MOB UNIT 1 MODULE 1
Types of Economic Activity:
1) Primary Production- This involves the extraction of a good from natural resources. i.e.
land/sea. These goods are sometimes used by themselves or as raw materials to produce
other goods. For example farming, fishing, oil extraction and quarrying.
2) Secondary Production- This involves the conversion of raw materials into finished
products. The raw materials used in this stage are obtained from primary production. For
example canning fish, baking cakes or refining sugar cane.
3) Tertiary Production- This involves the provision of a service. All services are classified as
tertiary production. For example hairdressing, transport services, banking, tourism and
hotels.
Economic Sectors and Legal Structures:
Private Sector vs. Public Sector
The Private Sector compromises business owned and controlled by individuals or groups of
individuals. The main aim of business in this sector is profit. Business owners decide what to
produce, when to produce and how much to produce (The Economic Questions). Private Sector
organizations include:
1) Sole Traders
2) Partnerships
3) Public Limited and Private Limited Companies
4) Cooperatives
5) Franchises
6) Joint Ventures
Public Sector
The Public Sector comprises of organizations owned and controlled by the
government or state. The main aim of this sector is not profits but the provision of services
and general welfare of the citizens of the country. Public Sector organizations include:
1) All ministries(Ministry of Health/Finance/Legal Affairs/Education/National Security)
2) Utilities(WASA,T&TEC,TSTT)
3) Public Corporations(PTSC-Public Transport Service Corporation)
Public Goods VS. Merit Goods:
Public Goods
Public Goods are those where the consumption of that product by one individual
does not diminish its use or consumption by another. It does not reduce the amount that
is available to others. It is impossible to exclude anyone from benefitting from its use,
for example street lighting, roads and laws.
Merit Goods
Merit Goods are goods that are made available to the public not by their choice but
based on the materialistic judgment of the government. For example, (free) Education
and (free) Health Care.
Different Types Of Legal Structures of Businesses:
Sole Traders:
Ownership
Sole trader businesses are owned by only one person even though there are numerous workers.
Liability or Legal Status
Sole traders are unincorporated and there owners experience unlimited liability.i.e. the owner and
the business are one and the same in the eyes of the law.
Formation or Legal Requirements
1) These businesses are easy to start with no major legal requirements.
2) Some sole traders need licenses for example, bars.
3) Some of them need VAT (Valued Added Tax) registration if necessary.
4) They are required to pay income tax and NIS for their workers.
5) They are required to pay corporation tax if their profits are over the threshold.
6) Planning permissions are necessary for certain locations.
7) OSHA (Occupational Safety and Health Act) compliance is necessary according to the
nature of the business for example, construction companies.
Sources of Capital or Finance
1) The profits of these businesses are usually reinvested into them.
2) Personal savings
3) Inheritance of the owners
4) Private loans or gifts from family members
Control
Control is usually maintained by the one owner of the business.
Advantages
1) It’s cheap and easy to start up cause of lack of legal restrictions.
2) Low Capital costs of formation.
3) All profits after tax remain with the owner.
4) Quick and easy decision making with no conflict.
5) Flexibility
6) These businesses usually provide a personal service which can lead to customer loyalty.
7) They can benefit from small loans or government grants
Disadvantages
1) Unlimited liability- the owner is held personally liable for the debt of his business. Some
cases he may be forced to sell personal suggestions to pay off debt. They can be sued for
the actions of the business.
2) Associated high risk.
3) Lack on continuity.
4) Lack of Capital to use in the formation of the business and in the purchase of factors of
production
5) Less informed decision making
6) Business may be slow at times for example, hairdressing.
7) Lack of specialization
8) They do not benefit from economies of scale.
Partnerships:
As defined by the Partnership Act of 1890 it is a relation which exists between persons carrying
on business with the common view of making profit.
Ownership
Two to twenty persons who are called partners
Liability/Legal Status
Liability is unlimited except in the case of limited liability partnership.
Method of Formation/ Legal Requirements
1) It can be formed verbally or more formally using a Partnership Deed.
Elements of a Partnership Deed/Partnership Agreement
1) The Capital Contributions of each partner
2) How will profits and losses be shared
3) How will the partnership be ended
4) How much control each partner has in the partnership
5) The rule for taking on new partners
N.B. In the absence of a Partnership deed profits and losses are shared equally. This is
according to the Partnership Act of 1890.
Sources of Capital or Finance
1) The profits of these businesses are usually reinvested to facilitate expansion.
2) The savings, loans or inheritances of the partners.
Control
All partners take part in the decision making process however the decisions taken by one
partner binds all the other partners- this is called Mutual Agency i.e. one partner has become
the agent for all others.
Advantages
1) Very few legal formalities with respect to formation.
2) Privacy is maintained in ordinary partnerships just like sole trades.
3) More specialization can take place than in a sole trader.
4) Larger capital base because there are more owners than sole traders
5) Shared work loads
6) Easier to obtain loans than sole traders.
Disadvantages
1) Unlimited liability- According to Partnership Act of 1890 each partner is equally liable of
the debt of the partnership.
2) Profits HAVE to be shared unlike sole traders.
3) There could be conflict in decision making.
4) Capital is still limited to the number of partners within the partnership.
5) There is lack continuity in the event that something happens to all partners.
6) There is difficulty in transferring ownership from one partner to the next.
Limited Liability Partnerships:
-The Limited Liability Partnership Act of 2007 allows for a partnership where all partners have
limited liability. There are however certain conditions with which they must comply.
-The Limited Partnership Act of 1907 allows for the formation of a limited partnership.
-Some partners will provide capital but not take part in the business (Silent Partners).
-(Limited Partner) - Such a partner is said to have limited liability in the partnership. i.e. they
will only lose the original amount of their investment in the business. This type of partner is
called a sleeping partner.
-In a limited partnership there must be at least one partner with unlimited liability.
Companies:
These may be described as groups of persons who form a business which has a separate
legal identity from its owners. These businesses are said to be incorporated this means that
they can own assets, form contracts, employ people, sue and be sued in their own right. The
owners do not have to use their own assets to repay the debts of the company. The capital of a
limited liability is divided into shares. Each member of the company is known as a shareholder
and owns a number of shares.
Limited Liability Companies (LLC) are run by a board of directors (BOD) who are
appointed by the shareholders via the voting system at annual general meetings. The head of
the board of directors is called a chairperson or CEO (Chief Executive Officer).
Types of Companies:
1) Private Limited Company
-This business entity usually comprises two to fifty (2-50) shareholders. *Shares are sold to family
members and close friends.* A Private Limited Companies’ shares are not traded on or sold on the
public stock exchange.
2) Public Limited Company
-In this business entity there must be at least 7 shareholders (there is no maximum limit).
*This business form is allowed to trade on the public stock exchange.*
Documents for Limited Companies:
There are two main documents that require completion when registering a limited company.
Namely:
1) Memorandum of Association

Name of company

Name and address of registered office

Objectives and activities

Liabilities of owners if any

Capital to be raised and number of shared to be issued
2) Articles of Association (Details of internal operations)

States the rights of shareholders depending on the types of shares (ordinary OR preference)

States the procedures for appointing the directors and their powers

States the length of time directors will be allowed to serve.
