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Commerce-Edexcel

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COMMERCE LECTURE 1
PRODUCTION
Good day all! Welcome to the introductory class to commerce. Commerce is a
subject which covers all the processes after the manufacturing of a product, till
the time it is in the hands of the primary consumer! Or in other words it is a
process of exchange of goods and services.
Our first topic is production. Production relates to the activities which are
necessary in order to satisfy the wants of mankind. These wants can broadly be
divided into two categories:
1. Goods: tangible things such as food, cars, clothes etc
2. Services: intangibles such as entertainment, health care etc
The process of production is rather complex, but for clearer understanding, we
can divide it into stages.
primary
production
secondary
production
tertiary
production
Primary production: relates to extractive industries, i.e. those concerned with
obtaining the direct product of nature e.g. fishing, farming, mining etc.
Secondary production: relates to the industries which convert natural products
into useful, finished good e.g. ship builder, construction site worker etc.
Tertiary production: relates to the distribution of the finished goods to end
consumer e.g. wholesaler, banker, importer, retailer.
To study this process, let us take the example of wood. The clearing of wood in
forest would be a primary activity. The transportation of the logs of timber to the
workshop and conversion into furniture would be secondary production and
finally, placing the furniture in a well reputed shop and advertising it on T.V would
be tertiary production.
Did you notice something? Initially, the logs of wood had little financial value, but
when they were sold as the end products their value had increased. This is true
for every chain of production: the value increases with each stage.
Can you think of another example to illustrate the chain of production?
• Division of Labor:
Breaking down jobs into small tasks so that one person concentrates on
one task only and does not make the whole product.
Listed below are a few advantages and disadvantages of division of labor:
ADVANTAGES
Well paid workers
Suitable for workers who don’t want
responsibility
Increases output as tasks done quickly
Enables mechanization
Economies of scale are obtained
Over all lower costs of products
DISADVANTAGES
Boring and repetitive
Loss of skill and craftsmanship
Less satisfied workers
Long working hours
Poor working conditions
Limited range of tasks
Workers can concentrate on one aspect of
production
Allows for wide range of products to be
produced
No shortage of products
Cheap
Stoppage at one point in chain can affect
the entire process
Lack of individuality
Boredom amongst workers
High cost of plants and machinery
COMMERCE LECTURE 2
RETAIL TRADE
Role of retailer in chain of distributions:
Large variety of goods-more choice for customers.
2. Retailers store the product to ensure reliable and continuous supply for
customer.
3. The sale in small units and not in bulk so it suits the buyer.
4. Retailer provides personal advice to the customer.
5. Sometime they provide after-sales and repair services.
6. They can even sell on credit to the customer.
7. Some retailers provide home delivery.
8. They pass on information to the manufacturer regarding demand etc.
9. They reduce burden on manufacturer as manufacturer does not need to
focus on marketing or selling.
Types of retailers:
1.
Large scale
Super market
Department stores
Hyper market
Multiple chain store
Variety chain store
Large-scale:
Super market:
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●
Many things under one roof
For working class
Small scale
Unit retailer
Mobile hawker
Steel vendor
Peddler
Located in main city centers
● Competitive prices due to bulk buying
● Suitable for monthly and weekly shopping
● Regular customer ship
Advantages
Disadvantages
Time saving
No personal service
Customers don’t need to memorize what Customers are pursued to buy what
to buy-they buy what they see
don’t need so overspending
Competitive prices due to bulk buying
Self service-chances of theft
Self service-less
Difficult to maintain the reader level
Staff needed
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Department stores:
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Complete range of goods under one roof
For the elite class- businessmen etc.
Located in suburban areas.
Price is not an issue.
Luxurious attractive goods.
Huge store.
Personal service.
Facilities like play area, parking lot etc.
Sell international brand names.
Big shopping mall owned by a single organization.
Single organization.
Centrally controlled.
Different storey’s for different departments.
Each department has its own central manager.
Window display with clearly marked prices.
Advantages
Disadvantages
Bulk buying favors
No daily use items
A loss in one department can be compensated High investment and expenditure
by profit in another
Economical advertising-one ad for all
departments
High rents
Risk that elite class might shift
another place.
Hypermarket:
Mammoth supermarket.
● One stop shopping.
● For motorists who need to buy for whole month or week.
● Located at the edge of the city.
● Competitive buying due to bulk buying.
● All types of goods
● Own parking lot
● Storage sheds
● Self service
Advantages
Disadvantages
Timesaving and convenient
Self service –chances of theft
Competitive prices
Over spending by customer
Congestion free shopping
At the edge of city- non-motorists can’t approach
Self service-less staff needed
No need to memorize list.
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Multiple chain stores:
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Many similar branch shops distributed all over the country.
Centrally controlled by one head office.
Centralized purchasing –head office buys for all braches.
Regular customers.
One type of goods is sold.
Every branch has a similar layout same products and same prices in main
city centers.
Advantages
Disadvantages
Competitive prices due to bvulk
buying
Economical advertising-one ad for
all branches.
Loss in one branch can be
compensated by profit in another.
Standard layout promotes the
identity of whole chain.
No personal advice.
Non-provision of credit facilities.
Too much centralized control from head
office leaves little room for innovation.
Variety chain store:
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Multiple department stores.
Deals in many types of retail goods.
Cater to the working class.
Centrally controlled.
Centrally purchasing by head office.
Similar layout, products and prices.
Self service and open counter display.
Advantages
Competitive prices due to bulk buying
Wide variety of goods
Economical advertising
Disadvantages
No personal advice.
Non-provision of credit facilities.
Little initiative by branch manager due
to too much centralized control
Loss in one branch can be compensated
by profit in another
Slow selling lines and surplus stocks can
be transferred to a promising branch.
Standard layout promotes identity of the
brand.
Small-scale retailing:
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Either sole trade or partnership
Capital is obtained from personal savings or loans from friends and family.
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Usually bought from wholesalers.
why
Limited capital.
● Limited market.
● Small turnover.
● Need for credit.
● Variety of goods.
● Visits from wholesalers.
Advantages
Personal advice.
May sell on credit.
Little investment.
Less expenditure, so less prices.
Small shop is easy to manage.
Convenient for customers.
