the
accounting records for each transaction mace by a business. An
example of this is Illustrated below.
Date
KEY TERMS
Double-entry bookkeeping: a
Description
Reference Income
(S)
1 May Balance b/1
3May Purcnaseof PE 41
materials
5May Sale: Junior SI 1
Green
8May Sale:
Sl 2
Doreen Lam
Expenditure
Balance
($)
($)
20.00
400.00
380.00
105.00
485.00
110.00
595.00
system where every entry In the
"books" Is recorded twice, once
as a debit ano once as a credit.
Single-entry bookkeeping is useful for small businesses that
carry out a relatively small number of transactions.
Credit: an entry Into an
Double-entry bookkeeping Is a system where every entry in
account book that either
decreases an asset account
or Increases a llablllty account.
Credit entries are positioned to
the right in an accounting entry,
Debit: an entry Into an account
book that either increases an
asset account or decreases a
liability account. Debit entries
are positioned 10 the left In an
accountlrig entry.
the "books" requires a second (matching and opposite) entry to a
different account. This is so the accounts will "balance". Every credit
is matched by a corresponding debit. Debits are recorded on the
left-hand side and credits on the right-hand side. For Instance, if a
clothes shop sells a dress for $250, this might appear as a credit of
$250 in the cash account and a debit of $250 In the merchandise
account. When the bookkeeper comes to balance the accounts, the
total figure for debits should match the total figure for credits.
Income statement (profit and loss)
An Income statement enables a business to calculate how much
prolit has been made in a particular trading period. It outlines the
value of the sales made by the business as well as Its costs. The
income statement makes it possible to compare prottts In one year
against another. and to compare the profitability of similar (and
different) businesses.
Here is an example of an income statement for Better Fish
Restaurant for the period ending 31 December 2019, with
explanations added in the right-hand column.
$
Sales revenues
800
Less cost of goods
sold
(200)
Gross profit
600
Less overhead costs
(300)
Trading/operating
profit
300
Profit for
shareholders
100
Retained profit
200
The total value of sales made in
2019
The oost of matenals bought
including the oost of fish
Sales revenues minus the cost of
sales
The oosts of running i he business,
for example energy bills
Gross profit minus overhead costs
The share of the profit distributed
to owners
Funds ploughed back into the
business
An easy way to set out an Income statement for a sole trader is:
Sales
LESS
Purchases
EQUALS
Gross profit
LESS
Overhead expenses
EQUALS
Net profit
Statement of financial po sition (balance sheet)
The purpose of a balance sheet {also known as the statement of
!inane/al position) is to show how much the business is worth on a
particular date. Including Its assets (what the business ovvns or is
owed by others) and its liabilities (what the business owes to others).
The example below shows how the assets of Fresh Sandwiches are
equal to (balance with) what the business owes to its shareholders
and the other liabilities of the business. The statement 01 financial
position differentiates between short-term assets and liabilities (under
one year) and long-term assets and liabilities (over one year).
EXAM TIP
Y0 "' snot-tlol ~.....ow tn&1t
&1"" '"'-COVIA.e st&1te""'-l:"'-t
sets Ot-<t the ,eve"'-t-tes
&I YI.of 0j>eY&1ttl<\.g/tyi;r of i"-0
costs of &1 bKSil'\.tss '"" a
p&1rtict-<L&1y
e peYiool.
'"" cov.,t,&1st, tne baL&1v..ce
sneet iolelllA:ifi,es tne "'et
wortn of a bKScv.,ess,
a.,.,o, p.-ovioles totals
fo.- the CKYYelllA; &1.,.,of
Lo.,.,g-tenv. &1ssets cis
weu. &1s ti-le ct-twev.,t &1"'-ol
lo"-0-teYI¼ Licibilities.
t,. . .
Here is the statement of financial position for Fresh Sandwiches at
31 December 2020, with explanations added In the right-hand
column.
$
Non-current assets
100
Current assets: inventories
50
Current assets: trade
receivables
50
Current assets: cash
10
Total
210
Share capital
140
Assets that are 1ied up, for
example In building and
equipment
Short-term assets that can
be turned into cash quickly
The total of non-current
assets plus current assets
The amount of capital
contributed to a company by
its shareholders (also known
as equtty capitaQ
Profrts
20
What tne business owes to
the owners
Non-current liabiltties
20
The liabilities that must be
paid in over a year
Current liabilities
30
The liabilities that must be
paid in under a year
Total
210
The value of the owner's
interest in the business pl~s
liabilities
In summary, the value of the assets of a business (non-current plus
current assets) is equal to the owner's capital plus liabilities. This is
referred to as the accounting equation.
Statement of cash flow
When analysing how well a business is doing it is also helpful to
examine the statement of cash flow, which indicates movements of
cash rather than of prolil. Cash ls crucial to a business to pay current
debts and wages, as well as for other short-term purposes. The
statement of cash flow illustrates three types of cash movements.
• Movements of cash from operations: This should be a positive
figure showing !hat the business is generating cash from day-to-day
aciivities.
• Movements of cash from investment activities: There will be an outflow
of cash for investments, for example buying new plant and equipment,
as well as some inflows of cash. for example from a sale of land.
• Movements of cash from financial activities: Some cash will flow in
under this r,eading, for example from selling shares. and some cash
will flow out, for example from paying dividends to shareholders.
The statement of cash flow shows the overall net Inflow or outflow of
cash from the above types of cash movements, as well as the overall
balance of cash at a given date.
KEY POINTS
• Bookkeeping records can either be kept by recording single
entries (for smaller businesses) or double entries where each
transaction is recorded as a credit and as a cebit in a different
account.
• An income statement shows how much profit a company has
made in a particular trading period.
• A statement of financial position shows the assets, 11abllitles
and owner's capital of a business.
SUMMARY QUESTIONS
1. How does double-entry bookkeeping make It possible to
balance the books of a business? How might a bookkeeper
notice that an entry for a transaction has not been entered
into accounting records?
:;?. What are the two main types of costs that a business
must deduct from its revenues when setting out an Income
statement?
3. Which financial statement Indicates how much cash a
business has on a particular date? Which financial statement
shows the movement of cash from operations over a period
01 time?
9 The role of government
1n an economy
■
9.1
OBJECTIVES
You should be able to:
• outline the responsibilities of
government In an economy
• describe how government
can ll'l11uence businesses to
protect !he environment.
Economic responsibilities
of government, and how
government influences
businesses to protect
the environment
The responsibilities of government in an economy
Government in the Caribbean operales at a number of levels from
parish council right up 10 nallonal government, the !alter of which is
elected by the majority of volers in a counlry. The responslbililies of
national government are oultlned In the table belO\l't.
o,een technolcgy, such as the use of solar, w nd and wave power, s ~equent'y
sup.oo'ted b;r govern'118nts oecavse of its oos1tive lripact on the env ronme:nt
National government
responsibility
Details
Security of 1he State
A key rcle of the governmen1 is to secure
the safety of national borders and of citizens
at home and abroad. The constitution
and laws of a country will give the slate the
powers needed to secure the country's safety.
The government will be backed up in 1his by
a defence force, police force and ouS1oms
officials, as well as the law courts and judges.
Protect ion and
general welfare of
cilizens
The government has overall responsibility for
managing the welfare o' ottizens "from the
cradle to 1he grave", for example by ensuring
adequate medical facilities and social seNices.
as well as education services and care homes
and pensions for the elderly.
Job security and
severance benefits 10
workers
Governments should have economic policies
that work in partnership with businesses and
trade unions to crea1e lasting and well-paid
Jobs. There also needs 10 be a safety net of
benefits for workers who lose their jobs.
Protection of the
erwircnment
Today it is widely recognised 1l1at governmen1s
have key roles 10 play ln prctecting the
environment at local, na1ional and international
levels, for example by creating and ensuring
tne implementation of local standards, and by
agreeing 10 uphold international treaties (sucn
as il1e Paris agreement on climate onange).
Governments have established bodies to
carry out these environmen1a1responsibilities;
for example, 11':e National Environmen1at
and Planning Agency in Jamaica and the
Environmental Management Aurnority In
Trinidad ar.d Tobago.
Maintenance of a
safe environment for
investors
Governments need to demonstrate to
International inveslors that their money will
be safe and that the country offers a stable
Investing environment.
Regulation of
business activity
There should be clear rules governing
business action, such as rules to do with
fair compelttion between businesses and
tne honesl payment of taxes. There should
also be clear guidance on how to set up
a business, such as on the various steps
required to register a company.
Maintain a stable price Maintaining price stability involves managing
syslem
tr e economy so that prices rise gradually, in a
controlled way. Inflation is 1he rise in 1he price
of goods and services, and rising Inflation
results in a decline in 111e value of money.
lnfla1ion should be kept in check to ensure
price stability.
KEY TERMS
Constitution: the written and
unwritten guidelines and rules
ou!lin!ng how a country will
be governeo, and who will
be legitimately empowered to
make aecisions on behalf of
others.
EXAM TIP
~C!k\e sure 1::JOU CCI""
Lost C!""d. expwi.,,, the
respo.,,,sibiLities of
goveY"'-l¾l"'-t. '(bu snouLd.
&iLso be &ibLe to snow 11ow
tl-ie goven,1o...,,_e~ ca YYies
out its .-espo"'-SibiLittl to
ti1e e"'-ViYO"'-l¾l"'-t with
j>YC!cticaL ,:x:ci...,,,ptes, suci1
C!s zo~""0 LC!ws """cl
reg uLC!tio"'-S govev"'-i"'-CI
ti1e l'IJ>J>YOJ>viate
~
""-Cl~ ge~""t of wciste.
c;ovev"'-""-e""ts '1cive aLso
cvecited. age""cies to
oveYsee the protect[o.,._, of
t 11 e e"'-V•Yo .,,,...,,_e""t.
How government can influence businesses
to protect the environment
As mentioned above, protecting the environment is a key
government responsibility. Governments can aim to influence
business practice regarding the environment by creating policies
and legislation and by providing incentives or oisincentives.
Measures to protect
the environment
Details
Green technology
The government can influence the
development of green 1echnology by pro,Ading
Incentives sucn as grams or tow taxes for
green enterprises. For example, the Caribbean
Climale Innovation Center provides grants and
funding for businesses coming up wrth greentechnology solutions In one of five areas: solar
energy, resource use efficiency, sustainable
agrib1.1slness, energy efficiency and water
management.
Refores1atlon
Deforestation is an issue for some Caribbean
countries and particularly Haiti, where largescale deforesta!ion has slripped moumainous
areas cf trees, leading lo a rapid loss of
soil. Measures the Haitian government has
taken include banning the cutting do,,m of
trees for commercial purposes, creating tlgh1
restrictions for logging permtts, promoting
greener alternatives and starting a programme
of mass replanting.
Proper disposal
of waste
In 2002, Jamaica passed a Solid Waste
Management Act in order to safeguard
public health. These regulations ensure that
waste is collected, stored, transported and
recycled in ways tha1do not harm public
heatth. Companies that creale solid waste
mus1 have policies a0d measures in place for
dealing wilh it, for example by making sure it is
transported to approved was1e management
sites managed by responsible recycling
companies. Failure to deal with waste as
required by lhe government can lead 10 fines
and prosecutions.
Zoning laws
Zoning laws establisn what activities can take
place in a specific geographical area, such as
zones for na!ure reserves. industrial activity
and housing. Governments can establish
environmental zones to protec11hese areas for
nature.
Measures to protect
Details
the environment
Appropriate use
of technology In
managing waste
Appropriate tecnnology needs to be applied
to redvce wasleful activities and the wasleful
use of resources, as well as to manage was1e
that has been produced in produc!lol'l and
consumption. The government can research
and support new technologies that help to
reduce and manage waste more effectively,
such as the use of packaging that is more
biodegradable.
KEY POINTS
• The government has a range of responsibilities in the
economy, including the creation of Jobs and the welfare of
citizens, as well as responsibility to the environment.
• Regulations are rules created by the government which cover
a wide range of Issues that impact on business activity, for
example the proper oisposal of waste and the allocation ot
certain zones tor industrial activity.
• Government alms to Influence business so it impacts
favourably on the environment, such as by encouraging green
technology through subsioies.
SUMMARY QUESTIONS
1. Explain a government action that could:
a. reduce Inflation
b. llmij 'Nhere businesses can set up
c. cut down on Industrial waste.
2. Identify two responsibilities that the government has to
protect Its crtizens in an economic context.
3. Identify three measures that a government could take to
create employment.
The purposes of taxation,
and the difference
between direct and
indirect taxes
OBJECTIVES
You should be able to:
• state the purposes of
taxation
• distinguish between direct
and Indirect taxes.
Canobean gove,nments can charge ,mpo1 taxes to help new business sectors grow.
such as those related to ICT
Reasons why governments charge taxes
There are five main reasons why governments levy taxes. as outlined
belov,.
To finance government expenditure
KEY TERMS
Inflation: a sustained increase
in the prices of goods and
services.
Direct taxes: taxes where the
burden of the taxes and the
responsibllrty for paying them
falls on the same Individual.
Governments around the world commonly raise money by imposing
taxes on consumer spending. investment and business activity. The
government uses the funds raised through taxes to pay for services
such as health. education, Infrastructure, security and other social
amenrties.
To curb inflation by reducing the supply of money
in the economy
By taxing Individuals and businesses, money Is taken out of the
pockets of spenders and kept by the government treasury. Private
citizens are able to spend less as a result. Businesses will be faced
with falling demand tor their products, which usually leads to some
businesses cutting prices. As a result, there should be a general fall
In the rate at which prices are rising (i.e. a fall In the rate of inflation).
To remove competition from overseas in order to protect
infant or fledgling industries, by taxing imports at high rates
New industries (such as those in the green-technology sector) may
i ind it difficult to compete with overseas rivals, which may be larger
ano technologically more ao\ianced. Levying import taxes on foreign
competitors will give local firms an opportunity to get established and
to grow to the point where they no longer need to be protected.
