Principles Of Business Revision Notes 5o2t23

POB GRADE 10: Fourth Form Topic: The Nature of Business

Direct production Direct production means that human beings provide what they needed for themselves and their families. This was the way in which early human beings satisfied their wants and needs.

Subsistence economy A subsistence economy, is an economy in which the people barely meet their everyday needs. It is often seen as a major factor for poverty in developing nations. This is because the people of the society do not trade with other groups, this may be for a vary of reasons but a major one being their isolation. If the people of the society do not produce enough food, or not a variety the people will become sick and contract disease. The people also do not have everyday items that we take for granted, such as ipods, TV's, computers, fashionable clothes and shopping malls. This is because the people do not produce enough surplus to trade with, sometimes not even producing a surplus at all. However with the creation of tools human learnt how to master their environment by introducing simple specializationThis increased people’s ability to produce resulting in the production of surplus is poverty.

Barter Trade in the earliest times was conducted by means of barter, i.e. simple the exchange of goods and services for other goods and services. For example if house hold A had a cow and household B had a goat then trade could take

place if house hold A wanted what Household B had to trade and country B wanted what house A had to trade. This was not very convenient for the following reasons. 1. The other party might not have anything that you wanted in exchange for what they wanted to trade. 2. There was the problem of unequal value where one party’s goods might not be available in convenient units or of the right value. For example it might not be good offering a cow in exchange for a chicken. 3. It was very difficult to establish the relative value of the goods being exchanged since there was no common measure of value. Barter and contemporary society Barter has now virtually died out, but barter still takes place between friends or countries e.g. Trinidad trading petroleum for Jamaica’s sugar.

Advantages 1. Surplus production could be disposed of through the barter system 2. Barter enabled a person to get what he/she did not have or could not produced themselves. 3. It set the stage for the system of trade that existstaday. 4. Countries with foreign currency problems can barter and so save well needed foreign currency for use on vital items such as drugs for the sick.

The Development of Money 1. Early civilizations – Direct production – no exchange needed – production only to satisfy the need of self and family 2. Production of tools – surplus – barter 3. Durable items such as beads and shells were used in exchange 4. Development of precious metals; copper, gold and silver coins used as currency, 5. Paper developed as currency because metal was too expensive, too risky to deal with 6. Cheques and cheque deposits were used next to reduce the risks – still used today

7. Plastic money in the form of credit and debit cards and electronic money through electronic transfers marks a trend towards a cashless society.

Money as we know it today was invented by the Greeks about 650 B.C. Because barter was so inconvenient, the use of money spread rapidly. We usually think of money as coins and notes, but in fact other things have been used as money including cattle, shells, beads etc. The first money consisted of gold or silver coins, and their value was that of the weight of gold or silver that they contained. The growth of money in trading opened the door for economic growth and development of societies.

Indirect Production Direct production is the production of goods for one's personal use for example; a person farming maize 4 his family.Indirect production is whereby one produces his goods for sale e.g a cash crop farmer.

Specialization and Division of Labour Division of labour is a process whereby the production process is broken down into a sequence of stages and workers are assigned to particular stages. Specialization exist where a community, group, or organization under which the most suited (by virtue of their natural aptitude, location, skill, or other qualification) for a specific activity or taskassume greater responsibility for its execution or performance. Division and specialization of labour allowed each person to do the job for which he or she is best suited. Advantages of Division of labour are: 1. It leads to specialization and increase of skills. Doing the same job over and over makes people better at it. 2. Production is speeded up.

3. 4. 5. 6. 7. 8.