●
Disadvantages
Lower trade discount.
Jack of all trades, master of none.
Selling techniques and trends in retailing:
Branding:
● Branding is the selling of goods under the trademark or brand name of the
manufacturer, the wholesaler or the retailer.
● The aim is to differentiate the goods of one manufacturer from another.
● Branded goods are of uniform size, quality, weight and price.
● Branded goods are easily recognized by the customer.
● More competition due to self service.
Advantages
Disadvantages
Brand loyalty due to
Expensive advertisement to compete with others.
monopoly
Increased turnover
To compete with already established brands,
manufacturers might produce imitated goods of a
known brand.
No need to advertise
New manufacturers find it difficult to obtain share
in the market
Easy to handle
Higher prices
1.
Uniformly packed
No need to resort to price
cutting due to uniform prices
They can convert their shops
into self service shops
Well informed
Uniform quality
Confusion
Imitation goods
Misleading claims
More storage place need because of more brands
If one of the brands sells a lot other will be at loss
and the stocks will be wasted.
Wider choice
Lower price due to reduction
on economies of larger scale
No need to be an expert in
buying
Self service
● Due to large scale retailing, retailers have enough capital to display large
supply of goods of various brands.
● Branding and packaging.
● Emergence of modern working house wife who has little time to shop.
Advantages
Disadvantages
Economical-less staff
Shop lifting-so security needed
Increased turnover-customer pursued to
not suitable for goods where
buy the stuff they don’t need.
individuality is important.
Quick service
No personal advice
Low price due to bulk buying
No credit
No need to memorize list
No delivery of purchases
No pressure from sales staff
Overspending
More capital for larger area
More storage space
2.
After sales service:
Features:
3.
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An undertaking made by the retailer or manufacturer to repair any faults
which occur to the sold article in the given period of time, this could also
include a maintenance service at regular intervals for a definite period of
time.
● Undertaking is known as warranty.
● Normally provided for permanent or durable goods.
Reasons:
Good will gesture.
● To gain loyalty of customer.
● Customer may need help in handling and maintenance.
● Same parts may have to be replaced.
● Goods may need regular service.
● Some mechanical faults may need to be repaired.
Advantages
Disadvantages
Competitive edge over those
Increased expenditure on mechanics and
who aren’t providing this
workshops.
service.
Convenience
Increased administrative burden
●
Expert technical advice
Sometimes goods might be repaired at loss
Customers might feel more
Only for limited time
confident at times of purchases
Most of the cost of repairing is included in the
selling price those who don’t use this service are
at a loss.
Bar-coding:
● Each product is given a special bar code, which is the same for all the no. of
pieces of such product.
● This bar code is saved in the computer of the shop.
Advantages
Disadvantages
Easy to maintain second level
System failure can lead to loss of all the
records
Timesaving
4.
Less chances of calculation error
Convenience for storekeeper
Sellers don’t need to memorize
prices
EPOS(electronic points of sales):
● A computer based system in which barcode is used to sell goods the
scanner scans the barcode and the price appears on the computer because
it is already saved there the computer maintains a record level of the
amount of stock.
Advantages
Disadvantage
Centrally controlled-less fraud
Initial investment
Easy to maintain record level
System failure can lead to loss in
record
Timesaving
Convenience in store keeping
Convenience for head office-easy information
handling
5.
Shopping centers:
Features:
6.
A large, multi storied building.
● Located in town centers.
● Consisting of many shops units.
● Each owned by different individuals.
● Each shop may sell different types of goods.
Reasons:
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One stop shopping.
Ample car parking.
Comfortable and pleasant atmosphere.
Reasons for survival of small scale retailing:
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Personal advice
Credit facilities
Home delivery of goods e.g. newspaper
Small amount of investment
No over head so lower prices
Small shop is easy to manage
Close to residential areas – less distance
Flexible timings
COMMERCE LECTURE 3
CUSTOMER CREDIT
Concept of Credit:
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The seller and the buyer enter into a legally binding agreement, where by
the seller allows the buyer to have immediate possession (not necessarily
ownership) of the goods
The buyer agrees to pay the principal, along with interest in a given period
of time in a number of agreed, fixed installments
This installment payment may be made to the seller directly if he is
financing the credit
However, it is usually financed by specialized financial institutions
The financer pays in full to the seller on behalf of the buyer and then keeps
collecting the installments from financers along with interest
Advantages
Increases turn over since people
can afford to buy
Stocks of seller cleared quickly
Financer gets interest
Customers can use goods without
making payments
Allows people with steady income
to own property
Disadvantages
Administrative
burden
of
maintaining records
Capital required for financing
Encourages people to spend rashly
Goods are repossessed if price not
paid
General increase in price level due
to over spending
Types of Credit:
●
Hire Purchase:
● After paying a small amount as down payment, customer can pay the
remaining amount in installments
3rd party is involved which buys the product from the manufacturer
and gives it to the customer on credit
● In case the customer fails to pay on time, the goods are repossessed
● Suitable for durable capital goods such as vehicles
Extended Credit:
● The buyer becomes the owner as soon as the agreement is made
● Buyer agrees to repay in periodic installments
● No 3rd party is involved – manufacturer sells directly to customer
● The manufacturer cannot repossess in case of non payment
● Suitable for consumer goods
Store Cards:
● Large scale retailers offer this card to regular customers
● It can be used to buy goods and then pay later
● Interest is charged
● Gives the retailer competitive edge
● Customer profile can be maintained.
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●Credit
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Cards:
A loan approved by the bank in the favor of the drawer, which can be
used while shopping
Bank assigns a limit of money depending upon the financial status of
the customer
These cards are accepted in most large scale shops, so the customers
don’t need to carry cash
COMMERCE LECTURE 4
CONSUMER PROTECTION
Consumers are the ultimate users of the goods and services produced to satisfy
their needs and wants. However, often the producers of these goods, guided by
their profit motive, may charge exorbitant prices and may show little concern for
consumers in terms of acceptable quality, utility, efficiency, or safety of the good
or service.
Why is there need for consumer protection?