To reduce unemployment by encouraging people to buy local
produce, thus encouraging linkages among sectors
The government can engage in subsidising local products (a negative
tax), while at the same time levying Import taxes on imported
substitutes. For example, Jamaica is currently seeking to promote
bamboo as a sustainable building product by providing subsidies
to growers. Working wtth the bamboo-growing sector in Jamaica
enables the government to support an Industry with strong forNard
and backward links (ber..veen bamboo growers and harvesters,
furniture manufacturers, builders and other trades). therefore creating
Jobs across multiple sectors.
To achieve greater equa lity in the distribution of wealth and
income, by taxing higher income earners so as to provide
social services for the majority of citizens
A progressive tax is one where those on higher incomes pay a larger
percentage of their income in tax than those on lower incomes.
This has a rebistributlonal effect on Income and helps more welfare
services to be crea1ed.
Level of income (S)
The differences between direct and indirect taxes
Direct taxes
A direct tax is one where the burden of the tax and the payment
of It fall on the same Individual. This type of tax is usually applied to
income and capital. Examples of direct taxes are outlined below.
Direct tax
Details
Income tax. Paid by an
employer direct to the
government on employees'
wages.
A tax on wages and other incomes paid
directly to the government. Each income
earner will receive a given amount of
income free of tax. Tax thresholds are
then set so that incomes above these
thresholds are taxed progressively at
increasing rates. The tax is therefore
progressive in nature.
Direct tax
Details
Corporation tax. Paid by
a company direct to 1he
government on profits
made.
This Is a lax on profits. There is a
threshold level of profit over which prolits
will be taxed at increasingly higher rates
depending on the size o' 1he profit.
Corporation tax can l hus be made
progressive in nature.
Capttal gains tax. Paid by
an individual or enterprise
direct to the government
on capttal gai'lS made from
assets.
This Is a tax on the profits from the sale
of property or Investments. For example,
shares may increase in value from the
date wnen 1hey were purchased to the
date w''1en they are sold. The tax is paid
on this gain 1<1men it is realised (I.e. when
the shares are sold}.
Capttal transfer 1ax. Paid
by indMduals direct to
the government on the
inheritance of an eslate.
This Is a lax on money inherited over a
certain threshold level. 11 may also be
called inheritance tax or death duties.
KEY TERMS
Indirect taxes: taxes where
the burden o' the taxes and the
responslbillty for paying them
'alls on oifferent Individuals.
Value added tax: each step in
the production ot a good makes
it more valuable. Prcducers
(Including retailers) pay tax at
a percentage rate on the value
that they add to a product.
They then pass this tax on In
the prices they charge.
Indirect taxes
Indirect taxes refer to taxes where the burden and payment of the
tax falls on different indiviouals. This type of tax is levied on goods
and services. and Is usually paid by the manufacturers or importers.
Examples of indirect taxes include the following.
Indirect tax
Details
CustomAmport
duty
CuslomAmport duties are levied on the Import
of goods, and can be used to pro1ect domestic
industries and to raise revenue for the government.
The importer will pay the tax and then try to transfer
some of the burden of it on to consumers in the
form of higher prices. Import duties can etther be
"ad valorem• - charged as a given percentage of
the import price - or levied at a specific rate, for
example $1 per good imported.
Excise duty
Excise duties are levied on goods produced
within a co~ntry. and are paid at the moment of
manufacture rather than at the point of sale. The
manufacturer will seek to transfer some of the
burden for excise duties on to consumers In the
form of higher prices.
A tax which is levied on the purchaser of a good
rather than on the seller. The burden of the tax falls
on the purchaser of a good and will typically be
paid to the government by 1he seller.
Purchase tax
Indirect tax
Details
Stamp dufy
This is a tax charged on the legal recognttlon of
certain documents, such as the deed of sale on
a house. The burden l/lerefore falls on the person
,,..,ho needs a legal document, such as a house
purchaser.
This is a tax levied on goods which are consumed.
The bvrden falls on the end consumer, and the
tax enables the government to raise revenue from
consumers as well as to encourage saving (as
the !ax increases the price of goods). Examples
o' consumption taxes In the Caribbean are value
added tax (VAl) and special consumption tax
(SCl). Value added tax is where the burden falls
on the end consumer but the tax is paid to the
government by producers in line with the value they
add in the produellon process. SCT ls a tax on
goods such as petroleum products, tobacco and
alcohol, designed to discourage spending on
antisocial goods as well as to raise revenue.
Consumption
tax
Proportional, prog ressive and regressive ta xes
Taxes can be progressive, designed to take more from the rich than
from the poor. They can be proportional, taking the same percentage
from the rich and the poor. Or they be regressive, taking a greater
percentage of poor people's income than rich people's income. For
example, income tax can be progressive tt the percentage of income
paid in tax increases V'ihen incomes rise above a certain threshold.
Sales taxes. however, are often regressive: if the government levies
a 5 per cent tax on clothing then everyone buying clothing will be
affected and those earning less money will be hit harder than those
earning more money.
KEY POINTS
• Taxes are levied to reduce 1n11at1on and inequalrty, ;and to
protect domestic Industries and local employment.
• Direct taxes are paid by those on whom the taxes are levied,
for example income taxes.
• Indirect taxes are paid by one firm or Individual and passed on
to another. for example consumption taxes.
SUMMARY QUESTIONS
1. Identify a tax that might be used to protect oomestic
Industries. and explain how this tax would work.
2. How might Income taxes be designed to Increase equality?
3. Who pays Indirect taxes such as consumptlon tax? How
might an rndlvldual avoid paying some consumption taxes?
EXAM TIP
6~t-tYe 1::JOt-t e,a....,
oliffeye.,,tiate betwee""
oliYect i:i..,,of i.,_ofiyee,t
ta.xts . A tax tni:it i.s
paiol bl:1 t l1e peYso"" CY
~o'.""pa"':1:1 o"" wl1o""it is Levoeol i.s a ofi.yec-t
tax. A"' i..,,oiiYect tt:lx i.s
collected bl::J 0 .,_e peYso""
(a pYoolt-te,ey) but is tl1e""
passeol o"- 1.<lti.""-atet1:1 to
t 11e tvcc;l CO>\,St-<Vl,\,ty (o,,_,
wl1o""' tne bt-tYole.,, of tl1e
tax falls) .
Government assistance
for businesses, and the
social services provided
by government
OBJECTIVES
You should be able to:
• O'escribe the iorms 01
assistance o'fereo by
government to businesses
• oiscuss the social services
provided by government
Techn cal assist= Is very moortant In he png farmers to develop~ farming
techn~ues and stran s o' c:ops
Forms of government assistance
Central and local governments oan provide assistance to businesses
in a number of forms. Some of lhese are outlined below.
Lending capital and technical assistance
Governments prioritise giving support to certain sectors of the
economy. For example, most Caribbean governments provide support
for agricultural development. Examples include loans and grants that
enable farmers to purchase seeds, livestock and farm equipment.
Loans and grants are often accompanied by technical assistance
and advice. Other business areas that might qualify tor loans and
grants include those that involve the application of new technologies.
Training and human resources development
Governments work with businesses and trade unions to develop
and deliver training programmes. For example. New Employment
Opportunities for Youth in Jamaica is a project o·esigned to tackle
youth unemployment. Young people recruited to the scheme receive
work-based training and job placements. Governments also focus
on human resources development such as education and training
schemes. One example of this is the Human Resource Development
Strategy in Barbados.
Research and information centres
Governments run research and Information centres to provide a
knov11ledge base tor local firms, such as to help identify varieties
of crops that grow best in particular geographical areas or climate
con<litions. Government-funded research provides support for small
companies that cannot afford to carry out their own independent
research. Government information centres also provide useful
information about the different markets in the Caribbean and offer
aovice to local businesses.
Subsidies and grants
A. subsloy is a sum of money granted by the government to help an
industry or business, for example to keep the price of a commodity
or service low (so that the industry can compete against low-priced
foreign imports). Subsidies are also used to keep the price of essential
foodstuffs low (such as rice and sugar) to aid poorer households.
A. grant is a sum of money given by the government for a particular
purpose, such as to enable a young entrepreneur to set up in business.
It is different to a loan in that it does not usually have to be repald.
Government
research
centres
Loans
1----1
Government
Information
centres
Subsidies
Forms of government 1----1
assistance to business
Technical
assistance
Education
and training
schemes
Grants
KEY TERMS
Technical assistance:
non-financial help provided by
local or international specialists,
such as the sharing of
information and expertise.
Human resources
development: the
development of people and
their capabilities at work in
ways that meet their indivloual
needs.
Caribbean governments have createo Incubators to support small
businesses; tor example the Rural Agricuttural Development Authority
(RADA) In Jamaica and the National Integrated Business Incubation
System (IBIS) in Trinidad and Tobago.
KEY TERMS
Social services: services that
provide help w~h people's living
conditions ano financial
well -being.
Social services provided by government
The government has a responsibility for the wettare of rts citizens,
particularly in relation to the provision of social services, as outlined
In the table belOV>/.
Social service
Details
Heatthcare
This covers the prevision of hospital beds, care
homes for the elder1y, the inoculatlon of the
population against diseases, the availability of
medical centres and so on. Healthy citizens are
less of a drain on a country's heatth facllilies and
economy, and are belier placed to contribtrte
through their work to Improving national outp\!1.
National Insurance
This is a system of providing benefits for
employees who pay ccn'.ributlons during their
working lives into a national Insurance fund.
Deductions are taken from wages. Tnose paying
into this scheme are enlitled to claim benefits in
the event of a work stoppage (such as sickness,
an accident or retirement).
Education
The quality of a nation's education system is
a key factor In helping the country to do well
economically. to be internationally competttive
and to provide its citizens with opportunities
for advancement. As we shall see in chapter
10, education is regarded as a key indicator
of development. The government (as well as
the private sector) plays a vltal role in providing
primary, secondary and higher education for Its
citizens.
Governments throughout the Caribbean
continue to invest heavily in primary, secondary
and higher education; funding, for example, 1he
University of the West Indies and adult education
programmes.
Roads and
transportation
Roads and the transport system contribute
significaritly to the welfare of citizens. For
example, they help get people to work, to
school or to hospital, 1hey enable people in rural
areas to access urban areas, and they enable
products to reaoh markets. including export
markets. Caribbean countries have relatively
good road networks (Including mmorways)
but there is scope for furtner improvement.
Governments are investing ex1e0sively In bridge
building, as well as developing port and airport
facilities and infrastructure.
EXAM TIP
yoL-< SVIOL-<Lc( be &I ble to
c(i.stl"'-9"'-i.sn
betwee..,
.
&i"'c( give ei<&i...,ples of,
govey""~"'t servlces to
b1A.sl"'-esses (for el<&l""'-ple
rtse&iYCltt cei,ct..-es &i"'Gi
triil"'-i"'-9 scl1e1M-es) t l ~
sociiil seyv[ces tl1&1t
be"'-efi.t tlll cltizei,cs
(sL-<cn t:1s ec(1A.c&1tlo ... t:1~
netiltnciir-e) .
How governmen1s fund their spending
Governments raise funding from four main sources:
1. From 1axa1ion: direct and indirect taxes provide governments with a
major source of income.
2. From borrowing: a counlry's central bank secures short-term loans
by issuing treasury bills and longer-term loans by selling government
bonds. Funds can also be sourced from internalional financial
inslrtutions s1,,'Ch as the lnternalional Monetary Fund (see Chapter 10).
3 . From foreign governmenls: foreign governments give aid and grants.
oflen tied to a particular project. For example, the UK government
might give aid to a specific health project organised by the World
1-leaith Organization (WHO).
4. From national insurance: national insurance contribvtions paid by
citizens Into a national Insurance fund pay for specific social security
policies, such as state pensions.
KEY POINTS
• The government provides servlces both to businesses and to
ihe wlder community.
• Business services provided by the government Include
technical support, research Information ano business grants.
• Social services provided by the government include the
national Insurance scheme, education and healthcare.
SUMMARY QUESTIONS
1. What types of business are most likely to benefit from
government support?
2. What is the difference between government support to
business and government soclal services?
3. Explain how the government provision of one social service
is likely to benefit:
a. business
b. the national economy
iTechnology and the global
business env.ironment
Business technology and
the role of ICT in business
OBJECTIVES
You should be able to:
• explain the concept of
business technology
• explain the role 01 Information
communication technology
(ICT) In business.
The Interns: has made t poss,be to conduct ousiness, buy goods and do banking
n a qu Cl( and easy way trorn a single toca~<0n, such as a person ·s own home
The concept of business technology
Business technology refers to the application of science. data,
KEYTERMS
Business technology:
technology that helps to run a
business and Its operations.
Examples incluoe machines
programmed to carry out
specific tasks, online selling
websites, and computer
programs to help accounting
ano marketing functions.
Digital: Involving or relating to
the use of computers and the
way in whlch they use data
signals in the form of digits
made up of o and 1.
Database: an organised
collection of data that can be.
but is not necessanly, accessed
from a computer.
engineering and information technology for business purposes.
such as the achievement of economic and organisational goals. This
Includes the technology to make sales through an onllne website.
Modern technology brings rapid change and this continues to
transform the way business Is conducted. Technological change also
affects many other aspects of society, such as how people do their
shopping and how they communicate with each other.
The role of information communication
technology {ICT) in business
tCT (information communication technology) encompasses all uses
of digital technology that exist to help individuals, businesses and
organisations use information. ICT is therefore concerned with the
storage, retrieval, manipulation. lransmission and receipt of digital
data. Importantly, It Is also concerned with the way these oifferent
uses can work together.
We can Illustrate the role of tCT in business with the example
of Cheriy, who has recently set up a small supermarket store in
Port-of-Spain in Trinidad and uses ICT In the following ways.
• Storage: Cherry keeps records of her suppliers in an electronic
database.
• Retrieval: Cherry can quickly find out the addresses and other details
of these suppliers by carrying out a quick search of her database.
Similarly, she can relrieve records of how much stock she holds from a
stock database, which is oontinually updated.
• Manipulation: Cherry can manipulate data (move tt around and make
calculations) to see how much stock she holds, when sne needs 10
order more and how mucn it will cost.
• Transmission: Cherry can send all sons of business data, for example
she can send ins!rue!ions to her bank through an elec1ronic account,
instructing the bank to make a payment on her behalf.