Pore use can be made of machines There is an increase in output There is usually an increase in quality Usually cost less per unit of output There will often be less use of manuallabour. There is a greater opportunity to use machines and automated methods of production. 9. Less time is neededfor training the worker: this is a benefit of both employer and employee. 10. Because of savings in time and cost, the working week can be made shorter and everyone enjoys a higher standard of living. 11. Management too can become more specialized. Disadvantages 1. Work can become monotonous and boring 2. Workers can lose pride in their work. No longer can a worker say “that I made all myself. 3. It can lead to bad relations between the employer and the employee. 4. Other skills possessed by the workers are not utilized, thus limiting the creativity of the workers. 5. If a key worker is absent then the assembly line could be greatly interrupted thus reducing production targets. 6. Some firms are either too small and cannot afford the capital to put in place the kind of equipment and machinery that would enhance production Bills of Exchange This is another instrument that can be used to settle debts. A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determined future time a certain sum of money to a specific person or to a bearer. Acceptance Good Hope

Tenor The bill

Village September, 2012

Trinidad, W.I. 10 th

Three months after date, pay to me or my order the sum of fifty thousand dollars, value received.

In

$50,000 Signed……………… To; U Bolt Kingston Jamaica

of date

Amount words

debtor (buyer Acceptor drawer or endorser)

amount in words

creditor (payee seller,

Or drawee)

A bill could be used where the seller sends the buyer a bill of exchange for the amount due. The buyer accepts this by g his name across its face,thereby establishing a legally binding obligation to pay the amount of the bill on the date specified ( a period of 3 – 6 months). The bill, then, is a negotiable instrument.

Credit cards A credit card is a plastic credit card with a magnetic strip. Holders of a valid card have the authorization to purchase goods and services up to a predetermined amount, called a credit limit. The vendor receives essential information from the cardholder, the bank issuing the card actually reimburses the vendor, and eventually the cardholder repays the bank through regular monthly payments. If the entire balance is not paid in full, the issuer can legally charge interest fees on the unpaid portion.

Electronic Funds Transfer (EFT) is a system of transferring money from one bank directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit, in which payroll is deposited straight into an employee's bank , although EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, Fedwire and point-of-sale (POS) transactions. It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments.

Telephone banking is a service provided by a financial institution, which allows its customers to perform some banking transactions over the telephone. Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To ensure security, the customer must first authenticate through a numeric or verbal or through security questions asked by a live representative (see below). With the obvious exception of cash withdrawals and deposits, it offers virtually all the features of an automated teller machine: balance information and list of latest transactions, electronic bill payments, funds transfers between a customer's s An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internetbased shopping and banking. Over the years, credit cards have become one of the most common forms of payment for ecommerce transactions

What is a Business? A business is an organization that provides goods or services, or both, with the aim of making a profit. It could be a commercial or industrial organization. Notwithstanding the fact that there are also non-profit organizations such as government owned schools, service clubs and churches the objective of a business is to realize a profit.

Reasons for establishing a business 1. To 2. To 3. To 4. To 5. To 6. To 7. To 8. To 9. To 10.

achieve financial independence work for oneself and to be one’s own boss make a profit obtain power lay the foundation for a family legacy gain personal freedom respond to changes in personal situation put a creative idea into operation respond to the desire for self-actualization To achieve financial independence.

Functions of a business 1. To provide goods and services 2. To make a profit; the term profit means the excess of sales (revenue) over the cost of doing business. 3. To provide income to government 4. To create employment

Factors of production Factors of Production consist of Land, Labour, Capital and Entrepreneurship Land (Natural resources): These include coal, oil, minerals, stone, fertile soil, timber, fish in the seas and water which we drink. Labour (Human resources): Labour describes all forms of work of hand or brain needed to transform natural resources into a form useful to man.This consists of skill, semi-skilled, and unskilled labour. Capital (Financial resources):This consist of the money needed to buy land, machinery and equipment and to pay the worker who provide the labour. Entrepreneur; Is the person who is courageous, creative and one who is prepared to take the risks of starting his own business. Such a person is usually innovative and may create new products and services, introduce new technology or a new method of production.

Profits Profit is defined as the excess of income over expenditure, especially in business Profit is calculated using the following formula:

Total profit = Total revenue – Total cost

Loss Businessloss is a state that occurs when a company fails to generate enough revenue to cover all expenses associated with the operation of the business. That is Loss occurs where expenses exceeding sales or revenues.

Loss is calculated using the following formula:

Total loss = Total revenue – Total cost and a loss would exist where Total cost is greater than total revenue.