These must be submitted to the Registrar of Companies. All companies need to be tax
registered. If the documents meet the approval of the registrar the company will be awarded a
certificate of incorporation.
Advantages of Private Limited Companies
1) Shareholders have limited liability.
2) Larger capital bases then sole traders and partnerships
3) There is no risk of losing the company to outsiders.
4) Continuity- shares can be transferred from one owner to the next
5) Privacy- private limited companies do not need to display their financial statements to the
public.
Disadvantages of Private Limited Companies
1) Profits have to be shared amongst a large number of shareholders.
2) High costs of formation
3) There is a restriction of capital because shares cannot be sold to the public.
4) Sales of shares make take a while because it’s dependent on a directors’ consent.
Advantages of Public Limited Companies
1) Large amount of capital can be raised from the sales of shares to the public on the stock
exchange.
2) They can benefit from economies of scale
3) Easier to obtain loans
4) Increased specialization opposed to smaller businesses.
5) Limited liability: - the business and its owners are separate legal identities therefore any losses
incurred by the business can be repaid using the business’s assets.
6) Continuity
7) There is added pressure from shareholders on the B.O.D which forces them to be efficient in
the operations of the business
Disadvantages of Public Limited Companies
1) Expense cost of the formation
2) There is the threat of a possible loss of control form external shareholders.
3) There is no privacy since the accounts of public limited companies need to be accessible
to the public
4) There is no personal customer service like what would have been experienced with sole
traders or partnerships.
5) Conflict may arise as a result of differences between the ownership and board of directors.
6) Over expansion or too much growth can lead to diseconomies of scale.
7) Conflict may cause the decision making process to be much longer than needed
Holding Companies:
This is company that owns and controls a number of separate businesses yet it does not tie
them into one unified company. Usually the different businesses are in different markets providing
the major benefits of diversification.
Cooperatives:
This is a group of persons coming together voluntarily to achieve a common economic
social or cultural need via democratic control. The members of a cooperative will elect a board of
management who will operate the business on behalf of them. The main purpose of a cooperative
is to serve its members and any profits made are distributed among them. The members of the
cooperative can also be customers of the business. The members of cooperatives own shares and
they can get loans or obtain dividends based on the number of shares that they own. The members
of cooperatives enjoy limited liability.
Types and Examples of Cooperatives:
1) Agricultural- Citrus Growers Association
2) Consumer- Eldorado Cooperative a.k.a Cost Cutters
3) Financial- All credit union (Island Finance, Eastern Credit Union)
4) Worker- O.W.T.U
Principles of Cooperatives
1) Voluntary open membership
2) Democratic control facilitated by a voting system
3) Limited interest on invested capital
-
The Cooperatives Acts in all Caribbean territories state that the maximum share capital
holding of a member should not exceed 20% of the entire share capital of the
cooperative
4) Education
-
A cooperative concentrates on the development and training of its members.
5) There is cooperation among the various cooperatives.
6) The share of profits are done as follows:
1) Transfers to reserves
2) Payment of dividends
3) Surplus reinvested
Advantages of Cooperatives
1) Democratic control leads to informed decision making
2) There is creation of employment
3) A guaranteed market is created by the members
4) There is minimal advertising cost
5) Economies of scale can be obtained with growth
Disadvantages of Cooperatives
1) Management may sometimes be inexperienced and make poor decisions
2) Conflict in decision making
3) Sometimes capital may be very limited as in the case of agricultural cooperatives
4) Sometimes it may be difficult to attract skilled labor
Franchises:
A franchise is created by the purchase of a right or a license to market another company’s
good or service within a certain territory or location.
Types of Franchises
1) Distributorship – one business sells on behalf of the parent company like auto dealerships.
E. g Toyota or Nissan
2) Trademark – also known as brand name licensing. The parent company sells the rights to
use its trademarks to another a company. E. g Coca Cola and Pepsi
3) Business format- the parent company gives permission for the smaller company to use its
business techniques. E. g. KFC
The franchisor agrees to:
1) Assign an exclusive sales area to the franchisee
2) Allow the franchisee to use their name
3) They provide management and support to the franchisee
4) They advise the franchisee on location, layout and decoration
The franchisee agrees to:
1) Pay the franchiser royalties (a fixed amount or percentage of sales)
2) Operate the franchise according to the rules and procedures of the franchisor
3) Invest a specified amount of capital into the business
Advantages of Franchises
1) Wide variety of goods available to consumers (Government and Consumers)
2) The taxes paid on imported goods for the franchise are a source of government revenue.
(Government)
3) Training and support is given to franchisee and their workers. (Franchisee)
4) The franchisee benefits from the marketing and promotional networking of the franchisor.
i.e. Less advertising (Franchisee)
5) The franchisee benefits from the goodwill of the franchisors name.
6) The franchisee has to pay royalties for the right to use the franchisor’s name. They may
also demand a share of profits. This increases profits for the franchisor but decreases the
profits for the franchisee. (Franchisor)
7) The franchisor benefits from an expansion of their name and popularity. (Franchisor)
8) Expansion reduces the amount of cost associated with advertising for the franchisor.
Disadvantages of Franchises
1) There may be increased competition for local firms and government intervention may be
needed.
2) There is a lack of control by the franchisee since the franchisor tends dominate operations.
3) The franchisee is obligated to buy imports from the franchisor so they lose the opportunity
of getting cheaper ones elsewhere.
4) Payment of royalties or fees will decrease profitability.
5) Sometimes franchisees are difficult to control, they tend to do things their own way and if
unsuccessful it will reflect poorly on the franchisor’s name.
6) If the agreement is broken the franchisor may lose trade secrets.
Joint Ventures:
This is a contractual agreement between two or more parties or businesses for a given
period of time. This is for the purpose of a particular undertaking for mutual liking or profit.
When two or more companies share the cost, responsibility and profits of a particular business
venture. The financial arrangements may differ however most tend to share costs and profits
50/50.
N.B. Sometimes one party holds more shares in a business venture.
Features
1) The Joint Venture Agreement will dictate areas of control and sharing of profits and losses.
2) It is taxed like a Partnership.
In the Caribbean the most common form of joint ventures exist between foreign firms and
the government. However they can legally exist in other forms.
Examples of Joint Ventures
1) Google and NASA to create Google Earth
2) BMW and Toyota corporate on research on vehicle electrification
3) Volvo and Uber in the production of self-driving cars
4) Starbucks and Tata Global Beverages came together and formed and formed Starbucks
Tata Limited.
Advantages of Joint Ventures
1) Possible increase in profits for both parties if the joint venture is successful
2) Costs can be shared
3) Improved Market position
4) Increase in size resulting in economies of scale
5) New methods of operation and Technology
6) Diversification of product offering
7) Reduced consumption if joint venture between
8) Risks are spread and reduced
9) Penetration of new markets
Disadvantages of Joint Ventures
1) Firms may lose trade secrets if the joint venture splits up
2) One business may lose credibility if joining with a lower status business or if the joint
venture is a failure
3) There may be a lack of trust between parties
4) Conflict
PUBLIC SECTOR:
This represents that part of the economy that is owned control by the government.