• Receipt: Cherry can receive digital data In the form of customer orders
on her website and updates on her bank account from her a-banking
records.
Other ways In w hich ICT aids business Include:
• inventory management, enabling staff to access real-time stock
records so tnat the right qvantilies ate stocked and reordered
• virtual collaboration, so that members of a team can work together
online even thougn they are based in different locations
EXAM TIP
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cl{;lt(;I /;l.,,c( tne peopLe tn{;lt
t.<Se tltel'>\.) ,
• reducing production costs, enabling more efficient production and
supply cnain management.
Ways in which technology has influenced
banking and commerce
Technology
How the technology has Influenced
banking and commerce
Automated Teller
Machines (ATMs) also known
as Automated
Banking Machines
(ABMs}
An AThil Is a macnine that dispenses cash and
Online banking
Bectronic
oommerce
(e-commerce)
carries out other banking operations, such as
providing the customer with his or her latest
balance. The ATM facilriates the deposit and
withdrawal of funds, as well as other services,
without having to go into a bank to access teller
(bank counter) seNices. The loca!lon ol ATMs In
hotels, petrel statio1s, malls and supermarkets
creates oonvenience for oustomers who can
transact business without having to wait at a bank.
Online banklng is a way of carrying out banking
operal ions (transactions} electronically over the
Internet. Online banking enables customers to
access their accoums from home and other
locations using personal computers. This facility
enables cus:omers to check their balances from
the comfort of their homes, and permits easy
and convenient payment of utility and other bills.
Customers with more than one account can
also use this facility to transfer funds from one
account to another.
E-commerce is the activity of buying or selling
goods and seNices via the Internet. Usirg the
Internet, lndMduals and businesses are now
able to make business transactions without
having 1o visit a physical bricks and mortar store.
E-commerce has given rise to many cnline
stores, which permit customers to browse for
prodl.lcts and pay for them electronically.
KEY POINTS
• Business technology is the
application of science and
technology to business
activities, (e.g. the
construction or commercial
websites).
• ICT Is used to store, retrieve,
manipulate, lransmit and
receive Cligltl)I data.
• ICT has transformed
business and commerce
in many ways, Including
through electronic banking
and electronic commerce.
SUMMARY QUESTIONS
1. Ho\<V can new discovenes
and ideas (such as new
scientHic research) help
businesses?
2. Identify a purpose for w hich
a business might create a
database. What actions can
then be carneo out with the
oata using ICT?
3. How does electronic
banking give a customer
more control over hrs or her
banking activities?
Types of ICT, and the
difference between
e-commerce and
e-business
OBJECTIVES
You should be able to:
• describe the types o' ICT
used in business
• distinguish between
e-commerce and e-business.
Types of ICT used in business
In the 1980s, the first personal computers (PCs) were launched,
and the numbers of them being produced grew rapioly. Perhaps
the next major stage in the business use of computers was in the
development of local area networks (I.ANS), where computers could
be connected to other computers within the same small geographical
area to share information. It was only in the mid-1990s that the World
Wide Web was developed, enabling the sharing of information and
linking of computer networks across the globe. From the 1980s
onwards, many tools have been introduced to help increase business
productivity, as outlined below.
M•commerce enabes peope to rr.ake purchaSes using the r cellphones
Traditional
Productivity tools
Details
Microsoft Word
A word-processing tool that enables the rapid
and accurate creation of documents such as
invoices, sales documents, pamphlets and
business letters. These documents can be easily
shared and amended by others.
Microsoft Excel
A spreadsheet tool shov.~ng a table cf numbers
in rows and columns. enabling rapid calculations
and forecasting
--•
Database soflvvare: A program storing information into fields (a single
Access
iype of data, for example customer names).
records (a comple1e set of fields) and files
(collections of records)
Presenta!ion
Tools enabling virtual slideshow presentations
software: Microsoft using text, graphics and short film clips
PowerPoint, Prezi
Graphics software:
Adobe Photoshop
Software for the manipulation of photographs
and images, for example to aller images by
changing 1nek shape, colour and size
These traoitional tools can be used in conjunction with each other
so that, for example, a spreadsheet can be imported into a business
document or Into a presentation. Similarly graphics can be lmporteo
Into Word documenls.
Other tools have specmc business purposes, as outlined below.
Specialist applications
Details
Accounting: QuickBooks Specialist accounting packages are used
by small- and medium-sized tn,sinesses
to record transactions and to produce
sets of acoounts. Tney enable the fasl and
accurate creation of financial data.
KEY TERMS
Specialist applications
Details
Computer-aided design
(CAO}
Specialist design packages enable
designers and engineers to design new
produc1s using a compuler or another
electronic tool. These designs can then be
fed into a computer-aided manufacturing
system/produc1ion line.
Management Information These provide detailed and relevant
systems {MIS}
information to managers covering all
aspects of the areas tney are managing, for
example sales levels and stock levels. An
MIS enables data to be presented in a clear
and visual way for management mee'.ings.
Outward-facing processes:
business processes that Involve
communications outside the
business, for example with
customers and suppliers.
Inward-facing processes ;
business processes that Involve
communications within the
business, such as between
managers.
Digital communication technologies
Digital communication technologies are ones that transfer vast quantities
of information by breaking messages down into a binary oode (made up
of ones and zeros}, which can then be reassembled by another piece of
equipment that uses digital communication. Two powerful systems that
use digital communication are the Internet and mobile technology.
• Toe Internet: This is a system of computer networks enabling fast
communication around the globe. It is used by businesses for
commerce (buying and selling goods through websites), for collecting
market research data and for promoting a company ar>d tts products.
• Mobile technology: M-oommerce refers to the buying and selling oi goods
using mobile (cellphone} technology. This is gro1•Ang very rapidly with the
developmen1of payment systems that can be ac1ivated using cellphones.
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E-commerce and e-business
Buying and selling onllne through computers has transformed the
way In which goods and services are traded . The "e" in e-commerce
or a-business stands for "electronic networks", and describes the
application oi electronic network technology (Including the Internet
and electronic data).
E-commerce covers outward-facing processes that Involve
customers, suppliers and external partners. This includes sales,
marketing, order tal<Jng. delivery and customer service. it Involves
new business models and the potential to gain new revenue or lose
some existing revenue to new competitors. The term "electronic
data Interchange" (EDI) refers to businesses communicating
lnfonnation electronically (particularly lnfonnation that was previously
communicated on paper such as purchase orders and invoices).
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E-business includes e-commerce, but also covers inward-facing
p rocesses such as production, Inventory management, product
development, risk management, finance, knowledge management
and human resources. E-business strategy is aimed at saving costs
and improving efficiency. For example, production can be made more
efficient, vvith fewer errors and less waste, if computer programmes
are used to monitor automatic processes. Financial records such as
sales records can be Instantly updated, and employee recoros can
be stored in databases by human resources departments.
KEY POINTS
• The use of ICT has enabled businesses to operate In radically
new \01ays since the 1980s, vastly improving produchvity and
communication.
• Traditional tools incluoe, word processing, oatabases,
spreadsheets and presentation packages, as well as specialist
design and accounting 1001s.
• E-commerce consists of all forms of electronic trading,
Including through the use of websites and m-commerce.
SUMMARY QUESTIONS
.
. . ,·
1. What is the difference
between a LAN (local area
network) and the WWW
(Worlo Wide ~Veb)?
2. Identify two traditional ICT
applications and explain
how they add to business
productivity.
3. How do e-commerce
and m-commerce help
businesses to reach new
customers?
How ICT can improve
efficiency, and the ethical
implications of using ICT
-n t
OBJECTIVES
You should be able to:
• identify ways rn which ICT
can be used to improve
the efficiency of business
operations
• discuss the ethical
lmpllcaHons of the use of lCT
In business.
' 4
~
•
l
•
At.liomat1on 1s one of the fT',aln ways to 1n prove the ett:c;ency o' the manufacturing
P 'OC8SS
KEY TERMS
Storage server: a server bu!~
for the purpose of storing (and
accessing) small to large volumes
of data over a shared network
or via the Internet. May also be
called a file server.
Ways in which ICT can improve business
There are tour main ways In which the use of ICT can improve
business, as outlined below.
Ways in which ICT can
improve business
Details
Speed and time
Operations can be carried out much more
quickly, for example a customer's order
can be transmitted online and immediately
processed for dispatch. Additionally,
payment can be made online.
Easier storage
Very large quantities of h formation can
be stored on a compu;er or a storage
server and can be updated easily.
Improved sharing of
information
Information can be shared easily and
quickly through LANs and the Internet,
either privately within a firm or with all
Internet users through a oommercial
website that has open access.
Automation: using automatic
systems to operate or oontrol
processes, methods and
systems, wit" very little or no
human lnterv1,1ntion.
Streamlined: designed to
increase '.he speed and 1,1ase of
carrying ovt opetations.
Overhead costs: all ongoing
business expenses, not Including
the labour and materials used to
create a good.
Ways in which ICT can
Improve business
Details
Automation
Automation speeds up manufacturing
and production processes while
minimising human error. For example,
In a modern oar manufacturing plant,
operations such as fittir,g, lifting and
painting will be carried out by automated
machines, whioh themselves will be
monitored by computers and electronic
devices. Automation facilitates batoh
production, allowing adjustments for
features such as colour or si~e to be
made.
Benefits of technology to business
The improvements outlined above lead to the following benefits for
business.
• A business can reach and develop a relationship with more potential
customers, for example through a commercial webshe.
• Business operations can be streamlined and this will reduce costs
(such as through better use of materials), improve efficiency, maximise
profit and minimise waste (because fewer mistakes are made). 11 will also
make it possible lo devo:e talent (particularly human resources) to core
business actMties instead of overhead costs (such as administration).
• Businesses can provide belier service 10 cus:omers by providing a
more customer-focused experience.
• Businesses can support better relationships with key partners (such as
suppliers and government agencies).
• Customers are able to guide businesses better. Through ICT a
business can better understand customer tnough:s and feelings, for
example through online market research and feedback from customers
in online comments.
Ethical implications of the use of ICT in business
The development and spread of ICT has given rise to a number
of ethical issues, as outlined below.
Ethical Issues linked
to ICT
Details
Security
Information stored in company databases is
always liable lo securtty breaches in ihe form
of "leaks' and illegal "hacking' of information.
Privacy
Customers' records are usually kept in an
electronic format by a business (fer example, a
bank will store details of customers' addresses
and account details). Sharing these details
without consent Is unethical and sometimes
illegal. Many Caribbean countries have data
protection Acts which prohibit companies from
revealing personal customer data.
EXAM TIP
Mtl/u SKYe tfOU CCIV.
ex.pLaivc Sol¾e of tne
bevcefi,ts of ICT for
busiv.ess, Suen CIS
fast COl¾l¾UNcatiovs,
~ff,,cievct ~nCl ri"'-0 of
'""tervcat u,'-fOn¾atio""
tll'\,d t"1e abit,tu to Yet1cl1
a Lcwge Cludi.evcce. you
snouLd ClLso be Cl bte to
ex.pLCli"" drawbac~ of
ti-le '-<vcetnicaL use of ICT,
such CIS t"1e COl¾J>YOl¾tSe
of 1>evsovcciL details Cl~
t he distrcicti"'-0 vcat'-<Ye
of the 1vcte~et.
Ethical issues linked
to JCT
Details
lnlellectual property
Infringement
A large amount of information slored on the
lnteme1 is copyrig\1ted to the individual or
business that created the material, for example
books, pho:ographs and inventions of all kinds.
There is a danger that copyrighted material will
be copied or used without licence. Copyrignt is
protected through the cO\lrts.
Impact on humans
There are a number of negative impacls on
people when ICT is used unethloally. For
example, fraudsters may try to impersonate
someone else online in order to steal his or her
savings, and lntemet advertising may encourage
people lo buy things that they do not need.
In some lemtories, fraudsters have been able
lo compromise ATMs and steal savings from
unsuspecting users.
Distraclion
ICT can lead to vsers wasting lime, for example
by browsing the Internet for non-work purposes
during the working day.
Ways businesses can respond to ethical issues
It is important that businesses recognise the need to use ICT
ethically. Businesses use ICT because It benefits them commercially,
helping them lo gain more customers and sales. but they need to
make sure they do not use ICT In ways that are harmful to specific
individuals and to society as a whole. Companies that use ICT in
an ethical way will benefit in the longer term from the enhanced
reputation that they are able to secure.
Companies also need to \"/Ork collaboratively to create solutions that
prevent unscrupulous individuals from committing fraud using the
Internet. Recent studies show that fraud resulting from the use of JCT,
such as hacking company records and customer account details. is
by far the largest fraud threat facing businesses today.
Ways in which businesses can deal with the ethical issues raised by
the use of ICT are set out In the table below.
Ethical issues linked to ICT
Details
Secvrily
Databases can be made more secure by
ensuring that only approved people have
access lo passwords. These passwords
need lo be complex to prevent hackers
from finding out what they are.
Information in a database can also
be encrypted. Encryption involves an
algorithm transforming the data In the
dataset into so-called cypher text,
which cannot be read in an intelligible
way wtthout first being decrypted using
the key to the cypher.
Ethical Issues linked to ICT
Details
Privacy
Private records belonging to customers
and employees should only be viewed
by the specific customer or employee
to wnom they belong or to a person
tnat the customer or employee has
expressly given their permission.
Intellectual property
infringement
National and international laws are
designed to pro1ect lntelleclual property
rights. A company should, iherefore,
register iniellectual prcperty wtth the
relevant authortties if appropriate, and
under no circumstances knowingly
copy material 1l1at has been registered
or protected by someone else.
lmpacl on humans
Companies should do everything in
their power to prevent impersonation
by a fraudster. For example, by creating
complex and difficult-to-copy company
materials, by making h difficult for
fraudsters to Impersonate company
officials by warning customers that
fraudsters may be opera1ing, and by
making tt easy for cuslomers to check
tnat they are dealing with real company
personnel.
Dis!raction
Etnical companies 1,,1AII seek to make
sure that company websites are used in
appropriate ways at the right times by;
for example, banning access to certain
websites during the working day.