Unfair trading practices of business men such as misleading
advertisements, exorbitant prices, poor quality of goods
● Inability of consumers to assess the claims made by advertisers
● Ignorance of consumers that products may endanger their health
● Safeguarding the religious beliefs of consumers for example, muslims
consumers do not eat pork however they might be consuming products
containing gelatin without even knowing it
● Ignorance of consumers of their rights
How are the rights of consumer protected?
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Realizing the tendency of exploitation of the rights of consumers, several steps
have been taken to ensure that their rights are guaranteed for. Some of them are
as follows:
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Formation of consumer associations which receive and investigate
complaints of customers
Laws, rules and regulations set up by government which have to be
followed e.g:
○ Warning on cigarette packs
○ Price must be printed
○ Expiry date must be written
○ Milk expiry can’t exceed a month
Consumer awareness campaigns such as “say no to tobacco”
COMMERCE LECTURE 5
WHOLE SALE TRADE
● Role of Whole Sale Trader:
From this figure above, you can see the demands of the retailers are completely
contrary to the conditions of manufacturers. Therefore, there has to be a middle
man who can fill this gap. This role is played by wholesalers.
● Decline in Wholesale trade:
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The growth of manufacturers who like to sell their product directly to
consumer – they can sell their products at lower prices and absorb the
profit of retailer and wholesaler
Increase in number of large scale retailers who can afford to buy directly
from manufacturers
● Functions of Wholesaler:
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Warehousing:
A warehouse is a place where large quantities of goods can be stored.
Wholesalers provide this facility to both manufacturers and retailers.
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Marketing:
Some manufacturers focus on manufacturing only – they give goods to
wholesaler on cheaper rates and ask them to bear the expenses of
advertising these goods. However, some manufacturers advertise for their
goods themselves.
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Reservoir:
Wholesalers keep all types of goods so that retailers do not have to go to
different wholesalers to get different products. It saves the time and effort
of retailers.
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Price Stability:
Wholesalers ensure the reliable supply of those products which are
produced in one season only
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Delivery:
Wholesalers usually deliver directly to the retailer’s doorstep so retailers
just need to place orders. This saves them the transportation cost.
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Risk Bearing:
Some products depend on fashion and taste so wholesalers bear a huge risk
by stocking such products in bulk.
● New Trends in Wholesaling:
Cash and Carry:
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Large wholesale stores
Do not offer credit to retailers
Are not responsible for delivering goods to retailers
Buy in bulk
Sometimes they sell with the consumers directly too
Intermediaries:
They are the people involved in the distribution of goods from the producer to
final consumer
Mercantile agents work on a commission basis. They can be sub divided into 2
types, factors and brokers.
Factors
Brokers
Concerned with the sale of goods Concerned with the sale or
delivered to him by the principal purchase of goods or services for
the principal
Has possession of the goods of
Does not have possession of the
principal
goods of principal
Remunerated with commission
Remunerated with brokerage
Can make a profit from sales
Cannot make a profit from sales
Can sell the goods in his own
Cannot sell the goods in his own
name
name
Merchants are general purpose wholesalers. They buy from the manufacturer in
bulk at low prices and sell to the retailer in small quantities thus making a profit.
A “Forwarding Agent” is appointed by the Principal for the collection and
shipment of his goods for export or arrangements to dispatch imports.
COMMERCE LECTURE 6
DOCUMENTS OF HOME TRADE
10.
Enquiry:
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11.
Quotation:
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12.
Sent by seller to buyer
To inform regarding the goods requested and all the relevant information
such as type, brand, size, price, terms of payment etc
Catalogue:
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13.
Sent by buyer to seller
Informs the seller of the goods required, the quantity, the time and terms
of delivery
May be sent as a substitute or supplement to quotation
Contains detailed and classified information of the goods available
Contain images of the goods
Prices not printed since they are subject to change and the catalogue is
printed only once
Price List:
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14.
Order:
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15.
Sent by buyer to seller
To place an order
States the type, brand, quantity and price (as per the quotation) of goods
required
Includes terms of delivery, terms of payment and expected delivery date
Advice:
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16.
Prices are not printed on catalogue since they are subject to change and
the catalogue is printed only once
So a price list accompanies the catalogue, containing the prices of the
goods the buyer has asked for
Sent by seller to buyer
To inform him that goods have been dispatched
Includes the quantity and types of goods
Date and means of dispatch are also mentioned
Delivery Note:
7.
8.
9.
10.
Sent by seller to buyer
To inform of the delivery of goods
States the quantity and type of goods along with order number
Usually arrives along the goods so that the buyer can check across the note
whether the delivery is accurate or not
11.
Handed back to the delivery boy so that seller has proof that the buyer has
received the goods
Invoice:
17.
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18.
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19.
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Sent by seller to buyer
To notify about the amount due on the goods supplied
States also the type, quantity, price and terms of payment
Credit Note:
Not an invoice
To distinguish it from an invoice, it is printed in red
Sent from seller to buyer
It informs the buyer that his account is credited, decreasing the amount he
owes
It is sent in the following situations:
○ The buyer returns damaged goods
○ The buyer returns empty containers for which he has been
charged
○ The goods sold have been overcharged
Statement of Account:
Sent by seller to buyer at the end of every month
Summarizes the monthly transactions
Shows the amount of goods bought, the returns made
Serves as a reminder for the buyer to pay if any credit is due
Enables buyer to check his book of accounts
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20.
Receipt:
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Proof of payment
Issued by seller to buyer after payment has been made
CASH DISCOUNT
TRADE DISCOUNT
Deduction off the invoice price of A deduction off the list price of
goods given by seller to buyer
goods given by one trader to
another
Encourages prompt payment
Encourages bulk buying
Rate of discount varies with the Rate of discount depends on the
delay in payment. The earlier the quantity of goods purchased.
buyer pays, greater the discount he More the goods, more the
gets
discount.