1) Public Corporations- PTSC, WASA, T&TEC, TSTT
-
These businesses are formed by an act of Parliament and have a separate legal entity
from the government, i. e. they are incorporated. The state owns the enterprise on behalf
the citizens
Control:
A state board manages the public corporation. A state board comprises of managers
who run the business and are responses for policy making. A government minister is
appointed to the state board and he or she may head it. Parliament oversees the overall
operations of the enterprise.
Capital:
There are four main sources of capital for public corporations.
1) Profits from the year before.
2) Loans from the government
3) Loans from banks
4) Government grants which come through the budget.
Distribution of profits:
1) Reinvestment into the corporation.
2) Profits may be used to reduce taxes
3) Profits can be used to reduce the price of the service
Advantages:
1) It facilitates the provision of vital services at reasonable prices.
2) Profits are reinvested for the benefits of the corporation
3) It provides job security.
4) Key industries should be run by the state for strategic reasons
5) There is usually only one supplier and as a result there is no competition. This helps
to reduce the wastage of resources, for example, advertising.
6) These businesses are usually large and can benefit from economies of scale
Disadvantages:
1) Any losses are passed on to tax payers.
2) Lack of accountability
3) There are inefficiencies due to the lack of a profit motive.
4) Bureaucracy “Red tape” affects the length of the decision making process
5) A lack of competition will also lead inefficiency.
STATURARY BOARDS:
These are state controlled organizations that have a specific responsibility for a certain aspect of
the industrial or social environment of country.
BOARD
MINISTRY
Agricultural Society of Trinidad and Tobago
Agriculture
The Caribbean Agricultural research and development institute
Agriculture
NLCB-National Lottery Control Board
Finance
NHA-National Housing Authority
Housing and Development
Airport Authority of Trinidad and Tobago
Transport
NON-PROFIT ORGANIZATION:
These are organizations run according to business principles however their main aim is not
making profits. If any profits are made they are usually shared with employees, customers or
passed on to a third party. Examples of NGOs include; charities and non-government
organizations.
Charities:
These are organizations with specialized aims. They exist to raise money for good causes and draw
attention to the needs of disadvantage groups in society. Local examples include:
1) Children’s Life Formations
2) Cancer Society
3) St. Vincent de Paul
Charities rely on donations for their revenue. Also use fundraisers such as fetes. Most staff
members are volunteers.
Non-government organizations (NGOs):
This is a nonprofit making business which works with people to achieve long term
improvements in their quality of life. For example, Living Water’s Community and Lion’s Club
Formation:
1) These businesses are incorporated are a nonprofit company. The Companies’ Act provides
for the registration of a nonprofit making enterprise. This type of company has n,
investment shares and liability is limited. It still requires incorporation documents which
must be done with the Registrar of Companies. There is no legal structure for this business.
2) These businesses are incorporated by a statute. Parliament passes an act to establish these
entities
Sources of Revenue:
The primary source of revenue for NGOs is from donors. They do not directly benefit from
the organization programs. For example; contributions, donations, volunteering, special events
such as fetes or bazaars, legacies or bequest
Another source might include membership fees, service charges, investment revenues, sale of
supplies or government grants.
NOTE WELL: In accounting the capital for NGOs is known as the accumulated fund and the
excess of income over expenditure is referred to as a surplus or a deficit instead of profit or loss.
PRIVATIZATION vs. NATIONALISATION
Privatization
This is the process of partially or completely selling state owned and controlled businesses
to investors in the private sector. Privatization can take different forms:
1) A direct sale of a nationalized industry or public corporation to individuals of the
private sector.
2) It can also be the removal of barriers that stop other companies from competing with
those of the public sector. This is called deregulation.
3) Contracting out services that would otherwise be done by public sector firms, for
example, janitorial services.
Reasons for privatization:
1) Much needed income can be generated from the sale of state owned assets. This income
can be used as government expenditure.
2) To improve the efficiency of the previously state owned businesses.
3) If the government can no longer afford to finance and operate that state owned company.
Disadvantages of privatization:
1) It can cause the creation of private monopolies which may exploit consumers.
2) The income generated from the sale of state owned assets is a one off receipt. Instead of
fixing the business and having it earn revenue for years to come the business is sold.
3) The citizens of the country may lose control of an essential service.
4) If the private firms are not regulated and controlled they may exploit customers in the form
unfair pricing and inferior quality of goods. Additionally they may be pollution and
degradation of the environment when these private businesses overproduce.
5) Private businesses main aim is to make a profit and if these businesses prove to be nonprofitable they may close them down resulting in the loss of essential service once more.
NATIONALIZATION:
This is the process of obtaining a private industry or private assets from the private sector.
It will be taken into public ownership by the government of the state.
Arguments for Nationalization:
1) When there is a natural monopoly occurring that the government does not want in the hands
of private ownership.
2) The government will want to have control of essential services so that the citizens are no
exploited. For example, water and electricity.
3) The government will want to control businesses that have significant positive externalities
to society.
Arguments against Nationalization:
1) Businesses of the public sector are notoriously known for being inefficient.
2) There is a lack of accountability in government owned businesses.
3) Since there is no profit motive in government businesses there is a lot of wastage and lack
of innovation.
4) The length of decision making in government businesses is very long which hinder
progress and results dissatisfaction of the citizens.
N.B. The arguments for and against nationalization can be used conversely as the arguments
for and against privatization but the explanations must be tailored to suit the question.
An objective or goal of a business is an outcome which allows a firm to achieve….
Objectives should be “SMART”
S- Specific- it should be clear on what the business is trying to achieve.
M- Measurable- the objective should be capable of being measured so it can be judged on
whether it is achieved or not.
A- Agreed– everyone responsible for achieving the objective must be in agreement with it and
must understand what it means.
R- Realistic- objectives should be achievable if given the available resources and prevailing
market conditions.
T- Time Specific- the objective should have a specific period over which it is to be achieved.
The Importance of Objectives
1) Provides guidelines for decision making: Objectives or targets provide direction for the
business. Decisions can be taken to lead the enterprise in that direction. The objectives
need to be clear for this to happen.
2) Consistency: Objectives provide guidance in terms of the amount of effort required per
employee. The absence of objectives, efforts would vary because employees would not
know how much is required of them. Resulting in, inconsistency of efforts.
3) Efficiency and Productivity: If employees are clear on how much is required, they would
use resources in a manner to yield maximum output. In situations where there is an absence
of clear objectives, resources may be wasted because there is no target for workers to meet.
4) Facilitates Evaluation- Objectives are a measuring tool that management can use to assess
the efforts of employers.
Types of Objectives
1) Long term objectives (Strategic objectives) -These are sometimes called primary objectives
and are set by senior management. It represents targets and the core of the business. Time
period- these usually exceed 1 year. Example; increasing profits by 10% over the next 2
years, to create a new product over the next 5 years and to increase exports by 10% in 4
years.
2) Medium form objectives (Tactical objectives) – These need to be achieved for the strategic
objectives to be met. It is set by middle management and are derived from strategic
objectives. Time period- within 1 year. Example; to increase production levels by 20% in
6 months, to keep advertising cost at 3% of sales over the next 8 months.
3) Short term objectives (Operational objectives) -These must be set and achieved in order
for the tactical objectives to be achieved. They are set by low level management to govern
its workers. Time period- daily or weekly. Examples; to meet weekly sales of 1000 items,
to prepare reports within 2 days of requests.