Trade

Business organization A business organization involves individuals, companies or corporations who engage in industrial or commercial activity with a view of making a profit. Althoough there are non-profit organizations such as government owned schools, service clubs and churches, the objective of a business is to make profits.

Economy:

Definitions 1. Economic activitiesrelated to the production and distribution of goods and services in a particular geographic region or country. It also relates to the correct and effective use of a country’s availableresources.

Market – In economics, a market is a group of buyers and sellers of a specific good or service. A market usually does not refer to a physical location for the buying and selling of products. Economists use the word "market" to describe a mechanism of exchange between buyers and sellers of a good or service. Definition: A market is any place where the sellers of a particular good or

service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction. A market consist of 4 important elements;    

Buyers Sellers Goods and services price

Economy The economy encomes everything related to the production and consumption of goods and services in a country.It consists of the economic systems of a country; the

labor, capital, and landresources; and the manufacturing, production, trade, distribution, and consumption of goods and services of that country. A market based economy may be described as a spatially limited social network where goods and services are freely produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debitvalue accepted within the network. Capital and labor can move freely across places, industries and firms in search of higher profits, dividends, interest, compensations and benefits. Rent on land allocates this generally fixed resource among competing s.

Producer A producer is a person who creates economic value, or produces goods and services for sale.Producers play a huge role in any economic system. This is because producers are the entities who are involved in making goods and services. Producers include privately businesses as well as publicly own enterprises. generated within a social system. A consumer may be a person or group, such as a household. The consumer is the one who pays to use the goods and services produced. As such, consumers play a vital role in the economic system of a nation. In the absence of their effective demand, the producers would lack a key motivation to produce, which is to sell to consumers.

Enterprise A company (business) organized for commercial purposes; business firm, directed towards profit. Private enterprise is based on capitalism.

. Capital - All buildings, equipment and human skills used to produce goods and services. It refers to the assets such as equipment, buildings and any improvement to existing structures or plant and machinery to be used to improve production as well as the money used to acquire natural and human resources.

Exchange - Trading goods and services with others for other goods and services or for money (also called trade). When people exchange voluntarily, they expect to be better off as a result.

Commodity: 

A commodity is the term used to describe any marketable item product to satisfy wants and needs, In economics commodities comprised an article of trade or commerce, especially a product distinguished from a service

UNIT 2 Internal Organizational Structure of Business Business Units

1. Sole Trader/Sole Proprietorship 2. Partnerships 3. Companies  Private t Stock Companies  Public t Stock Companies 4. Cooperative Societies 5. Franchises 6. t Ventures 7. Syndicates

Sole Trader/Sole Proprietorship In a sole proprietorship one person owns the business. This type of business may be operated by the proprietor (owner) alone or may employ several persons. In a sole trader enterprise the owner and the business are one and the same in the sense that the business is not a separate entity from the owner. This form of business is the most common form of business unit because:   

They are most often small businesses They are easy to establish and operate. Very little capital s needed for starting up a Sole proprietorship.

Advantages 1. 2. 3. 4.

Easy to establish Customers receive special attention Profits are not shared There may be a personal incentive to succeed

Disadvantages 1. Sole proprietorship has unlimited liability in the sense that all losses and debts incurred by the business must be borne by the owner. In other words if the business does not generate profits then the owner may have to sell even his personal possessions in order to pay off his/her debts.

2. The sole Proprietor may have problems in raising capital; because of the lack of collateral needed to obtain a loan. 3. The SP may have limited management skills in managing a business. 4. There may be a lack of competitiveness because of the small scale of operation – lack of economies of scale. 5. Lack of continuity if the owner dies 6. Long working hours and the proprietor may be unable to take vacations.

Partnership A partnership is a business that is tly owned by the parties involved. According to the partnership act of 1890, 2 to 20 persons can come together to form a partnership. Characteristics   

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All partners contribute to the financial capital of the business Share the profits and the losses All the partners are fully responsible for the business’s debts and if one partner cannot pay his or her share then the loss will fall on the other partner or partners. Need to the business with the Registrar of Companies:Name, Type and address of the business, the partners names, and date of the partnership agreement (deed) if one exist.