The term 'netiquette' combines the words 'Internet' and 'etiquette'
and describes the code o: responsible behaviour that people should
follow when using the Internet. Put simply, netiquette requires you to
use the same good standards of behaviour that you would use when
dealing with someone face to face. The person that you are dealing
with is someone with feelings, just like you. Respect their time and
remember that their access to the Internet might not be as good as
yours; for example, they might not have broadband, making it more
difficult for them to connect to the Internet.
KEY POINTS
• Businesses can use tCT to speeo up their operations, store
more information, communicate more easily and automate
processes.
• The benefils of the use of 'CT in business include reduced
costs, reouoed waste and Increased profits.
• Ethical issues associated with the use of ICT include
breaching the privacy of customers ano pirating intellectual
property.
SUMMARY QUESTIONS
1. Identify one ICT application
that Is used widely in
business and explain how
the use of this application
bene'its a business.
2. How Is automation likely to
reduce business costs in a
car plant?
3. Explain how ethical Issues
related to the use of ICT
might impact on a bank
customer.
Factors that determine
a country's standard of
living and quality of life
OBJECTIVES
You should be able to:
• outline the factors that
determine a country's
standaro of living and its
quality of life.
Indicators of a country's standard of living (SOL)
A country's standard of living refers to how much income people
earn and hovif much spenoing they can do with this income. It Is
used as a measure of how "well off" people are. Measures showing
an Improvement or a o·eterioration in the standard of living help to
demonstrate how effectively the economy of a country is being
managed and enable contrasts to be made between growth in one
country and growth ln another country.
The type and range o' goods people can a~o,d s often seen as a measure of the,' standard o' I ,ving, but i: does not take Into aooount
the quallly of the r lives
There are a number of dimensions to standard of living as indicated
in the table below.
Dimension of standard of
living
Details
Level of consumption o1
goods and services
The type and range of goods people
can afford is often seen as a measure of
how well off lhey are. People are seen as
having a higner standard of living when
lney can affcrd to buy more and betterquality goods and services, including
food, housing and elecironics.
Average disposable
income of the population
Disposable income is lhe part of an
income thal is available to spend and
save (after taxes and other deduclions),
The average amount of income that
ciiizens have lo spend and save in
a country is therefore the average
disposable income. It can increase if
incomes increase or ff taxes are reduced.
Level of national ownership Capital equipment refers lo the
of capttal equipmen'.
long-lasling goods 1hat are used In
production, for example aU1omated
machinery in a faClory, cranes at
seaports and closed-circuit television
cameras 10 assist in solving crimes. The
more capital equipment a country has,
the more goods tt can produce.
Access to modern
Modern technology is the application
technology
of new processes and techniques,
for example solar panels for energy
production and GPS to guide vehicles.
Modern technology can raise standards
of living by enabling lhe production of
cheaper and betler-quality goods.
Level of inveslment in
The more a country invesls in research
research and technology
and iechnology, the more breakthroughs
are likely to take place in production
systems. High-income countries like lhe
Untted States and Cnina spend the most
on research and development, and benefit
lhe most from the trutts of their reS"....arch.
Indicators of quality of life (QOL)
Standard of living Is associated with producing a greater variety
and number of goods. However, "more" does not necessarily mean
"better", and some commentators argue lhat we should focus more
on •quality of life", such as whether people are healthy and happy.
Factors to consider In rela1lon to quality of life include the following.
• Exten1 of security enjoyed (level of crime): Are we safe? Are our
possessions or even cur lives at risk? People wtio live in societies with
lower levels of crime nave a better quality of ltte.
• Availability of health, educalional and recreational facilities: Is tnere fast
access to good-quality healtncare when we are sick? Are we entitled
KEY TERMS
Average disposable income:
money left •or spending after
deductions such as income tax
and national Insurance have
been taken away, calculateo
for the average household In an
economy.
KEY TERMS
Public utilities: an organisation
that maintains the Infrastructure
tor a public service, such as
a government-run electrical
company providing electrical
generation and cables to feed
energy supplies to business
.ind households.
Human development
index (HDI) : a summary
measure of average
achievement in key aspects
of human development: a
long and healthy life, being
knowledgeable {education) and
having a decent standard of
living.
•
•
•
•
to free educalion in good schools and universities? \l\lhat is the literacy
rate (what percentage of people over the age of 15 can read and
write)? Ale there nice, well-equipped places for children and ad..lts
to socialise arid engage in sports and other recreational activ(iies?
Access to all of these helps to improve quality of life.
Diet and nutrition: Is there food poverty? Or do children and adults
have access to a balanced and healthy diet that is essential for their
well-being and health?
Life expectancy: This is tne average age that a person can expect to
live to In a given sociely. How long a person can expect to live is an
important component of quality of life.
Rate of infant mortaltty: Infant mortalily is a measure ol the number of
infants that die during the first year after birth, per thousand live births.
It is regarded as a good measure of tne level of public health.
Access to public utlltties, such as electricity, potable water and
technology: A final element of quality of life is the access that people
in a society have to public utilities such as gas and elec1ricity, fresh
water supplies, Internet links and cellphone ownership.
Human development index
The United Nations has created the human development index
(HDI) which measures quality of life In different countries using
indicators based on three dimensions:
EXAM TIP
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t"1e goools th cit cci"" be
bo'-<g"1t witn tne"""
Cl V\.C<'. "('-< Cl Liti'.J of Life,
IM.eClSi,tYed t nrougn
tl,,ii.,.,gs t nett people vciL'-<e
'""ctudi"'-(3 t neir neetLt"1
Cl V\.C<'. ed '-<CCI tio ""·
• standard of living (as measured by national income)
• life expectancy at birth
• education (as measured by years of schooling).
The HDI separates countries into very high human development, high
human development, medium human development and low human
development. The information provided can inform governments
about the changes that can be made In the different policy areas.
The country with the highest HDI value compared to the ideal of
1.000 is Norway at 0.953.
The table below shows the 2018 HDI values for selected Caribbean
countries.
Rank
Country
Human Development
Index (HDI value)
54
Bahamas
0.807
58
Barbados
0.800
69
Trinidad and Tobago
0.784
70
Antigua and Barbuda
0.780
72
St Kitts and Nevis
0.778
73
Cuba
0.777
75
Grenada
0.772
90
St Lucia
0.747
94
Dominican Republic
0.736
97
Jamaica
0.732
99
St Vincent and tne Grenadines
0.723
Sustainable Development Goals
In 2000, the United Nations adopted eight Millennium Development
Goals to reduce extreme poverty by the year 2015. In 2016, the
list of goals was revised and expanded to seventeen goals to be
achieved by 2030. These include:
1 . No poverty
2. Zero hunger
3. Good healtn and well-being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8 . Decent work and economic growth
The nine other goals are about reducing Inequality, protecting the
environment and tackling climate change. All seventeen goals are
accompanied by quantifiable targets.
KEY POINTS
• Standard of living (SOL) Indicators are used to measure how
well off people are in a society, for example the extent to
which they can buy consumer goods.
• There are also broader Indicators to measure ouality of Itta
based on the things that people value, such as access to
good schools and hospitals.
• The UN has created the human development inoex that tal<es
in standard of living, life expectancy and education.
SUMMARY QUESTIONS
1. Which of the 'oilowlng would you associate with a quality of
life indicator, and which would you associate wtth a standard
of living indicator?
a. Access to good-quality education
b. Television ownership per head of population
c. Low crime rates
d. High wages
e. Clean air and water supplies
2. ldenttty two situations where the stanoard of living rises but
the quality of life falls.
3. What is the HDI?
National income and
its variations, and the
role of education in
economic development
OBJECTIVES
You should be able to:
• explain national income and
its variations
• oescribe the role of
education In economic
growth ano development.
The numoer cf years oeop,e soend
oevElopment index
~
eoucat.cn s an i-npcrtant Element of the hu'Tlan
National income and its variations
National income Is the total value of income produced by a nation in
a particular period of time, tor example in one year. There are three
main ways of mal<Jng this calculation.
1. Income method: add iogether all fon-ns of income earned by
citizens, for example income frcm employment, profit, interest and
rental income in a given year.
2. Output methcd: add together the value added by each of ,he
industries in an eccnomy for a given year.
3. Expenditure method: add together the total value of all spending in
the economy In a given year, such as spending on consumer goods,
spending on capital goods and government spending (and then add
export sales and take away spending on imports by foreigners).
Calculating national income makes It possible to measure total
Income growth In a nation over time and to contrast the natlonal
income of different countries.
Definitions
National income can be de!ined in the following three ways.
Definition
Details
Gross national The to'.al value of goods a'ld services produced by a
product (GNP) country's residents in a particular period of time, both
locally and abroad. (So some o! this income could
come from foreign investments and money earned
when working abroad.)
Definition
Details
Gross
domestic
product (GDP)
Per captta
income (Pl}
The total value of goods and services produced in a
countrf in a particular period of time. It is the most
common measure of national lnoome.
The national income divided by tne popula1ion cf a
oountry In order to arrive at an average income per head.
How national income relates to growth and development,
and impacts standard of living and quality of life
The development of a country is often measured in terms of how
high national income is and how fast it is growing. Standards of living
Improve when people have more goods, and they have more goods
when national income {GNP and/or GDP} Is rising. Per capita income
measures average incomes and so it is a good way of assessing how
well off the average citizen is.
However, there are a number of issues with measuring well-being
In this way. High per capita Income might mask vast differences In
Income between the rich and the poor. It also does not tell us about
hovv income is created. For example, a high and growing national
income could be the result of increased pollution. To know more
about growth and development we also need to take into account
quality of life, tor example as measured by the human development
Index (HDl}. These consider factors such as levels of education
achieved and educational opportunity, as well as access to health
resources and life expectancy.
EXAM TIP
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tne 111<,0St COYl<,J¾O"'W /;I i:jS of vi:-ecis«rivcg
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bi:J citi.ze""s f..-ol¾
,.,.,vestl¾e""t i;i
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rel¾itta=es se""t nome) .
""°'
The role of education in economic growth
and development
Education is fundamental to economic growth ano development.
The United Nations takes into account two educational measures in
its human development index (HDI).
KEY TERMS
• Mean years of schooling: The average f'Umber of years of education
Mean years of schooling:
received by people aged 25 years and older.
• Expected years of schooling: The number of years of schooling that a
child of school entrance age can expect to receive.
Education is important because it is a key factor in determining how
productive a society Is. Access to good-quality education enables
people to aovance themselves and to get better Jobs that require
more skills and knowledge. Education also enables self-actualisation
(achieving one's full potential}.
the total number of years of
eoucsition received by people
aged 25 years and over divided
by the number of people in this
age category.
KEY POINTS
• National Income measures the total value of output In a
country In a given period of time and the total Incomes In that
period.
• National Income can be measured through gross nsitional
product (GNP), gross domestic proouct (GDP) and per captta
income (P).
• Education Is a key Indicator of standard of living.
SUMMARY QUESTIONS
1. What aspects of standard
of living are GNP and Pl
good at measuring?
2. What is the difference
between GNP and GDP?
3. How could the educational
well-being of a nation be
improved?
Reasons for international
trade, and the functions
of major economic
institutions and systems
OBJECTIVES
You should be able to:
• outline the reasons tor
International trade
• identify the functions of major
economic institutions and
systems.
Reasons why countries trade with each other
International trade benefits countries because they are able to
concentrate on producing their best goods and services, and they
can traoe surpluses of these tor goods and services produced
abroad. Importing from overseas provides a much wider and cheaper
range o' goods than can be produced domestically. The four main
reasons why countries trade \/\/Ith each other are sho1Nn In the table
below.
KEY TERMS
International trade: the
buying and selling (importing
and exporting) of goods ano
services across international
fron1lers.
..,,
t~ ~
~
'.
Our fruit and vegetaoles are exoorted to the coder clma,es of northe·n Europe
Why countries trade with
each other
Details
Not having certain assets
or natural resources
A country may not be endowed with the
factors of production required 10 prodl.lCe
tne goods It needs. For example, most
Caribbean coantries do not have access
to oil or to the large pool of skilled labour
needed 10 staff nigh-tech engineering
Industries, such as automobile
manufacture.
Why countries trade with
Details
each other
Not being able to produce
a sufficien1 quantity or
quality of goods
A country may no1 be able to produce
the goods ancl services tt needs In the
quantities or cf 1he qualtty required. For
example, many Caribbean coantries
import plastics, perfume, corn, soya
beans and computers rather 1han
produce them in large quan1ities
clomes1ically.
Limitations cf climate
A country may no1 have the climate
to grow certain foods. For example,
coun:ries In ncrlhern Europe import
many tropical fruits ar>d vegetables
from the Caribbean, such as mangoes,
guavas, oranges, pomegranates and
coconuts. In contrast, many Caribbean
territories lmporl fruhs such as apples,
grapes and strawberries. which grow in
colder climates.
International trade allows for foreign
direct investment, allowing individuals in
one counlry to invest money in foreign
companies and otner assets.
Countries trade wtth each other because
of comparative advantage, be---.,ause one
country can produce goods at a lower
opportuntty cost than tts lracling partner.
The term 'opportunity cost' refers to what
is given up wnen one of many options
is chosen. For example, when Trinidad
and Tobago produces and sells building
aggregates sucn as cement to other
Caribbean countries, the opportunity
cost to Trinidad and Tobago is relalively
low because the country is relatively
efficient at prodvcing cement. Another
country, such as Saint Lucia, cculd
produce bullcling aggregates rather than
buy them from Trinidad ancl Tobago, but
only by stopping or reducing production
of other goods. In simple terms, 11you
are not very good al making something
(compared with ano'.her producer) then it
makes economic sense to buy it {import
it) from a more efficient producer.
Foreign direct investment
Comparative advantage
Functions of major economic institutions
and systems
There are many economic Institutions and systems that serve the
Caribbean vthich focus on trade, development and international
finance. The functions of these are summarised in the table below.
KEY TERMS
Major economic
Institution
Function
Common external tariff
(CET): a shared tax that
is common to a group of
countries which form a trade
group. such as CARICOM (the
Caribbean trading community).