Buyer forfeits the discount if he No time limit of payment
does not pay within the given
period
COMMERCE LECTURE 7
INTERNATIONAL TRADE
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Benefits of International trade to a country:
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The Interdependence of countries within a global market:
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More choices available for consumer
Countries sometimes import capital goods to produce consumer
goods
Money is earned by selling the surplus goods of a country
Foreign exchange is earned
Competition is increased
Countries can get goods which they don’t have
Each country exploits its natural resources
Each country concentrates on those things which it does best
Each country sell its surplus produce
Each country uses its surpluses to buy the goods it does not produce
itself
Every country cannot produce enough goods and services to fulfill its
requirements
Thus, it need to trade with other countries
Some Important Definitions:
Imports:
○ Purchasing goods and services from another country
○ Outflow of cash
Exports:
○ Selling of goods and services to another country
Inflow of cash
Visible trade:
○ An account which is maintained when a country trades goods with
another country
Invisible trade:
○ An account which is maintained when a country trades in services
with another country
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Balance of Trade:
○ Difference in value between visible exports and visible imports
● Visible exports - visible imports
● Includes goods only
● If negative: Deficit Balance of trade
● If Positive: Surplus Balance of Trade
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Balance of Payments:
○ Difference in value between the sum of visible and invisible exports
and the sum of visible and invisible exports
● (visible exports + invisible exports) – (visible imports + invisible
imports)
● Includes both goods and services
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Custom Authorities:
They are the authorities which inspect the inflow at outflow of goods at
borders. Here are there functions:
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Gather information about export and import items.
Collect tax duties/tariffs:
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Control trade of prohibited items
Control bonded ware house
Enforce quotas to ensure that the amount of a certain good entering
or leaving the country does not exceed the set quota
Trading Blocs:
Members of a trading bloc reduce duties on trade amongst themselves and
impose high duties on non members. Some examples are European Union,
ASEAN, SADC, NATTA
Advantages
Low cost for consumer due to
less duties
Increase in trade
Local manufacturers will
improve their quality
Disadvantages
Government generates less revenue
Tough competition for local manufacturers
No control of government on prohibited items
Sometimes goods will be exported at the cost
of domestic consumption
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Importance of free ports in International Trade:
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Free ports are ports where no custom duties are levied on goods
entering and leaving it
Free flow of goods promotes trade
Minimum custom formalities make the process of trade more
convenient
Facilitate re-exportation of goods
Goods can be unloaded, repacked, sorted, cleaned, broken from bulk
and processed without any duty
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Protectionism:
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Sometimes governments place certain restrictions on traders to
discourage trade with particular countries.
Some measures are listed below:
● Embargoes, such that a govt completely bans trade without
another country
● Increase the tariffs so much that traders are discouraged to
trade with that country
● Place quotas to limit the quantity or amount of goods being
traded
● Giving subsidies to locally produced goods so that market for
imported goods decreases
Difficulties Faced by Exporters:
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Lack of local legal knowledge e.g. cultural, religious, social issues
which may affect their market
Language barrier
Difference in measurement terms
Variation in social standards of people
Variation in local demands
Complex documentation
Risk of non payment
COMMERCE LECTURE 8
ADVERTISEMENT
Advertising consists of all the activities involved in presenting to a group an oral
or visual message regarding a product, service or idea. This message is
disseminated through one or more media and is paid for by the advertiser.
Purpose:
To inform the public of newly launched products
● To persuade people to buy a specific product
Benefits:
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Source of information for customer
● Helps producer in gaining more market share
Social Aspects:
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Sometimes, wring messages can be conveyed, especially to children
● Competitive advertisement is exploitation of other businesses.
Dangers:
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Customers may be misled by false claims
● They will have difficulty in choosing from a large range
● Irrational spending on things
Types:
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Informative: provide info about product e.g. prices, modes, color etc to
promote a specific product, not entire brand
Persuasive: persuade customer that their brand is superior than others
Collective: an entire industry unites to promote their product for example,
all television manufacturers advertise of the advantages of TV without
promoting a specific brand
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Competitive: when 2 or more firms involve themselves in exploiting each
other while promoting their own brands
Media:
Factors affecting the choice of a suitable medium to place an ad:
Nature of product
● Viewership
● Cost
● Target audience
● Time span
● Wastage (how many of those viewing the ad are actually the target
audience)
● Image
Several media:
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Newspaper
Advantages
High viewership
Flexible and timely
Circulation cost per exposure is low
National and regional coverage
Ad can be inserted or cancelled at short notice
Magazines
Advantages
High quality production
High time span
Low wastage
Disadvantages
Low time span
High wastage
Low image
Only for literate
Very costly
●
Disadvantages
Inflexible
infrequent
Ads must be placed weeks before the
date of publishing
Suitable for messages which are to be Moderate viewership
read in a leisurely fashion
Moderate cost
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Low image
Radio
Advantages
Low cost
Moderate viewership
Television
Advantages
High viewership
Hig image - appealing
Disadvantages
Low image
Very low time span
High wastage
Low audience attention
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Disadvantages
Very low time span
High wastage
Low audience attention
Films
Advantages
High image
Widescreen gives better impact
Appropriate for local products
Appropriate for local products
Direct Mail
Advantages
Low wastage
Flexibility
No competition with same medium
Disadvantages
High cost
Low time span
High, but controllable wastage
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Disadvantages
Low viewership
Low image
Low cost
Suffers from being called junk mail
Bill Boards
Advantages
High time span
Huge size - attractive
Disadvantages
High wastage
Less image
Low cost
Suitable for local products
●
Open to vandalism
Creative limitations
Pamphlets
Advantages
Low wastage
Low cost
High time span
Personal impact
Advice and explanation where necessary
Travelling Salesmen
Advantages
Low cost
Low wastage
Effective – brings products to home
Can demonstrate the uses to
customers
Disadvantages
Low viewership
Low image
Limited circulation
●
Disadvantages
Low viewership
Short time span
Low image
Salesman might be unwelcome at places
Salary of sales
expenditure
Points of Display
Advantages
Low cost
High time span
attractive
man
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Internet
Advantages
High time span
Good image
High viewership
Disadvantages
Low viewership
Low image
High wastage
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Disadvantages
Costly
Wastage depends on sight
is
added
Methods of Appeal:
These are tools used by the advertisers in the promotion campaign to appeal the
type of consumers it is intended for. Examples:
Romance appeal
13. Economy Appeal
14. Appeal for Manliness
15. Appeal for Family Love
16. Appeal for cleanliness
17. Appeal to safety
Sales Promotion:
12.
All those activities which help the producer or seller to increase his sales
overtime. Examples:
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Sponsoring events
T-shirts for players
Hands on experience
Free samples
Using a product in movies
Communication
Chapter 15&16
Introduction
Communication is the process of conveying information from a sender to a receiver with
the use of a medium.