Partnership Agreement or Deed As with a Sole Proprietorship, a Partnership requires few formalities to start. The partners can make whatever arrangements they like between themselves, on the running of the business and sharing of profits. It is always advisable to have a written partnership agreement or deed. This saves a lot of arguments and disputes arising between partners. A partnership deed sets out the rights of each partner as to;    

The The The The

contribution of capital to the business of each of the partners. division of profits. responsibility of each partner in the business procedure for the ission of new partners into the business.

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What happens when a partner dies or leaves the partnership; or retires.

Partnership Act of 1890 If no partnershipdeed exist or if it does not cover the particular point at issue, and the matter comes up before the Courts, then the law assumes that the rules laid down in the British Partnership Act of 1890 apply; there are: 1. Profits and losses must be shared equally among all the partners. 2. All partners can bind the business in contract e.g. place orders for goods which will then have to be paid from out of partnership funds. 3. No interest will be paid on partners’ capitals or charged on drawings (money they have withdrawn from the business). 4. No partner will be entitled to a salary. 5. All books associated with the Partnership must be kept at the place of business. 6. All decisions must have a majority vote. 7. In practice these rules are often altered in the partnership deed. As some partners may contribute a larger capital than others, it is quite common to allocate profits in proportion to capital and to allocate interest on capitals. Some partners known as sleeping partners may only contribute capital but take no active part in the running of the business to compensate partners that do take part in the running of the business, they may be paid a salary in addition to their share of profits.

Types of Partnerships There are two types of Partnership arrangements:  

General or Ordinary Partnership Limited Partnership

General Partnership In this arrangement all the partners have responsibility for the general running of the business and have unlimited liability. If the business fails the partners like the sole trader may have to use their personal resources to cover the firm’s debts.

Limited Partnership The provisions of a Partnership Act allow for the formation of a limited partnership, where a minimum of one partner must have unlimited liability. This means that if the business fails then the partner with unlimited liability is responsible for the debts of the business. In a limited partnership: 

 

One partner may not be required to be actively involved in the running of the business, even though that partner has contributed capital to the business. The inactive partner is called a sleeping partner but shares in the profits of the business. If the business should become bankrupt then the inactive partner is liable for the debt incurred by the business only to the tune of the sum invested in the business. The other partners have to bear the debts involved.

Advantages  

   

Easy to form and manage The enterprise might be much larger than a sole trader as more capital can be contributed by partners. Larger firms benefit from economies of scale. The partnership increases the ability of the partners to obtain financing for the business. Liability does not rest solely with one person as in the case of the sole trader. A better distribution of the workload as partners can be employed to areas for which they are best suited and experienced, No corporate taxes are levied on the business.

Disadvantages  

Each partner has to take responsibility for the acts of other partners, as each partner can legally bind the business in contract. Decision making is slower and even difficult because partners may not agree on a particular approach to solve a business problem.

 

Partners have unlimited liability except for the limited partner.

Limited Company (t Stock Companies) There are two types of limited companies:  

Private t Stock Companies Public t Stock Companies

The limited companies are so called because the shareholders who are the owners of the company have limited liability for the company’s debts. "Limited by shares" means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested.

Limited Liability companies require a number of legal documents have to be drawn up an deposited with the Registrar of Companies, before they can commence business; 1. Memorandum of Association The memorandum of association of a company is the document that governs the relationship between the company and the outside world.

This states: a. b. c. d. e.

The name of the company (with Limited as the last word). Where the ed office of the company will be situated. The objects of the company, i.e. what it is being formed to do. That the liability of the is limited The amount of capital with which the company proposes to be ed and the type of shares with which it will be made up.

At the end come the ‘Association Clause’ which is a declaration signed by at least two of the prospective shareholders (seven in the case of a public company) stating that they desire to be formed into a company and the number of shares they will each take.