This tax is levied on goods
coming Into a country that Is
a member of the trade group
from a country outside the
trade group.
Caribbean Community
(CARICOM)
A community of 15 Caribbean member
states and associates, which enables
economic coopera1ion and in1egration
be.ween members.
Caribbean Single
Market and Economy
(CSME)
A free trade area wnere 1here are no 1ariff
barriers be1ween countries. Key features
include:
• free movement of goods and services
• free movement of capital
• free movement of agreed categories of
workers such as nurses
Regional development
bank: a financial institution that
provides loans ano grants to
businesses and governments,
to help with the process of
economic growth.
EXAM TIP
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tfOU
C&l"'-
distio,,,,g ui.sn betwee""
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sucv.
CA RJCOM
~vcd _cs'.'1e; ci.,,d gtob&rt
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IMF,
&IS
• a common external tariff with
counlries outside ihe CSME
• the right to es1ablish a business in another
CSME coun:ry.
Caribbean
Development Bank
(CDB)
A regional development bank that
encourages development in 1he Caribbean
area and provides funds for developmen1
projects.
lnlernatlonal Bank for
Reconstruction and
Development QBRD)
An interna1ional financial institution which is
part of the World Bank. It provides funds 'or
development projects such as improvemen1s
to transport, education, 1he environment,
energy and healthcare.
VVorld Bank
A large lmernatlonal financial institution made
up of 158 countries. It is 1he world's largest
source of funding for developing countries,
and seeks to end poverty and promote
shared prosperity around the globe.
Provides overall supervision of the world
banking system. It lends money to
governments ln l imes of financial crisis.
Central banks in the Caribbean (and
elsewhere) work closely with the IMF 1o
create a sound international financial system.
WoYLd "B&I""~ ci.,_i;j
wro.
International Monetary
Fund (IMF)
VVorld Trade
Organization (WTO)
Organization of
American States (OAS)
Establishes rules and agreements between
countries regarding trade. Seeks to reduce
tariffs in order 10 increase world trade.
Mediates in situations where countries have
trade disputes.
Aims to strengthen peace and security In the
Weslern hemisphere, to promote peaceful
settlement of disputes. and 10 encourage
economic and social coopera1ion.
St Lucia
Jamaica
Antigua and
Barbuda
Dominica
St Vincent
and the
Grenadines
Barbados
Grenada ~ --:::I
Full members of
CARICOM in 201 9
Belize
Montserrat
Suriname
St Kitts
and Nevis
Trinidao
and Tobago
Guyana
Haiti
Bahamas
Barriers to trade
Countries can create barriers to trade to restrict Imports from foreign
countries and to protect home industries. Barriers include:
1. quotas: setting a limit on the number of goods or tne value of goods
that can be imported from other countries
2. tariffs: imposing taxes on imported goods. Taxes can be on the
value of the imports (an ad valorem tax} or on the number of impcrts
(a specific tax)
3 . exchange controls: limiting the value of foreign currency that citizens
can purchase from banks, thereby restricting how much foreign
currency they can Import
4. embargos: direct prohibitions on imports from particular countries.
Balance of payments
The balance of payments is a set of national accounts that outline
the value of exports to, and imports from , foreign countries. The
accounts are spltt into visible trade (exports and imports of goods)
and invisible traoe (exports and Imports of services}. When the value
of exports exceeds the value of imports, a country has a current
account surplus. When the value of Imports exceeds the value of
exports. the current account is in deficit.
KEY POINTS
• Countries trade with each other because they are not equally
endowed with resources, and they benefit from exchanging
products they are better at proouclng with ones they are less
effective at producing,
• There are a number of economic Institutions in the Caribbean
and on a global scale that support economic and trade
cooperation.
• The World Bank and the IMF support the world trading and
financial systems. 'They also provide funos for governments
that need them.
SUMMARY QUESTIONS
1. Identify two ways In which
a Caribbean country can
benefit from trade.
2. Explain how one Caribbean
economic Institution
encourages trade v,ithln the
Caribbean region.
3. What is 11,e func1ion of the
World Trade Organization?
How economic institutions
impact the Caribbean,
and the major economic
problems of the Caribbean
OBJECTIVES
You should be able to:
• explain how economic
Institutions or trade
ag reements impact the
Caribbean
Belize
Dominica
Grenada
Antigua
and Barbuda
Bahamas
Barbados
Guyana
Haiti
Jamaica
Montserrat
St Kitts
and Nevis
St Lucia
St Vincent and
the Grenadines
Suriname
Trinidad and
Tobago
• identify major economic
problems o f the Caribbean.
CAR COM colJfltrles
The impact of economic institutions on Caribbean
countries
Economic institutions have a w id e-reaching impact on Caribbean
countries, as outlined below.
Economic institution
How the Inst itution Impacts the Caribbean
Caribbean
Community
(CARICOM)
Prom0:es integration and cooperation
between members, and seeks 10 ensure tha1
tne benefits of Integration are shared fairly
between members. Also seeks to coordinate
foreign policy. The sharing of resouroes and
approaches between members makes ,he
region more competttive in global markets.
Caribbean Single
Market and Economy
{CSME)
Promoles regional cooperation, particularly in
relation to free trade and the establishment of
a common eX!ernal tariff with non-CARICOM
countries. In addition to the free movement
of goods and seivices vvithin the Caribbean.
the CSME means there is free movement
of capttal and that CARICOM nationals
can set up enterprises elsewhere in the
regiof"l. Operating In a single market enables
CARICOM businesses to operate on a larger
scale because tney have a larger home
market, facilitating economic growth.
Provides funding for Caribbean countries tha'.
need funds to enable sustainable long-term
economic growth. The funds help countries
to use their resouroes more effec1ively, for
example by bt..ilding new transport links and
Improving agricuttural praelloes, as well as for
eduoational and other social purposes.
Provides funding for reconstruction projec1s,
for example rebuilding infrastructure after
natural disaslers such as earthquakes and
hurricanes. It also provides funding for
development projecis, for example to help
wtth ongoing development after reconstruction
work has been completed.
Caribbean
Development Bank
(CDB)
International Bank for
Reconstruction and
Development (IDRB)
V\!orld Bank
Contributes lo a range of development
projects in the Caribbean, for example
projects to strengtnen a healthcare syS1em or
to build dams and highways. as well as other
projects designed to reduce poverty.
International Monetary Provides short-term finance lo help countries
Fund (IMF)
manage debt, particularly where countries
have built up large amounts of debt that
are difficult to repay. However, the IMF will
typically demand changes to a country's
economic policies, for example a reduc1ion In
government spending.
KEY TERMS
Sustainable long-term
economic growth: growth in
lhe nsilional income (standard of
living) and human development
index (qvallty of life) thsit is
maintained over the tong period.
EXAM TIP
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eco"'-Om<c problt"'-S St.<,e,11
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rtCOVl<i,\,\.tV\,cl cit Lecist two
solutiovcs .
yoK shoKlol also be able
to ex.plcii"" now eco""°"""'c
proble"'-S ci re i"l.ter
reL&1tecl . For t.><ci ""'-ple,
how ti-le Krbcivc.lrt.<,ri;iL
cl,viole (i;i.,., ex.&1"'-ple
of olu&1Lis....,) leciols to
ci;ecis of povert1:1 civ,.,cl
11<g k « ""e Yt.<,J> Lo1::J ""-! ~ res« Lti.vcg iv. people
wl-lo Yl,(,ignt Yt.<,Cli<le ci"'
•"'-portci""t COV\,bibKtLOV\,
to l'\.Cltio"'- bt.<,(loli.vcg
'"" the CCI nbbeci""
eYL<,ig rcitivcg.
Economic institution
How the institution impacts the Caribbean
VVorld Trade
Organization (WTO)
VVorks wtth Caribbean and overseas
governments 10 enable lariff-free entry o'
Caribbean products to overseas markets.
for example tariff-free entry of agricultural
produce. The Caribbean is expected to
reciprocate by opening I.IP home markets to
fcreign goods.
Organization of
American Slates
(OAS)
A political alliance that develops policies which
tend to focus on democracy and human-rights
issues (whereas Caribbean governments
would like to see more emphasis on security
and development).
Major economic problems in the Caribbean
There are a number of major economic problems in the Caribbean.
as outlined belov,.
Economic
dualism
Importing
raw materials
Capital flows
from overseas
Economic problems
in the Caribbean
Unemployment
High
population
density
Increasing
debt burden
Net
emigration
Economic problem
Details
Unemployment (people are
classttied as being unemployed
when they want and seek work
but cannot get a job)
The decline of some traditional
industries (such as agriculture)
because of stiff competition
from overseas has led to a rising
number of people looking for
work. Other sectors have not
expanded enough to absorb
those who are willing and able to
work.
In the Caribbean region, most
people are located in urban
areas and many countries are
relatively small in size. This leads
to pressure on resources such as
water and electricity.
Population density (high density
occurs when there are lots of
people IMng in a relatively small
geographical area)
Economic problem
Migration (ne1 emigration occurs
when mere pecple leave a country
than enter tne country)
Details
The Caribbean has suffered from
a "brain drain" since lhe 1950s.
as skilled people such as doctors
and engineers have sought
employment in the United Slates
and elsewhere in an attempt to
improve the lives of their families.
Debt burden (this occurs and
The debt burden has risen for
increases in scale when the
many Caribbean countries as a
country is indebted to overseas
result of foreign borrowing, mainly
countries and instiM ions)
from 1he IMF. For some Caribbean
countries. the amount of debt Is
greater than the na1ional income.
Sourcing capital and raw materials Caribbean countries lend to have
(capital and raw materials for
poorly developed capital marke1s
Caribbean industries are often
and need to import significant
acquired from overseas)
quanttties o' raw materials.
Acquiring cephal and raw
materials Is a coslly business.
Economic dualism in the region
There is an urban/rural divide in
(the Caribbean is characierised
the Caribbean creating a twoby areas of prosperi1y alongside
speed economy. In addition. some
areas of relative poverty)
countries are rela1ively prosperous
(such as Barbados, Jamaica, and
Trinidad and Tobago) while others
are much less so (such as Haiti).
The nature of these problems means that they tend to be interrelated. For example, as a result of high unemployment in certain
parts of the Carribean there has been an exodus of people to other
countrles, particularly to the US, Canada and the UK Similarly, the
fact tha1 capital has been borrowed to finance investment in the
Caribbean has led to an external debt burden.
KEY POINTS
• The economic institutions 1hat Caribbean countries are
members of. such as the WTO and CARICOM, impact on
tradlr19 relationships, development programmes and other
aspects of the, economic management of the Caribbean.
• Trade agreemen ts enable the Caribbean to benefit from wider
markets. while oevelopment 'unds help to support long-term
growth.
• Economic problems that impact on the Caribbean include
unemployment, a high population O'ensity and a growing debt
burden.
.
-
SUMMARY
QUESTIONS.
..
1. Identify three institutions
that a Caribbean nation
could seek to borrow
development funds from.
2. How does the IMF both
bene'it and hlnoer the
development of Caribbean
countries?
3. Explain two economic
problems facing the
Caribbean.
Solutions to the major
economic problems in the
Caribbean, and foreign
investment
OBJECTIVES
You should be able to:
• outline appropriate solutions
to ihe major economic
problems of 1he Caribbean
• explain the role, benelits and
impact of foreign investment.
Foreign d reel Investment has resutecl n many hotels In the Canobean being bul't and
run by fore,gn comcanoes, s~'Oh as the Hi ton range o' h<t.e$
Appropriate solutions to the major economic
problems of the Caribbean
There are a number of possible solutions to the economic problems
of the Caribbean.
Solution to economic
problem
KEY TERMS
Capital market: the 11nanoial
market for lo<"g-term borrowing
for long-term proJeots.
Export sector: ~rms In the
economy that produce a
significant part of their output for
overseas sales.
Details
Access to foreign direct The capital market is poorly developed in
investment (FOi)
the Caribbean. Most Caribbean countries
have to rely on funding from institutions like
the VVorld Bank or Caribbean Development
Bank for major funds, such as to build
bridges and port facilities. Aocess to FOi,
where overseas companies inves1 in the
Caribbean, helps to supplement funding
from institutions like the World Bank.
Foreign Investors are most likely to Invest In
a country Vli hen it proves to have a stable
government, low crime rates and businessfriendly policies. Caribbean entrepreneurs
also need to present a strong case for wny
foreign investors should offer them funding.
Solution to economic
problem
Details
Development of human The Caribbean will become more
resources
compelitive and self-suslaining tt tt develops
a more skilled and enterprising workforce.
Two ways ihis can be achieved are by
improving slate education and by providing
training schemes in growth industries
such as ICT, engineering and green
technologies. For example. in an effort 10
Increase enrolments in higher education
in the Eas!ern Caribbean, the Un~1ersily of
the West Indies established ,he Five Islands
Campus in Antigua.
Development of
Due to 1heir relat~1ely small size, mos1
manufacturing,
Caribbean economies are reslricted in
distribulion and export
terms of being able to develop large-scale
sectors
production Industries (such as aulomoblle
manufacture). However, there are plenly
of opportunities for developing specialist
manufacluring, such as Cuba's excellent
record in p~armaceuticals development, as
well as the processing of 1ropical frutts In
Trinidad and elsewhere. Distribution is also
an important opportunity In the Caribbean,
with the developmen1of inlernational
ports and logistics hubs in Barbados and
Jamaica. Developing export sectors for
niche products (such as Blue Mountain
coffee In Jamaica) also brings in exlra
foreign currency.
Development of
ICT is one of the key drivers of economic
technology to generate success. However, the successful
economic activity
development of ICT depends on having a
solid ICT infrastructure in place, such as highspeed broadband, education and training
In 1he use of ICT. and government support
for the use ol new technologies. Developing
a slrcng ICT base will give the Caribbean a
slronger engine for economic growth.
The role, benefits and impact of foreign investment
Foreign direct investment
Foreign Investmen t occurs when capital flows from one country to
another. Foreign direct investment is an investment in the buildings,
equipment, machinery and technologies of a business In the
Caribbean by foreigners. For example. a European company might
set up a business to produce solar panels in Jamaica, or a Chinese
company might build and run a hotel in Antigua.