Effective Communication
In which the communicated information is understood the same way by both sender
and receiver.
Importance of communication in commerce
1.
2.
3.
4.
5.
Need for exchange of documents in trade.
Minimizes confusion and misunderstanding between buyer and seller.
Ensures better business control.
Business can get reliable and cheap information about their market.
Frequent travelers need to develop a contact with their offices.
6. International trading is not possible without efficient communication system.
7. Modern banking is also dependant on communication system.
Elements of Effective Communication
1.
2.
3.
4.
Sender.
Recipient.
Mode of communication.
Feed back.
Mode of communications
Verbal/Oral
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•
•
•
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Face to Face.
Through a mediator/translator.
Telephone.
Mobile phone.
Seminar/conference.
Advantages
1. Quick.
2. Normally cheap.
3. Facial expressions can be seen.
Disadvantages
1. Message can be distorted.
2. No proof or record.
P.Suthaharan : Commerce – G.C.E (Ordinary Level) 46
Written
•
•
•
•
•
•
Postal mail.
Fax.
Internet.
Newspaper/Magazine.
Intranet.
SMS.
Advantages
1. Record can be made.
2. Sometimes it is fast and cheap in case of SMS and internet.
3. Lesser chances of message being distorted.
Disadvantages
1. Some times it can be expensive.
2. Useful only for literate people.
3. Not very quick is case of newspaper and postal mail.
Postal Office
•
•
Message is physically transferred.
For written.
1. Ordinary Mail:
• To send and receive letter.
• Each letter costs on the basis of weight and distance.
• Advantages:
Cheap.
Record of info can be kept.
Wide coverage.
• Disadvantages:
Slow.
Misplacement of letter can occur.
Only be used by literate people
2. Registered Mail:
Suitable for sending and receiving sensitive information or expensive
material.
Extra fees is pa id to ensure delivery and with compensate for loss.
Advantages:
Still cheap.
Wide coverage.
Track record of delivery of letter.
Compensation in case of loss of mail.
Disadvantages:
Bit expensive than ordinary mail.
Slow.
Useful only for literate people.
P.Suthaharan : Commerce – G.C.E (Ordinary Level) 47
3. Express Mail:
• Used to send documents in urgency.
•
Express mail service can be availed on the request of both sender or receiver.
•
Advantages:
Speedy.
Disadvantage:
Extra money is to be paid.
•
4. Post Boxes:
• This service is available on request by paying charges.
•
Suitable for those who want to receive frequent mail and d o not want to
show their identity or address.
•
•
•
Upon request, Post office will assign a certain post box wit h a certain
number.
Post boxes are located in post office premises.
A key is given t o the person to whom post box is assigned.
•
All mail to a certain post box will be dropped in the post box by the post
office and a representative of the business will collect is personally.
5. Franked Mail/Prepaid Mail:
• This service is available on request.
• This is suitable for those who have to send a lot of
mail on regular basis.
• On request customer will get a franking machine.
• Function of franking machine is to print stamps.
• Franking machine is equipped with a meter
which counts on the stamps printed.
• Customer has to pay rental cost of the machine along with the stamps used.
• Saves time and money if outgoing mail is frequent.
6. Air Mail:
• Used when documents/letters are to be send abroad (generally).
• It is speedy for longer distances.
• Sender has to pay extra cost.
• Sender has to specify by writing AIR MAIL on envelope
7. Parcel Service:
• For sending and receiving cargo of small size or weight.
• Cargo is packed in wooden/car board box with name of receiver on it.
•
Cargo accepted by the post office and they issue an acknowledge/
consignment note.
•
•
•
Consignment note carries the amount, name of receiver and cargo details.
Cargo number can be used to track he cargo.
Cost is paid on the basis of distance and weight of cargo.
P.Suthaharan : Commerce – G.C.E (Ordinary Level) 48
8. Means of Payment:
Money Order: For larger amounts.
Postal Order: For smaller amounts.
National Giro: For making payments in someone’s account.
9. Saving Account:
Can be operated and maintained at certain branches of post offices.
10. Insurance:
Post offices act as insurer to cover certain risks.
11. Agency Service:
Post offices as agent to accept and make payments on behalf of others.
Telecommunication
Used for sending and receiving information electronically.
1. Telephone:
Advantages
Cheap.
Easily available.
Wide coverage.
Speedy.
SMS facility.
Disadvantages
Facial expressions can not be seen.
Only two people .
No record.
2. Mobile Phones:
Advantages
Can be carried any where. Becoming
cheaper.
SMS. MMS.
Internet.
Payments of bills.
Enables travellers to keep in touch with his office.
Disadvantages
Still expensive.
Informational can be distorted in case of weaker signals.
Not so wide coverage.
Battery needs t o be charged.
P.Suthaharan : Commerce – G.C.E (Ordinary Level) 49
4.
Internet:
•
•
•
•
•
A network that links computer networks all over the world by satellite and
telephone, connecting users with service networks such as e-mail and the
World Wide Web.
Modern banking is dependant on internet.
E-commerce is carried out on internet.
Has increased international trade.
Cheap source of information.
5. Intranet:
A network of computers, especially one using World Wide Web conventions,
accessible only to authorized users such as those within a company.
6. Email:
Used to send messages over the internet.
One must get an email address to use this facility.
Attachment can be done.
Quick
Cheap
C.C. and B.C.C. can be done.
Sender and receiver both required email
Information can be distorted.
For computer literate people can use
Factors affecting choice of communications
1.
2.
3.
4.
5.
6.
7.
Cost.
Speed.
Accuracy of information.
Availability.
Nature of information.
Secrecy of information.
Distance.
P.Suthaharan : Commerce – G.C.E (Ordinary Level) 50
COMMERCE LECTURE 10
TRANSPORT
Importance of Transport:
Needed to bring raw materials to manufacturing units
● Needed to transport manufactured goods to market
● Leads to extension of local and overseas market
● Improves standard of living
● Encourages trade between countries
● Leads to different regions specializing in goods in which they have
comparative advantages
● Encourages local production
Characteristics of different methods:
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Road:
Door to door delivery
No unloading and reloading from one carrier to another
Suitable for delivery of fragile goods
Road links are available to even the remotest areas
Special trucks for special items
Not restricted by time schedule
Road vehicle can take the shortest possible routes, whereas trains are
restricted to avail tracks only.