Corporate Aims
These are very long term goals which a business hopes to achieve. They are the starting
point for the entire of objectives which effective management is based. They possible the
framework within the strategy or plans of the business can be drawn up.
Mission Statement
This outlines the overall aims or fundamental purpose as well as the value of the business.
It states the primary objectives of the business. Other objectives flow from the mission
statement. It is usually more general in nature and does not include a measure of performance.
This is a statement of the business core aims phrased in a way to motivate employees and
stimulate interest from outside groups.
Kingfisher mission statement- the aim to be world class retailors with markets leading
businesses that meet customers’ needs by offering reliable and consistent value.
Advantages of Mission Statement:
1) They quickly inform groups outside of the business of what the essential aim and essence
of the business.
2) It is motivations to workers- workers aim to be associated with positive qualities of the
mission statement.
3) It guides employee behavior.
Disadvantages of Mission Statement:
1) They are sometimes too vague & general and detached from the business.
2) It is sometimes only public relations exercise to make stakeholders feel good.
Corporate Objectives
These are based on the central aims and mission statement of the business but give clearer
or more quantifiable guidelines for management actions or strategies.
1) Maximizing Profits- profits are essential for rewarding investors and financing the future
growth of the business.
Profit maximization - producing at that level of output where there is there is the greatest
positive difference between revenue and costs.
Limitations of Profit Maximization as a Corporate Objective
1) Some businesses rather maximization of sales to….. as opposed to maximization of
profits.
2) Some analyst assess the performance of the business through the return of capital
employed.
3) Profit maximization may be the objective for owners but either stakeholders would give
priority to other issues. For example, amount.
Growth as a corporate objective
Growth is usually measured in terms of sales and large firms usually enjoy EOS as
a result of growth.
Limitations of Growth
1) Cash flow problems
2) Growth can be achieved at the expense of the profit margins.
3) Sometimes growth can be loved to diseconomies of scale.
4) Using profits to finance growth can tend to lower short term returns for shareholders
Increase in Market Share
This occurs where the marketing department of the business is proving to be more successful than
that of its competitors.
Benefits of Market Share
1) Retailers are keen to sock top brands
2) Profit margins offered to retailers will be lower than competing brands.
Social Ethical and Environmental Constraints
1) To avoid bad publicity
2) To avoid consequences of legal actions
3) To refrain from certain parties which may cause conflict from consuemrs
Maximize Sales
Maximize Shareholder Value
Concentrating on care activities
Factors which determine Cooperative Objectives:
1) Corporate culture- this is defined as the code of behavior and attitude the influence the
decision making style of managers and other employees of the firm.
2) The size and legal structure of the firm- small business owners may only concerned about
profits, while larger ones may face other considerations.
3) Public or Private sector businesses- according to which sector the business belongs to, the
objectives will vary.
4) The number of years the business has been in operations- new businesses may just have
survival as their objective while others may pursue other objectives such as growth and
profits.
Operational Objectives
Once corporate objective have been established they can be broken down into specific
smaller operational objectives. The operational objectives will guide the divisions, departments
and individuals of the organization.
Divisional Objectives
These relate to the several divisions in the business and are set by various senior managers.
For e.g. to increase market share by 10% within a particular region.
Departmental Objectives
These are objectives set by the various departments of a business. E.g. the marketing
department may want to reduce advertising cost by 5% for the year.
Individual Targets
These are objectives set for individual employees. For e.g. to update 5 new clients by the
next month.
Strategy- those are long term plans to meet aims and objectives. They are means to an end.
Stakeholder
Main Objectives
Directors
-To direct the strategy and major decision making of the business.
-To retain control
-To increase their own power and status from business growth
Shareholders
-To receive dividends from after-tax profits.
-To share in the success/ profitability of the business through an appreciating
share price
Workforce
-To receive a “fair” wage
-To ensure good working conditions
-To secure their jobs through the survival and expansion of the business.
Customers
-To obtain ‘good value for money’ from the goods and services purchased
-To receive high levels of customer service
-To receive after-sales service and supply of spares from a business which
survives in the future
Suppliers
-To continue to sell profitability to the business
-To be paid promptly and fully for goods supplied
Banks/Lenders
-To be paid back in full when repayments are due
-To receiver interest on the loan when due
Community
-To benefit from the employment the business creates
-To be free from environmental disadvantages the firm might generate.
Government
-To receive tax revenue from profitable firms
-To direct the operations of the business for the benefit of the
community/nations
-To control business operations and performance to ensure it remains within
national and EU laws.
-To assist the business in accordance with local and national policy
Competitors
-To compete by all lawful means.
-To differentiate its products from those of other businesses
-To compare and contrast performance with other businesses.
Management of Objective (MOB)
This is a system designed to motivate and coordinate a force by a dividing a business
overall aims into specific targets, department or individual.
Advantages
1) If management and their subordinates know what to do their wil be no confusion and
duplication of work.
2) Teamwork is facilitated as everyone is working to the same main objective.
3) MBO can be used as a means of control to ensure workers can remain focus on objectives,
goals and aims.
Disadvantages:
1) Over emphasis on specific objectives can result in missed opportunities.
2) It is expensive to implement.
3) Conflict- It is difficult to satisfy all stakeholders’ needs simultaneously.
4) Using objectives to evaluate performance may be difficult especially when the actions of
other departments can affect the achievement of their objectives.
Note Well: Objectives set by a business need to be reviewed periodically. Reasons:
1) The objectives set may be unattainable (too high).
2) The company is surpassing its objectives too easily (to low).
3) There may be changes in the macro environment overtime which may make the objectives
outdated and as a result they need to be adjusted, for example inflation.
Business Ethics
This refers to the moral principles that guide managers in their decision making to do what is
right. An ethical decision is the right thing to do and an unethical run but not necessary illegal
since laws and their enforcements have not quite caught up with modern societies.
Ethical issues in businesses:
1) The environment- improper disposal of waste.
2) Animal rights
3) Exploitation of workers in 3rd world countries.
4) Discrimination
5) Corruption and nepotism
6) Certain types of technology. E.g. clothing
7) Trading issues e.g. dumping
8) Selling certain products to minors
Code of Ethics:
These instruct employees in a business as to how to respond to situations where ethical
issues may arise. Ethical codes may vary from business to business and industry to
industry. Most ethical codes contain statements about:
1) Environmental responsibilities
2) Dealing with customers and suppliers in a fair and honest matter.
3) Competing fairly and not engaging in business malpractice.
4) The workforce is responding fairly to workforce needs. E. g. Using child labor is a
violation of workers’ rights.
5) Forbidding abusive behavior in the workplace. For example, harassment, bullying,
stealing from coworkers and inappropriate comments.
N.B. The code of ethics will also focus on details of punishment or repercussions for
unethical actions.
Social Responsibility:
This is the obligation on the part of a business to do things which protects and improves
the welfare of society.
This is the commitment to behave ethically and contribute to the economic well-being of society
and improving quality of life for the workforce and local community. It reaches beyond the law
and financial benefits to pursue the long term benefits for society. It is management responsibility
and involves: 
Making ethical decisions

Responding to societies expectations of the business

Meeting shareholders interest without compromising the interest of society.

Willingness of managers without the need of legal enforcement.