2. Articles of Association The articles of association, defines the responsibilities of the directors, the kind of business to be undertaken, and the means by which the shareholders exert control over

the board of directors. This consists of the rules and regulations governing the conduct of the company’s business and the internal management of the company. The Articles of Association is a document that contains the purpose of the company as well as the duties and responsibilities of its defined and recorded clearly. The Article of Association contains the following details: 1. The powers of directors, officers and the shareholders as to voting etc., 2. The mode and form in which the business of the company is to be carried out. 3. The mode and form in which the changes in the internal regulations can be made. 4. The rights, duties and powers of the company as well as the who are included in the Articles of Association. 3. Prospectus A prospectus is only required by Public companies, that generally wish to transact business by raising capital from the general public.For this purpose of raising capital from the public, the company needs to prepare and issue a ‘prospectus’. Public companies that are confident of raising capital on their own need to prepare a document known as‘statement in lieu of prospectus’. This indicates how the company will operate, its business plans, its stock offerings and an application form. 4. Certificate of Incorporation When the Registrar has approved the documents and the necessary fees paid, a Certificate of Incorporation is issued. This is like a company’s Birth Certificate as the Company is now a legal entity and may now enter into contracts. N.B. A Private Company can now commence trading but a Public Company will also require: 5.

Certificate of trading (Also known as a certificate to commence business)

This is issued by the Registrar when he receives a declaration from the directors that the formalities concerned with the issuing of shares have been complied with. Private Company A company whose shareholders may not exceed 50 in number and whose shares may not be offered for public subscription, .i.e. a company in which a small group of shareholders control all of the shares. These shareholders tend to hold onto the company's stock and, in any case, no shares are publicly traded. Privately held companies are, by their nature, impervious to hostile takeovers and proxy wars. They tend to be more stable than other companies because their share

prices are not determined by (sometimes irrational) investment decisions, but by the value of the company itself. However, privately held companies do not have access to as much working capital as corporations with more shareholders have. Types of shares A company may have many different types of shares that come with different conditions and rights. There are Three main types of shares:

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Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to be paid if the company is wound up.

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Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means that a shareholder would not benefit from an increase in the business' profits. However, usually they have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary shareholders.

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Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid, despite the earning levels of the business, provided the company has distributable profits.

Preference shares Preference shares (prefs) are legally shares, but they are very different from ordinary shares.:  

Dividends on preference shares have to be paid before dividends on ordinary shares. Dividends on ordinary shares may not be paid unless the fixed dividends on preference shares is paid first.

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Dividends are fixed like bond coupons, although there are usually provisions to not pay, or delay payments.

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Preference shareholders have a higher priority if a company is liquidated than ordinary shareholders, although a lower priority than debt holders.

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In the case of cumulative prefs, if the dividend is not paid in full, the unpaid amount is added to the next dividend due.

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Preference dividends are fixed, so they do not participate in increases (or decreases) in profits as ordinary shareholders do.

Definition of 'Debenture'

A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

Cooperatives - are tly owned commercial enterprises (usually organized by farmers or consumers) that produce and distribute goods and services and are run for the benefit of its owners. The four principles of Cooperatives are: 1. Open hip: All member of the public can a cooperative. 2. Democratic control: All major decisions are taken collectively by , each of whom only has one vote irrespective of the amount of capital subscribed. 3. Limited interest on capital invested. 4. Profit sharing: All profits are given back to the cooperative's . These refunds, also called "patronage dividends," are paid to each member annually according to the proportion of business each does with the cooperative for that year. Types of Cooperatives

Worker Co-operatives Businesses owned by people who work in them. Control is democratic: one person, one vote. Housing co-operatives Housing controlled by the people who live there. People living in the premises tly own and control the co-op, this in turn controls and manages the premises. are at one and the same time landlord, manager and tenant. Marketing Co-operatives can be individuals or businesses getting together for mutual benefit to do contract delivery, t marketing, bulk buying or to share premises. E.g. farmers and fishermen’s cooperatives.

Credit unions Financial co-operatives which bring people together to save, borrow at low cost rates, and manage their finances.