Cheaper and faster for short distance
Expensive and slower for long distance
Not suitable for very bulky goods
Traffic is a problem
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Rail:
Cheap and fast
Suitable for heavy bulky goods
No doorstep delivery
Not suitable for perishable items
Goods have to be handled four times
High chances of theft
Timetabling is a problem
Inflexible-governed by time tables
Expensive for short distances
Widely available but not everywhere
Air:
Fast
Free from topographical obstacles
Low packing costs
Less chances of accidents
Less documentation
Suitable for urgent orders, perishable goods and fragile items
No door to door service available
Limited carrying capacity
Goods need to be handled four times
Sea:
Cheap
Refrigeration facility available
Containerization reduces the loss of goods due to pilferage or damage due
to bad weather or poor handling
Slow
Documentation
No door to door service
Custom clearance takes a lot of time
●
Risk of accident
●
Waterway:
Cheap for heavy and bulky goods
Requires navigable rivers free from rapids and sitting
Canals are expensive to build and maintain
●
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Pipeline:
18. Cheap
19. Difficult to detect leakage
20. Not accessible in rugged areas
21. Only carries one substance
22. Continuous supply
23. Fast
24. Rare availability
Factors affecting choice of method:
●
Nature of goods
● Quantity
● Value of goods
● Risk of damage
● Urgency
● Convenience
● Cost
● Door-to-door service
● Availability
● Security
● Reliability
Modes of transport:
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Passenger train:
Governed by time tables
Cheap and fast over long distance
Not available everywhere
No door to door service
Ferry:
Used for local transport
Specially designed ships
For carrying passengers for fairly short distances
Delivery vans:
● Owned by some companies and businesses
● Wholesalers detainer goods to retailers
● Mail order businesses deliver goods through them
Benefits to a business on having own transport:
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1.
Convenient
Reliable availability
Cautions and careful handling
High security
Expensive
Needs regular maintenance
Wages to drivers
Only for those businesses who deliver on regular basis
Containerization:
Involves the stacking of goods in large metal containers
20ft x 8ft x 8ft or 40ft x 8ft x 8ft
Waterproof
Weatherproof
Advantages/reasons for increased use:
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1.
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2.
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3.
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Increased security
Increased protection-water and weatherproof
Items don’t break
Containers can’t get lost they are transferable due to their code name
Available worldwide
Reduces transport cost to the harbor
Less handling charges
Quicker turn-round time
Other trends in transportation:
Charter transport:
Flight hired by a firm or person which is not scheduled
For very precious and perishable goods
Very expensive
Not for regular use
As per the need of customer
Express road routes:
Fast road transport
Better roads
Quicker
Less chances of accident
Good for vehicles
Convenient for custom officers to check trucks
Changes in use of rail transport”
Fast railway operation
Bullet cargo trains save time
Less chances of accident
Cheaper than air transport
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1.
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2.
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3.
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Transport documents:
Delivery/consignment note:
This document is sent with goods
It allows the purchaser to check the items received against those listed in
the note.
The purchaser signs this note which means that he has accepted the
consignment without any flaw.
The note is then handed over to whosoever had delivered the goods.
Bill of lading:
States the quantity and provides the value, description shipping marks of
goods sent by ship.
Also contains the name of ship, port of departure and destination of goods.
It is in sets of two or more transferable copies, all of which are signed by
the master of ship.
It is a receipt of goods in good condition on board.
When delivery of goods has taken place, all other copies are considered
invalid.
It helps in recording statistics.
It allows custom authorities to check whether the goods are taxable or not.
Airway bills:
It is used whenever a consignment is sent by air
It is prepared in triplicate by consigner.
It is an evidence of contract of carriage and note of flight charges.
One copy is signed by the consigner, one copy travels with the goods and
one is signed by the carrier and returned to the consigner.
International transport:
Services offered at sea ports:
●
Provision and maintenance of deep water whirrs and control of harbor
traffic.
● Maintenance and control of navigation with port limits.
● Provision and maintenance of efficient navigational aids.
● Provision and maintenance of berthing facility.
● Recording of details and particulars of goods from a ship.
● Provision of dry and wet docks to repair ships.
● Provision of fire brigade and security services.
●
Licensing of harbor and pleasure craft used with port limit.
● Maintenance of bonded warehouses
● Maintenance of roads and railways within the port area.
● Improvement and expansion of port facilities.
● Make terminals in deep sea to provide clear access to the port for ships.
● Provide pilots for ships.
● The port authorities have to build a road to provide access to the main
market city area.
● As they own the port, they have to provide office space and communication
facilities to customs etc.
Services offered at airports:
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Approving airport licenses and permits.
Conducting bilateral airport negotiations.
Providing legal advice on air legislation.
Maintain statistical record.
Control air traffic.
Providing search and rescue services.
Providing aeronautical information.
Providing radio navigation to aircrafts.
Providing communication services between aircraft and ground units.
Fire fighting facility.
First aid associated staff.
COMMERCE LECTURE 12
INSURANCE
Purposes of insurance:
To provide compensation incase of loss.
● To provide financial protection.
● To give confidence to the business men.
● Investment.
Importance of pooling risks:
●
Each person must pay a comparatively small sum, but if it suffers a loss it
will receive a much larger sum. Therefore, companies pool their risks which
the additional advantage of insurance company’s guarantee to compensate
where necessary.
Business and personal risks:
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Insurable risks:
A risk which can be calculated mathematically.
● E.g. car damage accident, fire, theft etc.
Non-insurable risks:
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A risk which can’t be calculated mathematically.
● E.g. bad debts, loss in business due to maladministration.
Risks to international traders:
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Lack of local knowledge.
Cultural problems.
Religious problems.
Difference in measurements.
Difference in payment methods.
Language barrier.
Insurance principles:
Utmost good faith:
Both the insurer and the insured must have utmost goof faith.
● The insured must disclose all material facts e.g. a person applying for
insurance must disclose that his office contains explosive flammable
substances.
● The insurer must be very honest in all his dealing.