Voluntary actions to promote human welfare & goodwill
Benefits of social responsibility:
1) Enhanced brand image and reputation- in markets with high competition companies strive for
unique selling points that can distinguish them in the minds of consumers. Social
responsibility is one such distinguishing feature.
2) Increased sale and customer loyalty- Consumers tend to gravitate towards businesses to
practice social responsibility. Returning sales plus new customers results in increased
profitability. With the increased supply on info available to consumers they can now research
how products are made i.e. eco-friendly or non-eco-friendly, child labor or under dangerous
working conditions and may then make a decision as to support or not support the business.
3) The ability to attract or retain employees- Employees are now looking beyond paychecks and
benefits and seeking out employers whose philosophies and operating practices match their
own principles. Employees are more motivated and productive and many even stay on in the
business longer thereby reducing cost and any distributions of recruitment or training.
4) Access to capital- Investors also consider a business corporate social responsibility when
deciding whether to invest in them.
5) Reduced regulations and penalties- Corporations are keen to reduce interference in their
business operations in form of taxation or penalties. By taking voluntary actions the business
try to convince the government and wider public that they are taking issues such as health and
safety, diversity or the environment seriously.
6) Lower operating costs- Reduced resource use and waste emissions also encourage
productivity and quality.
Disadvantages of Social responsibility:
1. It reduces profitability- This as a result of higher costs from implementing anti polluting
devices. Also through overhead from continuous training and communication of its codes of
ethics
2. Increased costs are passed on to consumers in the form of higher prices thus masking their
products less competitive
3. There is conflict between the objectives of shareholders for profits or the benefits to society
4. Businesses do not have the skills to solve societal problems
Pressure Groups
This a groups created by people with a common interest or aim who put pressure on businesses
and government to change policies so that the objective is reached.
1) Greenpeace International- campaigns for greater environmental protections by both
businesses adopting greener strategies and government passing tighter anti-pollution laws.
2) Amnesty International- they oppose anti-human right policies by governments.
3) The Worldwide Fund for Nature –This organization aims to improve animal welfare,
especially protecting and conserving the habitat for wild animals
Corporate Governance:
This is system by companies which is made up of a set of rules, regulations and mechanism
by which companies are directed and controlled.
Corporate Governance Influences:
1) How the objectives of a company are set and achieved.
2) How risks are monitored and assessed
3) How performance can be improved.
Rules and regulations include:
1) Ethical and responsible decision making
2) Accountability to justify actions and decisions
3) Equity
4) Transparency to make available all information to stakeholders
5) Respecting the rights of shareholders for information.
6) Seeking the interest of all stakeholders
Good Corporate Governance:
This will focus on ensuring that the needs and interest of all stakeholders are taken into
consideration in decision making in a balanced and transparent manner
Types of Economies
The basic Economic Problem of society choice is the main issue to be dealt with various
types of economies. Each economy has to answer 3 important questions:
1) What to produce?
2) How it should be produced?
3) Who should it be produced for?
Traditional or Subsistence Economies- Asia, Africa, Latin America
Households work on the land to produce goods for their own needs and wants. Living
standards are usually low and there is very little specialization. Exchange took place in the form
of sales.
Planned Economies- Cuba, North Korea
State ownership and control of most economic resources. State decides what to produce,
methods of production and distribution of output. Consumers have little influence over what is
produced and the price mechanism is of little consequence. No competition between producers
since all resources are state owned.
Free Market Economies- USA
1) Private ownership of all economic resources
2) Consumers decide what is produced through demand.
3) Firms operate to make profit and in efficiency to make higher profits.
4) Price is of the utmost importance as it dictates the products consumer demand
and the quantity that should be supplied.
Mixed Economies
Most economies in the world today are mixed economies.
1) There is some private business activity and some state-owned & controlled organizations.
2) Main motive of private sector business is profit and main aim of public sector is the
provision of goods and services.
3) Government have a regulatory role
4) Can be differentiated along the following lines; aims, funding, intervention, distribution of
profits and decision making.
IMPACT OF ECONOMIC SYSTEMS ON BUSINESS ORGANIZATIONS SIZE AND
GROWTH
Traditional Economies produce for themselves there are no real businesses.
Planned Economies usually have large state owned organizations. E.g. Companies for
electricity generations, farming being owned and controlled by large co-operatives, state owned
airlines.
Free Market Economies may have large and small privately run enterprise and even
monopolies. These depend on the level of competition in the market.
Mixed Economies will have a number of large state owned corporations and varying sizes
of privately owned businesses.
Decision Making
A decision is a conclusion drawn from a set of choices or all alternatives available. Making
the right decision helps a business to achieve its aims and objectives.
Essential features of information for decision making:
Decisions are usually taken after consideration of substantial amounts of internal and external
information. This information should be:
1) Accurate- the information should be accurate to inform the decision making process.
2) Timely- the information needs to be up to date.
3) Relevant- the information needs to be relevant to the decision being made.
4) Cost effective- the cost of gathering data should not exceed the benefits of using it.
Qualitative vs. Quantitative Decision Making
Quantitative decision making provides a numerical basis by looking at monetary and
volume conditions from alternatives available. They are objective. Qualitative decision making
examines wider factors especially on and from human beings. They are subjective.
Quantitative Decision Making Tools
Qualitative Decision Making Tools
Critical Part Analysis
SWOT
Analysis(Strengths,
Weaknesses,
Opportunities, Treats)
Break Even Analysis
PESTEL Analysis(Political, Economic, Social,
Technological, Environmental, Legal)
Decision Trees
Investment Appraisal Techniques
*Most decision making require
Qualitative factors in decision making:
1) Environment
2) Planning controls i.e. Government approvals
3) Labor supply- there needs to be sufficient labor in a particular location for a business to be
successful
4) Management skills and experience- this must be present to create and execute plans
5) The availability of finance- there must be sufficient cash to execute the plans
6) Inflation
7) Customers
8) Competitors
9) Production issues
10) Suppliers
11) Feasibility
12) Political influences
13) Legal constraints
*Stages in the Decision Making Process:
1) Problem analysis- before making a rational decision it is necessary to define the issue that
will be decided upon or the problem to be solved. This means separating the symptoms of
the problem from the causes of it. There is the identification of the data that needs to be
collected.
2) Data collection- this involves the techniques of investigation that will be used to gather
qualitative and quantitative data. The source of this information need to be identified
whether primary or secondary. Data is looked at as raw materials used in the decision
making process.
3) Analysis and evaluation of data- the data analyzed and constraints concerning the problem
identified. Constraints are factors that limit the choice of actions and/or prevent the
organization from achieving its goals. Constraints can be internal or external (within or
outside the firm) or the can be qualitative (E.g. leadership) or quantitative (E.g. money)
4) Formulate and test alternative strategies- in this stage there is the generation of possible
alternative solutions that will respond to the needs of the situation and even correct the
underlying causes of the problem. Decision alternatives can be thought of as the tools for
reducing the differences between the organizations current and desired performance.
Alternative solutions need to be tested. There is an element of risk associated with any
decision and as such managers will try gage success. Managers may try to simulate
alternatives but accuracy remains doubtful.
5) Choosing and implementation of decisions- the choice of alternative depends on a
manger’s risk propensity and the nature of the risk involved in the decision. This stage also
involves the use of managerial administrative and persuasive ability of managers to ensure
that the choice of alternative is carried out. The success of the alternatives depends on
whether they adequately and accurately implemented. Sometimes decisions never
materialize because of a lack of resources.