Franchise A franchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location. The Franchising Service Sector in CARICOM is dominated by petrol stations, fast food/quick service restaurants, lodging/accommodation, and Business Services. Names such as Shell; Texaco; KFC; Hilton; Marriot; TGIF; Ace Hardware; Coca-Cola and Pepsi are virtually household names in most of the Member States. An individual who purchases and runs a franchise is called a "franchisee." The franchisee purchases a franchise from the "franchisor." The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases the franchisee must pay an ongoing franchise royalty fee, as well as an up-front, one-time franchise fee to the franchisor Advantages  Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.  Your franchised business will benefit from established business systems and procedures that have been tested and proven in the marketplace 

You can use a recognized brand name and trademarks. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.

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The franchisor gives you - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.

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You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.

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Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.

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You can benefit from communicating and sharing ideas with, and receiving from, other franchisees in the network. Relationships with suppliers have already been established.

Disadvantages  Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.  The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.  

The franchisor might go out of business. Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough

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You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.

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All profits (a percentage of sales) are usually shared with the franchisor.

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Benefits Could Prove Illusory - If you choose the wrong franchisor, the typical "benefits" associated with buying a franchise may prove to be an illusion. That is there are good franchisors and franchise systems and there are bad franchisors and franchise systems. If you choose the wrong franchisor and fail to thoroughly evaluate the franchise agreement, training, on-going and brand recognition may be non-existent;

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Potential for Reduced Margins - As a franchisee you will be required to pay on-going royalties. These royalties, typically, are based on your gross sales and not your profits. So, royalties will impact your profit margin. So, make sure that the franchise opportunity and the value of the franchise system outweighs your additional cost.

Mergers/Acquisitions/Takeovers Mergers, acquisitions and takeovers are actions taken by a corporate organization to purchase most or all of the shares of another corporate organization. Mergers occur as part of a corporate organization’s strategy for expansion as a means of enhancing its growth and development. An organization that wishes to expand its operation may find it more beneficial to

merge/acquire or take over an existing organization than to expand its own operation. Conglomerates A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's subsidiary businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management at the parent company. Examples of conglomerate in Jamaica are GRACE Kennedy and LASCO. Reasons for Mergers 1. Diversify their interest – widen their portfolio of products 2. To achieve economies of scale 3. To bring about stability 4. To achieve leadership in the market Holding Companies A holding company is a company which owns controlling shares in another company or companies. This control usually comes through owning a controlling interest (more than 50 percent) of the stock of the other companies, which are considered subsidiary companies. Syndicates An association of people or firms formed to engage in an enterprise or promote a specific business transaction t Ventures (Special type of partnership) A t venture is a contractualagreement ing together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise. The t venture comes to an end when the activity has been completed. Multinational corporations are business entities that operate in more than one country. The typical multinationalcorporation, normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. One common model is for the multinationalcorporation is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Another model for a multinational organizationis to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent. Example of multinational corporations in the Caribbean are found in the bauxite and oil industries;

Public sector business The public refers to that part of the economic and istrative life of a country which certain goods and services are delivered by the government or state for the benefit for of its citizenry. The public sector includes all central and local government activities which are funded by the state. The public sector does not embrace the profit motive, but concentrates more on the provision of services for the benefit of the country as a whole. Government funding is mainly through taxes. Responsibilities of the public sector include;  Education  Health  Public utilities e.g. water, electricity  Postal services  Road construction and maintenance  Transportation  Recreational facilities  Protection and defence of the people State-owned corporations These are legal entities that may be fully or partially financed by the government. They may receive all or some revenue for the services they provide to the public. Nationalized Industries Nationalization is the process of taking a private industry or private assets into public ownership by a national government or state. The opposite of nationalization is usually privatization or de-nationalization. A private business may be taken over because it may be taught to be important to have them under the direct government control. Examples of national industries in te Caribbean include;  Postal services  Railways and bus services  Air services

 Electricity and water supply  Ports, harbours and airports. The aims of nationalization are: 1. To transfer the profits from private shareholders to the community at large. 2. To revitalize a declining industry with fresh investment. 3. To protect a vital but loss making industry from closure. 4. To start up new industries when private enterprise is unable or unwilling to do so. Students Homework To list the advantages and disadvantages of nationalization.