Indemnity:
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25.
26.
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To bring the insured back in the position in which he was at the time of
accident.
No benefit should be gained by the insured out of his misfortune.
Contribution:
If the insure has insured his product with two firms in case of a loss, both
the firms will share the premium so the insure cant benefit.
Not in case of life insurance.
Subrogation:
After the settlement has been made the ownership of the goods will to
insurer.
Only in case of total loss.
E.g. wreckage of a damaged car.
Insurable interest:
A person may only insure the thing which of damage will make him suffer.
E.g. a person can’t insure his neighbor’s house.
Proximate cause:
A claim will only be met if the loss suffered was a direct consequence of the
insured risk happening.
If a building is insured against floods, and is damaged by fire the owner will
not be compensated.
● The more the proximate causes, the more the premium.
Effecting on insurance cover:
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●
The person needs to find a suitable firm. He may do it himself or take help
from two other people.
Insurance broker:
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Free lance worker.
Working on commission.
Gets commission from the client and the firm the client is sent to.
He has knowledge of all the insurance firms.
Protects insurer’s interest.
Doesn’t work for any particular firm.
Finds best deal for client.
Insurance agent:
●
Appointed by a particular firm.
Working on commission.
Gets commission from his firm.
Provided information about his firm.
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Once the firm has been chosen the client fills the proposal form.
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Proposal form:
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Contains questions or instruction designed to obtain information regarding
property or person.
All material facts known by the client must be disclosed otherwise the
contract is considered null and void.
●
Firm will send its assignment agents who will assess the product then, they
will prepare a report.
●
Insurance analysts will find out whether they can cover the risk or not i.e. is
it profitable for them or not-then they will either approve it or disapprove
it.
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If the insurance is approved, the premium will be calculated based on the
time span, worth of product and value of risk.
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●
Firm will send a premium invoice and client will deposit the premium.
Firm will send a cover note to the client.
Evidence of the insurance contract.
●
Firm then issues the insurance policy to the client.
Legal contract between insurer and insured.
● Contains name of the insured.
● Contains extent of the insurer’s obligations and proximate causes.
● Contains procedure to be adopted in case of a claim.
● Contains method of adjusting estimated premiums.
● Contains the premiums to be paid.
● Contains signature of officer on behalf of the firm.
Statistical basis of insurance:
●
Calculation of premium is based on:
Time span.
3. Worth of product.
4. Value of risk.
5. No. of risks covered.
Affecting a claim:
2.
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As soon as the insure discovers the damage he has to inform the firm and
refrain from even touching it
●
The firm will send their survey team to calculate the damage caused.
●
Other authorities like police, customs etc should come for an independent
investigation.
●
A written notice of the damage must also be sent to the firm.
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Firm will check whether all the previous premiums have been paid-if not
the insurance is not accepted.
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While sending the written claim form, the insuree should also send
documents.
4. To prove insurance-original copy of policy.
5. To prove ownership.
6. To prove value-invoice.
7. To prove loss or damage-survey report.
All the terms and condition of the agreement will apply and finally the
settlement will be made.
COMMERCE LECTURE 13
BANKING
Types of Accounts:
1.
Savings Account:
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2.
Current Account:
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3.
For those who wish to save a small sum of money
Maintained on monthly basis
No deposit limits
But there are limits to withdrawal of cash
Prior notice has to be given before withdrawing large sums of money
Low interest rate
ATM’s can be used
Cheque book is issued
Suitable for salaried persons
No bank charges on operating account
Usually maintained by businesses
No limit for withdrawal
Used for large sums of money
No interest is paid
Bank charges have to be paid for operating the account
Services such as overdraft, standing order, direct debit, credit
transfer etc are available
Fixed Deposits Account:
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Based on an agreement between bank and customer
Money is deposited for a specific period of time
Money can’t be withdrawn until that period ends
In case of early withdrawal, customer has to forego interest
High interest rate
Suitable for anyone who has extra money
No bank charges on operating account
Services Provided by Banks:
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Paying in Slip:
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Bank Statement:
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Sent at regular intervals by bank to account holder
Contains a record of all transactions along with dates
Agency Services:
27.
28.
29.
30.
31.
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Used for depositing money in banks
A slip which acts as documentary evidence that money has been
deposited
Banks provide investment advisory service
Buys and sells investments and collects dividends on behalf of its
customers
May offer tax consultant services
May act as an executor or trustee of real estate or property
May even arrange for insurances desired by customers
Foreign Exchange Services:
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Banks sell foreign currency and finance foreign trade by discounting bills
of lading
Also make remittances abroad for customers
Safe Deposit Boxes:
●
Banks rent out lockers to customers who want to keep their valuables
safe
Means of Payment in Home and International Trade:
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Cash:
● Suitable for small amounts only
● Chances of theft
Cheques:
● A bill of exchange, drawn on a bank instructing it to pay some other
person a certain some of money on demand
Credit Transfer:
● A means by which one or a number of accounts can be paid
simultaneously
● Such as a firm can send wages for it employees in one transaction
Standing Order:
● Instructions to banks to pay regularly a sum of money from one’s
current account in order to settle recurring payments like mortgage
repayments, rents etc.
Direct Debit:
● A facility provided by the bank whereby the creditor instructs it to debit
the debtor’s account and credit his own as regular payments are made
between parties
Electronic Transfer:
● A service in which payer goes to the bank and deposits some money
This money is then transferred within minutes to the desired branch,
from where the receiver can collect them
Bank Drafts:
● An order drawn by one bank upon another, demanding the drawee bank
to pay a specified sum of money to the payee
Debit Cards:
● Issued by banks to pay through these while shopping on the bank’s
behalf and the bank can deduct the amount from customers bank
Documentary Credits:
● A guarantee by a bank addressed to the exporter of goods stating that
payment will be made provided that the terms of credit are adhered to
and the documents representing goods are surrendered to the bank
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Modern Trends in Banking:
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Tele banking
Internet banking
COMMERCE LECTURE 14
BUSINESS UNITS
Factors affecting the Location of business:
Labor:
Both skilled and unskilled
● Labor must be cheap
Transport:
●
Cheap adequate and efficient transport facility
● To bring in raw material
● And take away manufactured goods
Power:
●
Continuous supply needed to operate machinery
● Factories usually located near or in urban areas
Market:
●
To reduce transportation cost
●
If producing for consumer
● If producing for export
Government incentives:
●
near domestic market
near a major port
Like cheap land, development of infrastructure, reduction or exemption on
tax duty etc
● To encourage investors to invest in a particular area
Raw material:
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Firms locate themselves where there is cheaper and reliable supply of raw
materials
To reduce expenditures
Public and private sector
Public
Private
All those businesses which are owned All those businesses which are owned
and controlled by the government e.g. and controlled by private individuals and
WAPDA, PSO, PIA, Suigas etc.
firms e.g. Beacon house, KFC, Metro etc.