6) Evaluation and feedback- the success of the strategy has to be assessed and reviewed
against the original objectives. If it is not meeting the objectives then further management
action may be needed. A decision may fail giving rise to a new cycle of decision making
beginning with the problem analysis and then leading to the selection of new alternatives.
Factors affecting Decision Making
1) Government (Political or Legal) - governments take action to control the activities and
decisions of firms in the private sector to protect consumers, workers, society and the
environment. Some of the activities governments can use controls to stop or limit are:
1) Dangerous goods
2) Pollution
3) False advertising
4) Formation of monopolies
The law and employment practices
Laws are passed to protect the rights of workers. Contracts are written and signed by
employers and employees with respect to pay, working conditions and disciplinary
procedures. Some industrial relations issues are mandated by law include:
1) Minimum wage
2) The maximum hours in a work week
3) Holidays and pension entitlements
4) Discrimination (Nepotism)
5) Termination- workers who are terminated unjustly can claim unfair dismissal where
the matter can then be conferred to the industrial court.
Health and Safety Laws
These aim to protect consumers from discomfort and physical pain in the workplace.
Providing a healthy and safe environment for work is now law in most countries. For
example, OSHA (2004 T&T), in this act all businesses with 25 or more employees had to
prepare written document with a respect to health and safety in accordance with the
conditions laid down in the Act.
The Impact on businesses with legal constraints
The government is responsible for passing various laws and requirements that establish
free moots that will affect decision making. It is affected by:
1) Different philosophies and goals of the different stakeholders
2) Macro-economic policies that may be pursued
3) Changes in administration
The legal environment is also influential on decision making with the various laws that
businesses have to adhere to. Within the CSME laws are actually implemented for
Caribbean businesses in attempt to harmonize commerce within the region.
Some
businesses may be forced to change the way they operate.
Laws governing the operation of businesses within the Caribbean region
1) Employment laws- these govern contracts, recruitment, termination, redundancy,
health and safety, immigration, dispute resolution and minimum wage. Businesses
must adhere to these laws otherwise there may be legal ramifications resulting in
financial lost.
2) Laws to promote competition- laws may be passed to prevent the formation of
monopolies via mergers or take overs. For example, T&T government allowing Digicel
to operate here.
3) Consumer rights laws- these protect consumers from exploitation and unfair business
practices. For example, inferior quality products, unfair pricing, false advertising and
poor after sale service. In Jamaica consumers can seek redress from the Consumer
Affairs Commission and in T&T the Bureau of Standards and in other Caribbean
countries their relevant authorities.
4) Environmental laws- with the emphasis now being on global warming firms have to be
more careful on their impact on the environment. Governments are being also more
vigilant on the enforcement of environmental laws. For example, firms in the food
industry have to be mindful of the off seasons for fishing as well as pollution in its
various forms.
2) Ecological
This deals with how businesses treat with the environment in which they operate.
Businesses are being urged to be more socially responsible and laws are being passed to
monitor their behavior. For example, laws prohibiting deforestation, dumping, zoning for
quarrying purposes and damaging the coast lines.
Decision makers need to be aware of these when choosing the correct course of action. As
countries grapple with the effects of global warming they implement laws to protect
themselves from further derogation. The derogation of the environment has serious
implications on the region’s agricultural industry and may cause food shortages. A lot more
businesses have adopted “Go green” campaign by using eco-friendly packaging and
recyclable materials.
3) Technological
Decision makers need to be aware of the pros and cons of technology and capitalize on the
opportunities they bring by also being mindful of their threats. The world has become a
global market place and firms are faced with competition all over the world. Ecommerce
has grown considerably and firms in the Caribbean they have to compete with others from
Europe and Asia, for example banks. An individual can do banking with almost any bank
in the world via online banking. Locally they can also pay bills, transfer funds and check
balances. Technology in the Caribbean has improved significantly especially in the area of
communication. Decision makers must assess how changes in technology will affect
decision making. For example, the problem of social networking has provided firms with
new mediums to promote products and gain customer feedback. E.g. As people look for
comfort and high quality service there is an increase in the number of credit card
transactions and online shopping firms who provide this. All of this must be taken into
consideration when business decisions are made.
Social and Cultural
Decision makers must bear in mind the social responsibility policies of their firms. Some
governments enforce environmental and animal protection laws. The impact of global warming
must be considered by businesses that make their own decisions. Businesses also need to be aware
about the cultures of the market in which they are entering and operating. Culture is defined as a
combo of beliefs and values, rituals and practices that shape ones behavior overtime. Culture plays
a critical role in some markets in terms of food, dress and marketing. Social and cultural factors
may also be extended to the structure of the population. Decision makers need to be conscious of
the following in society:
1) Changes in family structure- there is an increasing number in single parent households
in the Caribbean. Firms need to be mindful of this trend when marketing. Additionally
their continues to be the existence of extended and nuclear families. Families’ incomes
will be affected by these structures and will in turn affect consumer demand.
2) Improvements in Education- Caribbean territories are now open to a number of tertiary
institutions. More educated people will have changes in their spending patterns and
consumption habits.
3) Population age and working habits- The age of the population is influenced by life
expectancy, death and birthdays. The improvements in people’s lifestyle and
development in must be developed by decision makers. Additionally retiring early is
now an option through prudent investment.
Human and Natural Constraints
Decision makers need to be aware of the following factors:
1) The skill level of employees which may hinder the implementation of certain decisions.
2) The years of experience of both management and staff.
3) People having different attitudes towards risk and change
4) The size and composition of the work force, for example, age, gender and ethnicity
5) The level of motivation of the work force.
Natural Factors
Natural Factors refer to natural resources that used are inputs in production. This
includes Land, Labor, Capital and Entrepreneurship. A firm experiencing a shortage of
these resources will find it difficult to produce its products in large quantities.
Economic Factors
Economics is a social science which studies human behavior and how scarce resources are
allocated to satisfy human beings unlimited wants. The economic factors that affect decision
making are more macro-economic factors. E.g. it is the study of the economy as a whole. MacroEconomic factors include; inflation, unemployment, interest rates, exchange rates, economic
growth, BOP.
Inflation- this is the continuous or sustained increase in the general price level of the economy.
High inflation rates may cause increases in production costs. It also means that revenue will lose
its value and the purchasing power of consumers will decrease. Consumers will not be able to
purchase the same amount of goods that they were able to before. Two main causes of inflation;
1.
Force Pull- this commonly referred to as “too much money chasing too few goods
“. It occurs where total demand is increasing while the availability of goods is decreasing. This
will lead to shortages. The excess demand will cause prices to increase.
2.
Cost Push- This occurs where the prices of inputs in the production process
increase. This causes producers to increase their prices as well this type of inflation is influenced
by: wage push, price push and profit push.
Unemployment Rate
The unemployment rate measures the percentage of the population between the ages of 18-65 that
are not working but actively seeking employment. It is calculated using a formula; # of persons
unemployed/ labor force or a labor supply x 100.
There are four main types of unemployment:
1.
Frictional- this is as a result of the search process when people are between jobs.
For the period of time they are out of a job they are frictionally unemployed.