Local Government and Municipal Authorities Local government is the area of government that focuses on issues at the community level. It refers to the governance of towns, cities or regions at the local level. A municipality is part of the local government system and is typically govern by an elected mayor and city council. A municipality undertake activities that are important for the development of the community, including;  Road maintenance  Fire service  Public health  Garbage collection  Poor relief  Approval of building plans Advantages of Municipal Authorities 1. of the community have a say in the decision-making process. 2. of the community can contribute to policy decisions. 3. Government policies are not just imposed on the community. 4. Local needs are addressed at the local level. Disadvantages 1. Resources are limited therefore much of what needs to be done to improve s community cannot be carried out. 2. Central government is the main provider of funds to municipal authorities, they may decide on projects that are not community priorities. 3. Many projects are aborted when government changes. Economic Systems There are three types of economic systems: the Free Enterprise (market) economy, The Mixed Economy and the Planned Economic System

Free Enterprise System In a free market economy there is little or no government interference in the economy. It is based on private ownership of the factors of production and the means of distribution of goods and services. Market forces of demand and supply are allowed to determine how resources are allocated Sometimes such economies are referred to as market economies, unplanned economies, free enterprise, laissez-faire or capitalist systems. Example USA Advantages 1. Free enterprise stimulates innovation and keep prices down. 2. Individuals are completely free to use their income and labour to their best advantage. 3. Consumers decide what will be produced by influencing market forces. Disadvantages 1. It encourages inequalities of wealth between rich and poor. 2. Advertising can be used to create an artificially high demand for products. 3. The more powerful businesses may buy out the smaller ones, thus reducing competition. 4. Wealthy people are more able to purchase and influence the market than poor people. 5. Companies may be tempted to restrict supplies sto keep prices artificially high.

Business Organizations A business is a firm or entity that is usually legally constituted to provide goods and /or services to consumers. Reasons for establishing a business 1. +To achieve financial independence 2. To obtain power (influence and status) 3. To make a profit 4. To gain personal freedom (flexibility) 5. To lay the foundation for a family legacy 6. To respond to changes in personal situation. 7. To put creative ideas into operation

8. To respond to a desire for self-actualization The functions of a business 1. To provide goods and services 2. To make profit 3. To create employment Social responsibilities of a Business Community 1. To provide employment 2. community projects 3. Provide scholarships for community persons 4. Develop community parks 5. Encourage cultural and recreational outlets for residents. To Customers 1. Fair prices 2. Good quality goods and service (merchantable goods and services) 3. Not to provide misleading ments 4. Adequate information on labels on product content, storage and safety concerns. To Suppliers 1. To make timely payments 2. Provision of timely information 3. To relay information of consumers concerns of products to suppliers To the Government 1. To pay taxes over to the government 2. To operate with government regulations 3. To assist with employment 4. To assist with economic growth and developmentt

PRINCIPLES OF BUSINESS GLEANER CXC STUDY GUIDE SERIES FUNCTIONS OF MANAGEMENT

Management The term management describes all activities involved in the acquisition and organisation of resources (people, finance, equipments and materials), that are needed by any group within society, in order to achieve its objectives. All organisations - commercial enterprises, schools, hospitals, the armed forces, civic service, and charities, need to acquire and manage resources in order to achieve their objectives. It is often the quality of its management that determines whether or not an organisation will be successful and realize the objectives it has set for itself.

The purpose of management Management is important to an organisation because; (a) Objectives have to be set for the organisation. (b)These objectives have to be met, and somebody has to ensure that this happens.

(c) The organisation has to have a collective way in dealings with its employees, its shareholders, its customers, the public and other organisations.

Management effectiveness Management effectiveness relates to the firm's ability to serve the needs of its various stakeholders. it involves doing the right things at the right time. (a) Shareholders expect a reasonable return on their investment. (b)Workers expect to be employed and to receive fair wages. (c) Customers expect suitable products and services at appropriate prices. (d)Suppliers expect to be paid.

Functions of Management The major functions of management include the following.

(a)

Planning

This involves selecting objectives and the strategies, policies, programmes, and procedures for achieving the objectives. This is concerned with identifying trends, anticipating what is likely to happen and deciding on the best course of action to enable the organisation to reach its objectives.