Foreign direct investment benefi1s the Caribbean because the foreign
company will create new Jobs, supply new or cheaper products,
EXAM TIP
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to olifferevstiate
?etwee"" oli.rect forei.0.-.,
L""vts tl'\,\,e ""t (se tti. ""0 t,tp
-fi-rw.s. i."" H,e caribbea""
which are ow""eol btJ
overseas "'-l:ltio"'-l:lls)
a""ol iVl-olirect forei.c.v.
•
v
L...,VestV>Ce~ (where
i""v~to,-s b«tJ sharts ,.,,,
CarLbbea"" b«si.V\.tsSts} .
Mat;a~ s«,-e tJO« ca""
expLatvs the be...e-fi,ts
av.-ol olrawbact;as of both
approaches.
Introduce new technologies and equipment, and bring skilled
workers to staff the plant or business. who will pass on their skills to
Caribbean citizens.
A negative impact Is that foreign firms come to Increasingly dominate
the local economy. They may drive local businesses out of the market
or make it e>ifficult for new local enterprises to enter a market. The
foreign firm may be using more advanced technology, \ivhich gives tt an
ao'vantage and enables it to cut costs. The profi1s of foreign enterprises
may also be taken out of the Caribbean {a form of exploitation).
Foreign Indirect investment
In contrast to foreign direct Investment, foreign Indirect investment
simply involves a foreign Investor buying the shares of a Caribbean
company. For example, Emera (a Canadian energy company)
purchased the shares of Barbados Light & PoV11er Company through
its subsidiary Emera Caribbean. Emera Caribbean also holds the
majority of shares in Dominica Electricity SeNices.
Foreign Indirect investment brings additional pools of capital to the
Caribbean, providing domestic companies wtth the finance needed
to manage cash flows, purchase new assets, make new Investments
and engage with new technologies.
However, foreign Indirect investment means that foreign investors
will take profits away from the Caribbean. They may also seek to
Influence business decision-making In a direction that focuses on the
Investor's profits rather than the development o• the Caribbean.
KEY POINTS
• Solutions to Caribbean economic problems Include attracting
more foreign Investment, developing the capabilities of people
and employing more advanced technologies.
• Foreign direct Investment Involves foreign companies setting
up In the Caribbean. whereas Indirect investment involves
iorelgners Investing In Caribbean companies.
• Foreign Investment has the negative Impact that profits will
flow overseas from efforts In the Caribbean, and means
that !oreigners have more control over Canbbean business
decisions.
SUMMARY QUESTIONS
1. Suggest two solutions for reducing Caribbean
unemployment.
2. What Issues might arise from a foreign company setung up
a new plant that rivals !he plant of an existing Caribbean
manufacturer?
3. How might foreign indirect Investment lead to each of the
following?
a. Funds entering the Caribbean
b. Funds leaving the Caribbean
Practice exam questions
Paper1
1 A challerge facing Caribbean logistics
maragers in supply chain management is:
A Political slability In C..ribbean democracies
like tne Bahal"las
B Regulatory complexity, particularly In
relation 10 International 1rade
C The ease of working with global logistics
providers such as FedEx
6
3
4
A specialist accountirg paekage thal enables
the electronic record keeping of accounts Is:
A A mar,agement informa1ion system (MIS}
B Ml0tosoft Excel
C Adobe Photoshop
D QuickBooks
5
8
The Human Development Index includes:
Standard of living/Income
ii Ltte expectancy at birth
iii Education (years of schooli g)
A i and ii only
B I and Ill only
C II and iii only
D i, Ii and iii
0
C Sea
D Air
The use of ICT has er,abled which of the
following l:)erefits associated with production?
An ircrease in 1he use of automated
processes
ii A reduction in overall production costs
iii A reduction In waste produced during
manufacturing
A gove<nme": measure designed 10 lead to a
more equal d1stnbl/!ion of income In a country Is:
A To replace direct :axes witn Indirect taxes
B To reduce welfare benefits :o citizens
C To make the 1ax system more progressive
D To provide tax breaks for foreign companies
B Pipelir.e
A Redveed repayments on business loans
B A fall In the demand for business outpUi
C A fall in the wages ousinesses pay to
employees
D An increase In i he amounts !Pa1 busiresses
save
predictaole supply arrangements
Tne impact of a cemral bank increasing 1he
minimum reserve requirement In a particular
country is 10:
A Reduce the number of commercial ban~s
licensed to operate In that coun:ry
B Reduce ba"k tending and nence consumer
spending in that country
C Reduce competition between financial
lnslitu1ions In 1he banking sector
D Reduce 11:'e bank rate charged by the
central bank to other oanks
A Rail
7 The central bank lowers 1he rate o' Interest that
r. charges. What is the most likely Impact
on bl.lSinesses In tne medium term?
D S:able marke, conditions providing
2
Which of the following modes of transport
would be most i;iffectlve for trarsporting urgent
medical supplies over long distances?
A I 8.fld Ii only
B I and Iii only
C ii and iii 0°ly
D I, ii and iii
9
Which of the following Caribbean countries
currently has 1he nighest HDI score as
meast,1red by the United Nations?
A Antigua
C Bar.al"las
B St Kitts and Nevis
D lrinidad and Tobago
10 Wna1 is 1he likely Impact of an increase in
the number and value of 1reas;;ry bills made
available to financial markets?
A A reduction in the funds available 1o 1t1e
goverr fTlent
B An overall reduction In bank lending
C A reduction in government indebtedness to
overseas lenders
D An Increase In goverr>ment revenu13s from
Indirect laxes
Paper2
1 Goods arrive In Trinidad i hro<,1gh a range o1 modes o1 transport Including by air, road, pipeline, and cargo
and con1alner ships. When these goods arrive as Imports, they will require transport documents such as
,mport licences, bills of lading and air waybills.
a Describe how container transport enablas intermodal transport. (2 marks)
b Identify o'1e good that might be transported 10 Trinidad by air, and explain two reasons why air
transport might be used rather than another mode of 1ransport for the good that you t,ave chosen.
(5 marks)
c Explain ~No cost consideraticns that would be relevant in CO<'structing and running a pipeline to carry
oil or natural gas. (4 marks)
d Explain three challenges o1 supply chain operations In tne Caribbean. (9 marks)
2 Commercial banks in the Caribbean provide a range of useful services for bus,nesses, such as providing
loans to 1inance the sl art t.p of new businesses or to enable establisl1ed businesses to grow. Commercial
banks also prollide advice 10 the business sector, !or example providing documents and pamp" lets
explaining now to keep 1inancial records 1or accounting purposes.
Identify four services o1 commercial banks. (4 marks)
b Explain ~No types of long-term finance and two types of short-term finance that a Slart-up business
can access, in addition 10 vsing personal sources o1 capital. (6 marks)
c If a new business owner prefers to use his. or her own sources of capital ratner than borrow 1rom an
external tender, identify and explain two sources of personal capital ne or she could draw on. (4 marks)
d Outline how conslructing a personal budget might help an individual to manage his or her personal
inoome. (6 marks)
a
3 The government plays an important role in 1he economic ltte of '.he nallon, for example through ns own
spending on public services and job cre.itlon, mar aglng Inflation through Its con1rol of the banking sector,
influencing businesses 10 proleCi ;he enVironment and many other ways.
a
Describe two government policies designed to Influence businesses to protect the enVironment.
(4 marks)
b
Explain how the government can use taxes to curb inflation, and to achieve grea1er equallty in the
distribution of income. (4 marks)
This year, Dilip Singh - who has a small business selling cosmetics made from aloe vera - has had to pay
the following taxes: income tax, val~e added tax, ,rnport tax and capital gains tax. He is not sure which
of these taxes are direct and which are indirect. Sort out this list into direct taxes and indirect taxes, and
explain why one o1 tnese taxes is a direct ol'e, and another is an indirect one.
(6-marks)
c
d
Dlscus.s two 'omis of social servloes 1ha, are provided by government expenditure In mosi countries.
(6 marks)
4 Gran1 has created his own business producing websrtes for business customers. He believes that
busiress 1echnology is tne key 10 maklng busiresses and naiions competttive In a global world. He is able
10 design interactive websttes that enable cuSlomers to browse prodvCts supplied by small busir esses
and to make purchases online.
a Define business technology. (2 marks)
b Explain two ways in which business technology r as been used In banking.
('1 marks)
c
Describe tne use and a be<1efrt to business of:
Computer-aided design (2 marks)
ii Management information systems (2 marks)
d
Tne etfecti\le 1;se of ICT by businesses In a country enables advances 1hat increase productivity
and therefore improvements in the standard of livir>g of citizens. Outline two indicators of a rise in
standard of living 111a1 mlghl flow f rom ICT advances. (4 marks)
ii Explain one measure of national inoome. (3 marks)
iii Explain how the growth In national income Impacts on the development of a oountry.
(3 marks)
5 Tromas is a sole trader who owns a small stationery shop supplying notepads, pens, colouring pencils,
and a range of other products principally 10 students. He keeps records of his purchases and sales, and
employs a book keeper to produce financial statements for the buslness. Thomas currently uses a singleentry bookkeeping system.
a Explain two reasons why sole traders keep financial records. {4 marks)
b Explain two reasons why a sole trader running a small business might operate a single-entry rather
than a double-entry bookkeeping system. (i!. marks).
c I Explain how the gross profit from Thomas' business would be se1ovt In an Income statement (profit
and loss). (6 marks)
ii In addttion to an income statemen1, 11st two otr er financial Slatemenfs that a business might be
expected to prod.ice, (2 marks)
d
Explain the difference between a business asset ar d a business llabiliiy. Use examples to support your
answer. (4 marks)
d
Acceptance the act of agreeing to
take up (accept) en offer. A sttuat,on
where the offeree agrees to the terms
and cond,t,ons set out by the offerer ,n
the contract.
Air waybill the air-transport equiva'ent
of a b II of lading.
Automation using automate sys!ems
to operate or comrct processes,
methods and S)'$tems, with very l111e or
no human Intervention.
Average disposable income
money left for spending after deduct.ons
such as income tax and national
insurance have been taken away,
caleulated for the average household ,n
an economy.
d
Barter the exchange o' goods or
services for other goods and services
withw. the use of l\'lOl'ley.
Bill of lading a document that needs
to be signed by a carrier to 'orm a
receipl for the goods h w ll be car,ying.
Board of directors a sma'I group
given the resCO<'lslb.11\y for governing a
business.
the bus ness, such as the actions of
competitors, the market in wh'ch the
business operates, etc.
Code of ethics a se: of values wh:ch
describe how a company and ru, people
are expected to believe in a moral wey.
Business performance now wel a
Collateral an asset (such as property
or sometliing else of va ue) lhat a
borrower p<avides as security in order to
get a loan from a lender.
business does. as measured by ~ey
ind-cators suet, as sates and ncreases
,n sales.
Business plan a format written
document setting out the ooject.ves
of a bu&ness, as well as key de:allS
about the intended future running of the
busi~ess (such as marketing, financing
and structcring). It IS written for the
owners and other stakeholders such as
lenders.
Business taxes a lax on the sale o,
orofits of a business.
Business technology technology
that he'ps to run a business and rts
operations. Examples Include machines
orogrammed to carry out specific tasks,
onllne secling websttes, and computer
programs to help aocounilng and
market ng functions.
di
Capital gain an increase in the value
of an asse:, which ,s ,ea ised when the
asset rt so'd for more than its purcnase
once.
Breach when a contract Is d,scharged
because cne party tails to carry oot their
part o! the contract lawfuly.
Capital market the financial market
for long-term borrow,ng for long-te,m
projee1s.
Bureau of Standards a body
respcns ble for setting qua lty standards
for the manufacture and product,on
of goods and services whh nag ven
country.
Case law law that has been
Business conceptualisation
developing and bu lding a picture of
what a business will be ll~e. for example
who v/i I ovvn and run it, what 11 Will oo,
wha1 it will be called and from where it
wi I operate.
Business environment external
facto,s that have an influence on
establ~he<f by fo'lowing decis.ons
made by 1udges and courts. Previous
Judgments set a precedenl fer future
Judgments.
Central bank the government's bank.
It oversees the n.mn ng of the financial
system in a particu 1ar country. and
floenses other bani<S to operate in that
country.
Closing balance the number of goOds
1n stock or the financial state ol an
acoount at the end of a trading pencd.
Command/planned/socialist
economy economies in which the
government "commands" or "plans" the
economy. i.e. it makes key econom c
decisions or behatt of society.
Common external tariff (CET)
a shared tax that is common to a group
of countries whicn form a trade group,
such as CARICO'v1 (the Caribbean
trading commun ty). This tax is levied
on gooos coming lrto a country that
Is a member of the trade group from a
count,y outs<:Je the trade group.
Compensation money paid out of
an Insurance cool to cover a spec fie
loss incurred by an Insured person or
company.
Conflict a serious disagreement or
a•gumem (w tNn a business this Is like,y
to be between d fferent departments or
between managers and employees).
Consideration something of value
given up by bOth parties as part of an
agreement, for examp.e performance.
promises or money.
Constitution the wrttten and unwritten
gulde'lnes and ru•es outlining ho"" a
count,y w II be governed, and who will
be legltlmately empowered to make
decisio~s on beha~ of others.
Consumer behaviour the
factors
that influence consumers to buy one
prOduct instead of another, and how this
behavour might change overt me.
Controls steps and procedures for
supervising the running of something.
Copyright protection provided for
authors. composers and artists.
Credit an entry ,nto an account book
that ether decreases an asse1 account
or increases a llabli ty account. Cred,t
en1ries are PoSltioned to the nghi 1n an
accounting entry.
Credit note a document sen1by the
se'ler to the buyer reducing the amount
that needs to be pa<! on an Invoice, for
example because goods are damaged
in transit.
Crossed cheque a cneque !hat has
twO parallel vert,cal or diagonal lines
drawn across i:. lnstl\JClions can be
wrr.ten between the Ines, suCh as that
the cheque can only be redeemed by
the person whose name appea,s as the
payee.
d
Database an organised
cc'lect,on of data that can be. 001 is not
necessariy, accessed from a computer.