2.
Cyclical- This is caused by the recession phase of the economic cycle. When total
demand falls firms team to lay off people and employ less causing the unemployment rate to rise.
3.
Structural- This is caused by changes in technology or restructuring of the
organization. As a result of some skills being needed by people to secure their jobs which can other
wise be done by computers.
4.
Seasonal- This is unemployment as the result of the off season period of production.
This odd evident in the agricultural sector as some workers are not required when the crop season
ends.
Interest rates
The interest rate is the amount that borrowers pay to lenders for money borrowed it is the rate per
dollar of the amount borrowed. In other words it is the price paid for the use of money that is not
yours. Interest rates are important to management since high interest rates hinder growth because
the cost of borrowing to expand will be too high. The government’s macroeconomic policy of
interest rates may increase or decrease business activity and decision makers need to be aware of
this.
Fiscal policy
These are decisions made my government to increase or decrease taxation which affects
purchasing power and as a result expenditure.
Exchange rates
This is the rate at which one country policy is traded for another. Exchange rates can be high or
low. If the exchange rate is high it may hurt businesses who import most of their inputs of
production and if it is low it will hurt exporters by reducing the amount of revenue they could
receive.
It gives exporters a lower rate of return than converting to a lower currency countries of the
Caribbean use two main types of exchange rate systems:
1.
Fixed exchange rates-This is one when government fixes the external value of its
currency in relation to other countries. For example, $1 US to $2 Bajan dollars. The rate is
maintained by the Central Bank who intervenes in the foreign exchange market by supplying US
dollars when there is shortage or purchasing the excess when there is a surplus.
2.
Floating exchange rate- This allows the value to be managed or determined by the
interaction of demand and supply. This may sometimes get out of control. So countries have come
up with a fluctuating rate where the market rate fluctuates within a managed float.
Economic growth
This impacted by both fiscal and monetary policies and as a result decision making most be aware
of changes in these policies and how they will affect the economic growth of the country. If growth
is negative income falls and so to the demand for products for example, if corporation taxes are
decreased businesses may be inclined to raise prices causing demand to fall. Conversely if
economic growth is positive business activity may increase and as a result different decisions have
to be made.
Multinationals
These are businesses that have their headquarters on one country but operate branches
factories an assembly plants (subsidiaries) in other countries. E.g. British gas, British petroleum,
cable and wireless, Digicel, Citibank and Johnson and Johnson
Mc's are major traders and take up a large portion of the international trade between their
subsidiaries. Ford makes gearboxes in its factory in Bordeaux an exports them to be assembled in
their cars in other countries.
Reason for being a MNC or Reasons for the growth in popularity of becoming a MNC,
globally or in the Caribbean:
1) Government policy- in an attempt to foster growth an investment, governments pursue
fiscal and monetary policies to attract MNCs. This move also helps increase
industrialization. Government may also offer: tax holidays, Loans, Necessary
infrastructure, The approval to repatriate profits
2) Nearness to markets
MNCs put themselves in strategic locations globally. E.g. BP has claimed that T & T is a
gateway to South America for their production sites in Trinidad USA and Canada. It provides an
easy distribution depot for goods to be shipped to and from South America. It also has good access
to the Panama Canal and the Far East.
Advantages:
1) Lower transport cost for finished goods
2) Better market information regarding consumer tastes as a result of closeness to them
3) They may be looked at as a local company and gain consumer loyalty
4) Lower production costs; lower labor rates, cheaper rent and site costs, Government grants
incentives
E.g. the minimum wage in Trinidad is $17.50/hour. This is significantly lower than the parent
country of the MNC. This is as a result of an oversupply of labor.
5) Avoid Import Restrictions
Most Caribbean countries have some sort of import restrictions, the MNC may enter the local
market to avoid these, locating within the region give them easy access to markets without having
to pay duties on imports and exports.
E.g. within the CARICOM there is free trade but trades with external countries are subjected to a
Common External Tariff (CET). MNCs take advantage of this by setting up companies in member
states. They will enjoy free trade as well as protection from competitors from outside the region
6) Access to local natural resources
In 2005 50% of all US investments in T & T was in oil and gas. Some of the foreign companies
that were here were: BP Chevron Exxon Mobil and BHP Billiton
7) Avoid laws
Some MNCs move their operations out of their home country to avoid laws affecting them e.g.
some countries may have laws preventing the formation of monopolies
8) Globalization
Due to the global reduction in barriers in international trade an movement of people and capital ,
companies now find it easier to establish operations in various parts of the world where markets
are growing rapidly.
Drawback/limitations:
1) Communication links with headquarters may be poor especially if the country does not
have the necessary technology. E.g. phone calls may be possible but teleconferencing may
be impossible
2) Language and cultural barriers -There maybe hindrances in communication between local
workers and management of the MNC leading to misunderstandings
3) Coordination and control of problems -Product standards need to be maintained within the
MNC group. The policies must be adhered to in the various countries
4) TRAINING COSTS-The local workers skills may not be of the same standard as the
workers in the headquarters therefore additional training is required to bring the training
up to par
5) Loss is control-As power is delegated to the MNCs in other countries decision making may
be tempted to be unethical to improve performance this may endanger the worldwide
reputation of the firm.
Globalization and Trade Liberalization:
Trade Liberalization is the process of achieving free international trade with fewer and fewer
restrictions such as tariffs.
Globalization is the growing interdependency between nations that results from increasing free
trade and the free movement of capital between the countries.
Trade Liberalization:
This is the removal of barriers to trade and the granting of free access to markets. This access
may be limited to certain products or they may be a total lifting of the barrier. Trade
Liberalization in the Caribbean started in 1965 with CARIFTA and then then in 1973
CARICOM was started as an improvement to CARIFTA. Under CARICOM there was the
implementation of the Common External Tariff (CET) which would have facilitated easier and
cheaper trade between CARICOM member states. Today CARICOM has evolved into CSME
which came into being in 2006. It was designed to represent a signal economic where people,
goods, services and capital could move freely between its member states.
Some objectives of the CSME include:
1) Improve SOL at work
2) Full employment of labor and resources
3) Economic development
4) Expansion of trade and Economic relations with developing countries
5) Enhanced levels of international competitiveness
6) Increased production and productivity
7) Movement of labor, capital, goods, services
8) CET
9) Rights of business establishment
10) Common trade policies
11) Harmonization of laws
12) Monetary policy measures- coordinating foreign exchange and interest rate policies
In the wider world Trade Liberalization was initiated GATT- the general agreement on tariffs
and trades in 19477. Its main objective was to regulate trade amongst its 150 members. GATT
was later replaces WTO- World Trade Organization. The WTO on two main principles:
1) Riciproty- tariff reductions in return for other tariff reductions
2) The most favored nation rule- this mean a country should apply its lowest tariffs to all its
supplier countries of a particular product.
Functions of the WTO include:
1) Administering and implementing multi trade agreements.
2) Acting as a forum for multi-lateral trade organizations.