(b)

Organizing

This involves the establishment of a structure of tasks which need to be performed to achieve the goals of the organisation. It includes grouping these tasks into jobs for an individual, creating groups of jobs within sections and departments, delegating authority to carry out the jobs, provides systems of information and communication within the organisation. Organizing therefore are the activities which bring people together, materials and equipment, in such a way that the stated objectives are achieved. This involves; (1)Deciding what has to be done. (2)Putting the task in a logical order. (3)Giving specific tasks for people to do.

(c)

Co-ordinating

This is the task of harmonizing the activities of individuals and groups within the organisation. It involves ensuring that people, finance and physical resources are in the right place at the right time and in the right quantities.

(d)

Directing

This involves giving directions to subordinates to carry out tasks over which the manager has authority for decisions, and responsibility for performance. The activity of issuing directions, explaining and motivating people to work to achieve the objectives of the business are important elements in this management function. (e)

Control

This is the task of measuring the activities of individual and groups to ensure that their performance is in accordance with plans. Deviations from plans are

identified and corrected as soon as they become apparent. The information gathered from the control function of management can be used as a foundation for future planning and organisation.

Leadership and management effectiveness A manager's style is the way in which the manager handles his/her relationship with subordinates. This is the process of influencing others to work willingly towards the organisation's goals, and to the best of there capabilities.

Styles of leadership There are four different styles of leadership (a)

Autocratic

The autocratic leader makes decisions and announces them. He sets his own objectives, allocates tasks and insists on obedience. As a result in an organisation, subordinates become very dependent upon their manager. They do not have the necessary information to make their own decisions. Being so dependent, there is little cohesion in the train the manager controls, and output, although it can be high under supervision may not be of good quality. This type of management can frequently lead to dissatisfaction. On the other hand autocratic leadership can be essential in certain situations. The discipline imposed on armed forces is just one such example.

(b)

Democratic

The democratic leader encourages participation in the decision making process, consults with group and sells the final decision to them. The democratic leader works on the assumption that people will work better if they know and believe in their objectives and in the goals they are working towards. This style demands good communication skills on the part of the leader. The end result is satisfaction from the people being managed, quality of output tends to be above average and of the group make a large number of suggestions to help to improve performance and achieve identified targets.

(c)

Laissez-Faire

Management presents a problem to his group of subordinates and asks them to solve it. Here subordinates are allowed to act as they wish within specified limits.

(d)

Charismatic

A charismatic leader is one who influences and motivates others because he/she has an outstanding personality or character. Trade Unions Some industries have a history of labour disputes involving skills and goslows. Frequent causes of labour unrests include:  Low Wages  Bad/Poor Working Conditions  Bad employer/employee relationships  Bad Management  Monotonous Work  Unsettled Employment Prospects  Delay in getting paid

Trade unions are associations of workers formed for the purpose of improving the pay and working conditions of their . These include achieving better working conditions for workers as well as protection from unfair dismissal, the right for compensation for injuries suffered on the job, the right to redundancy pay and representing workers in wage negotiation. The motto of the trade union is ‘In Unity there is Strength’ Collective Bargaining is the process of negotiation between employers and a group of employees rather than a group of employees aimed at reaching an agreement that regulates pay and working conditions. The collective arguments reached by these negotiations between employers and employees usually set out wage scales, working hours, training of staff, health and safety conditions overtime and the right to participate in workplace or company affairs. Claims for higher wages 1. Trade unions will base their claims for higher wages on one increase in the cost of lving. 2. An increase in productivity 3. Increase in profits 4. Comparability- A pay rise to one group of workers will probably lead to demands for pay increases by other groups of workers Ways in which trade unions seek to improve conditions of workers

1. By organizing the workers, that is by encouraging as many workers to the union. 2. Calling workers out on strike if concessions cannot be obtained through negotiations. 3. They demonstrate by picketing 4. They work to rule. 5. Sick out Examples of Trade Unions  Bustamante Industrial Trade Union  Teachers’ Union  Nurses’ Union