Main forms of business organizations in the private sector:
Sole trader
private limited co.
Partnership
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32.
33.
34.
Franchises
public limited co.
Sole traders:
A business owned by a single person.
Ownership:
The business is owned by a single person who is responsible for managing
it, though he might hire staff to help him.
Control:
The owner has complete control of the business and can make decisions
himself.
Liability:
Unlimited liability i.e. if the business assets are insufficient to pay the
creditors of the business, the sole proprietor is liable to lose his personal
possessions and merely what he invests in his business b/c there is no legal
distinction between the personal possessions and the business assets!
35.
36.
Provision of capital:
Capital for investments comes from the personal savings or loans from
family, friends or banks. Hire purchase, savings and trade credit may also be
used.
Distribution of profits:
All the profits and losses go to the sole owner.
Advantages
No formalities for setting up the
business.
Owner can take timely decisions
himself.
Personal supervision ensures effective
operation.
Customer gets personal attention.
Owner gets all the profits.
Owner tax burden as business is
subject to only personal income tax.
●
37.
Disadvantages
Owner will have to bear all the losses.
Limited availability of capital so less
chances of expansion of business.
Risk of financial problems in the future.
No advice while making decisions.
Unlimited liability.
Smaller life of business- owner might die
or fall ill.
Partnership:
A business owned my two or more people.
Partnership agreement:
It is a legal formality without which a partnership agreement cannot exist.
It has to be signed my all partners.
It will include all rules, regulations and profit sharing ratios etc.
It is needed in case of conflict which goes to court.
38.
39.
40.
41.
42.
Ownership:
Owned by two or more people.
Control:
Controlled by all the partners of the business
Liability:
Unlimited liability.
Capital:
Capital is obtained from the contributors of partners and loan.
Profit:
Distribution of profits depends on the terms of partnership agreement.
Advantages
Fewer formalities for setting up
business.
More capital is available so more
chances of expansion.
Additional help from each other.
Better advice while taking decisions.
Lower tax burden as business is
subject to personal income tax.
Loss can be shared.
Comparatively long lived.
Disadvantages
Unlimited liability.
Difference of opinion.
Decision making will be time consuming.
Profits will have to be shared
Death, bankruptcy or retirement of a
partner may end the partnership.
Action of any partner is binding on all
partners
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Private limited company:
Almost the same as partnership.
The business has its own identity—so loans are taken in on its name not the
partners.
Partners should be share holders.
43.
44.
45.
46.
47.
Ownership:
The company is owned by a couple of share holders who invest in the
company.
Control:
The board of directors who are elected at the A.G.M are the policy makers
but the final control lies with the share holders as they can vote BOD in the
A.G.M.
Liability:
Limited liability b/c the business is a legal, registered identity.
Capital:
Capital is obtained from the money invested by the shareholders.
Profits:
The profits are distributed to the shareholder. These profits are called
individuals. The distributed profits are used for the expansion of the
business.
Advantages
More capital available.
Limited liability.
Loss can be shared.
Comparatively long lived.
Disadvantages
Heavy tax burden.
Difference of opinions.
Profits have to be shared.
Death, bankruptcy or retirement of a partner may
end the partnership.
Better advice in decision
making.
Additional help pooling of
expertise.
●
48.
Public limited company
A public limited company has four main stake holders: shareholders, board
of directors, management, and government.
Shareholder:
Consists of the general public which invests in the PLC by buying shares.
They do not get a say in the decision making.
They participate in the AGM and vote off the BOD.
It is their right to receive dividend on their investment.
49.
Board of directors:
Main decision making force.
Cannot be shareholders.
Draw salaries.
Devise policies.
Can be voted off by the shareholders in the AGM.
50.
Management:
Main driving force.
Responsible for day-to-day operations.
Salaried persons.
Compelled to implement the policies devised by the BOD.
51.
Government:
Devised rules and regulation for PLC’s safeguard interests of shareholders
to avoid fraud and corruption.
●
Ownership:
Ownership lies with the shareholders who have invested in the
business.
●
Control:
The BOD is the main managing body but they can be voted off in the
AGM.
●
Liability:
Limited.
●
Capital:
Money invested by shareholders and other sources of finance.
●
Profit:
Goes to the shareholder.
Advantages
Availability of capital
Limited liability
Continuity
Easy transfer of shares.
●
52.
53.
Disadvantages
Heavy tax burden
Owners have no say
More complicated procedures for formation.
Franchises:
A company allows the other company to use its brand name on the basis of
a mutual agreement between the two.
Franchiser:
The original firm which sells its brand name.
Franchisee:
The firm which buys the brand name.
Advantages
Business of franchiser will expand without
investment.
No administrative burden.
Disadvantages
Profit will have to be shared.
No administrative control.
Brand name is established overseas.
Franchisee will get an established brand name
Less expenditure on ads.
They will already have brand loyalty.
54.
Profit will have to be shared
though.
They will have to work hard.
They will have to maintain
standards
Not sole decision makers.
Multinational:
A giant cooperation with branches or subsidiary companies in a number of
companies.
However, bear in mind that those firms which export their product to other
countries can’t be classified MNC’s.
Importance of MNC’s:
To host countries:
● MNC’s bring in foreign exchange and investment
● Increase employment opportunities
● New technology is introduced
● More competition so lower prices
● More choices available to consumers
● Greater revenue through taxes
To countries of origin:
● Increase in national income
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Reasons for MNC’s:
To make profits
Availability of cheap labor
Nearness to raw material
Nearness to market
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Exploring new markets
Expansion of business.
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