3)
Disadvantages:
1) Local firms may be driven out of the market resulting in a loss of jobs an output
2) Over dependence on imports may put countries at risk of there is conflict between them
3) Prevention of new infant industries because of Imports
4) Dumping - importers may undersell goods to eliminate unwanted competition
5) Loss of foreign exchange an balance of payments problems if Imports exceed exports
Caribbean Business Environment
Caribbean Territories are characterized by mostly small developing economies. They are
characterized as having:
1) Narrow Product Bases
2) Limited Export Capability
3) Preferential Agreements
4) Poverty
5) High rates of Unemployment
6) Low literacy Rates
7) Unskilled Labor Forces
8) Poor Capital Market Structures
9) Lack of Technology
10) Limited Government Support
11) Increasingly Competitive International Market
They also face the problem of brain drain in critical sectors of the economy. People leave
taking their capital as well. A large percentage of the state revenue comes from the taxes of the
MNC's.
MNCs do not always share skills and technology because it is not to their advantage. As well
Caribbean Governments are forced to accept the behavior of the MNC's because of the
overdependence on them for their revenue.
What is needed?
Transformation of the Caribbean economic environment to one that is more conducive and
encourages growth and development of local businesses. Also Caribbean businesses need to
become more efficient and change some of their methods to produce goods that meet
international standards. Efforts must be made in the area of technology and expertise.
Caribbean Business Culture
The Culture of an organization is made up of the values, beliefs and attitudes of the people
working in it. Managers must be aware of the culture of their organization because it will
influence behaviors, attitudes to change, motivation, morale and performance of staff. It also
affects the firm’s ability to attract qualified and experienced employees.
Factors affecting Business Culture
There are 5 main factors affecting business culture:
1) Environment
2) Communication
3) Leadership
4) Employee Attitudes
5) Daily Procedures
The Environment:
The Environment in which a business operates affects its culture. Caribbean businesses operate
in an environment that has a rich history imbedded in the colonization of the region. As such
some managers still utilize a very autocratic style rather than democratic. Locally, the cultures
are such that the businesses try to ascertain the needs and wants of customers while aiming for
profit maximization. This is sometimes at the cost environmental preservation and ethical
business practices.
Communication:
This has grown rapidly in recent times and can be seen in social gatherings and other staff
events. Networking employees are more likely to influence their colleagues as well as the
culture of the organization.
Leadership Styles:
The style of leadership and personalities of the leader do influence the organization’s culture.
For e.g. A leader who encourages participation of his employees would foster a hospitable
culture as opposed to one who isn’t. The leader’s personality may help to motivate the workers
and may influence their norms, attitude and needs.
Employee Attitudes:
Employee’s norms, beliefs and attitudes will transcend into the culture of the organization
itself. Most of the time employees are in contact with customers who are now representing the
company. Their actions are now a reflection of the culture within the company.
Daily Procedures:
The procedures that have to be followed on a daily basis form the culture of the organizations.
E.g. Some businesses are very strict and bureaucratic while others are laid back. Some are
paper based by while some are highly technological.
Benefits of Culture
1) Strong positive culture improves loyalty of employees and customers
2) Motivates employees and increased productivity
3) Understanding of the culture by each employee fosters cohesiveness
Limitations of Culture
1) Conflict E.g. MNC’s forcing their culture on the locals
2) Some businesses are too large and therefore it is difficult to communicate to all employees.
Impact of Globalization on Governments
Facilitating or enabling the right environment. It creates the right business environment however
a country’s business environment can either impede or foster the establishment of MNCs. It must
be one that is inviting to international firms, e.g. by providing proper infrastructure, roads and
communication networks. The government will be the one to make the environment conducive to
them setting up. The government should also lower crime and violence which can be a deterrent
for certain investors. A removal or reduction of bureaucracy in decision making concerning
globalization is also important.
Development of the necessary legal framework:
Governments also need to develop the legal framework to properly monitor overseas based
companies. The laws should also protect consumers from exploitation. Governments would not
want MNC’s growing so large within the country that they start to gain control of the economy so
the government via laws should try to monitor this and use globalization for the benefit of the
country rather than its detriment. Some companies may want to avoid taxes and oppose labor laws.
The Impact of Globalization on Consumers:
1) Increased choices- Consumers benefit from a greater variety of goods and services now
available to them. They are now exposed to goods previously unavailable via
E-commerce. This can lead to improvements in standard of living.
2) The increased competition created by new firms entering the market is beneficial to
consumers in terms of price, quality of produce, service and after sale service. Businesses
are also forced to be more efficient to save on cost.
3) Employment-locals can also benefit from being employed at these new firms.
N.B. With the emergence of a wide variety of goods and services consumers can now
change their taste and preferences and gravitate towards foreign products. In terms of
quality some MNCs have the tendency to provide high quality products to their home and
country and substandard ones to their host country. Consumers need to be aware of this
and not stand for mediocrity. Consumers need to take responsibility to ensure that they are
not exploited by these larger companies by being aware of the consumer laws. Some
consumers also see globalization being a threat to their local culture. Globalization also
provides consumers with information to inform their decision making. The internet has
made it possible for consumers to compare goods and their prices easily.
The Impact of Globalization on Businesses
1. Competition
As barriers to trade are reduced through globalization new, larger firms are allowed to enter
the local Caribbean markets. They will naturally cause an increase in the competition
among firms of the same industry. In some cases it may force the closure of the local
smaller weaker firms
2. Economies of Scale
Local firms are now also given the opportunity to expand their operations into
internationals markets. Some firms make the best of this opportunity, invest an expand
their operations. This growth results most times in Economies of scale. Costs are spread
over higher productivity lowering unit costs. E.g. Technical, Marketing and Financial
economies of scale
3. Levels of Technology
The domestic business will now be exposed to the usage of new, more advanced technology
of the larger firms. In an attempt to increase efficiency the smaller local firms may copy
their operations which is also made easier because through globalization the technology is
now more readily available.
4. Ecommerce
Through the internet forms can advertise themselves and their products internationally.
These open opportunities for increased sales and consumer awareness of the local firms.
This may even lead to local firms expanding and setting up operations in those countries.
Additionally via the internet, websites can be implemented to facilitate ordering of products
and shipments and payments online as well. This provides an easier access to firm's
products which may increase business activity.
5. Linkages
Linkages can be created when firms gain more exposure to the global economies. They can
be part of forward and backward linkages in factor markets and financial institutions.
6. Transfer of knowledge and expertise
Local businesses can copy the production methods of the successful global firms. This may
help guarantee their position in the global economy.
Protectionism:
In order to practical Caribbean businesses some governments have embarked on
protectionism. This is the attempt by government to restrict the importation of goods and
services.
Why?
1) to protect dumping and unfair competition between foreign and local firms
2) to protect the interest of the local employees in local firms
3) protection of infant industries and giving them the space to grow
4) correcting balance of Payments problems by reducing the amount of imports
Examples used by Caribbean Governments;
1) Tariffs - taxes on imports. The tax makes the imported goods seem more expensive.
This is especially used in the agricultural sector.
2) Quotas - this is a restriction placed on the quantity of a product that can be Imported
at a given time
3) Embargo - this is a complete ban on trade between two countries
4) Export Subsidies - this is the granting of government subsidies the local flumes so that
their products can be sold at lower prices than Imports
5) Exchange Controls - this is the deliberate restriction of foreign currency available to
Citizens. This is an attempt to create a shortage so consumers call Imports fewer Goods
Other Barriers to Trade:
1) rules and regulations
2) import licenses
3) voluntary export restraints