Debit an entry into an account book
that ether increases an asset account
or decreases a llao lily account. Debit
en1rles are PoSltloned to the iett n an
accounting entry.
Debit note a document sent by the
se !er to the buyer identi~/ ng add tlonal
money that ,sowed, for example
because the,e has been an error in
calculating hov, much needs to be paid.
Deferred income Income that cannot
be used until a future date.
Deferred payments payments that are
made In the fuiure for a current debt.
Development bank a financal
instltuiion !hat prcv<!es roans and giants
to businesses to help with the process
of economic growth.
Digital involving or relat,ng to tne use
of computers and the way In which they
use data signals ,n the form of dig ts
made up of O and 1.
Digital delivery the e'ectron,c de! very
of lnformatiOn and oon1ent, usual;y via
the ln1emet.
Direct taxes taxes where the burden
of the taxes and the responStbil ty for
paying them falls on the same individual.
Double coincidence of wants
two people who each want wnat the
other has to offer.
Double-entry bookkeeping
a system where eve,y enlry in the
"books" is reco·ded twice, once as a
deb;t ard once as a cred t.
Drawee usually the bank ,esponsio'e
for following the drawer's mstructlon to
t,ans'er funds to the payee.
Drawer a person making out a bill of
exchange. such as a cheque ordering
the payment of fundS.
d
E-commerce buying and se ling goods
eleclrcnically via the Internet.
Encoded/decoded to encode ,s 10 put
a message ,nto a form tnat enables It 10
be t<ansmrtted. e.g. c1eatlng an email
.
en a compu ter screen. Toe decod,~g
process refers 10 lhe reading and
ma!<ing sense of a message that has
been t<ansmltted.
Enterprise a bu&ness that has been
created by aspiring ,ndNduals. The
term "enterprising" re'ers to be ng
wil,lng tc try new challenges and to take
acceptable risks.
Executive summary this Is alSocalled
a management summary. and It is a
short part of a lo~ger document that
summarises the key coment of t~e main
document.
Export sector firms in the economy
that produce a significan1 part of their
output for overseas sales.
d
Factors of production the resources
needed by businesses to produce
goods and services.
Fair Trading Commission the
government depa,1men1,espcnsio!e for
lllCl1ilorirg the ways that companies
operate to ensure honest and far
dealng.
Financial forecast a pred-ction of
the expected financial pos•tion of a
business In the future, and the results
o' operations and cash flows based on
expected conditions.
Flow of goods the movefl'.ent of
goods ei!her forwards or backwards
along the supply chain.
Free market/capitalist economy
economies In which private lnoividuals
are f<ee to choose hew they spend the r
money and whal wof~ they do, a~d
tl\Jslnesses are free to choose what to
produce.
d
G
d
.
Cd .
oods an services a gc ,s 8
physical 0< tang ble product which can
be used now or later, such as a car
or bar of steel. A Stervice is an activi'.y
whe,e work is pertormed for Olhers.
Examples nclude supJ)-yng drainage
and water services.
Grievance procedure an official
process set up to deal w,lh the
oomplaints of employees about workrelated matters and relat.onships.
d
Human development index (HDI) a
sumrnar1 measure of average
achievement lo key aspects of human
development: a long and healthy life.
being k~owledgeable (education) and
having a decem standard of Iv. ng.
Human resources development
the develOpment o! peol}'e ano their
capab:ltties at wo,k In ways that meet
their individual needs.
d
Import licence a perm t from a
government body giving permission for
goods to be imported into a country.
Indirect taxes taxes where tne burden
of the taxes and the responslbi lty for
paying them fa ts on dfferem individuals.
Inflation a sustained increase in the
prices of goOds and seNices.
Instrument of exchange the means
through which a payment ,s made,
e.g. notes and co·ns, cheques and
m-money.
tntermodal transport the de ivery
of cargo using ~.vo or more modes of
transpo,t.
International trade the buying and
selling (Importing and exporting) of
gocds and S8Niees across International
frontiers.
Liquidity assets ratio the quam1ative
reta:ionshp between liquid assats and
an assets In a financ,al lnstrt\J!ion.
quant.ty of money ,n the economy, and
the price (Interest rate) of borrowing or
lend.ng money,
Logistics the oocn:I nat/Cfl and
ocganisat10n of complex ope,at>0ns.
Money an}1ning that serves as
a generally accep,able means of
exchange. lnc'udes physical objects,
e.g. cowrie shet:s and paper moray, as
well as cards and etectromc forms of
payment.
d
Management the process of bong ng
the factors of proouct10n (human
and non-human) together to ensure
ocganisat10na1 goats are achieved.
Manager a teaeler who is
expected to orga~lse people, resources
and finances by setting up systems and
procedures In a log cal and efficient way.
Market any s.tuation where buyers and
sellers come Into contact.
Market probe carry ng out research to
find out more about customers and the r
requ rements, as vvell as learning about
the nature of the compei~ion before
setting up a business.
Marketing odentifylng and anticipating
customer requirements in order to meet
these requirements and make a profit.
Inward-facing processes
Marketing activities operations
business processes that involve
communications within the ousiness,
such as between managers.
planned and dev,sed by the marketing
arm of a company, designeo to find out
about and meet customer requirements.
d
Liability to be held lega ly responsible
by law.
Limited liability a lim!ation on tne sum
that owners of a business have to pay
out to meet cebts. The ~ighest sum that
owners would have to pay is the amount
they invested ,n the business.
Line manager a manager with direct
personal respon$ bil ty for an indMdual
employee (sometimes referred to as a
"direct manage(j,
Liquid assets assets (what a business
owns or is owed) that can quickly be
converted into cash.
Marketing mix the four key decisions
that muSt be taken In the effective
marketing c f a proouct.
Mean years of schooling the total
number of years of educat10n received
by people aged 25 yeacs and over
divided by the number of people In this
age category.
Merchandising the way in which
Money laundering concealing the
origins of ii ega•ly obtained money so
that h appears to have come from a
legltimate source.
Multi modal transport invoives two
or more modes of transport, bi.rt the
excorte, oeals vr.tn a single carrier who
Is respons,ble for the whole journey.
Mutual organisation a private
organisation owned by its po:icyholders,
depostocs ano oiher customers. The
profits are distributed as divieiends
according 10 the amoum o! bus ness
that each custome, has done whh the
m-itual orga~isation.
d
National debt !he total amount owed
by the government as a resul'. of Its
borrowing over time.
Niche market a small but distinct
segment of a larger market made up of
peOJ)le whh sim,ta, tastes, habits and
buy ng patterns.
Noise any obstac es that prevent a
message from being received c.aarty in
the way that h was Intended. Noise may
I1eral y resu t from background noise,
such as peop•e talking, or il may refer to
messages being pocrly worded.
produC!s are arranged in a physical or
online store to maximise sates.
Micro enterprise a very sma I
business employ ng only a few people.
Monetary policy the deliberate
at,eration oy tne government of the
Offer a proposal made by one party
to another party, establ.shing his or her
wi'lingness to ante- Into a legal bind ng
agreement The basis of tne offe, will
help to form the conttact.
Offeree someone who receives a
proposal from anOlher party Q.a. from
the offero,J. If the offeree accepts
the proposal he or she enters into a
contract with Iha offaror.
Offeror someone who makes a
proposal to anotner party In the hope of
emaring into a contract with them.
Operational plan this se:s out the
day-to-day tasks that are required to run
a business.
Order a wrttten Instruction bind ng one
party to pay a fixed sum on an agreed
settlement date.
Outsourcing h ring a bus:ness outside
a company to carry out services
or p,oduce goocs on beha~ of the
company.
Outward•facing processes
business processes that involve
ccmmun.cations outs,o'e the bus,ness,
for example with cuStomars and
suppliers.
Overhead costs a'I ongoing business
expenses, not 1ncl~ding the labour and
materials used to create a gooc.
d
Patent this grants exclusive rights
to the produetlOn, sale, use and even
importatoon c f something, ano can last
for up to 20 years.
Payee a parson entitleo 10 payment by
the d·awee as a resu'1 of 1nstruct<>ns
made by 1he drawer.
PayPal an Amencan company wh ch
runs a worlowide payment S)'$tern tha1
suppcrts onl ne money trans'ers. PayPal
acts as a payment p,ocessor for onllne
se.18!S {a-traders).
Plan a detailed proposal (usua'ly sat
out In writing) for achieving something.
Population centre a place where large
numbers of peo,o•e live, such as the city
of Kingston in Jamaiea.
Premium a sum of money pad on
a reg~lar basis by the insured into ar
Insurance cool.
Promotion the publ;oising of a product
or o<gantsat,on in order to increase
publ c awareness and sales.
Pricing strategy an overall pricing plan
Public limited companies companies
whose shares a,e traded on a public
Stock exchange. Buyers and sellers
can buy or sell these shares through
an irtermad ary (a market maker). Thay
can trade shares without having to gel
permission from the board of direciors.
desig"led to provide the best pnce for a
specific market.
Primary industries industnes that
extract natural resources.
Primary research when researchers
colect data directly themselves
rather than us.ng exiSting publ:stied
Information.
Private limited companies
compan,es thai are owned by private
shareho!ders and whose shares are not
openly traded on a stock exchange.
Shares can only be bought and
transferred wltn the perm,SSion of the
boaro of directors.
Private pension scheme a non~
government pension schema where
an inoividual deposits regular sums
lrto a pension fund, entitling !ham to
receive a payment on retirement o· at
a set age.
Proforma invoice "pro forma" I teral:y
means "produceo as a matter of form'.
It tndieates what the final t~vo,ca wl I
look like.
Product conceptualisation
111inking up and then flesh ng OU! ideas
for new goods and seoACes that can be
produced and sold by a bus,ness.
Production the precess of using
matenals (inputs) and transforming them
In some way to produce goods and
services (outputs).
Public utilities an organisation that
maintains the infrastructure for a public
service, such as a government-run
electrical company prov,ding electrical
generation and cables to feed ane·gy
supples to t:usiness and househooos.
d
Quotation a docurr,am setting out the
details of goods that can be supplied,
at what prices and under what terms o!
sale. This can ac: as an offer.
d
Regional development bank a
financial 1nstilution that prov.des
loans and grants to businesses and
governments, to help with the process
of econom.c growm.
Regulations rules made by local,
national, regonal and international
auth0<,t es.
Regulatory body an organisation
that creates rules and makes sure 1ha1
the 1nduStry it regulates keeps to these
polieies and ru•es.
d
Production chain the vanous
Secondary research when
stages involved in producing goods,
fre,"ll axtraeting the raw materta•s
to manufacturing the ptoduets and
dalMlring them to sales outlets.
researchers use eX>Sling pub ,shed
n•ormation as a source of data ratner
than colect1ng dala directly themselves.
Productivity how effaetive resources
are In procucing gooos.
Self-actualisation social psychologists
use this term to refer to the achievement
of one's !ull potential through creativity
and lrda,oendence.
Service industries ,nduStries made up
of firms that provide services to people
(such as personal banking and domestic
Insurance) and 10 busiresses (such as
the transpart of goods and bus ness
insurance).
Shareholder someore who is a part•
owner of t11e business; the shareholder
wi I typically have many shares.
Sleeping partner a partner in a
partnersh p t:usiness who is not invoved
Ir day-to·day decision-making 01.11
provides cap tal to the business in return
for a share of the profits. The sleep ng
partner v,.11 benefit from having llm,teo
liabillty. In a limrted partnership tnere
must be at least one partner wl'lo has
uni mited liabl'lty.
Social services services that prov.oe
help with peop'e's living ccnditior.s and
financ.al we l·being.
Specialist logistics company
a company w~h conside·able
experience of manag ng the suppl}'
cha n. These companies can be hired
by other companies tc manage their
logistics work.
Staff manager a manager with
specia ist ski.ls who supporls 01her
managers In a special&! area.
Stakeholder an lnoividual or
organisation that owns one or more
shares ,n a company.
Starting balance the number of goods
In stock or the flnanciaf s:ate of an
account at the start of a trad ng period.
Storage server a server bui t for the
purpose of storing (and accessing) small
to large volumes of data over a shared
network or via the lrternet. May also oe
called a file server.
Strategy the IOng-term plans of a
business concerned w:th the use of
large-scale resources or funds.
which people produce jest enough fo<
their own communal needs and do nol
produce a surpl~s that can be traded.
Streamlined designed to Increase
the speed and ease of carrying out
operations.
Transmitted ancrther word for "sent".
Subordinate
someone of a
lower rank
o, Position.
Surplus production output in excess
of what a produce, requ.res for h:s or
her own use.
Sustainable long-term
economic growth
growth In the national Income (standard
o! .Mng) and human deve-0;0ment index
(quali1y of l~e) tha: is ma ntained over the
IOng periQ(l
d
Technical assistance non-financial
he'p provided by local or international
spec:ahsts. such as the sharing ol
information and expertise.
Telecommunications the sending
of Information (,n the form of words,
sounds and/or ,mages), usuali}'
over long distances, in the form of
electromagnet c signals by telephone
(,noludirg cellphones and landliresJ.
telegraph, rad:o or tefevision.
Trade union an association of
emp'Oyees that has been formed to
orotect and cromoie tne Interests of ts
members, and to achieve other jointl}'
agreed aims.
Trademark something that
dist,nguishes one company's product
from those of ,ts competitors.
Traditional (subsistence)
economy an economic system ,n
d
Under seal this term applies to a
situation where legal documents are
differentcated from other types of
document. A seal Is a legal mark which
signi1ies t~at the docurr.ent with the
seal Is a legal document and that It is
binding.
Unit costs of production the average
cost o' producing a geed, or simply tne
cost of preducing one unit of output.
Unlimited liability a bcslness owner
Is liable for some or all cf tbe debts o'
a business and, as a result, may have
to sell personal possessions, such as a
house, to meet bus ness l.abi lties.
"
Value added tax each step In the
product,on of a gooo makes It more
valuable. Producers (1ncludlng reial'ers)
pay tax at a percentage rate on the
value that they add to a product. They
then pass this tax on in the prices 1hey
cha,ge.
Viable currently suoceed ng (mak,ng
a profit) and liKely to cominue to be a
success
Virtual market the buying and sell ng
of goods and services tnrough the
Internet, rather than a pnysical place
where people meet face to face.
acceptance 62
advertising 24, 88, 94, 162
agriculture 73, 78. 84-5
air transport 11 1
airway bills 1 I 2, I I 3
ATh/.s (automated te ler machines) 126,
155
autocratic leaders 30, 31
automation I 60, I 61
average d·sposable Income 165
ba ance of payments 173
ba 1ance sheet 139- 40
bank drafts 9
bank transfers 9
banKs
account types 126
central banks 5t, 122, 127, 128- 9
commercial banks 122- 3, 129
development banks 123. 136. 172, 175
financial aovice 131
Online banking 125, I 55
barter 6-7. 8
billsof excharge 8, I0-1 1
b'lls of lad ing 112, 113
boards of oirectors 12, 13
bookkeeping systems 138- 41
brand ng/brands 87, 88, 93
breach of CoNract 63, 6•
budgets 130
bu IOing scc·eres 123
Bureau of Standards 99
business concept 46
business environment 30
business estab :ishment 22- 5, 40- 57
business plans 40, 46- 50
cap'tal sources 56- 7, 136- 7
entrepreneurs '0- 5. 47, SO, 52
ethicaVlegal issues 22- 5
feaslbil',y studies 52
:ocation cf businesses S5- 6
olannir.g 52- 3
reasons for ,4-5
regula1·ons S3- 4
research 50- 1
business growth 82- 3, 85
business performance 40, 41
business plars 40, 46- 50
business support 150-2
business taxes 20, 21
business techrology 154-63
ca :1centres 101
capita' '1, 56-7, 73, 75, 76- 7, 136-7
capital gain 132
capital market 178
caoltalist economies 18
careers ir business 25
Caribbean Ccmmurity (CARICOM) 172,
174, 175
Caribbean countries
Bureau of Stanoards 99
business support 150- 2
cottage industries 79
economic development •4
economic institutions 17•-6
economic problems 176- 9
human deve'opment Index 166
metrication ccards 99
production 73
public sector 12
small businesses 80
trace 1 1£
Caribbean Stng'e Market and Economy
(CSME) 172, 175
CAR:COM see Caribbean Commurity
Cor/i/1 •1. Corbo!ic Smoke Boll Co. (1893) 6•
case law 63-4
cash flew statemen!s I•0- 1
central banks S4, 122. 127, 128- 9
CET see common externa l tarif'
cha'n of distribution I 06-9
charismatic leaders 31
cheques 8, 1O
closing balance 67
cc-operiltlves 16
collateral 56- 7
commano economies 18
commercial ban<s 122- 3, 129
common exterral tariff (CET) 172
ccmmunicat·on strategies 38-9
corr1pan!es 16
compensation 69
competitiveness 11 6- 17
conflict, organisational 32- S
considerat'on 60
const:tutlons 1,3
consur-,er protect ,or✓rights 54. 98- 9
consumers 20, 92- 3
contracts 60-4
controls 26
copyright I 02, 162
corPoraton tax 148
cottage industries 79
counterfeiting 115
cred't 98, 125, I 34
credit cards 8, 9. 11, 125, 135
cred,t entr'es (accourt books) 138
cred,t notes 55
credit unions 123
crime 22, 25, 162, 163
crossed cheques I0
crowd funding 135, 137
CSME see Cariobean Single Ma,ket and
Economy
customer service I00- 1
customsdul'es 148
databases 1s•- 5, 157. 162
debit cards 8, 9, 125
debit entries (account books) 138
debit notes 65
decision-maicing 43
decoding orocess 38
deferred Income 132
defe,red payments6
democ riltic leaders 31
development barks 123, 136. 172, 175
d 'gital communicaton technologies 154.
158
d'gital delivery 11 0, 111
direct t,xes 1•6. 147- 8
disposable income 165
distribution 88, 90. 106- 9, 118- 20. 179
documemarior 66- 8. 112- 13. 120
domest,c ccnsumpt'on 78
douole ccirclderce of wants 6- 7
douole-entry ocokkeepirg 138-41
drawee 8, 10
d,awer 8. 10
e-buslness 158-9
e-commerce 8, I06. 109, 120. 155
e-trade 126
economic deve 'opmenVgrcwth 44, 169.
I 7S
economic Institutions 171- 7
economic problems, Caribbean 176- 9
economic systems 18
educatior 152, 166, 169. 179
employees 20, 33, 35. 36- 7
employment 115. 143
Emtage, Alan 40
encoding process 38
enterprises 40, 72, 180
enlreprereurs 40- 5, 47, SO, 52, 78
environmental protectton 23. 24-5, S3,
54, 143, I 44-S
eth'cal ;ssues 22- 5, 161- 3
excise dut es 148
executive summaries 49
exports/export sector 78, 178, 179
see also trade
factors of production 72- 3
Fair Trading Commission 24, 99
FOi see fcreign direct Investment
feasibility studies 52
i\rarce 19. • 7, 50. 81 . 122-41
capital sources 136- 7
nnanc•al advice 131
i\nanc'al Institutions 122- 9
long-term finance 136
personal income 130- 1
recoro-keep rg 138-41
sborl-term finance 13•- s
firanclal fcrecasts 50
firanclal 'nstltutioos 122- 9
functions of 124- S
regu'atlon of 127- 9
se•vlces offered by 125- 6
types of 122- 3
see alsc banks
financial pos,tlon statements 139-40
financial services commissions (FSCs)
128. 129
l\scal ;x,l'cy S4
l\xed capital 76
Aowofgoods 106
foreigr dire-ct Investment (FO i) 178,
179-80
foreign Indirect investmem 180
franchises 17
frauo I 62, 163
free market economies 18
fre ight transport 110- 14
FSCs see financial se•vices comm·sslons
geograpn:c Informal on systems (Gl5s)
120
globallsat'or 11S
goods and services 12
government 142- 53
buslress support 1S0- 2
development banks 123
environmental protection 143, 144- 5
regu 1ations 56, 143
roleof 2 1. 142- 3
social sePAces I 52
taxatior 146-9, 1S3
government securit'es 132
graots IS i, 153
green technology 142, 1,4
gr:evance procedures 3S
>-IOI see human development rdex
healthcare 56. 152
hotel 'rctustry 21, 82, 178
human development index (l-'01} 166
human resources {1-'R) 19. 75
humar,resources development IS I
,CT see information and communications
techno'ogy
MF see International Monetary F"od
import licences 112
see olso trace
import taxes 146- 7
ncome statements 138- 9
Income tax 147, 1•9
lrd'rect taxes 148- 9
irdustrlal design 102
inAatlor 145
information and communlcarons
techno'ogy (ICT) 120- 1, 154-63, 179
rfrastructure 55. 75, I 52, 166
instruments of exchange 8- 9
instruments of payment I 0-1 1
,r.suranceS7, 69- 71, 107. 128, 129. 135
nsurance companies 123
lntel'ec1ua1property rigs ts 101- 2, 162,
163
intermodal transport 110- 11
lnternationa ,Monetary Fune ('iV;F} 172,
I 7S
lnternat'or'al trade 170- 1
Internet I 58. 163
inventory managemert I 07
investmer't I 2S, 131, 132. 133, 136, 165
,nvoices 6S, 66
nward-fac:rg processes 158, 159
Joint ventures 83
labour supp,y S6, 73
laissez-faire leaders 31
land use 75
'eadershlp 30- 1
1egal aspects 22- S. 60- 71
contracts60-4
dccume~tatlon 66-8
insurance 69- 71
record-keeoing 65
see olso regulat'ons
liability 70
lim:ted 'labillty 15
line managers 28
linkage industries 83- S
liquid assets 128
liquid assets ratio 128, 129
loans 134, 136.1 37, 1S1
location of businesses 55- 6
logistics 106- 21
chain of distrlbutioo 106- 9
competitiveness Impact 116- 17
compo"entsof 107
distribution problems 118- 20
'nform;,tion technology 120- 1
!ogistics hubs 12 1
transportofgoods 110- 14
m-commerce 156, 1S8-9
m-money9
managemerit
communication strategies 38- 9
conrnct management 32- S
functions of 25- 7
man;,ger- emp 1oyee relations 3S
respons ibilities cf 27
team•Ncrk 37
management information systems (M IS)
158
managers 26, 35
manufacturing 77, 179
market probe 46
market research 86. 87
marketing 19, 50. 86- 102
consumer beha•Aour 92-3
customer service I 00- 1
marketing mix 89- 91
oae<aging 93
sales promction 94- 5
selling teci',n1oues 96- 7
t,anspo<t role 113- 1•
markets 86
mean yearsof schooilng 169
mediation 34, 35
merchandls'ng 97
mergers 83
metrication boa•ds 99
micro enterprises 80
micro-ler,dirg agencies 123
M,S see mar'agement information
systems
mixed economies 18
monetary policy 54, 122
money 6, 7, 57, 127
money laundering 22, 25
money orders 8-9. 11
mortgages 136
motivat'Or' of employees 36-7
lv!oui:on v. Kershow {1884} 64
multi"noO'al transport I 10- 11
mutual funds 132
mutual orgar.isations 122, 123
r'atlonal debt 122
national 'r'come 168-9
national ir.surance 152, 153
natural disasteis 116
natural resources 72
'ret quette' 163
niche markets80
roise 38, 39
offer 62
offeree 60, 61
offeior 60, 61
Ombuosman, Office of 99
or.line banking 125, 155
operal oral plans 49
operat ons41, 47
orders 10-1 1
organisational charts 28-9
outsourc:rg 116- 17
outward-facing processes 158, 1S9
overdrafys 135
over~ead costs 160, 161
owners 20
packaging 87, 93, 107
partnershics 15
patents 102
payee 8. 10
payment instruments 10-11
payment systems36, 125
PayPal 125. 126
personal Income 130-1
personal Information 23
pipeFr'e transport 111
p·a,,ned econcm'es 18
plar.s 26, 40, 46-50, 52-3
pollution 24, 25, 53, 54
population centres 55
portnets 1:w
power suppl'es 56
PR see public relations
premlums69
pric'.ng 87. 89, 90. 92, 97, 143
primary industries 72, 73
primary research 50-1
privacy 161, 163
private i'mltec companies 16
private pensior schemes 125
private sector businesses 12- 17
prc--forma invoices 65. 66
product concept 46
production 13, 18. I 9. 72-85
business growth 82-3, 85
and capital 76-7
cottage industries 79
factors of production 72-3
levels of 78
linkage lndustr'es 83-5
and productivlty74-5
small buslresses 80-1
surpluses 6-7, 78
types of 77
production chain 82, 84
prcductiv'ty 7'1-5
products90, 11 6
prcfit shariog 36
promissory notes 134
prcmol'Of' (marketing) 87, 89. 9 1. 94-5
public 1lmlted compan'es 16
public relations (PR) 95
public sector 12-13
public ut,llties 166
purchase requisition forms67
quality of life (COL) 165-6, 169
quotations 65
R&D see research ar,d development
rail transport 111
raw materia,s 55, 73
record-keeping 65, 138-41
regiona l develcoment barks 172
regulations 52. 53-4, 56, 116. 127- 9, 143
regulatory bodies 127-9
research 46. 50- 1. 86. 87. 151
research and development (R&D) 19
retailing methods 97
road transport 111, 152
sales promotion 87. 9'1-5
see olso selling
sales staff 96-7
savings 130-1, 136
schooling, mean years of 169
sea trarspcrt 111, 114
seconda•y •esearch 50-1
security 119. 143, 161, 162. 165
self-actualisation 44
sel'lng 96-7, 98
see o.'so s.ales promotion
service 'ndustrles 77
shareholders 12
shares 57, 132,133,136
sleeping partne•s 15
small bus 1resses 80-1
social med'• marketing 86. 95
social services 152
socialist ecoromies 18
SOL see starda•d of living
sole tracers 1+ 15
sou-sou 131
span of control, organisations 29
specialist logistics companies 116. 117
spo'lageofgcods 119
spreadsheets 157
staff managers 28
stakeholders 20-1, 27
standarc of living (SOL) 164-5. 169
start:"g balance 67
statements of accounts 67-8
statementsof financial position 139-40
stock cards 68
storage fac:llties 107, 119
storage seo,ers 160
strateg·es 24. 25
streamllneo operations 160. 161
strikes 33, 11 9
study skrls 5
subordinates 28, 29
subsidies 147, 151
subsiste,,ce economies 7, 18. 78
suppliers 20
supply chain ooeratlons 106-21
chain ofd'stributlcn 106-9
cha1!engescf 115- 16
competitiveness 'mpact 116-17
distr but'or problems 118-20
Information technology 120-1
transoort c f goocs 110- 14
surpl~s production 6-7, 78
sustainable development goals 167
sustainaoie !org-lerm economic gro•,,1h
175
takeovers83
taxat'on 20, 21, 24, 146-9, 153
teamwork 37
tec~nical assistance 151
tec~nol0gy
ethical Issues 161- 3
information and communications
technolcgy I 20- 1, 154-63. 179
ard stardard of living 165
tele-banking 8
telecommunications 56
telemarketing I 20
lrade6- 7, 71 . 78, 114, 170- 1, 173
trade credit 13•
trade c,edit :nsurance 71
trade unions 32, 33, 34-5
traderna'ks 92, 93, 102
trad itional (subsistence) economies 7,
18,78
t<a inlng 15 I. I 79
lransformational 1eaders31
1,anspc,t 56,7 1, 11 0- 14, 152
under seal 60
unemoloyment I 76, 177
unit costsc f production 82
unit trusts 136
untlrnlted !:ability 15
value added tax (VAT) 148, 149
venture capital 4 I, 77. 135, 137
viability 52
virtual markets 86
vvarrantles 101
waste disposal 24-5, 54, 144, 145
wealth distribution 147
word-processing I 57
wc«ing capital 77
wc«ing to ru e 33
World Bank I 72, 175
Worto Traoe Organization (1NTO) 172. 175
zoning laws 1&4
Study Guide
OXFORD
VN lVE RSI TY P R ESS
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ISBN 978•0·19•843739-0
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